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As filed with the Securities and Exchange Commission on June 15, 2015

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

CHIASMA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware 2834 76-0722250
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

60 Wells Avenue, Suite 102

Newton, Massachusetts 02459

(866) 637-9703

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

 

 

Mark Leuchtenberger

Chief Executive Officer

Chiasma, Inc.

60 Wells Avenue, Suite 102

Newton, Massachusetts 02459

(866) 637-9703

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

 

 

Copies to:

 

Michael H. Bison

Daniel Lang

Goodwin Procter LLP

53 State Street

Exchange Place

Boston, Massachusetts 02109

(617) 570-1000

 

Divakar Gupta

Brent B. Siler

Cooley LLP

1114 Avenue of the Americas

New York, New York 10036

(212) 479-6000

 

 

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act 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 statement 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.

 

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)

 

Amount of

registration fee(2)

Common stock, $0.01 par value

  $86,250,000   $10,023

 

 

(1) Includes offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any. Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

 

 

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 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 it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated June 15, 2015

PROSPECTUS

 

 

                     Shares

 

LOGO

Common Stock

 

 

This is the initial public offering of shares of common stock of Chiasma, Inc. We are offering                 shares of our common stock. Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . We have applied to have our common stock listed on The NASDAQ Global Market under the trading symbol “CHMA.”

We are an “emerging growth company” under applicable Securities and Exchange Commission rules and will be subject to reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Investing in our common stock involves a high degree of risk. See “ Risk Factors ” beginning on page 11.

 

  Per Share   Total  

Initial public offering price

$                 $                

Underwriting discounts and commissions (1)

$      $     

Proceeds to us, before expenses

$      $     

 

(1) See “Underwriting” for additional disclosure regarding underwriting discounts, commissions and estimated expenses.

We have granted the underwriters an option to purchase up to an additional                 shares of common stock from us at the initial price to the public less the underwriting discount.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares against payment in New York, New York on                 , 2015.

 

 

 

Barclays Cowen and Company

 

 

 

William Blair Oppenheimer & Co.

Prospectus dated                 , 2015


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TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     11   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     57   

INDUSTRY AND MARKET DATA

     58   

USE OF PROCEEDS

     59   

DIVIDEND POLICY

     60   

CAPITALIZATION

     61   

DILUTION

     63   

SELECTED CONSOLIDATED FINANCIAL DATA

     65   

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

     67   

BUSINESS

     88   

MANAGEMENT

     121   

EXECUTIVE COMPENSATION

     130   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     142   

PRINCIPAL STOCKHOLDERS

     147   

DESCRIPTION OF CAPITAL STOCK

     150   

SHARES ELIGIBLE FOR FUTURE SALE

     155   

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     157   

UNDERWRITING

     161   

LEGAL MATTERS

     168   

EXPERTS

     168   

WHERE YOU CAN FIND MORE INFORMATION

     168   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

We are responsible for the information contained in this prospectus and in any free-writing prospectus we prepare or authorize. We have not, and the underwriters have not, authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the cover page of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the related notes thereto and the information set forth under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included in this prospectus. Unless the context otherwise requires, we use the terms “Chiasma,” “the company,” “we,” “us,” “our” and similar designations in this prospectus to refer to Chiasma, Inc. and its wholly owned subsidiary.

Company Overview

We are a late-stage biopharmaceutical company focused on improving the lives of patients suffering from orphan diseases by developing and commercializing novel oral forms of therapies that are available today only by injection. Using our proprietary Transient Permeability Enhancer, or TPE, technology platform, we seek to develop oral therapies that eliminate the significant limitations and burdens generally associated with existing injectable therapies. We have completed a multinational Phase 3 clinical trial of our most advanced TPE platform-based product candidate, oral octreotide, for the treatment of acromegaly, a condition that results in the body’s production of excess growth hormone. Octreotide is an analog of somatostatin, a natural inhibitor of growth hormone secretion. We believe that our lead product candidate, if approved by regulatory authorities, will be the first somatostatin analog available for oral administration. Our oral octreotide product candidate has been granted orphan designation in the United States and the European Union for the treatment of acromegaly. We submitted a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, in June 2015, seeking approval for the marketing and sale of oral octreotide for the maintenance therapy of adult patients with acromegaly. The FDA has 60 days after receipt of the NDA to preliminarily review and determine if the application is sufficiently complete to permit a substantive review and meets the threshold for filing. In light of our clinical data and feedback from patients and healthcare providers, we believe that oral octreotide, if approved, could become a new standard of care in acromegaly.

Acromegaly is a condition caused by a benign tumor of the pituitary gland that releases excess growth hormone, or GH, which in turn elevates insulin-like growth factor 1, or IGF-1. These elevated hormone levels result in a number of painful and disfiguring symptoms and, if not treated promptly, acromegaly can lead to serious illness and is associated with premature death, primarily due to cardiovascular disease. According to data published by the Mayo Clinic in 2013, the mortality rate of people afflicted by acromegaly who go untreated is two to three times higher than that of the general population. Recent data from a published study presented at the Endocrine Society’s Annual Meeting in 2015 suggest that the global prevalence of acromegaly may be between 85 and 118 cases per million people.

The current standard of care for patients diagnosed with acromegaly consists of lifelong, once-monthly injections of an extended release somatostatin analog, primarily octreotide or lanreotide. These products contain a viscous formulation and are typically administered by a healthcare professional with large-gauge needles into the muscle or deep subcutaneously, that is, deeply under the skin. While injectable somatostatin analogs are generally effective at reducing GH and IGF-1 levels and therefore providing disease control, the injections are associated with significant limitations and patient burdens, including suboptimal symptom control, pain, injection-site reactions and other injection-related side effects, inconvenience, lost work days and emotional issues. The worldwide market for injectable somatostatin analogs is approximately $2.0 billion annually, of which approximately $730 million represents annual sales for the treatment of acromegaly.

Our lead product candidate, oral octreotide, is a novel formulation of octreotide designed to achieve biochemical disease control, that is, reduced levels of GH and IGF-1, and improved symptom control while addressing the

 

 

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pain and treatment burdens commonly experienced with current injectable therapies. We are developing oral octreotide as a pill, liquid-filled solid gelatin capsule formulation, intended to be taken twice a day. We expect that patients who are prescribed oral octreotide, if approved, by their physicians will receive a 28-day supply of pills, which may be stored at room temperature. Oral octreotide is the first somatostatin analog formulated for oral administration to complete a Phase 3 clinical trial and demonstrate clinical proof of concept in treating patients with acromegaly.

In our Phase 3 clinical trial, we observed that oral octreotide maintained biochemical disease control and improved symptom control. In this 155-patient Phase 3 clinical trial designed to evaluate oral octreotide in acromegaly patients already controlled on injectable somatostatin analogs, 65% of patients receiving oral octreotide twice a day for up to seven months achieved the primary endpoint, maintenance of biochemical disease control. This biochemical disease control was durable and 86% of patients who completed the seven-month core treatment period of the trial elected to continue on oral therapy during the six-month extension phase, for up to a total of 13 months of treatment after first dosing, rather than switch back to injections. In the majority of patients in our trial, oral octreotide achieved comparable biochemical disease control and reduced incidence and severity of acromegaly symptoms relative to injectable somatostatin analogs currently used to treat this disease. The adverse events observed for oral octreotide were similar to those previously reported for injectable somatostatin analogs, but without injection-site reactions.

Based in part on the data from our Phase 3 clinical trial, we submitted an NDA in June 2015 seeking approval for the marketing and sale of oral octreotide for the maintenance therapy of adult patients with acromegaly. Assuming the FDA reviews and responds to our NDA in accordance with the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, and subject to the FDA’s acceptance of the NDA for filing, we anticipate a regulatory decision on marketing approval in April 2016. To support approval by the European Medicines Agency, or EMA, we intend to initiate an additional Phase 3 clinical trial of oral octreotide in acromegaly in the second half of 2015 in the United States and internationally to show parallel comparative safety and effectiveness as required by the EMA. Assuming we receive favorable results from this second Phase 3 clinical trial, we expect to submit a marketing authorization application, or MAA, to the EMA in late 2017 or early 2018. In addition, if we receive regulatory approval of oral octreotide in acromegaly, we expect to initiate a Phase 2 clinical trial of oral octreotide in the second half of 2016 for the symptomatic control of neuroendocrine tumors, or NET, which are currently treated predominantly by injectable somatostatin analogs.

We have applied for regulatory approval of oral octreotide for the maintenance therapy of acromegaly in the United States utilizing the FDA’s 505(b)(2) regulatory pathway and we will apply for regulatory approval in Europe utilizing the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway. The 505(b)(2) pathway enables a potentially shorter development timeline compared to the development time for drugs that are new chemical entities by allowing us to rely, in part, on the FDA’s prior findings of safety and efficacy for a previously approved product, or published literature, in support of our NDA. In the case of oral octreotide in acromegaly, the approved product to which our NDA submission refers is the short-acting subcutaneous injectable formulation of octreotide previously approved by the FDA. Since this formulation of octreotide has been approved by the FDA in generic form and is therefore no longer proprietary, we are not aware of any third party from which we would be required to obtain any license or acquire any rights to commercialize oral octreotide, if approved.

Oral octreotide is currently protected by issued patents lasting until at least 2029 in the United States, United Kingdom and Japan, and pending patent applications in additional jurisdictions which will last until 2029, if granted.

 

 

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Commercialization Strategy

We retain worldwide rights to develop and commercialize oral octreotide with no royalty obligations to third parties. Due to the well-identified and largely concentrated physician base in acromegaly, we intend to commercialize oral octreotide ourselves in the United States through a focused in-house sales and marketing organization.

Approximately 40% of people with acromegaly undergoing treatment in the United States are treated by endocrinologists at a small number of academic institutions with pituitary experts, which we refer to as pituitary centers. The remaining people with acromegaly undergoing treatment are generally treated by community endocrinologists. We believe we will be able to market oral octreotide, if approved, directly to these pituitary centers that treat high volumes of patients with acromegaly through our own small, targeted sales force. We also intend to direct our sales and marketing efforts towards the larger number of community endocrinologists. Finally, we intend to continue to engage in direct patient outreach efforts. We believe that the clinical benefits and preferences of patients and healthcare professionals for an oral product together with our patient-centric approach could enable oral octreotide, if approved, to become a new standard of care in acromegaly.

Our Proprietary TPE Technology Platform

In contrast to conventional small molecule drugs, the oral absorption of larger molecules, such as peptides and other protein molecules, is limited due to low intestinal permeability and digestion in the stomach and intestine. Our TPE technology is a proprietary platform, developed internally by our scientists, that transiently enhances intestine permeability, allowing peptides and other drugs that are otherwise poorly absorbed when administered orally to pass through the intestine and reach therapeutic levels in the blood. We believe our TPE platform is particularly well suited to therapies used in chronic indications for which injections are required and for which the active agent can be administered orally without adverse safety implications. While our technology will not be appropriate for all drugs that cannot currently be administered orally, based on our nonclinical proof of concept data we believe that we can administer a number of peptide-based drugs orally using our TPE technology and achieve therapeutic levels in the blood. We intend to use our TPE platform to develop a new line of oral medications, beyond oral octreotide, to help improve the lives of patients suffering from other debilitating diseases that are currently being treated with injectable therapies. We intend to select at least one new product candidate in late 2016 and initiate nonclinical development of another product candidate in 2017.

As we consider new peptide-based drugs to develop using our TPE platform, to reduce the development time and expenses and overall level of investment required, we intend to focus our efforts on drugs for which we may utilize the FDA’s 505(b)(2) regulatory pathway in the United States and the hybrid application pathway in Europe. With oral octreotide, we brought a TPE-based product candidate from concept to the first clinical trial within 18 months and then on to clinical proof of concept within an additional 12 months.

Our Senior Leadership Team and Investors

We have assembled an experienced team with extensive drug discovery, development and commercialization capabilities. Our President and Chief Executive Officer, Mark Leuchtenberger, has extensive experience in commercial operations, business development and preparing biopharmaceutical companies for product approval and commercialization. During his time at Biogen Inc., he managed the late-stage development, registration, marketing and North American launch of the company’s first commercial product, Avonex, a $3.0 billion product. Our Chief Development Officer, Roni Mamluk, Ph.D., led the development of oral octreotide and is one of the primary inventors of our TPE platform. Our Chief Financial Officer, Mark J. Fitzpatrick, has more than 20 years of financial management experience in both public and private companies, having most recently served as chief financial officer at Aegerion Pharmaceuticals, Inc., Proteon Therapeutics, Inc. and RenaMed Biologics, Inc. In addition, our Senior Medical Advisor, Gary Patou, M.D., brings over 20 years of extensive experience in clinical and regulatory affairs to the organization, having taken several drugs through development and FDA approval, including Exparel, which is marketed by Pacira Pharmaceuticals, Inc.

 

 

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Our investors include funds affiliated with MPM Capital, Fidelity Securities, Abingworth, 7 Med Health Ventures, F2 Capital, ARCH Venture Partners, Sofinnova Ventures and Rock Springs Capital.

Strategy

Our goal is to become a leading patient-focused biopharmaceutical company by developing and commercializing oral octreotide for acromegaly and other orphan indications, and leveraging our TPE platform to develop and commercialize novel oral products for other debilitating diseases currently treated only by injectable therapies. Our strategy to pursue this goal includes the following elements:

 

    Obtain U.S. regulatory approval of oral octreotide for the treatment of acromegaly.

 

    Independently commercialize oral octreotide in the United States.

 

    Obtain European regulatory approval of oral octreotide for the treatment of acromegaly.

 

    Explore collaboration opportunities in Europe and the rest of the world for oral octreotide in acromegaly and other indications.

 

    Pursue the development of oral octreotide in additional indications currently treated by injectable therapies, such as NET.

 

    Leverage our proprietary TPE platform to develop a pipeline of new high-value oral therapeutics.

Competitive Strengths

We believe we are well positioned to achieve our corporate and strategic goals based on the following key strengths:

 

    Based on our clinical data and feedback from patients and healthcare providers, we believe oral octreotide has the potential to become a standard of care in the treatment of acromegaly.

 

    Oral octreotide is the only somatostatin analog formulated for oral administration to complete a Phase 3 clinical trial.

 

    Treatment of acromegaly is a well-characterized market that we believe we can address with a focused and differentiated commercial infrastructure.

 

    Our business model and regulatory strategy utilizing the FDA’s 505(b)(2) regulatory pathway target shorter development timelines and lower associated expenses.

 

    We believe that we have the ability to leverage our proprietary TPE platform to develop additional high-value oral therapeutics.

 

    Our leadership team has significant drug development and commercial experience and possesses important intellectual capital.

Risks Affecting Us

Our business is subject to a number of risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Some of these risks are:

 

    We are heavily dependent on the regulatory approval of oral octreotide for the treatment of acromegaly in the United States and Europe, and subsequent commercial success of oral octreotide, both of which may never occur. The FDA may determine that our NDA for oral octreotide for the treatment of acromegaly is not sufficiently complete to permit a substantive review.

 

 

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    Even if we receive regulatory approval of oral octreotide, we may still face future development and regulatory challenges.

 

    We face substantial competition from larger companies with considerable resources that already have somatostatin analogs available in the market, and they or others may also discover, develop or commercialize additional products before or more successfully than we do.

 

    Even if we receive regulatory approval of oral octreotide, it may not achieve an adequate level of acceptance by physicians, healthcare payors and patients, and we may not generate sufficient revenue or be able to achieve or sustain profitability.

 

    We currently have no sales and marketing organization and, as a company, have not commercialized any products. If we are unable to establish effective sales and marketing capabilities in the United States and access them in Europe and other international markets, we may not succeed in commercializing oral octreotide.

 

    Oral octreotide and other products we may develop may not be commercially viable if we fail to obtain coverage and an adequate level of reimbursement for these products from governmental payors, including Medicare and Medicaid programs, private insurers, and other third-party payors. The market for oral octreotide and other products we may develop may also be limited by the indications for which their use may be reimbursed.

 

    We are, and expect to be for the foreseeable future, dependent on a limited number of third parties to manufacture oral octreotide, and our commercialization of oral octreotide could be halted, delayed or made less profitable if those third parties fail to pass inspections by the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of oral octreotide or fail to do so at acceptable quality levels or prices or on a timely basis.

 

    Clinical drug development involves a lengthy and expensive process with an uncertain outcome, results of earlier studies and trials may not be predictive of future trial results, and approval in one jurisdiction may not be predictive of approval in other jurisdictions.

 

    The longer term growth of our business depends on our efforts to leverage our TPE platform to expand our portfolio of product candidates, which may require substantial financial resources and may ultimately be unsuccessful.

 

    A key element of our strategy is to enter into licensing or collaboration agreements with respect to oral octreotide and future product candidates in certain territories. We may not be able to identify suitable collaborators and, even if we do, our dependence on such relationships may adversely affect our business.

 

    We have incurred significant losses since our inception and anticipate that we will incur continued losses for the next several years and thus may never achieve or maintain profitability.

 

    We may need additional capital to support our growth, which may be difficult to obtain and restrict our operations and would result in additional dilution to our stockholders.

 

    If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate to protect our technology and product candidates, our competitors could develop and commercialize technology and drugs similar to ours, and our competitive position could be harmed.

Corporate Information

We were incorporated under the laws of the State of Delaware and commenced business operations in 2001. Our principal executive offices are located at 60 Wells Avenue, Suite 102, Newton, MA 02459 and our telephone

 

 

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number is (866) 637-9703. Our website address is www.chiasmapharma.com. The information contained on our website, or that can be accessed through our website, is not a part of this prospectus and is not incorporated by reference into this prospectus. You should not rely on any such information in deciding whether to purchase our common stock.

We own various U.S. federal trademark registrations and applications, and unregistered trademarks and service marks, including “Chiasma,” “TPE” and our corporate logo. All trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

 

    reduced disclosure about our executive compensation arrangements;

 

    exemption from the non-binding stockholder advisory votes on executive compensation or golden parachute arrangements;

 

    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and

 

    reduced disclosure of financial information in this prospectus, such as being permitted to include only two years of audited financial information and two years of selected financial information in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure.

We may take advantage of these exemptions 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 as of the end of a fiscal year, have more than $700 million in market value of our capital stock held by non-affiliates as of any December 31 before that time or if we 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 exemptions. We have taken advantage of some reduced reporting burdens 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.

The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

 

 

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THE OFFERING

 

Common stock offered by us

                shares

 

Common stock to be outstanding immediately after this offering

                shares

 

Underwriters’ option to purchase additional shares

We have granted a 30-day option to the underwriters to purchase up to an aggregate of                  additional shares of common stock.

 

Use of proceeds

We estimate that the net proceeds from the issuance of our common stock in this offering will be approximately $             million, or approximately $                 million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering to build out our infrastructure to support the commercial launch of oral octreotide in the United States for the treatment of acromegaly; conduct an additional Phase 3 clinical trial of oral octreotide to support regulatory approval in Europe for the treatment of acromegaly; conduct a Phase 2 clinical trial of oral octreotide for the treatment of neuroendocrine tumors; continued research and development on our product pipeline using our TPE platform; and for working capital and other general corporate purposes. See “Use of Proceeds” for additional information.

 

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

Proposed NASDAQ Global Market symbol

“CHMA”

The number of shares of our common stock to be outstanding after this offering is based on 150,540,167 shares of our common stock outstanding as of March 31, 2015 and excludes:

 

    14,828,326 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2015 at a weighted-average exercise price of $0.23 per share;

 

    33,094,631 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 2015 at a weighted-average exercise price of $0.53 per share;

 

                     shares of common stock reserved for future issuance under our 2015 Stock Option and Incentive Plan, or the 2015 Plan; and

 

                     shares of common stock reserved for the future issuance under our 2015 Employee Stock Purchase Plan.

 

 

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Unless otherwise indicated, all information in this prospectus reflects or assumes the following:

 

    a 1-for-             reverse stock split of our common stock effected on                 , 2015;

 

    the conversion of all of our outstanding shares of our preferred stock into 149,792,472 shares of common stock, which will occur immediately prior to the closing of this offering;

 

    no issuance or exercise of stock options or warrants on or after March 31, 2015; and

 

    no exercise by the underwriters of their option to purchase up to an additional                  shares of common stock in this offering.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data for the years ended December 31, 2013 and 2014 and the balance sheet data as of December 31, 2014 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of March 31, 2015 and for the three months ended March 31, 2014 and 2015 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting of only normal recurring adjustments, that management considers necessary for the fair presentation of the financial information set forth in those statements. You should read this data together with our consolidated financial statements and related notes included elsewhere in this prospectus and the information under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results for any prior period are not necessarily indicative of results to be expected in any future period and our operating results for the three-month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015 or any other interim periods or any future year or period.

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2013     2014     2014     2015  
    

(audited)

   

(unaudited)

 
     (in thousands, except share and per share data)  

Consolidated Statement of Operations Data

        

Revenue from license agreement

   $ 73,134      $ 13,166      $ 4,573      $ —     

Operating expenses:

        

Research and development

     26,455        11,527        1,650        2,219   

Marketing, general and administrative

     8,065        3,469        954        1,931   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  34,520      14,996      2,604      4,150   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

  38,614      (1,830   1,969      (4,150

Other expenses, net

  1,208      4      25      89   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

  37,406      (1,834   1,944      (4,239

Provision for income taxes

  1,224      176      (129   5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  36,182      (2,010   2,073      (4,244
  

 

 

   

 

 

   

 

 

   

 

 

 

Accretion of deemed liquidation related to Series D redeemable convertible preferred stock

  (38,504   —        —        —    

Accretion of redeemable convertible preferred stock

  (3,034   (904   (340   (98
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to common stockholders

$ (5,356 $ (2,914 $ 1,733    $ (4,342
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per share attributable to common stockholders, basic

$ (13.72 $ (7.25 $ 4.36    $ (6.54

Weighted average common shares outstanding, basic

  390,529      402,014      397,820      663,886   

Net (loss) income per share attributable to common stockholders, diluted

$ (13.72 $ (7.25 $ 0.02    $ (6.54

Weighted average common shares outstanding, diluted

  390,529      402,014      101,647,520      663,886   

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) (1)

$ (0.03

Pro forma weighted average common shares outstanding, basic and diluted (unaudited) (1)

  127,689,277   

 

(1) See Note 3 to our audited consolidated financial statements and Note 2 of our unaudited condensed consolidated financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the historical and pro forma net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts.

 

 

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

Cash

   $ 70,872      $ 70,872      $                

Working capital

     67,541        67,541     

Total assets

     72,638        72,638     

Long-term liabilities

     4,724        4,724     

Redeemable convertible preferred stock

     138,796        —       

Accumulated deficit

     (85,752     (85,752  

Total stockholders’ (deficit) equity

     (74,658     64,138     

 

(1) The pro forma column reflects the automatic conversion of all outstanding shares of our preferred stock into 149,792,472 shares of our common stock, which will occur immediately prior to the closing of this offering.
(2) The pro forma as adjusted column reflects the pro forma adjustments described in (1) above, and further reflects the sale of shares of our common stock offered in this offering, assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(3) Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) pro forma as adjusted cash, working capital, total assets and total stockholders’ equity by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares offered by us would increase (decrease) the cash, total assets and total stockholders’ equity by $         million, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occur, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

Risks Related to Development, Regulatory Approval and Commercialization of Oral Octreotide and any Future Product Candidates

We are heavily dependent on the regulatory approval of oral octreotide for the treatment of acromegaly in the United States and Europe, and subsequent commercial success of oral octreotide, both of which may never occur.

We are a biopharmaceutical company with no products approved by regulatory authorities or available for commercial sale. As a result, our future success is currently dependent upon the regulatory approval and commercial success of oral octreotide for the treatment of acromegaly in the United States, Europe and other countries. Our ability to generate revenues in the near term will depend on our ability to obtain regulatory approval and successfully commercialize oral octreotide on our own in the United States, the first country in which we intend to make oral octreotide available for sale. We may experience delays in obtaining regulatory approval in the United States for oral octreotide, if it is approved at all, and our stock price may be negatively impacted. Even if we receive regulatory approval, the timing of the commercial launch of oral octreotide in the United States is dependent upon a number of factors, including, but not limited to, hiring sales and marketing personnel, pricing and reimbursement timelines, the production of sufficient quantities of commercial drug product and implementation of marketing and distribution infrastructure, and we do not anticipate commercial sales of oral octreotide until 2016, at the earliest.

In addition, we have incurred and expect to continue to incur significant expenses and to utilize a substantial portion of our effort and financial resources as we continue to pursue the approval of oral octreotide in the United States, Europe and elsewhere, prepare for the commercial launch of oral octreotide and continue to grow our operational capabilities. This represents a significant investment in the clinical, commercial and regulatory success of oral octreotide, which is uncertain. The success of oral octreotide, if approved, will depend on several factors, including:

 

    execution of an effective sales and marketing strategy for the commercialization of oral octreotide;

 

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

 

    the incidence and prevalence of acromegaly in those markets in which oral octreotide is approved;

 

    the prevalence and severity of side effects, if any, experienced with oral octreotide;

 

    the availability, perceived advantages, cost, safety and efficacy of alternative treatments;

 

    our success in educating physicians and patients about the benefits, administration and use of oral octreotide;

 

    successful implementation of our manufacturing processes that are included in our new drug application, or NDA, and production of sufficient quantities of commercial drug product;

 

    maintaining compliance with regulatory requirements, including current good manufacturing practices, or cGMPs; and

 

    obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity and otherwise protecting our rights in our intellectual property portfolio.

 

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We may also fail to develop future product candidates. If this were to occur, we would continue to be dependent on the regulatory approval and successful commercialization of oral octreotide, our development costs may increase and our ability to generate revenue or profits, or to raise additional capital could be impaired.

If we are not able to obtain required regulatory approvals for oral octreotide, we will not be able to commercialize the product candidate and our ability to generate revenue or profits or to raise future capital could be limited.

In June 2015, we submitted an NDA to the U.S. Food and Drug Administration, or the FDA, for oral octreotide for the maintenance therapy of acromegaly. The FDA has 60 days after receipt of the NDA to preliminarily review and determine if the application is sufficiently complete to permit a substantive review and meets the threshold for filing. In addition, we intend to initiate an additional Phase 3 clinical trial of oral octreotide in acromegaly in the second half of 2015 to show comparative effectiveness as required by the European Medicines Agency, or the EMA, to support approval. The FDA may not approve our NDA and our planned Phase 3 clinical trial may not be successful and therefore we may never receive approval to market oral octreotide in the United States, Europe or elsewhere.

The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country and change over time. We are not permitted to market oral octreotide in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approvals in such countries. In the United States, the FDA generally requires the completion of nonclinical testing and clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality and other factors before an NDA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are approved for commercialization.

Even if regulatory approval is obtained, subsequent safety, efficacy, quality or other issues can result in a product approval being suspended or withdrawn. Other than the submission of our NDA for oral octreotide in acromegaly to the FDA, we have not yet submitted comparable applications to other regulatory authorities. If our development efforts for oral octreotide, including regulatory approval, are not successful for its planned indications or are delayed, or if adequate demand for oral octreotide is not generated, our business will be harmed.

The success of oral octreotide will depend on the receipt and maintenance of regulatory approval and the issuance and maintenance of such approvals is uncertain and subject to a number of risks, including the following:

 

    the FDA or comparable foreign regulatory authorities, institutional review boards, or IRBs, or ethics committees may disagree with the design or conduct of our clinical trials;

 

    we may not be able to provide acceptable evidence of oral octreotide’s safety and efficacy;

 

    the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA, the EMA or other regulatory agencies for marketing approval;

 

    the dosing of oral octreotide in a particular clinical trial may not be at an optimal level;

 

    patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to oral octreotide;

 

    the data collected from clinical trials may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;

 

    the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies or may later suspend or withdraw such approval;

 

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    the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; and

 

    even if we obtain marketing approval in one or more countries, future safety or other issues could result in the suspension or withdrawal of regulatory approval in such countries.

In particular, we cannot guarantee that regulators will agree with our assessment of the results of the clinical trials we have conducted to date or that any future trials will be successful. For example, the FDA may not agree that the data from our completed Phase 3 trial and other data and information in our NDA demonstrate sufficient efficacy or clinical benefit of oral octreotide. The FDA has advised us that the interpretability of the efficacy findings from our Phase 3 clinical trial will be a review issue, in particular whether the response rate evidenced in our Phase 3 clinical trial is sufficient to warrant approval. The agency also advised us that the population for the primary analysis should be all enrolled and treated patients at baseline and that analyses based on the modified intent to treat, per protocol and fixed dose, populations will be regarded as supportive. The FDA, EMA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional clinical trials, or nonclinical or other studies.

In addition, varying interpretations of the data obtained from nonclinical and clinical testing or manufacturing could delay, limit or prevent regulatory approval of oral octreotide or other product candidates we may develop in the future. Of note, in July 2014, F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc., collectively Roche, elected to terminate our license agreement for oral octreotide after reviewing the data from the seven-month core treatment period of our Phase 3 clinical trial and after a May 2014 pre-NDA meeting with the FDA. Roche cited no reason for its decision in its formal notice of termination, but stated publicly at the time that it had elected to make this decision after receiving additional information about our Phase 3 clinical trial and after further consultation with regulatory authorities. Subsequent to this decision, we independently met with the FDA to discuss the clinical development of oral octreotide, including the Phase 3 clinical results from the six-month extension phase of the clinical trial. At this meeting, the FDA advised us that it had not identified an issue that would preclude us from submitting an NDA for review. However, there can be no assurance that the FDA will determine that the data package included in the NDA, in particular the results from our Phase 3 clinical trial, will be sufficient to warrant approval of the NDA. The FDA has advised us that interpreting efficacy from a voluntary long-term extension study is subject to limitations and therefore the data at the seven-month time point in our Phase 3 clinical trial will carry more weight in the efficacy evaluation than the extension data. The FDA has also informed us that, in its view, a single-arm study is not as informative as a controlled study such as an active control trial using a non-inferiority design, and that the interpretability of the efficacy findings we submit from our single-arm study, and whether these findings are robust enough to warrant approval, will be review issues as the agency evaluates our NDA. The FDA may ultimately determine that our data are insufficient for approval. The FDA may require that we conduct additional clinical trials, or nonclinical or other studies, before oral octreotide can be approved.

We have only limited experience in filing the applications necessary to gain regulatory approvals and expect to rely on consultants and third-party contract research organizations, or CROs, with expertise in this area to assist us in this process. Securing FDA approval requires the submission of extensive nonclinical and clinical data, information about product manufacturing processes and inspection of facilities and supporting information to the FDA for each therapeutic indication to establish a product candidate’s safety and efficacy for each indication and manufacturing quality. Oral octreotide or any future product candidates we may develop may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use with respect to one or all intended indications.

The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon, among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which regulatory approval is sought and the substantial discretion of the regulatory authorities. Changes in the regulatory approval policy during the development period, changes in or

the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product

 

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application may cause delays in the approval or rejection of an application or may result in future withdrawal of approval. Regulatory approval obtained in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in all jurisdictions in which we may seek approval, but the failure to obtain approval in one jurisdiction may negatively impact our ability to seek approval in a different jurisdiction. Failure to obtain regulatory marketing approval of oral octreotide in any indication will prevent us from commercializing the product candidate, and our ability to generate revenue will be impaired.

The FDA may determine that our NDA for oral octreotide for the maintenance therapy of acromegaly is not sufficiently complete to permit a substantive review.

In June 2015, we submitted to the FDA an NDA for oral octreotide for the maintenance therapy of acromegaly. Within 60 days of the agency’s receipt of our NDA, the FDA will make a threshold determination of whether the NDA is sufficiently complete to permit a substantive review. This 60-day review period is referred to as the filing review. If the NDA is sufficiently complete, the FDA will file the NDA. If the agency refuses to file the NDA, it will notify us and state the reason(s) for the refusal. The FDA may refuse to file our NDA for various reasons, including but not limited to, if:

 

    the NDA is incomplete because it does not on its face contain the information required under the Federal Food, Drug, and Cosmetic Act, or FDCA, or the FDA’s regulations;

 

    the NDA does not contain a statement that each nonclinical laboratory study was conducted in compliance with the Good Laboratory Practices, or GLP, requirements, or for each study not so conducted, a brief statement of the reason for the noncompliance;

 

    the NDA does not contain a statement that each clinical trial was conducted in compliance with the IRB regulations or was not subject to those regulations, and the agency’s informed consent regulations or a brief statement of the reason for noncompliance; or

 

    the drug is a duplicate of a listed drug approved before receipt of the NDA and is eligible for approval under an abbreviated new drug application, or ANDA, for generic drugs.

In its procedures, the FDA has stated that it could find a Section 505(b)(2) NDA, the U.S. regulatory pathway we are pursuing with oral octreotide in acromegaly, incomplete and refuse to file it if the NDA:

 

    fails to include appropriate literature or a listed drug citation to support the safety or efficacy of the drug product;

 

    fails to include data necessary to support any aspects of the proposed drug that represent modifications to the listed drug(s) relied upon;

 

    fails to provide a bridge, e.g., via comparative bioavailability data, between the proposed drug product and the listed drug product to demonstrate that such reliance is scientifically justified;

 

    uses an unapproved drug as a reference product for a bioequivalence study; or

 

    fails to provide a patent certification or statement as required by the FDA’s regulations where the 505(b)(2) NDA relies on one or more listed drugs.

Additionally, the FDA will refuse to file our NDA if an approved drug with the same active moiety is entitled to five years of exclusivity, unless the exclusivity period has elapsed or unless four years of the five-year period have elapsed and our NDA contains a certification of patent invalidity or non-infringement.

If the FDA refuses to file our NDA, we may amend the NDA and resubmit it. In such a case, the FDA will again review the NDA and determine whether it may be filed. There can be no assurance that the FDA will file our NDA. If the agency refuses to file our NDA, we will need to address the deficiencies cited by the FDA, which could substantially delay the review process.

 

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Our development, regulatory and commercialization strategy for oral octreotide depends, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of approved products containing octreotide.

The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or Section 505(b)(2). Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safety and efficacy for an approved product. The FDA also requires companies to perform additional clinical trials or measurements to support any difference from the previously approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the listed drug has been approved, as well as for any new indication(s) sought by the Section 505(b)(2) applicant as supported by additional data. The label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the listed drug’s label, including a black box warning, or may require additional limitations, contraindications, warnings or precautions.

We have designed our clinical programs to advance oral octreotide for registration filing in the United States using the FDA’s 505(b)(2) regulatory pathway and the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway, in Europe. As such, our NDA in the United States relies, and our marketing authorization application, or MAA, in Europe will rely, in part, on previous findings of safety and efficacy for an approved immediate-release injectable octreotide product and published scientific literature for which we have not received a right of reference. Even though we expect to be able to take advantage of Section 505(b)(2) and the hybrid application pathway to support potential regulatory approval of oral octreotide in the United States and Europe, the relevant regulatory authorities may require us to perform additional clinical trials or measurements to support approval over and above the clinical trials that we have already completed and the additional clinical trials we currently plan to commence with respect to indications other than acromegaly. The relevant regulatory authorities also may determine that we have not provided sufficient data to justify reliance on prior investigations involving the approved immediate-release injectable octreotide product.

In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), in the past some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). For example, parties have filed citizen petitions objecting to the FDA approving a Section 505(b)(2) NDA on both scientific and legal and regulatory grounds. Scientific arguments have included the assertions that for the FDA to determine the similarity of the drug in the 505(b)(2) NDA to the listed drug, the agency would need to reference proprietary manufacturing information or trade secrets in the listed drug’s NDA; that it would be scientifically inappropriate for the FDA to rely on public or nonpublic information about the listed drug because it differs in various ways from the drug in the 505(b)(2) NDA; or that differences between the listed drug and the drug in the 505(b)(2) NDA may impair the latter’s safety and effectiveness. Legal and regulatory arguments have included the assertion that Section 505(b)(2) NDAs must contain a full report of investigations conducted on the drug proposed for approval, and that approving a drug through the 505(b)(2) regulatory pathway would lower the approval standards. In addition, citizen petitions have made patent-based challenges against 505(b)(2) NDAs. For example, petitioners have asserted that the FDA should refuse to file a 505(b)(2) NDA unless it references a specific NDA as the listed drug, because it is “most similar” to the proposed drug, and provides appropriate patent certification to all patents listed for that NDA; or that when a 505(b)(2) NDA is pending before the agency, but before it is approved, where the FDA approves an NDA for a drug that is pharmaceutically equivalent to the drug that is the subject of the 505(b)(2) NDA, then the FDA should require that the 505(b)(2) NDA be resubmitted referencing the approved NDA as the listed drug and certifying to the listed patents for that approved drug. In the case of oral octreotide, we expect that we will be able to provide an appropriate patent certification for all applicable patents listed in our oral octreotide NDA, because octreotide has previously been approved by the FDA in generic form. However, if the FDA or EMA changes its interpretation of

 

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Section 505(b)(2) or the hybrid application pathway, or if the FDA’s or EMA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA or EMA, as applicable, from approving any Section 505(b)(2) NDAs or hybrid application pathway MAAs that we submit. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of oral octreotide for the treatment of acromegaly or any future product candidates we may develop.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, results of earlier studies and trials may not be predictive of future trial results, and approval in one jurisdiction may not be predictive of approval in other jurisdictions.

We intend to initiate a second Phase 3 clinical trial of oral octreotide in acromegaly to support approval by the EMA, and Phase 2 clinical trials of oral octreotide in indications other than acromegaly, such as neuroendocrine tumors, or NETs. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain, and we will continue to be subject to these risks. Failure can occur at any time during the clinical trial process and results of future trials can adversely affect regulatory approvals previously received. The results of nonclinical studies and prior clinical trials may not be predictive of the results of future clinical trials. For example, the positive results generated in our completed clinical trials for oral octreotide in acromegaly do not ensure that future clinical trials, including the additional Phase 3 trial required to support EMA approval or other trials required by the FDA, or clinical trials for other indications, will also generate positive results. We cannot assure you that the FDA or EMA will view the results as we do or that any future trials of oral octreotide, including our planned second Phase 3 clinical trial in acromegaly or clinical trials for other indications, such as NET, will achieve positive results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through nonclinical studies and prior clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in prior trials.

Despite the results reported in earlier nonclinical studies and clinical trials for oral octreotide for the treatment of acromegaly, any future clinical trial results of oral octreotide may not be successful in any particular indication. A number of factors could contribute to a lack of favorable safety and efficacy results for oral octreotide for other indications. For example, such trials could result in increased variability due to varying site characteristics, such as local standards of care, differences in evaluation period, and due to varying patient characteristics including demographic factors and health status. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval of oral octreotide for the treatment of acromegaly or other indications, and any other product candidates we may develop, may be adversely impacted.

Further, our NDA relies upon the FDA’s 505(b)(2) regulatory pathway for oral octreotide in acromegaly in the United States. There can be no assurance that our clinical trials, or the clinical trials conducted by third parties, will demonstrate sufficient safety and efficacy for the FDA to approve oral octreotide for the treatment of acromegaly or any other indication that may be specified in future NDA submissions. Even if we do obtain approval from the FDA for oral octreotide for the treatment of acromegaly in the United States, we may not be successful in obtaining approval from the EMA or other regulatory authorities.

Any negative clinical results from, termination or suspension of, or delays in the commencement or completion of, any necessary future trials of oral octreotide for the treatment of acromegaly or for any additional indications, in the United States or other countries, or future clinical trials of product candidates we may develop could result in increased costs to us, delay or limit our ability to generate revenue and negatively impact our commercial prospects.

Delays in the commencement or completion of the Phase 3 clinical trial we intend to initiate prior to applying for marketing approval with the EMA in Europe, the Phase 2 clinical trials of oral octreotide for NETs and other indications, or any future clinical trials we intend to conduct for other product candidates we may develop, or negative findings in those trials, could significantly affect our product development costs or our ability to commercialize oral octreotide. We do not know whether such trials will begin, will be completed on schedule, if

 

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at all, or will be successful. The commencement and completion of these clinical trials can be delayed for a number of reasons, including delays related to:

 

    the FDA, the EMA or any other relevant regulatory authority failing to grant permission to proceed and placing the clinical trial on hold;

 

    delays in patient enrollment and variability in the number and types of patients available for clinical trials, which is particularly challenging for orphan indications;

 

    a facility manufacturing oral octreotide or any other product candidate we may develop being ordered by the FDA, EMA or other government or regulatory authorities to temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements, or cross-contaminations of product candidates in the manufacturing process;

 

    any changes to our manufacturing process that may be necessary or desired;

 

    patients choosing an alternative treatment for any of the indications for which we are developing oral octreotide or potential product candidates, or participating in competing clinical trials;

 

    difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

 

    patients experiencing drug-related adverse effects;

 

    reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns;

 

    third-party clinical investigators losing their license or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or employing methods consistent with the clinical trial protocol, good clinical practice, or GCP, requirements, or other third parties not performing data collection and analysis in a timely or accurate manner;

 

    inspections of clinical trial sites by the FDA, EMA or other regulatory authorities finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire trial, or that prohibit us from using some or all of the data in support of our marketing applications;

 

    third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications;

 

    one or more institutional review boards, or IRBs, or ethics committees refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional patients, or withdrawing its approval of the trial;

 

    reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

    deviations of the clinical sites from trial protocols or dropping out of a trial;

 

    delays in adding new clinical trial sites;

 

    the inability of the CRO to execute any clinical trials for any reason; or

 

    government or regulatory delays or “clinical holds” requiring suspension or termination of a trial.

Product development costs for oral octreotide in acromegaly, NET or any other future indications we may pursue or for product candidates we may develop in the future will increase if we have delays in testing or approval, or if we need to perform more or larger clinical studies than planned. If we experience delays in completion of, or if we, the FDA, other regulatory authorities, IRBs or other reviewing entities, or any of our clinical trial sites suspend or terminate any of our clinical trials of oral octreotide for any indication, its commercial prospects may be harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical

 

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trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial or even withdrawal of regulatory approval of oral octreotide for any indication. In addition, if one or more clinical trials are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of oral octreotide could be significantly reduced.

Changes in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols submitted to applicable regulatory authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs or ethics committees for re-examination, which may impact the costs, timing or successful completion of a clinical trial.

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 oral octreotide and any future product candidates we may develop. 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, which would harm our business, prospects, financial condition and results of operations.

If we are required to conduct additional clinical trials or other studies with respect to oral octreotide or any future product candidates we may develop beyond those that we currently contemplate, or if we are unable to successfully complete our clinical trials or other studies, we may be delayed in obtaining regulatory approval of oral octreotide and any future product candidates we may develop, we may not be able to obtain regulatory approval at all or we may obtain approval of indications that are not as broad as intended. Our product development costs will also increase if we experience delays in testing or approvals, and we may not have sufficient funding to complete the testing and approval process for oral octreotide or any future product candidates we may develop. Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products if and when approved. If any of this occurs, our business would be harmed.

We may find it difficult to enroll patients in our clinical trials, in particular with respect to oral octreotide and any other product candidates that we may pursue, which could delay or prevent clinical trials of oral octreotide and any future product candidates we may develop and potentially harm our business.

Identifying and qualifying patients to participate in clinical trials of oral octreotide and any future product candidates we may develop is critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing oral octreotide and any future product candidates we may develop as well as completion of required follow-up periods. If patients are unwilling to participate in our clinical trials for any reason, including if patients choose to enroll in competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of oral octreotide and any future product candidates we may develop may be delayed. These delays could result in increased costs, delays in advancing oral octreotide or any of our future product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether.

We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a trial, to complete our clinical trials in a timely manner. In particular, the conditions for which we currently plan to evaluate oral octreotide are orphan diseases with limited patient pools from which to draw for clinical trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants.

Patient enrollment is affected by factors including:

 

    severity of the disease under investigation;

 

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    design of the clinical trial protocol;

 

    size and nature of the patient population;

 

    eligibility criteria for the trial in question;

 

    perceived risks and benefits of the product candidate under trial;

 

    proximity and availability of clinical trial sites for prospective patients;

 

    availability of competing therapies and clinical trials;

 

    perceptions of patients and healthcare providers as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating;

 

    efforts to facilitate timely enrollment of patients in clinical trials;

 

    patient referral practices of physicians; and

 

    our ability to monitor patients adequately during and after treatment.

If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may be forced to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business. We could encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of oral octreotide and any future product candidates we may develop in lieu of prescribing existing treatments that have established safety and efficacy profiles. We plan to seek initial marketing approval of oral octreotide in the United States and Europe. We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by the FDA, the EMA or other regulatory authorities. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:

 

    difficulty in establishing or managing relationships with CROs and physicians;

 

    different requirements and standards for conducting clinical trials;

 

    our inability to locate qualified local consultants, physicians and partners; and

 

    the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.

Even if we receive regulatory approval of oral octreotide, we may still face future development and regulatory challenges.

Even if we obtain regulatory approval of oral octreotide for the treatment of acromegaly, NET and other indications we may pursue, or any other product candidates we may develop, they will be subject to ongoing requirements by the FDA and comparable foreign regulatory authorities governing manufacturing, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of oral octreotide and any future product candidates we may develop will continue to be closely monitored by the FDA and comparable foreign regulatory authorities after approval. If new safety information becomes available after approval of oral octreotide and any future product candidates we may develop, the FDA or comparable foreign regulatory authorities may require labeling changes or establishment of a Risk Evaluation and Mitigation Strategy, or REMS, or similar strategy, impose significant restrictions on our product candidates, indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. For example, the label ultimately approved for oral octreotide, if it achieves marketing approval, may include restrictions on use, which could limit the marketability of oral octreotide and impair our ability to have oral octreotide gain market acceptance.

 

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In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP and other regulations. If we or a regulatory authority discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, we may recall or withdraw the product from the market or a regulatory authority may impose restrictions on that product, the manufacturing facility or us, including requiring suspension of manufacturing. If we, our products or the manufacturing facilities for our products fail to comply with applicable regulatory requirements, a regulatory authority may:

 

    issue warning letters or untitled letters;

 

    mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;

 

    require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

 

    seek an injunction or impose civil or criminal penalties or monetary fines;

 

    suspend or withdraw regulatory approval;

 

    suspend any ongoing clinical trials;

 

    refuse to approve pending applications or supplements to applications filed by us;

 

    suspend or impose restrictions on operations, including costly new manufacturing requirements; or

 

    seize or detain products, refuse to permit the import or export of products, or request that we initiate a product recall.

The occurrence of any event or penalty described above may inhibit or preclude our ability to commercialize oral octreotide and any future product candidates we may develop and generate revenue.

We face substantial competition from larger companies with considerable resources that already have somatostatin analogs available in the market, and they or others may also discover, develop or commercialize additional products before or more successfully than we do.

Our industry is highly competitive and subject to rapid and significant technological change as researchers learn more about diseases and develop new technologies and treatments. Our potential competitors include primarily large pharmaceutical, biotechnology and specialty pharmaceutical companies. In attempting to achieve the widespread commercialization of oral octreotide, we will face competition from established drugs and major brand names and also generic versions of these products. In addition, new products developed by others could emerge as competitors to our future products. Key competitive factors affecting the commercial success of oral octreotide and any other product candidates we may develop are likely to be efficacy, safety and tolerability profile, reliability, convenience of administration, price and reimbursement. For example, physicians may choose not to prescribe oral octreotide, if approved, because a lower percentage of patients respond to it than to some currently available injectable somatostatin analogs. Competition could also force us to lower prices or could result in reduced sales.

The current treatment options for patients suffering from acromegaly all involve injectable therapies marketed by large companies with substantial resources and well-established presence in the endocrinology market. Novartis AG, or Novartis, markets octreotide LAR, which is administered monthly and intramuscularly using a large-gauge needle. Ipsen SA markets lanreotide, another long-acting analog of somatostatin, like octreotide, which is administered monthly using a deep subcutaneous injection. For patients not controlled on these somatostatin analogs, Pfizer, Inc. markets pegvisomant daily injections and Novartis also markets pasireotide LAR, which is another somatostatin analog administered via intramuscular injection. We are aware of other companies involved in early-stage nonclinical and clinical studies of similar somatostatin analogs, but we believe all involve administration via injection.

 

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Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. These companies also have long-established relationships within the medical and patient community, including patients, physicians, nurses and commercial third-party payors and government payors. Our ability to compete successfully will depend largely on our ability to:

 

    discover and develop product candidates that are superior to other products in the market;

 

    obtain required regulatory approvals;

 

    adequately communicate the benefits of oral octreotide, if approved;

 

    attract and retain qualified personnel;

 

    obtain and maintain patent and/or other proprietary protection for oral octreotide and any future product candidates we may develop; and

 

    obtain collaboration arrangements to commercialize oral octreotide and any future product candidates we may develop.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of our competitors. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval of drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render oral octreotide or any future product candidates we may develop obsolete or non-competitive before we can recover the expenses of developing and commercializing oral octreotide or any future product candidates we may develop. Our competitors may also obtain FDA or other regulatory approval of their products more rapidly than we may obtain approval of ours. We anticipate that we will face intense and increasing competition as new drugs enter the market and more advanced technologies become available. For example, a competitor could develop another oral formulation of a somatostatin analog or other technology that could make administration of peptide-based therapies more convenient. If we are unable to compete effectively, our opportunity to generate revenue from the sale of oral octreotide or any future product candidates we may develop, if approved, could be impaired.

The number of patients suffering from acromegaly is small, and has not been established with precision. Our assumptions and estimates regarding prevalence may be wrong. If our oral octreotide product candidate is approved for sale, and the actual number of patients in the applicable market is smaller than we estimate, our revenue could be adversely affected, possibly materially.

There is no patient registry or other method of establishing with precision the actual number of patients with acromegaly in any geography.

There are an estimated 62,300 individuals with acromegaly worldwide, of which an estimated 35,100 receive lifelong injections. The U.S. National Institutes of Health, or NIH, estimates that there are roughly 20,000 individuals with acromegaly in the United States, based on its published prevalence of an estimated 60 cases per million. However, recent data presented at the Endocrine Society’s Annual Meeting in 2015 suggest that pituitary tumors may be more prevalent than previously thought, and that the global prevalence of acromegaly may be higher, between 85 and 118 cases per million people. NIH also cites an annual incidence of three to four new cases per million each year. However, there is no guarantee that these estimates are correct. The number of patients with acromegaly, in particular the number of patients for whom our oral octreotide product, if approved, is approved for use, could actually be significantly lower than these estimates.

We believe that the actual size of the total addressable acromegaly market in those markets in which our oral octreotide product is approved, if at all, will be determined only after we have substantial history as a commercial

 

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company. If the total addressable market for our products is smaller than we expect, our revenue could be adversely affected, possibly materially.

Even if we receive regulatory approval of oral octreotide, it may not achieve an adequate level of acceptance by physicians, patients and third-party payors and government payors, and we may not generate sufficient revenue or be able to achieve or sustain profitability.

The commercial success of oral octreotide will depend in large part on the willingness of physicians to prescribe these products to their patients. Oral octreotide will compete against products that have achieved broad recognition and acceptance among medical professionals. In order to achieve an acceptable level of prescriptions for oral octreotide, we must be able to meet the needs of both the medical community and patients with respect to cost, efficacy and other factors. The degree of market acceptance of oral octreotide will depend on a number of factors, including:

 

    the clinical safety, efficacy, tolerability and other factors regarding oral octreotide relative to injectable somatostatin analogs;

 

    relative convenience, the number of capsules that need to be taken, the requirement to fast before and after each dose of oral octreotide, and other factors affecting the ease of administration;

 

    the prevalence and severity of any adverse effects;

 

    the willingness of physicians to prescribe oral octreotide and of the target patient population to try new therapies;

 

    the introduction of any new products that may in the future become available to treat indications for which oral octreotide may be approved;

 

    changes in the clinical or economic profiles of alternative treatments;

 

    new procedures or methods of treatment that may reduce the incidences of any of the indications in which oral octreotide may show utility;

 

    pricing and cost-effectiveness;

 

    the effectiveness of our or any future collaborators’ sales and marketing programs;

 

    limitations or warnings contained in FDA-approved labeling;

 

    our ability to obtain and maintain sufficient third-party coverage and adequate reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors;

 

    the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement;

 

    competitor activities; and

 

    our ability to reliably manufacture and supply oral octreotide.

In addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize oral octreotide successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render oral octreotide not commercially viable. For example, regulatory authorities may approve oral octreotide for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve oral octreotide with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that indication. Any of the foregoing scenarios could harm the commercial prospects for oral octreotide.

 

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Even if oral octreotide is approved, it may not achieve an adequate level of acceptance by physicians, healthcare payors and patients, and we may not generate sufficient revenue or be able to achieve or sustain profitability. Our revenue and profitability may also be delayed during the period of time when commercial third-party payors and government payors are becoming familiar with oral octreotide and patients are transitioning from injected alternatives to oral octreotide. Our efforts to educate the medical community, patients and third-party payors on the benefits of oral octreotide may require significant resources and may never be successful. Even if we are able to demonstrate and maintain a competitive advantage over our competitors, if the market for octreotide decreases, we may not generate sufficient revenue.

We currently have no sales and marketing organization and, as a company, have not commercialized any products. If we are unable to establish effective sales and marketing capabilities in the United States and access them in Europe and other international markets, we may not succeed in commercializing oral octreotide.

At present, we have no sales personnel and a limited number of marketing personnel. We intend to use a portion of the proceeds from this offering to build our sales and marketing infrastructure to support commercial launch in the United States, assuming our NDA is approved. Therefore, since we expect to receive a response from the FDA with respect to our NDA in April 2016, then assuming the NDA is approved at that time, our sales and marketing team will have worked together for only a limited period prior to our anticipated commercial launch of oral octreotide. We cannot guarantee that we will be successful in marketing oral octreotide in the United States.

We may not be able to establish a direct sales force in a cost-effective manner or realize a positive return on this investment. In addition, we will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to commercialize oral octreotide in the United States without strategic partners or licensees include:

 

    our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

    the inability of our relatively small sales force to obtain access to or inform adequate numbers of physicians, particularly the pituitary centers and the significantly larger number of community endocrinologists, about the potential benefits of oral octreotide;

 

    the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;

 

    the inability of market-access personnel to obtain sufficient levels of pricing and reimbursement in each jurisdiction; and

 

    unforeseen costs, expenses and delays associated with creating a commercial organization.

If we are not successful in timely recruiting of sales and marketing personnel or in building a sales and marketing infrastructure or if we do not successfully enter into appropriate collaboration arrangements, we will have difficulty commercializing oral octreotide, which could harm our business, operating results and financial condition.

Expansion of our business into the European Union and other international markets will require significant management attention and additional financial resources. We currently intend to explore commercializing oral octreotide in Europe and other international markets by entering into collaboration agreements with other biopharmaceutical companies, and we may not be successful in entering into these collaboration agreements. In the event that we do enter into such agreements, we may have limited or no control over the sales, marketing and distribution activities of these third parties. Additional factors and risks that may inhibit our efforts to commercialize oral octreotide in foreign markets include:

 

    our inability to directly control commercial activities because we are relying on third parties, should we enter into third-party collaborations;

 

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    varying pricing in different foreign markets, which could adversely affect pricing in the United States or other countries;

 

    the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

 

    different medical practices and customs in foreign countries affecting acceptance in the marketplace;

 

    import or export licensing requirements;

 

    longer collection times for accounts receivable;

 

    longer lead times for shipping;

 

    language barriers for technical training;

 

    reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic alternatives to therapeutics;

 

    foreign currency exchange rate fluctuations;

 

    our customers’ ability to obtain adequate reimbursement for oral octreotide in foreign markets at all, either at all or at prices that exceed our costs; and

 

    the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of oral octreotide could also be adversely affected by the imposition of governmental price controls, political and economic instability, trade restrictions and changes in tariffs.

Our future revenues may depend heavily on the success of the efforts of these third parties. We may not be able to establish a commercial operation in a cost-effective manner or realize a positive return on this investment, even with the assistance of one or more third-party collaborators, should we choose to enter into such an arrangement. In addition, we will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel.

If we or third-party collaborators are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure or if we do not successfully enter into additional collaboration arrangements with third parties, we may not be able to successfully commercialize oral octreotide and any future product candidates we may develop in foreign markets, which could impair our business, operating results and financial condition.

Even with the potential assistance of third-party collaborators, we may not be successful in establishing a commercial operation in foreign markets for numerous reasons, including, but not limited to, failing to attract, retain and motivate the necessary skilled personnel and failing to develop a successful marketing strategy. Failure to establish a commercial operation in foreign markets will have a negative outcome on our ability to commercialize oral octreotide and generate revenue.

Additionally, if approved for marketing in one or more countries, we and/or our potential third-party collaborators may encounter unexpected or unforeseen delays in establishing our commercial operations that delay the commercial launch in these countries. These delays may increase the cost of and the resources required for successful commercialization of oral octreotide internationally. We do not have any experience in a commercial launch in Europe or elsewhere.

We will need to grow the size of our organization in order to establish our sales and marketing infrastructure, which is vital to our ability to successfully commercialize oral octreotide, and we may experience difficulties in managing this growth.

We anticipate that in the near term our ability to generate revenues will depend solely on our ability to successfully commercialize oral octreotide, if approved, in the United States. A commercial launch is a

 

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significant undertaking that requires substantial financial and managerial resources. As of March 31, 2015, we had 13 employees. As our development and commercialization plans and strategies evolve, we will need to expand the size of our employee base for managerial, operational, sales, marketing, financial and other resources. The recruitment and hiring of these personnel will take time and could delay the commercialization of oral octreotide. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may have to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future financial performance and our ability to commercialize oral octreotide and other product candidates we may develop and to compete effectively will depend, in part, on our ability to effectively manage any future growth and related costs. We may not be able to effectively manage a rapid pace of growth and timely implement improvements to our management infrastructure and control systems.

Even if we obtain marketing approval of oral octreotide or any future product candidates we may develop, we will be subject to ongoing obligations and continued regulatory review with respect to the advertising and promotion of any product candidate that obtains approval.

Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by, among others, the FDA, the Department of Justice, or DOJ, the Office of Inspector General of the Department of Health and Human Services, or HHS, state attorneys general, members of Congress and the public, as well as by foreign regulatory authorities in the countries in which we commercialize oral octreotide. Even if oral octreotide is being marketed, the manufacture and marketing of oral octreotide will be subject to ongoing regulation, including compliance with cGMPs, adverse event reporting requirements and general prohibitions against promoting products for unapproved or “off-label” uses. Violations of these ongoing regulations are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA or other government agencies. Additionally, advertising and promotion of any product candidate that obtains approval outside of the United States will be heavily scrutinized by comparable foreign regulatory authorities.

In the United States, engaging in impermissible promotion of our drug products for “off-label” uses can also subject us to false claims litigation under federal and state statutes, and other litigation and/or investigation, which can lead to significant administrative civil and criminal penalties and fines and agreements that materially restrict the manner in which we promote or distribute our drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government decides to intervene and prevails in the lawsuit, the individual will share in any fines or settlement funds. Since 2004, these False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to substantial civil and criminal settlements based on certain sales practices promoting “off-label” drug uses. This increasing focus and scrutiny has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid and other federal and state healthcare programs, among other penalties. If we do not lawfully promote our approved products, we may become subject to such litigation and/or investigation and, if we are not successful in defending against such actions, those actions could compromise our ability to become profitable.

The manufacture and packaging of pharmaceutical products such as oral octreotide are subject to FDA requirements and those of similar foreign regulatory bodies. If we or our third-party manufacturers fail to satisfy these requirements, our product development and commercialization efforts may be harmed.

The manufacture and packaging of pharmaceutical products, such as oral octreotide, if approved, are regulated by the FDA and similar foreign regulatory bodies and must be conducted in accordance with the FDA’s cGMP and comparable requirements of foreign regulatory bodies. There are a limited number of manufacturers that operate

 

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under these cGMP regulations who are both capable of manufacturing oral octreotide and willing to do so. Failure by us or our third-party manufacturers to comply with applicable regulations or requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product, operating restrictions and criminal prosecutions, any of which could harm our business. The same requirements and risks are applicable to the suppliers of the key raw material used to manufacture the active pharmaceutical ingredient, or API, for oral octreotide.

Changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval of the manufacturing process and procedures in accordance with the FDA’s cGMPs. Any new facility is subject to a pre-approval inspection by the FDA and would again require us to demonstrate product comparability to the FDA. There are comparable foreign requirements. This review may be costly and time consuming and could delay or prevent the launch of a product.

Furthermore, in order to obtain approval of our product candidates, including oral octreotide, by the FDA and foreign regulatory agencies, we will be required to consistently produce the API, and the finished product in commercial quantities and of specified quality on a repeated basis and document our ability to do so. This requirement is referred to as process validation. Each of our potential API suppliers will likely use a different method to manufacture API, which has the potential to increase the risk to us that our manufacturers will fail to meet applicable regulatory requirements. We also need to complete process validation on the finished product in the packaging we propose for commercial sales. This includes testing of stability, measurement of impurities and testing of other product specifications by validated test methods. If the FDA does not consider the result of the process validation or required testing to be satisfactory, we may not obtain approval to launch the product or approval, launch or commercial supply after launch may be delayed.

The FDA and similar foreign regulatory bodies may also implement new requirements, or change their interpretation and enforcement of existing requirements, for manufacture, packaging or testing of products at any time. If we are unable to comply, we may be subject to regulatory, civil actions or penalties which could harm our business.

If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of oral octreotide and any future product candidates we may develop may be delayed, and our business will be harmed.

We estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies, clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing approval, or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:

 

    our available capital resources or capital constraints we experience;

 

    the rate of progress, costs and results of our clinical trials and research and development activities, including the extent of scheduling conflicts with participating clinicians and collaborators, and our ability to identify and enroll patients who meet clinical trial eligibility criteria;

 

    our receipt of approvals by the FDA and other regulatory agencies and the timing thereof; other actions, decisions or rules issued by regulators;

 

    our ability to access sufficient, reliable and affordable supplies of compounds used in the manufacture of oral octreotide and any future product candidates we may develop;

 

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    the efforts of our collaborators and the success of our own efforts with respect to the commercialization of our products; and

 

    the securing of, costs related to, and timing issues associated with, product manufacturing as well as sales and marketing activities.

If we fail to achieve announced milestones in the timeframes we announce and expect, the commercialization of oral octreotide and any future product candidates we may develop may be delayed and our business and results of operations may be harmed.

Oral octreotide and other products we may develop may not be commercially viable if we fail to obtain coverage and an adequate level of reimbursement for these products from governmental payors, including Medicare and Medicaid programs, private insurers, and other third-party payors. The market for oral octreotide and other products we may develop may also be limited by the indications for which their use may be reimbursed.

The availability of coverage and adequate levels of reimbursement by governmental and other third-party payors will affect the market for oral octreotide, if approved, and other products that we may develop. These third-party payors continually attempt to contain or reduce the costs of health care by challenging the prices charged for medical products and services and by applying value assessments to clinical outcomes using different safety and efficacy standards than used for marketing approval by the FDA and the EMA.

In the United States, in the event that oral octreotide is approved, we will seek to obtain reimbursement for oral octreotide from third-party payors. In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare program. Comprehensive reforms to the U.S. healthcare system were recently enacted. These reforms could significantly reduce payments from Medicare and Medicaid over the next 10 years. Reforms or other changes to these payment systems, including modifications to the conditions on qualification for payment, bundling of payments or the imposition of enrollment limitations on new providers, may change the availability, methods and rates of reimbursements from governmental payors, private insurers and other third-party payors for oral octreotide and our other potential products. Some of these changes and proposed changes could result in reduced reimbursement rates for oral octreotide and our other potential products, which would adversely affect our business strategy, operations and financial results.

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a product from a governmental or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high.

We expect that private insurers will consider the efficacy, cost effectiveness and safety of oral octreotide, if approved, in determining whether to provide reimbursement for oral octreotide and at what level. Obtaining these additional approvals for reimbursement can be a time-consuming and expensive process. Even if we receive regulatory approval to market oral octreotide, our business would be harmed if we do not receive approval of reimbursement of oral octreotide from third-party payors on a timely or satisfactory basis. Medicare does not cover particular drugs if it determines that they are not “reasonable and necessary” for its beneficiaries. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Our business could be harmed if Medicare, local Medicare carriers or fiscal intermediaries were to make such a determination and deny or limit the reimbursement of oral octreotide.

Our business could also be harmed if governments, private insurers, Medicare, Medicaid or other reimbursing bodies or payors limit the indications for which oral octreotide will be reimbursed to a smaller set than we

 

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believe it is safe and effective in treating, or establish a limitation on the frequency with which oral octreotide may be administered that is less often than we believe would be safe and effective, or establish a limitation on dose that is lower than we believe would be safe and effective.

We expect to experience pricing pressures in connection with the sale of oral octreotide and any future product candidates we may develop due to healthcare reforms, as well as the trend toward programs aimed at reducing health care costs, the increasing influence of health maintenance organizations, additional legislative proposals, and the economic health of companies. If coverage and reimbursement for our products are unavailable, or are limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.

In Europe and many other foreign countries, the pricing of prescription pharmaceuticals is subject to governmental control, and each country has a different reviewing body that evaluates reimbursement dossiers submitted by holders of marketing authorizations for new drugs. That governing body then makes recommendations as to whether or not the drug should be reimbursed. In these countries, pricing negotiations with governmental authorities can take 12 months or longer after the receipt of regulatory approval. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate, such as oral octreotide, to other available therapies.

The longer term growth of our business depends on our efforts to leverage our TPE platform to expand our portfolio of product candidates, which may require substantial financial resources and may ultimately be unsuccessful.

The longer term growth of our business depends upon our ability to utilize our proprietary Transient Permeability Enhancer, or TPE, technology platform to develop and commercialize oral forms of therapies that are currently only available in injectable or other non-absorbable forms. In addition to the development and commercialization of oral octreotide, we intend to pursue development of other product candidates. We may never be able to identify other peptide drugs or poorly absorbed small-molecule drugs that we can successfully develop into product candidates utilizing our TPE platform, let alone receive regulatory approval of such product candidates.

A significant portion of the research that we are conducting involves new technologies. Research programs to identify new disease targets and product candidates require substantial technical, financial and human resources whether or not we ultimately identify any product candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:

 

    the research methodology used may not be successful in identifying potential product candidates; or

 

    potential product candidates may on further study be shown to have harmful side effects or other characteristics that indicate they are unlikely to be effective drugs.

There are a number of FDA requirements that we must satisfy before we can commence a clinical trial. If we are able to identify additional potential product candidates, satisfaction of these regulatory requirements will entail substantial time, effort and financial resources. We may never satisfy these requirements. Any time, effort and financial resources we expend on development of other product candidates may impair our ability to continue development and commercialization of oral octreotide for the treatment of acromegaly and other indications, and we may never commence clinical trials of such development programs despite expending significant resources in pursuit of their development. If we do commence clinical trials of other product candidates, these product candidates may never demonstrate sufficient safety and efficacy to be approved by the FDA or other regulatory authorities. If any of these events occur, we may be forced to abandon our development efforts for such program or programs, which would harm our business.

 

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Our ability to develop a viable pipeline of potential future products may require us to enter into license agreements with third parties, and we may not be successful in negotiating the necessary agreements.

Although we are currently seeking to develop our pipeline of future potential products through internal research programs, we may also consider expanding the scope of our pipeline by licensing injectable or poorly absorbed drugs from third parties, with the goal of converting these drugs into novel oral forms of therapies using our TPE platform.

We may, however, be unable to license or acquire suitable product candidates from third parties, for a number of reasons. In particular, the licensing and acquisition of pharmaceutical products is a competitive area. Several more established companies are also pursuing strategies to license or acquire products in the somatostatin analog field. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. Other factors that may prevent us from licensing or otherwise acquiring suitable product candidates include the following:

 

    we may be unable to license or acquire the relevant technology on terms that would allow us to make an appropriate return from the product;

 

    companies that perceive us to be their competitors may be unwilling to assign or license their product rights to us; or

 

    we may be unable to identify suitable products or product candidates within our areas of expertise.

Additionally, we may not have sufficient human and financial resources to develop suitable potential product candidates both through internal research programs and by obtaining rights from third parties, thereby limiting our ability to develop a diverse product portfolio. If we are unable to develop such a portfolio, our business may suffer.

We may be unable to obtain orphan drug designation or exclusivity for future product candidates we may develop. If our competitors are able to obtain orphan drug exclusivity for their products that are the same as our product candidates, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.

Our oral octreotide product candidate has been granted orphan designation in the United States and the European Union for the oral treatment of acromegaly. Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than 200,000 individuals diagnosed annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the European Commission, after reviewing the opinion of the EMA’s Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the product candidate. Even if we request orphan drug designation for any future product candidates we may develop, there can be no assurances that the FDA or the European Commission will grant any of these product candidates such designation. Additionally, the designation by the FDA of any of our product candidates as an orphan drug does not guarantee that the FDA will accelerate regulatory review of or ultimately approve that product candidate.

Generally, if a product candidate with an orphan drug designation subsequently receives the first marketing approval of the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. The applicable period is seven years in

 

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the United States and 10 years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

Even though we have obtained orphan drug exclusivity for oral octreotide in acromegaly and may obtain orphan drug exclusivity for oral octreotide in other indications or for future product candidates we may develop, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition and the same drugs can be approved for different indications and might then be used off-label in our approved indication. In the United States, even after an orphan drug is approved, the FDA can subsequently approve another drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, if one of our product candidates that receives an orphan drug designation is approved for a particular indication or use within the rare disease or condition, the FDA may later approve the same drug for additional indications or uses within that rare disease or condition that are not protected by our exclusive approval. As a result, if our product is approved and receives orphan drug status, the FDA can still approve other drugs for use in treating the same indication or disease covered by our product, which could create a more competitive market for us.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of oral octreotide and any future product candidates we may develop for which we obtain marketing approval. Our arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our operations and expose us to areas of risk including the following:

 

    the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;

 

    federal civil and criminal false claims laws and civil monetary penalty laws, which impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also created federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services;

 

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

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    The Patient Protection and Affordable Care Act, or the Affordable Care Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid or Children’s Health Insurance Program to report annually to Centers for Medicare and Medicaid Services, or CMS, information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members and applicable group purchasing organizations; and

 

    analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties are compliant with applicable healthcare laws and regulations will involve the expenditure of appropriate, and possibly significant, resources. Nonetheless, it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Legislative or regulatory reform of the health care system in the United States and foreign jurisdictions may adversely impact our business, operations or financial results.

Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. In particular, in March 2010, the Affordable Care Act and a related reconciliation bill were signed into law. This legislation changes the current system of healthcare insurance and benefits intended to broaden coverage and control costs. The law also contains provisions that will 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 have been increased, and the rebate requirement has been extended to drugs used in risk-based Medicaid managed care plans.

 

    the definition of “average manufacturer price” was revised for reporting purposes, which could increase the amount of Medicaid drug rebates by state.

 

    the 340B Drug Pricing Program under the Public Health Service Act has been 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.”

 

   

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. The aggregated industry-wide fee is expected to total $28 billion through 2019. Since we expect our branded pharmaceutical sales to constitute a small portion of the

 

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total federal health program pharmaceutical market, we do not expect this annual assessment to have a material impact on our financial condition.

Despite initiatives to invalidate the Affordable Care Act, the U.S. Supreme Court has upheld certain key aspects of the legislation, including the requirement that all individuals maintain health insurance coverage or pay a penalty, referred to as the individual mandate. Currently, the U.S. Supreme Court is considering a key provision of the Affordable Care Act, which provides federal premium tax credits to individuals purchasing coverage through health insurance exchanges, in a case before the court, King v. Burwell . An adverse decision in that case could curtail the number of individuals who have become, or are expected to be, newly insured. A decision in King v. Burwell is expected in 2015. Additionally, there are legal challenges to the Affordable Care Act in lower courts on other grounds. We will not know the full effects of the Affordable Care Act until applicable federal and state agencies issue regulations or guidance under the law. Although it is too early to determine the effect of the Affordable Care Act, the law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

The full effects of the U.S. healthcare reform legislation cannot be known until the new law is fully implemented through regulations or guidance issued by CMS and other federal and state healthcare agencies. The financial impact of the U.S. healthcare reform legislation over the next few years 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.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013, which will remain in effect until 2024 unless additional congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.

In addition, in September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted giving the FDA enhanced post-marketing authority including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to ensure compliance with post-approval regulatory requirements and potential restrictions on the sale and/or distribution of approved products. Other legislative and regulatory initiatives have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. For example, the Drug Supply Chain Security Act of 2013 imposes new obligations on manufacturers of certain pharmaceutical products related to product tracking and tracing. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance documents or interpretations will be changed, or what the impact of such changes on the marketing approvals of oral octreotide, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

Further, in some foreign jurisdictions, including the European Union and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take 12 months or longer after the receipt of regulatory approval and product launch. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that

 

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compares the cost-effectiveness of oral octreotide and any future product candidate we may develop to other available therapies. Our business could be harmed if reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

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 oral octreotide and any other 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.

We may not be able to maintain our current product liability coverage, and, even if we do, our coverage may not be adequate to cover any or all liabilities that we may incur, which could decrease our cash and harm our business.

We currently have $10.0 million in product liability insurance coverage in the aggregate, which may not be adequate to cover any or all liabilities that we may incur. 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. We intend to expand our product liability insurance coverage to include the sale of commercial products if we obtain marketing approval of oral octreotide and any future product candidates we may develop, but we may be unable to obtain commercially reasonable product liability insurance for our product candidates, if approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash and harm our business. In addition, we may not be able to maintain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims, which could prevent or inhibit the commercial production and sale of our products.

Additionally, if any claims are brought against us, even if we are fully covered by insurance, we may suffer harm such as adverse publicity. We also could suffer diversion of attention of technical and management personnel and incur substantial costs in resolving disputes, including litigation, with our insurance provider regarding coverage.

Risks Related to Our Reliance on Third Parties

We are, and expect to be for the foreseeable future, dependent on a limited number of third parties to manufacture oral octreotide, and our commercialization of oral octreotide could be halted, delayed or made less profitable if those third parties fail to pass inspections by the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of oral octreotide or fail to do so at acceptable quality levels or prices or on a timely basis.

We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture the API in oral octreotide for use in our clinical trials or for commercial product, if regulatory approvals are obtained. We have qualified Novetide Ltd., a subsidiary of Teva Pharmaceuticals Industries Ltd., in Israel, and Bachem Americas Inc., in the United States, as suppliers of the generic API, octreotide acetate. All excipients, or substances formulated together with the API, used in manufacture of oral octreotide are readily available. The octreotide API is formulated with our TPE technology and filled into capsules and enteric-coated by Lyophilization Services of New England Inc. in Bedford, NH and Encap Drug Delivery, a division of Capsugel, or Encap, in Livingston, Scotland.

The facilities used by our contract manufacturers to manufacture oral octreotide must be evaluated by the FDA pursuant to inspections that will be conducted following acceptance of our NDA by the FDA for filing. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs for manufacture of both active drug substances and finished drug products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to

 

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oral octreotide. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to secure and/or maintain regulatory approval of our product candidate being manufactured at their manufacturing facilities. If the FDA or a comparable foreign regulatory authority finds deficiencies at these facilities and does not approve our NDA for oral octreotide or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval of or market oral octreotide, if approved.

Our contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. We do not have control over our contract manufacturers’ compliance with these regulations and requirements. Failure by any of our contract manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market oral octreotide, delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could harm our business. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with or maintain any of these requirements could impair our ability to develop, obtain regulatory approval of or market oral octreotide.

If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our API or finished oral octreotide product or should cease doing business with us, we could experience significant interruptions in the supply of oral octreotide or may not be able to create a supply of oral octreotide at all. Were we to encounter manufacturing issues, our ability to produce a sufficient supply of oral octreotide might be negatively affected. Our inability to coordinate the efforts of our third-party manufacturing partners, or the lack of capacity available at our third-party manufacturing partners, could impair our ability to supply oral octreotide at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk or finished product manufacturer, if we face these or other difficulties with our current manufacturing partners, we could experience significant interruptions in the supply of oral octreotide if we decided to transfer the manufacture of oral octreotide to one or more alternative manufacturers in an effort to deal with the difficulties.

Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally, we rely on third parties to supply the raw materials needed to manufacture our potential products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to future contract manufactures caused by problems at suppliers could delay shipment of oral octreotide, increase our cost of goods sold and result in lost sales.

We cannot guarantee that our current manufacturing and supply partners or any alternative service providers will be able to reduce the costs of commercial scale manufacturing of oral octreotide over time. If the manufacturing costs of oral octreotide remain at current levels, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize output, we may not be able to reduce our costs over time.

 

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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 medical, radioactive and hazardous materials. Although we believe that our manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed requirements, we cannot completely eliminate the risk of contamination or injury resulting from such 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, interrupting 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. 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.

A key element of our strategy is to enter into licensing or collaboration agreements with respect to oral octreotide and future product candidates in certain territories. We may not be able to identify suitable collaborators and, even if we do, our dependence on such relationships may adversely affect our business.

Because we have limited resources, we may seek to enter into collaboration agreements with other pharmaceutical or biotechnology companies. Our strategy for commercializing oral octreotide and any future product candidates we may develop outside of the United States may depend on our ability to enter into agreements with collaborators to obtain assistance and funding for the development and potential commercialization of our product candidates in the territories in which we may seek to partner. Despite our efforts, we may be unable to secure collaborative licensing or other arrangements that are necessary for us to further develop and commercialize our product candidates. Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty for us, as we have less control over certain aspects of our collaborative programs than we do over our proprietary development and commercialization programs.

Any failure by our partners to perform their obligations or any decision by our partners to terminate these agreements could negatively impact our ability to successfully develop, obtain regulatory approvals for and commercialize our product candidates. In the event we grant exclusive rights to such partners, we could be precluded from potential commercialization of our product candidates within the territories in which we have a partner. In addition, any termination of our collaboration agreements will terminate any funding we may receive under the relevant collaboration agreement and may impair our ability to fund further development efforts and our progress in our development programs. For example, in July 2014, Roche elected to terminate a license agreement with us for oral octreotide. As a result, we assumed responsibility for the further development and commercialization of oral octreotide and will receive no additional funding from Roche for this purpose.

Further, our potential future collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities or focus of our collaborators may shift such that our product candidates receive less attention or resources than we would like, or they may be terminated altogether. Any such actions by our potential future collaborators may harm our business prospects and ability to earn revenues. In addition, we could have disputes with our potential future collaborators, such as the interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of our product candidates or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.

 

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We rely, and will rely in the future, on third parties to conduct our nonclinical studies and clinical trials. If these third parties do not appropriately carry out their contractual duties, fail to conduct high-quality studies or meet expected deadlines, regulatory approval and commercialization of oral octreotide or any future candidates we may develop could be delayed or not obtained at all.

We do not have the ability to conduct all of our clinical trials independently. We will continue to rely on third parties, including clinical investigators, third-party CROs and consultants, to monitor, manage data for, and execute our ongoing nonclinical and planned clinical programs for oral octreotide and other potential product candidates, and we control only some aspects of their activities. Because we rely on third parties, our internal capacity to perform these functions is limited. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers. Nevertheless, we are responsible for ensuring that each of our nonclinical studies and clinical trials are conducted in accordance with the applicable protocol and legal, regulatory and scientific requirements and standards, including, for example, Good Laboratory Practices, or GLPs, the Animal Welfare Act and Good Clinical Practices, or GCPs. Our reliance on third parties does not relieve us of our regulatory responsibilities. Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the relevant regulatory authorities may require us to perform additional clinical trials in support of our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. Failure to comply with these regulations may require us to repeat nonclinical studies and clinical trials, which would delay the regulatory approval process.

The third parties conducting our nonclinical studies and clinical trials are not our employees, and, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and nonclinical programs. To the extent we are unable to identify and successfully manage the performance of third-party service providers in the future, our business may be adversely affected. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our nonclinical studies and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval of or successfully commercialize oral octreotide and any future product candidates we may develop. As a result, our results of operations and the commercial prospects for our product candidates could be harmed, our costs could increase and our ability to generate revenues could be delayed.

Risks Related to Our Financial Position and Capital Resources

We have incurred significant losses since our inception and anticipate that we will incur continued losses for the next several years and thus may never achieve or maintain profitability.

Since inception, we have incurred significant operating losses. Our net loss was $2.0 million for the year ended December 31, 2014 and $4.2 million for the three months ended March 31, 2015. We had net income of $36.2 million for the year ended December 31, 2013 and $2.1 million for the three months ended March 31, 2014, primarily the result of revenue recognized under the license agreement with Roche. As of March 31, 2015, we had an accumulated deficit of $85.8 million. We have no products approved for commercialization and have never generated any product revenue. We expect to incur increasing operating losses over the next several years. Past operating losses, combined with expected future operating losses, have had and will continue to have an adverse effect on our cash resources, stockholders’ equity and working capital. If we obtain regulatory approval of oral octreotide or any future product candidates, we may incur significant sales, marketing, in-licensing and outsourced manufacturing expenses, as well as continued research and development expenses. In addition, we expect our research and development expenses to significantly increase in connection with our proposed Phase 3 clinical trial for oral octreotide for the treatment of acromegaly, and Phase 2 clinical trials for oral octreotide for the treatment of NETs and other indications, and as we explore additional product candidates for our drug pipeline. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the

 

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numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the value of our stock and impair our ability to raise capital, expand our business, maintain our development efforts, obtain regulatory approvals, diversify our product pipeline or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We have not generated any revenue from any commercial products and may never be profitable.

Our ability to become profitable depends upon our ability to generate revenue. Unless and until marketing approval is obtained from either the FDA or EMA for oral octreotide or any future product candidates we may develop, we may not be able to generate sufficient revenue to attain profitability. In addition, our ability to generate profits after any FDA or EMA approval of our product candidates is subject to our ability to contract for the manufacture of commercial quantities of our product candidates at acceptable cost levels and establish sales and marketing capabilities or identify and enter into one or more strategic collaborations to effectively market and sell any approved product candidate.

Even if oral octreotide or any future product candidates is approved for commercial sale, any approved product candidate may not gain market acceptance or achieve commercial success. In addition, we would anticipate incurring significant costs associated with commercializing any approved product. We may not achieve profitability soon after generating product sales, if ever. If we are unable to generate product revenues, we will not become profitable and may be unable to continue operations without continued funding.

We have a limited operating history and no history of commercializing drugs, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

Although we commenced operations in 2001, our operations to date have been largely focused on raising capital and developing oral octreotide, including undertaking nonclinical studies and conducting clinical trials. Oral octreotide is our only current product candidate for which we have conducted clinical trials and for oral octreotide we have completed only a single later-stage clinical trial to date. We have not yet demonstrated our ability to successfully complete additional later-stage clinical trials, obtain regulatory approvals, manufacture a commercial-scale drug or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing drugs.

We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will need to transition at some point from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

 

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We may need additional capital to support our growth, which may be difficult to obtain and restrict our operations and would result in additional dilution to our stockholders.

Our business will require additional capital that we have not yet secured. We expect that the net proceeds from this offering and our cash as of March 31, 2015 will fund our operating expenses and capital expenditure requirements through at least the end of 2016. During this period, we expect to seek regulatory approval of oral octreotide in the United States and, if this is granted, launch oral octreotide in the United States, initiate an additional Phase 3 clinical trial of oral octreotide to treat acromegaly required for European regulatory approval, continue clinical development plans for the use of oral octreotide in other indications, and conduct additional nonclinical studies to expand our product pipeline. However, the actual amount of funds that we will need will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include but are not limited to:

 

    the status of our NDA for oral octreotide in acromegaly;

 

    the amount of our future operating losses;

 

    expenses relating to the commercialization of oral octreotide, if approved;

 

    if oral octreotide is approved, the level of success of its initial commercial launch in the United States;

 

    the timing of approvals, if any, of oral octreotide in additional jurisdictions; the need and cost of conducting additional clinical trials for oral octreotide and our other drug candidates;

 

    the amount of our research and development, marketing and general and administrative expenses;

 

    the extent to which we enter into, maintain, and derive revenues from licensing agreements, including agreements to out-license oral octreotide, research and other collaborations, joint ventures and other business arrangements;

 

    our success in integrating, technologies or companies that we may acquire; and

 

    regulatory changes and technological developments in our markets.

General market conditions or the market price of our common stock may not support capital-raising transactions, such as an additional public or private offering of our common stock or other securities. In addition, our ability to raise additional capital may be dependent upon our stock being quoted on The NASDAQ Global Market or upon obtaining stockholder approval. There can be no assurance that we will be able to satisfy the criteria for continued listing on The NASDAQ Global Market or that we will be able to obtain stockholder approval if it is necessary. If we are unable to obtain additional funds on a timely basis or on terms favorable to us, even if our NDA for oral octreotide is approved, we may be required to cease or reduce further commercialization, to cease or reduce certain research and development projects, to sell some or all of our technology or assets or business units or to merge all or a portion of our business with another entity. In the event additional financing is needed or advisable, we may seek to fund our operations through the sale of equity securities, additional debt financing and strategic collaboration agreements. We cannot be sure that additional financing from any of these sources will be available when needed or that, if available, the additional financing will be obtained on terms favorable to us or our stockholders especially in light of the current difficult financial environment. If we raise additional funds by selling shares of our capital stock, the ownership interest of our current stockholders will be diluted. If we attempt to raise additional funds through strategic collaboration agreements, we may not be successful in obtaining collaboration agreements, or in receiving milestone or royalty payments under those agreements, or the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to commercialize oral octreotide or any future product candidates or operate our business.

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

We may seek additional capital through a combination of private and public equity offerings, debt financings and collaboration, strategic and licensing arrangements. To the extent that we raise additional capital through the sale

 

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of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

Risks Related to Our Business and Industry

We depend on the knowledge and skill of our senior management and other key employees, and if we are unable to retain or if we fail to recruit additional highly skilled personnel, our business will be harmed.

Our ability to compete in the highly competitive pharmaceuticals industry depends in large part upon our ability to attract and retain highly qualified managerial, commercial, scientific and medical personnel. We are highly dependent on our management, commercial, scientific and medical personnel. In order to induce valuable employees to remain with us, we have provided employees with stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that we cannot control and, together with our other compensation programs and benefits, may at any time be insufficient to counteract more lucrative offers from other companies.

We are highly dependent upon the principal members of our management team, including Mark Leuchtenberger, our Chief Executive Officer, Roni Mamluk, our Chief Development Officer, and Mark J. Fitzpatrick, our Chief Financial Officer. These executives have significant research and development, endocrine, regulatory industry, sales and marketing, operational, and/or corporate finance experience. The loss of any executive or other principal member of our management team would impair our ability to identify, develop and market new products and conduct successful operations.

In addition, our growth will require us to hire a significant number of qualified technical, commercial and administrative personnel. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. Other biopharmaceutical companies with which we compete for qualified personnel may have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can develop and commercialize oral octreotide and any future product candidates we may develop would be impaired and could adversely affect our growth and financial performance.

We may acquire additional businesses or form strategic alliances in the future, and we may not realize the benefits of such acquisitions or alliances.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may have difficulty in developing, manufacturing and marketing the products of a newly acquired company that enhances the performance of our combined businesses or product lines to realize value from expected synergies. We cannot assure that, following an acquisition, we will achieve the revenues or specific net income that justifies the acquisition.

Potential technological changes in our field of business create considerable uncertainty.

We are engaged in the biopharmaceutical field, which is characterized by extensive research efforts and rapid technological progress. New developments in research are expected to continue at a rapid pace in both industry

 

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and academia. We cannot assure you that research and discoveries by others will not render some or all of our programs or product candidates uncompetitive or obsolete. The longer-term success of our business depends upon our ability to utilize our TPE platform to develop and commercialize oral forms of therapies that are currently only available in injectable or other non-absorbable forms. We cannot assure you that unforeseen problems will not develop with our TPE technology or applications or that any commercially feasible products will ultimately be developed by us.

Our employees, independent contractors, consultants, commercial partners, principal investigators, CROs and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.

We are exposed to the risk that our employees, independent contractors, consultants, commercial partners, principal investigators, CROs and vendors may engage in fraudulent conduct or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory authorities, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, and to report financial information or data accurately or disclose unauthorized activities to us. The misconduct of our employees and contractors could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Upon the consummation of this offering, we will have implemented a code of conduct and ethics for our directors, officers and employees, but it is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

Our business and operations would suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security.

Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition, our systems safeguard important confidential personal data regarding patients enrolled in our clinical trials. If a disruption event were to occur and cause interruptions in our operations, it could result in a disruption of our drug development programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results 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 oral octreotide and any future product candidates we may develop could be delayed.

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

Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, military conflicts, acts of terrorism and other natural or man-made disasters or business interruptions. Some of our operations are in Israel, which has a history of certain conflicts. The occurrence of any business disruptions could seriously harm our

 

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operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce oral octreotide. Our ability to obtain clinical supplies of oral octreotide could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption, as we do not carry insurance to cover such risks.

Laws and regulations governing conduct of international operations may negatively impact our development, manufacture and sale of products outside of the United States and require us to develop and implement costly compliance programs.

As we have substantial operations in Israel and may seek to further expand our operations outside of the United States, we must comply with numerous laws and regulations in Israel and each other jurisdiction in which we plan to operate. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where we must rely on third parties.

The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the DOJ. The Securities and Exchange Commission, or SEC, is involved with enforcement of the books and records provisions of the FCPA.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain foreign nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expanding presence outside of the United States will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling oral octreotide and any future product candidates we may develop outside of the United States, which could limit our growth potential and increase our development costs.

The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. Additionally, the SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

Exchange rate fluctuations between the U.S. dollar and non-U.S. currencies may negatively affect our results of operations.

The U.S. dollar is our functional and reporting currency, however, a portion of our operations are currently conducted in Israel and most of the Israeli expenses are currently paid in New Israeli Shekels, or NIS. We also

 

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contract with CROs internationally, primarily for the execution of clinical trials and manufacturing activities. A portion of these transactions are settled in Euros or Great British Pounds, or GBPs. As a result, we are exposed to the risk that the NIS, Euro or GBP may appreciate relative to the U.S. dollar, or, if the NIS, Euro or GBP instead devalue relative to the U.S. dollar, that the relative inflation rate may exceed such rate of devaluation, or that the timing of such devaluation may lag behind the relative inflation. In any such event, the U.S. dollar cost of our operations in Israel and transactions with certain CROs would increase and our U.S. dollar-denominated results of operations would be adversely affected. To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations. If the U.S. dollar cost of our operations increases, our U.S. dollar-measured results of operations will be adversely affected. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosure About Market Risk.”

Risks Related to Our Intellectual Property

If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate to protect our technology and product candidates, our competitors could develop and commercialize technology and drugs similar to ours, and our competitive position could be harmed.

Our commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality and other agreements with employees and third parties, all of which offer only limited protection. Our strategy is to seek patent protection for our product candidates and compositions, their methods of use and processes for their manufacture, and any other aspects of inventions that are commercially important to the development of our business.

The patent prosecution process is expensive and time-consuming, and we and any future licensors and licensees 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. We may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is also possible that we 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 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 or 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.

The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of any patents that issue, are highly uncertain. The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the United States. Further, the examination process may require us to narrow the claims of pending patent applications,

 

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which may limit the scope of patent protection that may be obtained if these applications issue. The rights that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be impaired.

With respect to patent rights, we do not know whether any of our patent applications will result in issued patents or, if any of our patent applications do issue, whether such patents will protect our technology and drugs, in whole or in part, or whether such patents will effectively prevent others from commercializing competitive technologies and products. There is no guarantee that any of our issued or granted patents will not later be found invalid or unenforceable. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore we cannot be certain that we were the first to make the inventions claimed in our pending patent applications, that we were the first to file for patent protection of such inventions, or that we have found all of the potentially relevant prior art relating to our patents and patent applications that could invalidate one or more of our patents or prevent one or more of our patent applications from issuing. Even if patents do successfully issue and even if such patents cover our product candidates, third parties may initiate oppositions, interferences, re-examinations, post-grant reviews, inter partes reviews, nullification or derivation actions in court or before patent offices or similar proceedings challenging the validity, enforceability, or scope of such patents, which may result in the patent claims being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties.

Furthermore, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and drugs, or limit the duration of the patent protection of our technology and drugs. Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing drugs similar or identical to ours.

We may become 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. In a 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. A court may decide that a patent of ours or our licensors is not valid or is unenforceable, or 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. With respect to the validity question, for example, we cannot be certain that no invalidating prior art exists. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, found unenforceable, or interpreted narrowly, and it 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

 

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resources from our business. 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 an adverse impact on our business.

Interference proceedings brought by the USPTO may be necessary to determine the priority of inventions with respect to our patents and patent applications or those of our collaborators or licensors. An unfavorable outcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distraction of our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our proprietary rights, 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.

Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO or other foreign patent offices, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or drugs and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize drugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop, or commercialize current or future product candidates.

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

Filing, prosecuting and defending patents on oral octreotide and our TPE platform throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. In addition, the laws and practices of some foreign countries do not protect intellectual property rights, especially those relating to life sciences, to the same extent as federal and state laws in the United States. For example, novel formulations of existing drugs and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Also, some foreign countries, including European Union countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. Consequently, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, and 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 into or within the United States or other jurisdictions. This could limit our potential revenue opportunities. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing with us in these jurisdictions. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from our intellectual property. We may not prevail in any lawsuits that we initiate in these foreign countries and the damages or other remedies awarded, if any, may not be commercially meaningful.

 

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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.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which could be uncertain and could harm our business.

While our product candidates are in nonclinical studies and clinical trials, we believe that the use of our product candidates in these nonclinical studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. As our product candidates progress toward commercialization, the possibility of a patent infringement claim against us increases. There can be no assurance that our product candidates do not infringe other parties’ patents or other proprietary rights, however, and competitors or other parties may assert that we infringe their proprietary rights in any event. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates, including interference or derivation proceedings before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue commercializing our product candidates. However, we may not be able to obtain any required license on commercially reasonable terms or 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. Under certain circumstances, we could be forced, including by court order, to cease commercializing our product candidates. In addition, in any such proceeding or litigation, we could be found liable for substantial monetary damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business.

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.

 

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Oral octreotide or any future products we may develop may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.

Our success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third-party patent rights that may be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization of oral octreotide or any future product candidate. There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop, or commercialize oral octreotide, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming and may:

 

    result in costly litigation;

 

    divert the time and attention of our technical personnel and management;

 

    cause product development or commercialization delays;

 

    prevent us from commercializing a product until the asserted patent expires or is held finally invalid or not infringed in a court of law;

 

    require us to cease or modify our use of the technology and/or develop non-infringing technology; or

 

    require us to enter into royalty or licensing agreements.

Although no third party has asserted a claim of infringement against us, others may hold proprietary rights that could prevent oral octreotide from being marketed. Any patent-related legal action against our collaborators or us claiming damages and seeking to enjoin commercial activities relating to oral octreotide or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market oral octreotide or any future product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign oral octreotide or any future product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing oral octreotide or a future product candidate, which could harm our business, financial condition and operating results.

A number of companies, including several major pharmaceutical companies, have conducted research on pharmaceutical uses of somatostatin analogs, which resulted in the filing of many patent applications related to this research. If we were to challenge the validity of these or any issued U.S. patent in court, we would need to overcome a statutory presumption of validity that attaches to every U.S. patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. If we were to challenge the validity of these or any issued U.S. patent in an administrative trial before the Patent Trial and Appeal Board in the USPTO, we would have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability.

Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner.

Our competitors may seek to market generic versions of any approved products by submitting abbreviated NDAs to the FDA in which our competitors claim that our patents are invalid, unenforceable or not infringed. Alternatively, our competitors may seek approval to market their own products that are the same as, similar to or

 

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otherwise competitive with oral octreotide and any future product candidates we may develop. In these circumstances, we may need to defend or assert our patents, by means including filing lawsuits alleging patent infringement requiring us to engage in complex, lengthy and costly litigation or other proceedings. In any of these types of proceedings, a court or government agency with jurisdiction may find our patents invalid, unenforceable or not infringed. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

Changes in either U.S. or foreign patent law or interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and it therefore is costly, time-consuming and inherently uncertain. In addition, on September 16, 2011, the Leahy-Smith America Invents Act, or the AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation.

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.

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 necessary to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard in United States federal court, 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 United States Congress, the federal courts, the USPTO, or similar authorities in foreign jurisdictions, 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.

If we are unable to protect the confidentiality of our trade secrets, 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. 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. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming,

 

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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.

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.

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 companies and universities. We may be subject to claims that we or our 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 Our Operations in Israel

The tax benefits available to us under Israeli law require us to meet several conditions and may be terminated or reduced in the future, which would increase our costs and taxes.

We have generated income and are able to take advantage of tax exemptions and reductions resulting from the “beneficiary enterprise” status of our facilities in Israel. To remain eligible for these tax benefits, we must continue to meet certain conditions stipulated in the Israeli Law for the Encouragement of Capital Investments, 1959 and its regulations. If we fail to meet these conditions in the future, the tax benefits would be canceled and we could be required to refund any tax benefits we might already have received. These tax benefits may not be continued in the future at their current levels or at any level. In recent years, the Israeli government has reduced the benefits available and has indicated that it may further reduce or eliminate some of these benefits in the future. The termination or reduction of these tax benefits may increase our income taxes in the future. Additionally, if we increase our activities outside of Israel, for example, by future acquisitions, our increased activities generally will not be eligible for inclusion in Israeli tax benefit programs.

We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and harm our business.

A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, and recent decisions by the Israeli Supreme Court and the Israeli Compensation and Royalties Committee, a body constituted under the Patent Law, employees may be entitled to remuneration for intellectual property that they develop for us unless they explicitly waive any such rights. Although we enter into agreements with our employees pursuant to which they agree that any inventions created in the scope of their employment or engagement are owned exclusively by us, we may face claims demanding remuneration. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and former employees, or be forced to litigate such claims, which could negatively affect our business.

 

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Our research and development and administrative facilities and one of our third-party manufacturers are located in Israel and, therefore, our business could be hurt by political and military instability in Israel.

Our research and development and administrative facilities and one of our third-party manufacturers’ facilities are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, as well as certain political and military groups. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could materially and adversely affect our business, financial condition and results of operations and could make it more difficult for us to raise capital. In particular, an interruption of operations at the Tel Aviv airport related to the conflict in the Gaza Strip could prevent or delay shipments of our components or products. An extended interruption could materially and adversely affect our business, financial condition and results of operations. Recent political uprisings, social unrest and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and has raised concerns regarding security in the region and the potential for armed conflict. Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Any losses or damages incurred by us could have an adverse effect on our business. Any armed conflicts, terrorist activities or political instability in the region could materially and adversely affect our business, financial condition and results of operations.

Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.

Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could harm our business, financial condition and results of operations.

Under current Israeli law, we may not be able to enforce our Israeli employees’ covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.

We generally enter into non-competition agreements with our key employees, in most cases within the framework of their employment agreements. These agreements prohibit our key employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. Under applicable Israeli law, we may be unable to enforce these agreements or any part thereof against our Israeli employees. If we cannot enforce our non-competition agreements against our Israeli employees, then we may be unable to prevent our competitors from benefiting from the expertise of these former employees, which could impair our business, results of operations and ability to capitalize on our proprietary information.

Risks Related to Our Common Stock and this Offering

We may not be able to utilize a significant portion of our net operating loss carryforwards, which could negatively impact our profitability.

At March 31, 2015, we had federal net operating loss, or NOL, carryforwards of $27.0 million. The federal NOL carryforwards expire at various dates through 2035. At March 31, 2015, we had NOL carryforwards in our Israeli subsidiary of $0.3 million. The foreign NOLs may be carried forward indefinitely, but may not be used to offset future taxable income in the United States.

 

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Under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382, substantial changes in our ownership may limit the amount of federal NOL carryforwards that can be utilized annually in the future to offset our U.S. federal taxable income. Specifically, this limitation may arise in the event of a cumulative change in our ownership of more than 50% within any three-year period. Management has determined that we experienced an ownership change for purposes of Section 382 on August 16, 2005 and May 12, 2008. These ownership changes resulted in annual limitations to the amount of NOL carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The annual limit is approximately $0.1 million for 2014 and each year thereafter. These annual limitations resulted in the loss of our ability to utilize approximately $8.9 million in federal NOL carryforwards, which resulted in a write-off of approximately $3.0 million of federal deferred tax assets prior to 2013. In addition, future changes in our stock ownership, which may be outside of our control, may trigger an ownership change, as may future equity acquisitions that have equity as a component and of the purchase price. If additional ownership changes occur in the future, our ability to utilize our net operating losses to offset income if we attain profitability may be limited.

Our directors, executive officers and principal stockholders exercise significant control over our company, which will limit your ability to influence corporate matters.

As of March 31, 2015, our executive officers, directors and principal stockholders collectively controlled approximately 88.0% of our outstanding common stock, excluding any shares of common stock that such persons may have the right to acquire upon exercise of outstanding options or warrants. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.

We will have broad discretion in how we use the proceeds of this offering and may use these proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.

We will have considerable discretion in the application of the net proceeds of this offering. We intend to use the net proceeds from this offering to obtain marketing approval and prepare for the commercial launch in the United States of oral octreotide for the treatment of acromegaly, to initiate a second Phase 3 clinical trial of oral octreotide for the treatment of acromegaly, to initiate Phase 2 clinical trials of oral octreotide for the treatment of NETs and other indications, working capital and other general corporate purposes, which may include funding for the hiring of additional personnel, capital expenditures and the costs of operating as a public company. As a result, investors will be relying upon senior management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Provisions of Delaware law or our charter documents could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for you to change our current management.

Provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws, which will be effective upon the completion of this offering, may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current management or members of our board of directors. These provisions include:

 

    a classified board of directors;

 

    limitations on the removal of directors;

 

    advance notice requirements for stockholder proposals and nominations;

 

    the inability of stockholders to act by written consent or to call special meetings;

 

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    the ability of our board of directors to make, alter or repeal our amended and restated bylaws; and

 

    the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine.

The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, is necessary to amend or repeal the above provisions that are contained in our amended and restated certificate of incorporation. In addition, absent approval of our board of directors, our amended and restated bylaws may only be amended or repealed by the affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.

In addition, upon the closing of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law, which limits business combination transactions with stockholders of 15% or more of our outstanding voting stock that our board of directors has not approved. These provisions and other similar provisions make it more difficult for stockholders or potential acquirers to acquire us without negotiation. These provisions may apply even if some stockholders may consider the transaction beneficial to them.

As a result, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock. These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a premium over the then current market price for our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

An active trading market for our common stock may not develop, and you may not be able to resell your shares of our common stock at or above the initial public offering price, if at all.

Prior to this offering, there has been no public market for shares of our common stock. Although our common stock has been approved for listing on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our common stock was determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after this offering. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial public offering price or at the time that they would like to sell, if at all.

 

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The trading price of our common stock may be volatile, and your investment in our common stock could decline in value and incur substantial losses.

Prior to this offering, there has been no public market for our common stock, and an active public market for our common stock may not develop or be sustained after this offering. The initial public offering price of our common stock was determined by negotiations between the representatives of the underwriters and us and may not be indicative of future market prices. The following factors were considered in determining the initial public offering price of our common stock:

 

    prevailing market conditions;

 

    estimates of our business potential and earnings prospects; and

 

    an assessment of our management.

If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. The market price for our common stock may be influenced by many factors, including:

 

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

 

    any delay in our regulatory filings for oral octreotide or any other future product candidate and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings, including without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information;

 

    adverse results or delays in clinical trials;

 

    our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;

 

    adverse regulatory decisions, including failure to receive regulatory approval of oral octreotide;

 

    changes in laws or regulations applicable to oral octreotide or any other future product candidates, including clinical trial requirements for approvals;

 

    adverse developments concerning our manufacturers;

 

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

 

    our inability to establish collaborations, if needed;

 

    failure to commercialize oral octreotide or any other future product candidates;

 

    our ability to obtain coverage and adequate reimbursement from third party payors for oral octreotide or any other future product candidates;

 

    unanticipated serious safety concerns related to the use of oral octreotide or any other future product candidates;

 

    our ability to effectively manage our growth;

 

    the size and growth of our initial target markets;

 

    actual or anticipated variations in our operating results;

 

    changes in financial estimates by us or by any securities analysts who might cover our stock;

 

    conditions or trends in our industry;

 

    changes in the market valuations of similar companies;

 

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    stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the biopharmaceutical industry;

 

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

 

    announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;

 

    announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

 

    capital commitments;

 

    investors’ general perception of our company and our business;

 

    recruitment or departure of key personnel;

 

    sales of our common stock in the future, including sales by our directors and officers or specific stockholders;

 

    overall performance of the equity markets;

 

    trading volume of our common stock;

 

    changes in accounting practices;

 

    ineffectiveness of our internal controls;

 

    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.

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

The market price of our securities may be volatile, and in the past companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

If you purchase shares of our common stock in this offering, you will suffer immediate dilution of your investment.

If you purchase common stock in this offering, you will pay more for your shares than the amounts paid by existing stockholders for their shares. You will incur immediate and substantial dilution of $         per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the initial public offering price of $         per share. In the past, we issued restricted stock, options and warrants to acquire common stock at prices significantly below the assumed initial public offering price. To the extent any outstanding options or warrants are ultimately exercised, you will sustain further dilution.

We are an “emerging growth company” and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in our securities being less attractive to investors.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we intend to take advantage of

 

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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(b) of the Sarbanes-Oxley Act of 2002, or the 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 votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we complete this offering, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of June 30 in any year before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile.

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 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 adversely affect our financial position and results of operations.

We have never paid dividends on our capital stock and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an investment in our common stock will likely depend on whether the price of our common stock increases, which may not occur.

We have not paid dividends on any of our classes of capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Consequently, in the foreseeable future, you will likely only experience a gain from your investment in our common stock if the price of our common stock increases.

We incur significant increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives and other activities associated with being a public company.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and The NASDAQ Stock Market, has imposed various new requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel are required to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations have substantially increased our legal and financial compliance costs and have made some activities more time consuming and costly. These rules and regulations may make it more difficult and more expensive for us to maintain our existing director and officer liability insurance or to obtain similar coverage from an alternative provider.

 

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The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require us to continue to incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by The NASDAQ Stock Market, the SEC or other regulatory authorities, which would require additional financial and management resources.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.

After the closing of this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the stock market on which our common stock is listed. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Commencing with our fiscal year ending December 31, 2016, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. Prior to this offering, we have never been required to test our internal control within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.

We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is otherwise doing well.

If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market after the 180-day contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline significantly and could decline below the initial public offering price. Based on shares outstanding as of March 31, 2015, upon the completion of this

 

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offering, we will have outstanding shares of common stock, assuming no exercise of outstanding options or warrants. Of these shares, assuming no shares are purchased in this offering by our existing stockholders, shares of common stock, plus any shares sold pursuant to the underwriters’ option to purchase additional                 shares, will be immediately freely tradable, without restriction, in the public market.

After the lock-up agreements pertaining to this offering expire and based on shares outstanding as of March 31, 2015, an additional                 shares will be eligible for sale in the public market. In addition, the 14,828,326 shares subject to outstanding options under our stock option plans and the                 shares reserved for future issuance under our stock option plans and 33,094,631 shares subject to outstanding warrants will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. Moreover, 180 days after the completion of this offering, holders of approximately                 of our common stock will have the right to require us to register these shares under the Securities Act of 1933, as amended, or the Securities Act, pursuant to an investors’ rights agreement. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.

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

The trading market for our securities 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 company, the trading price for our securities 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 research about our business, our trading price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our trading price and trading volume to decline.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements include all matters that are not related to present facts or current conditions or that are not historical facts, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth. The words “anticipate,” “believe,” “could,” “continue,” “should,” “predict,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “will,” “may,” “would,” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this prospectus, regarding, among other things:

 

    the acceptance of our NDA for oral octreotide, the regulatory review process generally and any regulatory approvals that may be issued or denied by the FDA, EMA or other regulatory agencies for oral octreotide in acromegaly or other indications;

 

    the therapeutic benefits, effectiveness and safety of oral octreotide;

 

    our estimates of the size and characteristics of the markets that may be addressed by oral octreotide;

 

    the commercial success and market acceptance of oral octreotide or any future product candidates that are approved for marketing in the United States or other countries;

 

    our ability to successfully commercialize oral octreotide with our small, targeted sales force;

 

    our ability to generate future revenue;

 

    the number, designs, results and timing of our clinical trials and nonclinical activities and the timing of the availability of data from these trials and activities;

 

    the safety and efficacy of therapeutics marketed by our competitors that are targeted to indications which oral octreotide has been developed to treat;

 

    our ability to leverage our TPE platform to develop and commercialize novel oral product candidates incorporating peptides that are currently only available in injectable or other non-absorbable forms;

 

    the possibility that competing products or technologies may make oral octreotide, other product candidates we may develop and successfully commercialize or our TPE technology obsolete;

 

    our ability to manufacture sufficient amounts of oral octreotide for clinical trials and commercialization activities;

 

    our ability to secure collaborators to license, manufacture, market and sell oral octreotide or any products for which we receive regulatory approval in the future outside of the United States;

 

    our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

 

    our expectations related to the use of proceeds, if any, from this offering; and

 

    our estimates regarding our capital requirements and our need for additional financing.

These risks are not exhaustive. Other sections of this prospectus may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and

 

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rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors 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, or implied by, any forward-looking statements.

We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. No forward-looking statement is a guarantee of future performance.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

INDUSTRY AND MARKET DATA

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by us and third parties. The industry in which we operate is subject to a high degree of uncertainty and risks due to various factors, including those described in the section titled “Risk Factors.”

In addition, some of the information in this prospectus is derived by surveys conducted by us on people with acromegaly. Due to the limits on the number of patients surveyed, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in patient surveys, the information gathered in these surveys may not be indicative or reflective of all acromegaly patients if a broader survey were conducted.

 

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of                 shares of common stock in this offering will be approximately $         million at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, we estimate that the net proceeds will be approximately $         million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds by $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1,000,000 shares offered by us would increase or decrease the net proceeds to us by $         million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering as follows:

 

    approximately $         million to build our corporate infrastructure, including our U.S. sales and marketing operations, to support the commercial launch of oral octreotide in the United States for the treatment of acromegaly;

 

    approximately $         million to initiate an additional Phase 3 clinical trial of oral octreotide to support regulatory approval in Europe for the treatment of acromegaly; and

 

    approximately $         million to initiate a Phase 2 clinical trial of oral octreotide for the treatment of neuroendocrine tumors.

We expect to use the remainder of any net proceeds from this offering to initiate clinical trials of oral octreotide in a new orphan indication, once identified, in late 2016 and for research and development on our TPE platform to enable us to develop additional product candidates targeting new indications and announce at least one new product candidate for clinical development in late 2016, and for working capital, capital expenditures and other general corporate purposes, including the costs of operating as a public company.

We believe that our intended use of proceeds as allocated above will be sufficient to accomplish our plans to build our corporate infrastructure, including our U.S. sales and marketing operations, to support our initial commercial launch of oral octreotide in the United States for the treatment of acromegaly, if it is approved. We also believe that our intended use of proceeds as allocated above will be sufficient to initiate our planned Phase 3 clinical trial of oral octreotide to support regulatory approval in Europe for the treatment of acromegaly and to initiate our planned Phase 2 clinical trial of oral octreotide for the treatment of neuroendocrine tumors.

However, our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business conditions, which could change in the future as our plans and business conditions evolve. The amount and timing of our actual expenditures will depend upon numerous factors, including the timing of regulatory submissions and the feedback from regulatory authorities, the results of our research and development efforts and the timing and success of our nonclinical studies, current clinical studies or clinical studies we may commence in the future. As a result, our management will have broad discretion over the use of the net proceeds from this offering.

Although we may use a portion of the net proceeds of this offering for the acquisition or licensing, as the case may be, of additional technologies, other assets or businesses, or for other strategic investments or opportunities, we have no current understandings, agreements or commitments to do so.

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

 

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DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. However, in March 2013, we utilized a portion of the proceeds from our now terminated license agreement with Roche to pay an aggregate of $55.0 million in cash as partial consideration for the redemption of certain shares of our preferred stock. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors. In addition, any future indebtedness that we may incur could preclude us from paying dividends. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 

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CAPITALIZATION

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

 

    an actual basis;

 

    a pro forma basis to give effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 149,792,472 shares of common stock immediately prior to the closing of this offering and the filing of our amended and restated certificate of incorporation immediately prior to the closing of this offering; and

 

    a pro forma as adjusted basis to give further effect to the sale of                 shares of our common stock offered in this offering, assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information together with our financial statements and related notes appearing elsewhere in this prospectus and the information set forth in the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     March 31, 2015  
     Actual     Pro Forma     Pro Forma
As

Adjusted
 

Cash

   $ 70,871,768      $ 70,871,768      $                    
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock, $0.01 par value:

Series B1’ preferred, 1,134,997 shares authorized, issued and outstanding at March 31, 2015 actual; no shares issued and outstanding pro forma and pro forma as adjusted; (aggregate liquidation preference and redemption value of $7,218,438 at actual)

$ 9,143,823    $ —     

Series C’ preferred, 40,719,409 shares authorized; 40,430,250 shares issued and outstanding at March 31, 2015 actual; no shares issued and outstanding pro forma and pro forma as adjusted; (aggregate liquidation preference and redemption value of $40,430,250 at actual)

  40,430,250      —     

Series D’ preferred, 38,504,439 shares authorized, issued and outstanding at March 31, 2015 actual; no shares issued and outstanding pro forma and pro forma as adjusted; (aggregate liquidation preference and redemption value of $22,054,186 at actual)

  22,054,186      —     

Series E preferred, 80,774,458 shares authorized; 69,722,786 shares issued and outstanding at March 31, 2015 actual; no shares issued and outstanding pro forma and pro forma as adjusted; (aggregate liquidation preference and redemption value of $69,722,786 at actual)

  67,168,201      —     

Stockholders’ (deficit) equity:

Undesignated preferred stock, $0.01 par value, no shares authorized, issued or outstanding actual; 5,000,000 shares authorized, no shares issued or outstanding pro forma and pro forma as adjusted

  —        —     

Common stock, $0.01 par value, 250,000,000 shares authorized at March 31, 2015 actual, 747,695 shares issued and outstanding at March 31, 2015 actual; 250,000,000 shares authorized, 150,540,167 shares issued and outstanding pro forma;          shares authorized,          shares issued and outstanding pro forma as adjusted

  7,477      1,505,402   

Additional paid-in capital

  11,086,837      148,385,372   

Accumulated deficit

  (85,752,282   (85,752,282
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

  (74,657,968   64,138,492   
  

 

 

   

 

 

   

 

 

 

Total capitalization

$ 64,138,492    $ 64,138,492   
  

 

 

   

 

 

   

 

 

 

 

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The information above is illustrative only and our capitalization following the completion of this offering will depend on the actual initial public offering price and other terms of this offering determined at pricing.

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the amount of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization on a pro forma as adjusted basis by approximately $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares offered by us would increase (decrease) cash, total stockholders’ equity and total capitalization on a pro forma as adjusted basis by approximately $         million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The actual, pro forma and pro forma as adjusted information set forth in the table above excludes the following:

 

    14,828,326 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2015 at a weighted-average exercise price of $0.23 per share;

 

    33,094,631 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 2015 at a weighted-average exercise price of $0.53 per share;

 

                    shares of common stock reserved for future issuance under our 2015 Stock Option and Incentive Plan, or the 2015 Plan; and

 

                    shares of common stock reserved for the future issuance under our 2015 Employee Stock Purchase Plan.

 

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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 our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

We had a net tangible book value of $         million, or                 per share of common stock, as of March 31, 2015. Our net tangible book value represents total tangible assets less total liabilities and redeemable convertible preferred stock. Our net tangible book value per share is our net tangible book value divided by the number of shares of our common stock outstanding as of March 31, 2015.

The pro forma net tangible book value of our common stock as of March 31, 2015 was $         million, or $         per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, divided by the pro forma number of shares of our common stock outstanding after giving effect to the automatic conversion of our outstanding preferred stock into an aggregate of                 shares of common stock upon the closing of this offering.

After giving further effect to the sale of                 shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of March 31, 2015 would have been $         million, or $         per share of common stock. This represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution of $         per share to investors participating in this offering. Dilution per share to new investors is determined by subtracting pro forma net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

$                

Historical net tangible book value (deficit) per share as of March 31, 2015

$                

Pro forma increase in net tangible book value per share attributable to the conversion of preferred stock

  

 

 

    

Pro forma net tangible book value per share as of March 31, 2015

Pro forma increase in net tangible book value per share attributable to new investors

  

 

 

    

Pro forma as adjusted net tangible book value per share, after giving effect to this offering

     

 

 

 

Dilution of pro forma as adjusted net tangible book value per share to new investors

$     
     

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $         million, the pro forma as adjusted net tangible book value per share by $         and the dilution to investors purchasing shares in this offering by $         per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1,000,000 shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value by $         million, the pro forma as adjusted net tangible book value per share by $         and the dilution to investors purchasing shares in this offering by $         per share, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering

 

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expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, pro forma as adjusted net tangible book value as of March 31, 2015 will increase to $         million, or $         per share, representing an increase to existing stockholders of $         per share, and there will be an immediate dilution of $         per share to new investors.

The following table summarizes, on a pro forma as adjusted basis as of March 31, 2015, the number of shares of common stock purchased from us, the total consideration and the average price per share paid by existing stockholders (giving effect to the conversion of all outstanding shares of our preferred stock into 149,792,472 shares of common stock upon the completion of this offering) and by investors participating in this offering, before deducting estimated underwriting discounts and commissions and estimated offering expenses, at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus. As the table illustrates, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 

     Shares purchased     Total consideration     Average price
per share
 
     Number    Percent     Amount      Percent        

Existing stockholders

               $                                     $                

IPO investors

            
  

 

  

 

 

   

 

 

    

 

 

   

Total

  100 $        100
  

 

  

 

 

   

 

 

    

 

 

   

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $         million and increase or decrease the percentage of total consideration paid by new investors by     %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1,000,000 shares in the number of shares offered by us would increase (decrease) the total consideration paid by new investors by $         million and increase (decrease) the percentage of total consideration paid by new investors by     %, assuming no change in the assumed initial public offering price remains the same.

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 common stock outstanding after the closing of this offering.

The number of shares of common stock to be outstanding after this offering is based on 150,540,167 shares outstanding as of March 31, 2015 and excludes the following:

 

    14,828,326 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2015 at a weighted-average exercise price of $0.23 per share;

 

    33,094,631 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 2015 at a weighted-average exercise price of $0.53 per share;

 

                    shares of common stock reserved for future issuance under our 2015 Stock Option and Incentive Plan, or the 2015 Plan; and

 

                    shares of common stock reserved for the future issuance under our 2015 Employee Stock Purchase Plan.

New investors will experience further dilution if any of our outstanding options are exercised, new options are issued and exercised under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities in the future.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statements of operations data for the years ended December 31, 2013 and 2014 and the consolidated balance sheet data as of December 31, 2013 and 2014 are derived from our audited consolidated financial statements appearing 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 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting of only normal recurring adjustments, that management considers necessary for the fair presentation of the financial information set forth in those statements. You should read this data together with our consolidated financial statements and related notes included elsewhere in this prospectus and the information under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results for any prior period are not necessarily indicative of results to be expected in any future period and the results of interim periods are not necessarily indicative of the results for the entire year.

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2013     2014     2014     2015  
    

(audited)

    (unaudited)  
     (in thousands, except share and per share data)  

Consolidated Statement of Operations Data

        

Revenue from license agreement

   $ 73,134      $ 13,166      $ 4,573      $ —     

Operating expenses:

        

Research and development

     26,455        11,527        1,650        2,219   

Marketing, general and administrative

     8,065        3,469        954        1,931   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  34,520      14,996      2,604      4,150   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

  38,614      (1,830   1,969      (4,150

Other expenses, net

  1,208      4      25      89   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

  37,406      (1,834   1,944      (4,239

Provision for income taxes

  1,224      176      (129   5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  36,182      (2,010   2,073      (4,244
  

 

 

   

 

 

   

 

 

   

 

 

 

Accretion of deemed liquidation related to Series D redeemable convertible preferred stock

  (38,504   —        —        —    

Accretion of redeemable convertible preferred stock

  (3,034   (904   (340   (98
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to common stockholders

$ (5,356 $ (2,914 $ 1,733    $ (4,342
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per share attributable to common stockholders, basic

$ (13.72 $ (7.25 $ 4.36    $ (6.54

Weighted average common shares outstanding, basic

  390,529      402,014      397,820      663,886   

Net (loss) income per share attributable to common stockholders, diluted

$ (13.72 $ (7.25 $ 0.02    $ (6.54

Weighted average common shares outstanding, diluted

  390,529      402,014      101,647,520      663,886   

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) (1)

$ (0.03

Pro forma weighted average common shares outstanding, basic and diluted (unaudited) (1)

  127,689,277   

 

(1) See Note 3 to our audited consolidated financial statements and Note 2 of our unaudited condensed consolidated financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the historical and pro forma net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts attributable to common stockholders.

 

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     December 31,     March 31,  
     2013     2014     2015  
                 (unaudited)  

Consolidated Balance Sheet Data

     (in thousands)   

Cash

   $ 12,850      $ 40,160      $ 70,872   

Working capital (deficit)

     (1,177     36,153        67,541   

Total assets

     14,658        41,399        72,638   

Deferred revenue and customer advances

     2,883        —         —    

Long-term liabilities

     97        4,612        4,724   

Redeemable convertible preferred stock

     70,732        104,486        138,796   

Accumulated deficit

     (79,498     (81,508     (85,752

Total stockholders’ deficit

     (70,635     (72,018     (74,658

 

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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 our consolidated financial statements and the accompanying notes thereto included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a late-stage biopharmaceutical company focused on improving the lives of patients suffering from orphan diseases by developing and commercializing novel oral forms of therapies that are available today only by injection. Using our proprietary Transient Permeability Enhancer, or TPE, technology platform, we seek to develop oral therapies that eliminate the significant limitations and burdens generally associated with existing injectable therapies. We have completed a multinational Phase 3 clinical trial of our most advanced TPE platform-based product candidate, oral octreotide, for the treatment of acromegaly. We believe oral octreotide, if approved by regulatory authorities, will be the first somatostatin analog available for oral administration. Our oral octreotide has been granted orphan designation in the United States and the European Union for the treatment of acromegaly. We submitted a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, in June 2015, seeking approval for the marketing and sale of oral octreotide for the maintenance therapy of adult patients with acromegaly. The FDA has 60 days after receipt of the NDA to preliminarily review and determine if the application is sufficiently complete to permit a substantive review and meets the threshold for filing. Assuming the FDA reviews and responds to our NDA in accordance with the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, and subject to the FDA’s acceptance of our NDA for filing, we anticipate a regulatory decision on marketing approval in April 2016. In light of our clinical data and feedback from patients and healthcare providers, we believe that oral octreotide, if approved, could become a new standard of care in acromegaly.

We retain worldwide rights to develop and commercialize oral octreotide with no royalty obligations to third parties. We intend to commercialize oral octreotide ourselves in the United States, and we plan to explore collaboration opportunities for commercializing oral octreotide in Europe and the rest of the world. Our goal is to become a leading patient-focused biopharmaceutical company by developing and commercializing oral octreotide for acromegaly and other orphan indications, and leveraging our TPE platform to develop and commercialize novel oral products for other debilitating diseases currently treated by injectable therapies.

We were incorporated in 2001 and commenced active operations in the same year. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our TPE technology, identifying potential drug candidates, undertaking nonclinical studies and, beginning in 2010, conducting clinical trials and preparing for regulatory submissions. To date, we have financed our operations primarily through private placements, funding received from a licensing agreement, and a loan agreement. We have no products approved for sale and all of our revenue has been related to one license agreement, which has been terminated. Since our inception and through March 31, 2015, we have raised an aggregate of $259.7 million to fund our operations, of which $86.3 million was through our license agreement with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc., collectively Roche, $161.4 million was from the issuance of private securities and $12.0 million was from borrowings under a loan agreement. In March 2013, using proceeds from the Roche license agreement, as described in more detail below, we repaid all outstanding borrowings under our loan agreement and paid an aggregate of $55.0 million in cash as partial consideration for the redemption of certain shares of our redeemable preferred stock. As of March 31, 2015, our cash was $70.9 million, of which $1.3 million was held by Chiasma (Israel) Ltd., our wholly owned Israeli subsidiary.

 

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Since inception, we have incurred significant operating losses. Our net loss was $2.0 million for the year ended December 31, 2014. We had net income of $36.2 million for the year ended December 31, 2013, primarily the result of revenue recognized under the license agreement with Roche. Our net loss was $4.2 million for the three months ended March 31, 2015, as compared to net income of $2.1 million for the three months ended March 31, 2014. As of March 31, 2015, we had an accumulated deficit of $85.8 million. We expect to continue to incur significant expenses and operating losses for at least the next several years as we continue to incur substantial expenses related to preparing for and proceeding with the commercial launch of oral octreotide, if approved, additional clinical development of oral octreotide and the development of additional product candidates.

We expect to incur increasing operating losses over the next several years. These losses, combined with prior losses will continue to have an adverse effect on our cash resources, stockholders’ deficit and working capital. If we obtain regulatory approval of oral octreotide and any future product candidates we may develop, we may incur significant sales, marketing, in-licensing and outsourced manufacturing expenses, as well as continued research and development expenses. In addition, we expect our research and development expenses to significantly increase in connection with our planned additional Phase 3 clinical trial for oral octreotide for the treatment of acromegaly to support approval in the European Union, Phase 2 clinical trials for oral octreotide for the treatment of neuroendocrine tumors and other indications, and as we develop additional product candidates for our drug pipeline. Because of the numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

If approved, we anticipate commercial sales of oral octreotide in late 2016 at the earliest. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, as well as license and collaboration agreements with potential partners. We may be unable to raise capital when needed or on attractive terms, or to enter into collaborations agreements, which could force us to delay, limit, reduce or terminate our product development or future commercialization efforts. We will need to generate significant revenues to achieve profitability, which we may not be able to achieve.

The consolidated financial statements and following information include the accounts of Chiasma, Inc. and Chiasma (Israel) Ltd.

Roche License Agreement

In December 2012, we signed a license agreement with Roche, which went into effect on January 2013. Pursuant to the license agreement, we granted Roche an exclusive, non-transferable license to all intellectual property related to oral octreotide. Under the terms of the license, Roche obtained worldwide rights to research, develop, make, import, export, sell, market or distribute the commercial product. We retained certain responsibilities for research and development activities under a joint development plan. The agreement provided for an upfront payment to us of $65.0 million, future consideration of up to $530 million in development and commercial milestones and the right to receive tiered, double-digit royalties on net sales of oral octreotide.

During the year ended December 31, 2013, we received a total of $75.0 million from Roche related to the license agreement, which included the upfront payment of $65.0 million and the first milestone payment of $10.0 million. We received an additional $10.0 million during January 2014 related to the second milestone payment. The two milestones were achieved during the year ended December 31, 2013. During the year ended December 31, 2013, we recognized $73.1 million in revenue with $2.9 million recorded as deferred revenue and customer advances. During 2013, we also received a payment of $1.0 million for reimbursement of certain research and development expenses for which the related costs had not yet been incurred and for which we recorded the amount as customer advances.

In March 2013, using proceeds from the Roche license agreement, our board of directors approved the redemption of certain of our then outstanding shares of redeemable preferred stock. In consideration of this

 

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redemption, the holders of these shares received a cash payment of $55.0 million plus the issuance of newly authorized shares of preferred stock. See Note 9 to our audited consolidated financial statements as of and for the years ended December 31, 2013 and 2014, included elsewhere in this prospectus.

In April 2014, we entered into an additional agreement with Roche pursuant to which we were to receive an additional aggregate amount of $2.7 million, payable in three installments, covering certain development costs incurred by us. During 2014, we received the first installment of $1.3 million.

In July 2014, Roche terminated the license agreement and the April 2014 agreement. Upon termination, Roche returned all rights granted under the agreements. Subsequent to the termination, we purchased from Roche active pharmaceutical ingredients, or API, to continue the development and manufacturing of oral octreotide, together with Roche’s proposed trade name for oral octreotide, for an aggregate amount of $5.1 million, payable in three annual installments of $1.7 million in January 2016, January 2017 and January 2018. Other than these payments, we have no further financial and operational obligations to Roche. During 2014, we recognized revenue of $13.2 million, including the first installment payment of $1.3 million under the April 2014 agreement. For the three months ended March 31, 2014, we recognized revenue of $4.6 million. We did not recognize any revenue during the three months ended March 31, 2015. Pursuant to the termination of the license agreement, we are not entitled to further payments from Roche, Roche has no remaining rights to oral octreotide and we retain all rights to oral octreotide and all related intellectual property.

Financial Overview

Revenue

Our revenue was derived from a license agreement with Roche, which included amounts recognized for research and development services provided and earned under the agreement. We do not expect to generate revenue from product sales for at least the next year. If we fail to complete the development of oral octreotide or any future product candidates in a timely manner or obtain regulatory approval for them, our ability to generate product sales, and our consolidated results of operations and financial position, would be adversely affected.

Research and Development

Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses, nonclinical pharmacology and toxicology studies, manufacturing process-development and scale-up activities, clinical trial and related clinical manufacturing expenses, fees paid to contract research organizations, or CROs, investigative sites, and other external expenses. In the early phases of development, our research and development costs include expanding our technology platform as well as early development of specific product candidates.

Our research and development costs consist of external costs and internal development costs, which are primarily compensation expenses for our full-time research and development employees and related expenses. As we expand the clinical development of oral octreotide and additional products, we expect the amount of research and development spending to continue to grow. We have incurred a total of $96.1 million in research and development expenses from inception through March 31, 2015, with a majority of the expenses being spent on the development of oral octreotide, our TPE platform and our early stage programs.

We expense research and development costs as incurred. Conducting a significant amount of research and development is central to our business model. Product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of late-stage clinical trials. We plan to increase our research and development expenses for the foreseeable future as we seek to obtain regulatory approval for oral octreotide outside the United States and to expand the indications for oral octreotide, and to further advance our nonclinical and earlier stage research and

 

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development projects into clinical stages. The successful development of oral octreotide and other product candidates we may develop is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of oral octreotide, or any of our nonclinical programs or the period, if any, in which material net cash inflows from these product candidates may commence. Clinical development timelines, the probability of success and development costs can differ materially from expectations. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

Marketing, General and Administrative

Marketing expenses consist of professional fees related to preparation for the eventual commercialization of oral octreotide, if approved, as well as salaries and related benefits for marketing employees. As we accelerate our preparation for commercialization and, if it is approved, start to market oral octreotide and as we explore new collaborations to develop and commercialize oral octreotide and other products, we anticipate that these expenses will materially increase.

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development, commercialization and support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses, travel expenses for our general and administrative personnel and professional fees for auditing, tax, and corporate and intellectual property legal services. We anticipate that our general and administrative expenses will increase in future periods, reflecting an expanding infrastructure and increased professional fees associated with being a public company and potentially as a commercial-stage company.

Other Expense, Net

Other expense consists mainly of interest incurred on amounts borrowed under a loan agreement.

Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability

Preferred stock warrant liability is associated with warrants to purchase Series C redeemable convertible preferred stock, or Series C preferred, issued to a lender under a loan agreement. Changes in the fair value of warrant liability generally consists of the calculated change in value based upon the fair value of the underlying security at the end of each reporting period as calculated using the Black-Scholes option-pricing model, or Black-Scholes. During 2013, the increase in the fair value of the warrant liability reflected an adjustment to increase the carrying value of the warrants to its fair value on the day of the exercise. There were no outstanding preferred stock warrants as of December 31, 2013 and 2014 and March 31, 2015.

Provision for Income Taxes

Our effective tax rate was 3.3% in 2013, (9.6%) in 2014, (6.6%) for the three months ended March 31, 2014 and (0.1%) for the three months ended March 31, 2015. We reported $1.2 million in provision for income taxes in 2013, which was mainly attributable to a federal alternative minimum tax liability resulting from our 2013 U.S. taxable income. In 2014, we reported $0.2 million of provision for income taxes. During the three months ended March 31, 2014 and 2015, we reported provision for income taxes of $(129,000) and $5,000, respectively.

Our deferred tax assets at December 31, 2013 and 2014 and March 31, 2015 were approximately $67,000, $40,000 and $67,000, respectively. Deferred tax assets were reported net of valuation allowances of $10.7 million, $11.3 million and $12.8 million at December 31, 2013, 2014 and March 31, 2015, respectively,

 

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primarily as a result of the recording of a full valuation allowance against net operating loss, or NOL, carryforwards, as we believe it is more likely than not that we will not be able to generate sufficient future taxable income to absorb them.

We file U.S. federal, various U.S. state and Israeli income tax returns. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. In the United States and Israel, the 2011 and subsequent tax years remain subject to examination by the applicable taxing authorities as of March 31, 2015. However, U.S. NOL carryforward attributes that were generated prior to 2011 may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period. As of December 31, 2013 and 2014, and March 31, 2015 we had provided a liability of $0.1 million, $0.2 million and $0.3 million, respectively, for uncertain tax positions related to various income tax matters that we do not expect to settle within the next 12 months. These uncertain tax positions would impact our effective tax rate, if recognized.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on 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 and the reported amount of revenues and expenses that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements and understanding and evaluating our reported financial results.

Revenue Recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. When one or more of the revenue recognition criteria are not met, we defer the recognition of revenue and records deferred revenue until such time that all criteria are met. For the years ending December 31, 2013 and 2014 and for the three months ended March 31, 2014, our revenue was derived primarily from our now terminated license agreement with Roche. The terms of the agreement included a non-refundable upfront fee; contingent development, commercial, and clinical milestone payments; reimbursement of certain research and development costs; and royalty payments on sales. We did not have any revenue for the three months ended March 31, 2015.

Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price of each deliverable and the appropriate revenue recognition principles are applied to each unit.

We recognize revenue using the proportional performance method when the services are rendered. Under the proportional performance method, revenue is recognized based on cost incurred to date as a percentage of total estimated cost to complete.

 

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At the inception of a license agreement, we evaluate whether each milestone is substantive on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (a) the consideration is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered items as a result of a specific outcome from our performance to achieve the milestone; (b) the consideration relates solely to past performance; and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. In making this assessment, we evaluate factors such as the clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required, and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement. We recognize revenues related to substantive milestones in full in the period in which the substantive milestone is achieved.

We recognize royalty revenue, if any, based upon actual and estimated net sales by the licensee of licensed products in licensed territories, and in the period the sales occur.

Stock-based Compensation

We issue stock-based awards to employees and nonemployees generally in the form of stock options. We account for our stock-based awards in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation , or ASC 718. ASC 718 requires all stock-based payments to employees, including grants of employee stock options and modifications to existing stock options, to be recognized in the consolidated statements of operations based on their fair values on the date of grant. We account for stock-based awards to nonemployees in accordance with FASB ASC Topic 505-50,  Equity-Based Payments to Non-Employees , which requires the fair value of the nonemployee award to be remeasured as the award vests. For employee stock-based awards with only service conditions, we recognize compensation on a straight line basis over the requisite service period, which is usually the vesting period of the award, net of estimated forfeitures. We have granted some performance based awards where the vesting of the options is accelerated upon achievement of certain of our operational milestones. In these cases, stock-based compensation expense is accelerated when it is considered probable that our operational milestone will be met.

For modification of stock compensation awards, we record the incremental fair value of the modified awards as compensation on the date of modification for vested awards, or over the remaining vesting period for unvested awards. The incremental compensation is the excess of the fair value of the modified awards on the date of modification over the fair value of the original awards immediately before the modification. Compensation expense related to our stock-based awards is subject to a number of estimates including volatility and the underlying fair value of our common stock, as well as the estimated life of the awards.

For a detailed description of how we estimate fair value for purposes of option grants and the methodology used in measuring stock-based compensation expense, see “Stock-based Compensation and Common Stock Valuation” below. Following the consummation of this offering, stock option values will be determined based on the traded price of our common stock.

Income Taxes

The consolidated financial statements presented elsewhere in this prospectus reflect provisions for federal, state, local and foreign income taxes. Deferred tax assets and liabilities represent future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities and for loss carryforwards using enacted tax rates expected to be in effect in the years in which the differences reverse. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. We cannot be certain that future U.S. taxable income will be sufficient to realize our deferred tax assets and, accordingly, a full valuation allowance has been provided against our U.S. net deferred tax assets.

We evaluate the tax positions we have taken when preparing our federal, state, local and foreign income tax returns, and determine whether it is more likely than not that a tax position will be sustained upon examination. If

 

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it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. As of December 31, 2013 and 2014, and March 31, 2015, we have provided a liability of $0.1 million, $0.2 million and $0.3 million, respectively. We account for interest and penalties related to uncertain tax positions as part of our other expenses.

Results of Operations for the Three Months Ended March 31, 2014 and 2015

Revenue

The following is a comparison of revenue for the three-months ended March 31, 2014 and 2015 (in thousands, except percentages):

 

     Three Months Ended
March 31,
     Decrease  
         2014              2015         

Revenue from license agreement

   $ 4,573       $ —         $ 4,573         100
  

 

 

    

 

 

    

 

 

    

Revenue during the three months ended March 31, 2014 was generated solely from our license agreement with Roche and was recognized on a proportional performance basis. During the three months ended March 31, 2014, we recognized $4.6 million of the total $85.0 million of upfront and milestone payments that were invoiced and collected from Roche. During the year ended December 31, 2014, our license agreement with Roche was terminated. Accordingly, there was no further revenue to be recognized under the license agreement during the three months ended March 31, 2015.

Research and Development

The following is a comparison of research and development expenses for the three-months ended March 31, 2014 and 2015 (in thousands, except percentages):

 

     Three Months Ended
March 31,
     Increase  
         2014              2015         

Research and development

   $ 1,650       $ 2,219       $ 569         34
  

 

 

    

 

 

    

 

 

    

During the three months ended March 31, 2015, our total research and development expenses increased by $0.6 million, or 34%, compared to the three months ended March 31, 2014, primarily due to our preparation of filing an NDA for oral octreotide in acromegaly in the United States as well as activities associated with the initiation of the manufacturing process validation.

The following table is a comparison of the components of our research and development expenses during the three-months ended March 31, 2014 and 2015 (in thousands, except percentages):

 

     Three Months Ended
March 31,
     Increase (Decrease)  
         2014              2015         

External research and development expenses:

           

Oral octreotide

   $ 365       $ 1,464       $ 1,099         301

Internal research and development expenses

     1,285         755         (530      (41 %) 
  

 

 

    

 

 

    

 

 

    

Total research and development expenses

$ 1,650    $ 2,219    $ 569      34
  

 

 

    

 

 

    

 

 

    

 

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Marketing, General and Administrative

The following is a comparison of marketing, general and administrative expenses for the three months ended March 31, 2014 and 2015 (in thousands, except percentages):

 

     Three Months Ended
March 31,
     Increase  
         2014              2015         

Marketing.

   $ —         $ 799       $ 799         100

General and administrative

     954         1,132         178         19
  

 

 

    

 

 

    

 

 

    

Total marketing, general and administrative expenses.

$ 954    $ 1,931    $ 977      102
  

 

 

    

 

 

    

 

 

    

For the three months ended March 31, 2015, our marketing expenses increased by $0.8 million, or 100%, compared to the same period in 2014, related to increased pre-commercial activities related to oral octreotide.

For the three months ended March 31, 2015, our general and administrative expenses increased by $0.2 million, or 19%, compared to the same period in 2014, related to increased intellectual property protection related legal fees and costs associated with hiring our chief executive officer, senior executives and other employees.

Other Expense, net

Other expenses totaled $25,000 for the three months ended March 31, 2014 compared to $89,000 for the three months ended March 31, 2015. The increase was the result of the imputed interest associated with the long-term obligation related to the acquisition of API and trade name from Roche.

Provision for Income Taxes

Our total tax provision was $(129,000) million for the three months ended March 31, 2014, representing an effective tax rate of (6.6%), as compared to a tax provision of $5,000 for the three months ended March 31, 2015, representing an effective tax rate of (0.1%).

Our effective tax rate differs from the statutory rate each year mainly due to a full valuation allowance maintained against U.S. deferred tax assets and due to lower tax rates applied to income of our Israeli subsidiary.

Results of Operations for the Years Ended December 31, 2013 and 2014

Revenue

The following is a comparison of revenue for the years ended December 31, 2013 and 2014 (in thousands, except percentages):

 

     Year Ended
December 31,
     Decrease  
     2013      2014     

Revenue from license agreement

   $ 73,134       $ 13,166       $ 59,968         82
  

 

 

    

 

 

    

 

 

    

Revenues during the years ended December 31, 2013 and 2014 were generated solely from our license agreement with Roche and were recognized on a proportional basis. During the year ended December 31, 2013, we recognized $73.1 million of the total $85.0 million of upfront and milestone payments that were invoiced and collected from Roche. During the year ended December 31, 2014, our license agreement with Roche was terminated and the amounts recognized in 2013 and 2014 represent the entire amount earned under the license agreement.

 

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Research and Development

The following is a comparison of research and development expenses for the years ended December 31, 2013 and 2014 (in thousands, except percentages):

 

     Year Ended
December 31,
     Decrease  
     2013      2014     

Research and development

   $ 26,455       $ 11,527       $ 14,928         56
  

 

 

    

 

 

    

 

 

    

During the year ended December 31, 2014, our total research and development expenses decreased by $14.9 million, or 56%, compared to the prior year, primarily due to the completion of our Phase 3 clinical trial of oral octreotide in acromegaly, offset by the accrual and expense of $4.4 million for our purchase of API and other supplies related to oral octreotide in connection with the termination of our license agreement with Roche. The decrease in research and development expenses also reflected the reversal of a one-time employee termination liability we previously recorded in 2013. In March 2013, following the signing of the Roche license agreement and in anticipation of transferring our intellectual property related to oral octreotide to Roche, management and the board of directors approved a one-time involuntary employee termination plan. The termination process was expected to be completed within one year.

The estimated fair value of the one-time termination liability of $1.8 million was recorded over the required service period through the involuntary termination date for affected employees. During 2013 and 2014, we paid a total of $0.6 million and $0.5 million, respectively, of termination payments to departing employees. In July 2014, following Roche’s decision not to submit a regulatory filing for oral octreotide and its corresponding termination of the license agreement, we canceled the employee termination plan and reversed the majority of the corresponding liability previously recorded in 2013.

The following table is a comparison of the components of our research and development expenses during the years ended December 31, 2013 and 2014 (in thousands, except percentages):

 

     Year Ended
December 31,
     Decrease  
     2013      2014     

External research and development expenses:

           

Oral octreotide

   $ 19,756       $ 8,215       $ 11,541         58

Internal research and development expenses

     6,699         3,312         3,387         51
  

 

 

    

 

 

    

 

 

    

Total research and development expenses

$ 26,455    $ 11,527    $ 14,928      56
  

 

 

    

 

 

    

 

 

    

General and Administrative

The following is a comparison of general and administrative expenses for the years ended December 31, 2013 and 2014 (in thousands, except percentages):

 

     Year Ended
December 31,
     Decrease  
     2013      2014     

General and administrative

   $ 8,065       $ 3,469       $ 4,596         57 %
  

 

 

    

 

 

    

 

 

    

For the year ended December 31, 2014, our general and administrative expenses decreased by $4.6 million, or 57%, compared to the prior year, related in part to a reduction of workforce that was previously planned in conjunction with the license agreement with Roche. Our general and administrative employee headcount was

 

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reduced from eight at December 31, 2013 to three at December 31, 2014. In addition, legal and accounting, recruiting, business development, insurance, travel and facilities costs not allocated to research and development declined by $2.4 million in 2013 compared to 2014.

Other Expense, net

Other expenses totaled $1.2 million for the year ended December 31, 2013 and was $4,000 in the year ended December 31, 2014. The decrease was the result of the repayment of the outstanding principal and accrued interest on a loan agreement. In February 2013, we terminated our existing loan agreement and as of December 31, 2014, we did not have any outstanding credit facilities.

Change in Fair Value of Preferred Stock Warrant Liability

During 2013, we recorded a $60,000 increase in the fair value of warrant liability that reflected changes in the fair value of these preferred stock warrants through the date of a cashless exercise for shares of Series C preferred. These warrants were issued in conjunction with a loan agreement that was repaid in 2013. The amount reflected an adjustment to bring the warrants to their fair value on the day of exercise. There were no outstanding preferred stock warrants as of December 31, 2013 and 2014.

Provision for Income Taxes

Our total tax provision was $1.2 million for the year ended December 31, 2013, representing an effective tax rate of 3.3%, as compared to a tax provision of $0.2 million for the year ended December 31, 2014, representing an effective tax rate of (9.6%). The higher tax provision in 2013 was mainly attributable to a federal alternative minimum tax liability resulting from our U.S. taxable income in 2013.

Our effective tax rate differs from the statutory rate each year primarily due to a full valuation allowance maintained against U.S. deferred tax assets and due to lower tax rates applied to income of our Israeli subsidiary.

Liquidity and Capital Resources

Since our inception and through March 31, 2015, we have raised an aggregate of $259.7 million to fund our operations, of which $86.3 million was through our license agreement with Roche, $161.4 million was from the issuance of private securities, and $12.0 million was from borrowings under a loan agreement. In March 2013, using proceeds from the Roche license agreement, we repaid all outstanding borrowings under our loan agreement and paid an aggregate of $55.0 million in cash as partial consideration for the redemption of certain shares of our preferred stock.

As of March 31, 2015, our cash was $70.9 million, of which $1.3 million was held by our Israeli subsidiary.

Indebtedness

We had a loan agreement with General Electric Capital Corporation which provided funding for an aggregate principal amount of up to $12.0 million. In February 2013, we fully repaid the outstanding borrowings and terminated the loan agreement. As of December 31, 2013 and 2014, and March 31, 2015, we did not have any outstanding borrowing under any loans or credit facilities.

Following the termination of the Roche agreement, we purchased API supplies from Roche to continue the development and manufacturing of oral octreotide, as well as Roche’s trade name proposed for oral octreotide. The total consideration of $5.1 million, which is recorded in long-term liabilities on our balance sheet based on discounted value, will be paid in three equal annual installments of $1.7 million beginning in January 2016.

 

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Plan of Operations and Future Funding Requirements

Our primary uses of capital are, and we expect will continue to be, seeking regulatory approval of oral octreotide and preparation for commercial launch of oral octreotide in the United States, manufacturing of oral octreotide for market consumption and clinical trial uses, clinical trial costs (including an additional Phase 3 clinical trial to support European regulatory approval), compensation and related expenses, third-party clinical and nonclinical research and development services, laboratory and related supplies, legal and other regulatory expenses, and other general operating costs.

We expect that the net proceeds from this offering and our cash as of March 31, 2015 will fund our operating expenses and capital expenditure requirements through at least the end of 2016. During this period, we expect to seek regulatory approval of oral octreotide in the United States and, if granted; launch oral octreotide in the United States; initiate an additional Phase 3 clinical trial of oral octreotide to treat acromegaly to support European regulatory approval; continue clinical development plans for the use of oral octreotide in other indications; and conduct additional nonclinical studies to expand our product pipeline. We have based these estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. Because our oral octreotide and potential product candidates are in various stages of clinical and nonclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of oral octreotide and any other product candidates we may develop or whether, or when, we may achieve profitability. Our future capital requirements will depend on many factors, including:

 

    the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for oral octreotide and any other future product candidates for which we receive marketing approval;

 

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

 

    proceeds, if any, received from commercial sales of oral octreotide and any future product candidates for which we receive marketing approval;

 

    the progress and results of our clinical trials of oral octreotide;

 

    the scope, progress, results, and costs of nonclinical development, laboratory testing and clinical trials for future product candidates we may develop;

 

    the number and development requirements of other product candidates that we pursue;

 

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

 

    the extent to which we acquire or in-license other products and technologies.

Until such time, if ever, as we can generate substantial product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings and license and collaboration arrangements. To the extent that we raise additional capital through future issuance of equity or debt, 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 collaboration arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams or drug candidates on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

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Cash Flows

The following is a summary of cash flows for the years ended December 31, 2013 and 2014 and for the three months ended March 31, 2014 and 2015 (in thousands):

 

     Year Ended 
December 31,
     Three Months Ended
March 31,
 
     2013      2014      2014      2015  

Net cash provided by (used in) operating activities

   $ 46,192       $ (6,400    $ 2,230       $ (4,923

Net cash (used in) provided by investing activities

     (18      85         11         6   

Net cash (used in) provided by financing activities

     (51,815      33,625         —           35,628   

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $46.2 million for the year ended December 31, 2013, compared to net cash used in operating activities of $6.4 million for the year ended December 31, 2014. Net cash provided by operating activities was $2.2 million for the three months ended March 31, 2014, compared to net cash used in operating activities of $4.9 million for the three months ended March 31, 2015. During the year ended December 31, 2013, we collected $75.0 million of the total $85.0 million of upfront and milestone payments that were invoiced to Roche. During the year ended December 31, 2014 and prior to terminating our license agreement with Roche, we collected an additional $11.3 million from Roche. Our spending decreased in 2014 primarily as a result of the completion of our Phase 3 clinical trial of oral octreotide in acromegaly and headcount reduction in both the research and development and general and administrative areas of our operations. During the three months ended March 31, 2014, we collected $10.0 million of the milestone payments invoiced to Roche. During the three months ended March 31, 2015, we used internal cash resources to finance our operating activities. Our spending increased in the three months ended March 31, 2015 primarily as a result of increased activities related to preparing to file our NDA for oral octreotide in acromegaly in the United States, activities associated with the initiation of the manufacturing process validation as well as increased pre-commercial activities related to oral octreotide.

Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities was $18,000 for the year ended December 31, 2013, compared to cash provided by investing activities of $85,000 for the year ended December 31, 2014. Net cash provided by investing activities was $11,000 for the three months ended March 31, 2014, compared to cash provided by investing activities of $6,000 for the three months ended March 31, 2015. The increase in cash provided by investing activities in the year ended December 31, 2013 as compared to the year ended December 31, 2014 was primarily the result of proceeds from sales of property and equipment during 2014. The decrease in cash provided by investing activities in the three months ended March 31, 2014 as compared to the three months ended March 31, 2015 was primarily the result of acquisition of equipment.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities during the year ended December 31, 2013 of $51.8 million was primarily related to the repayment of borrowings under our loan agreement totaling $11.1 million and a cash redemption payment to the holders of redeemable convertible preferred stock totaling $55.0 million, offset by proceeds from the issuance of the third tranche of Series D redeemable convertible preferred stock and common stock warrants of $14.2 million. Net cash provided by financing activities for the year ended December 31, 2014 of $33.6 million was due to the issuance of Series E redeemable convertible preferred stock and common stock warrants. We did not generate net cash from financing activities during the three months ended March 31, 2014. Net cash provided by financing activities during the three months ended March 31, 2015 of $35.6 million was mainly due to the sale and issuance of the second tranche of our Series E redeemable convertible preferred stock and common stock warrants.

 

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Contractual Obligations and Contingent Liabilities

The following summarizes our significant contractual obligations as of December 31, 2014 (in thousands):

 

Contractual Obligations

   Total      Less than
1 Year
     1 to 3
Years
     3 to 5
Years
     More than
5 Years
 

Operating leases

   $ 155       $ 155       $ —         $ —         $ —     

Long-term purchase obligation

     5,100         —           3,400         1,700         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations

$ 5,255    $ 155    $ 3,400    $ 1,700    $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating Leases . This amount represents future minimum lease payments under non-cancelable operating leases in effect as of December 31, 2014 for our current facilities in Israel. The minimum lease payments do not include common area maintenance charges or real estate taxes.

Long-term Purchase Obligation . Upon termination of the Roche agreement in 2014, we purchased API supplies from Roche to continue the development and manufacturing of oral octreotide and Roche’s proposed trade name for oral octreotide. The undiscounted consideration of $5.1 million will be paid in equal annual installments of $1.7 million beginning in January 2016. We have no further obligations to Roche upon full payment of these amounts.

The table excludes potential payments we may be required to make under manufacturing and CRO agreements as the timing of when these payments will actually be made is uncertain and the payments are contingent upon the initiation and completion of future activities.

There were no material changes outside the ordinary course of business in our contractual obligations during the three months ended March 31, 2015.

Stock-based Compensation and Common Stock Valuation

Stock-based Compensation

We estimate the fair value of our stock-based awards to employees and nonemployees using Black-Scholes, which requires the input of highly subjective assumptions, including (a) the weighted-average expected volatility of our stock, (b) the weighted-average expected term of the award, (c) the weighted-average risk-free interest rate and (d) expected dividends. Due to the lack of a public market for the trading of our common stock and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of publicly traded companies in the pharmaceutical and biotechnology industries in a similar stage of development as us. For these analyses, we have selected companies with comparable characteristics to ours, including enterprise value and risk profiles, and with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. We have estimated the expected life of our employee stock options using the “simplified” method, whereby the expected life equals the average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted.

We are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from estimates. We use historical data to estimate pre-vesting option forfeitures and we record stock-based compensation expense only for those awards that are expected to vest. To the extent that

 

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actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. Stock-based compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest.

We have computed the fair value of employee stock options at date of grant using the following weighted-average assumptions:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2013     2014     2014      2015  

Expected volatility

     85     80     —           80

Expected term (in years)

     6.25        6.25        —           6.25   

Risk-free interest rate

     1.08     1.79     —           1.75

Expected dividend yield

     0     0     —           0

No stock option grants were made during the three months ended March 31, 2014.

Stock-based compensation for employees and nonemployees were allocated as indicated in the following table (in thousands):

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2013      2014          2014              2015      

Research and development

   $ 297       $ 424       $ 46       $ 136   

General and administrative

     448         332         83         85   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 745    $ 756    $ 129    $ 221   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2015, we had $2.2 million of unrecognized compensation expense, which is expected to be recognized over a weighted-average remaining vesting period of 3.28 years. We expect the impact of our stock-based compensation expense for stock options granted to employees and nonemployees to grow in future periods due to the potential increases in the value of our common stock and future grants to existing and new employees.

During the years ended December 31, 2013 and 2014, we modified stock options granted to certain employees providing for the extension of exercise period post-employment termination, performance based acceleration of vesting terms and changes in exercise prices. For the year ended December 31, 2014, the incremental compensation expense resulting from the modifications was calculated by comparing the fair value of stock options immediately before and immediately after the modification and totaled $0.4 million which included $0.3 million classified as research and development expenses and $0.1 million classified as general and administrative expense.

Common Stock Valuation

We have historically granted stock options at exercise prices determined by our board of directors. We are a private company with no active public market for our common stock. Therefore, our board of directors estimated the per share fair value of our common stock at each grant date using internal and external factors that it believed to be relevant, including its and management’s best estimate of our business condition, prospects, and operating performance at each grant date. In reaching its fair value determinations, our board of directors and management considered a range of objective and subjective factors and assumptions including, among others:

 

    the prices of our preferred stock issued to or exchanged between investors in arm’s length transactions, and the rights, preferences and privileges of our preferred stock as compared to those of our common stock, including the liquidation preferences of our preferred stock;

 

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    our results of operations, financial position, and the status of research and development efforts;

 

    the composition of, and changes to, our management team and board of directors;

 

    the lack of liquidity of our common stock as a private company;

 

    our stage of development and business strategy and the material risks related to our business and industry;

 

    the achievement of enterprise milestones, including entering into collaboration and license agreements;

 

    any external market conditions affecting the life sciences and biotechnology industry sectors; and

 

    the likelihood of achieving a liquidity event for the holders of our common stock and stock options, such as an initial public offering, or IPO, or a sale of our company, given prevailing market conditions.

Common Stock Valuation Methodologies

In preparing for our proposed IPO, we determined that retrospective valuations of the fair value of our common stock for certain prior stock compensation awards were appropriate due to the acceleration of the time frame to a potential liquidity event. In connection with that reexamination, we obtained retrospective valuations of the fair value of our common stock for financial reporting purposes to assist our board of directors in re-evaluating the fair value of our common stock as of these dates.

The valuations discussed below were prepared in accordance with the guidance outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation , also known as the Practice Aid, which prescribes several valuation approaches for setting the value of an enterprise, such as the cost, market, and income approaches, and various methodologies for allocating the value of an enterprise to its common stock. We generally used the market approach, in particular the guideline company analysis and transaction analysis, based on inputs from comparable public companies’ equity valuations and comparable acquisition and IPO transactions, to estimate the enterprise value of our company. In addition to the market approach based on our recent transactions, we also utilized the income approach for purposes of the December 16, 2014, March 16, 2015 and June 14, 2015 valuations based upon the potential occurrence of an IPO and/or sale, merger or liquidation (or SML). The resulting values were weighted with the value estimated using the market approach.

Methods Used to Allocate Our Enterprise Value to Classes of Securities

In accordance with the Practice Aid, 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 considered consisted of the following:

 

    Option Pricing Method.  Under the option pricing method, or OPM, 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. The total equity value allocated to the common stock is then divided by the number of shares outstanding at each valuation date to determine the fair value per share. In addition, since our stock is not publicly traded, a discount for lack of marketability is then applied to determine the fair value of our common stock.

 

    Probability-Weighted Expected Return Method, or 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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Retrospective Valuations

In preparing for our proposed IPO, we obtained retrospective valuations of the fair value of our common stock for financial reporting purposes to assist our board of directors in re-evaluating the fair value of our common stock as of these dates.

March 28, 2013 and December 16, 2014 Common Stock Valuations

We obtained retrospective valuations of our common stock on March 28, 2013 and December 16, 2014, which represented the dates of recent equity transactions. These retrospective valuations primarily used variations of the OPM approach, then-current rights and attributes of the securities in our capital structure and the terms of the recent capital transactions with third party investors negotiated at arm’s length as compared to the results of a guideline company analysis and a guideline transaction analysis, to determine our enterprise value. These rights and attributes of our securities were determined based on their respective liquidation and conversion terms and preferences. In calculating the enterprise value to be allocated to these securities, a series of Black-Scholes call-option models were utilized based on the relative claim amount on an as-converted basis. In addition, for the December 16, 2014 valuation, we used the PWERM approach to include the effect of a potential SML and IPO.

For purposes of the March 28, 2013 and December 16, 2014 valuations, we relied on the following key assumptions in applying the OPM:

 

    We estimated volatility of 80% for purposes of the March 28, 2013 valuation and 75% for purposes of the December 16, 2014 valuation, based on guideline publicly traded companies and industry benchmarks with an expected term consistent with the timeline to the liquidity event.

 

    We estimated a weighted-average time to an exit scenario of two years for purposes of the March 28, 2013 valuation and 1.4 years for purposes of the December 16, 2014 valuation, based on the projected time to an SML or IPO.

 

    We determined the risk-free interest rate based on the yield of a U.S. Treasury bill with a maturity date closest to the estimated time to a sale event for our stockholders. The risk-free interest rate used were 0.25% for purposes of the March 28, 2013 valuation and 0.47% for purposes of the December 16, 2014 valuation.

 

    We applied a discount for lack of control and marketability, or DLOM, of 15% on both valuation dates, which reflected the prospect of our attaining a liquidity event in the foreseeable future combined with the highly illiquid nature of our common stock as well as the lack of control possessed by common stockholders in light of the rights and privileges of our preferred stock, including anti-dilution protection, redemption rights, protective provisions in our certificate of incorporation and rights to participate in future rounds of financing.

At the December 16, 2014 valuation date, we were considering an IPO. In addition to the OPM approach described above, we also utilized an income approach using the PWERM. The fair value of our common stock was estimated using a probability weighted analysis of the present value of the returns afforded to common stockholders under several future stockholder exit or liquidity event scenarios, either through an IPO or an SML. The present value of the projected equity value was then calculated by discounting the probability weighted equity value to the December 16, 2014 valuation date. The assumptions underlying the projected IPO pricing include projected market penetration, pricing, FDA approval and other factors related to the potential commercialization of oral octreotide.

 

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The specific facts and circumstances considered by our board of directors in assessing these key valuation assumptions for the December 16, 2014 retrospective valuations using the PWERM approach included those noted in the following table:

 

December 16, 2014

Major Assumptions

   IPO     Sale/
Merger/
Liquidation
 

Probability of scenario

     33.3     66.7

Discount for marketability

     15     15

Timeline to liquidity

     0.8 years        1.8 years   

Discount rate—common stock

     30     N/A   

The values of our common stock estimated in the SML and IPO scenarios were then weighted together and a DLOM was estimated and subtracted to conclude the fair value of our common stock. The resulting estimated fair value of our common stock based on the results of the valuation methodologies described above as of March 28, 2013 was $0.53 per share, as of immediately prior to the redemption of certain of our then outstanding shares of preferred stock, and $0.57 per share immediately following the redemption. The resulting estimated fair value of our common stock based on the results of the valuation methodologies described above was $0.40 per share as of December 16, 2014.

Our board of directors considered these retrospective valuations, together with the other factors described in the preceding paragraphs, in making its retrospective determination of the fair value, which it determined to be $0.57 per share as of March 28, 2013 and $0.40 per share as of December 16, 2014. Our board of directors also considered the fair value of our common stock retrospectively as of August 1, 2014, October 21, 2014, and November 12, 2014 and determined that the termination of the Roche agreement during July 2014 was indicative of a significant change in the fair value of our common stock. As a result, our board of directors determined that the retrospective fair value of our common stock as of August 1, 2014, October 21, 2014, and November 12, 2014 was $0.40 per share. In addition, because the factors we considered in estimating the March 28, 2013 valuation, which included an equity transaction on that date and the signing of the license agreement with Roche, were also either present or contemplated on March 20, 2013, our board of directors determined that the retrospective fair value of our common stock as of March 20, 2013 was $0.53 per share.

March 16, 2015 Valuation

We obtained contemporaneous valuations of our common stock on March 16, 2015 to assist our board of directors in estimating the fair value of our common stock on subsequent grant dates. These contemporaneous valuations used the OPM approach and the PWERM approach to determine the enterprise value of our company.

The OPM, which included a guideline company analysis and a guideline transaction analysis, was developed based on the then-current rights and attributes of the securities in our capital structure and the terms of the recent capital transaction, primarily the issuance of Series E preferred, negotiated in an arm’s length with third-party investors. A series of Black-Scholes call-option models was then utilized to allocate the enterprise value to the common stock on an as-converted basis. These rights and attributes of our securities were determined based on their respective liquidation and conversion terms and preferences.

For purposes of the March 16, 2015 valuation, we relied on the following key assumptions in applying the OPM:

 

    We estimated volatility of 75% using guideline publicly traded companies and industry benchmarks with an expected term consistent with the timeline to the liquidity event.

 

    We estimated a weighted-average time to an exit scenario of 1.1 years based on the projected time to an SML or IPO.

 

    We determined the risk-free interest rate based on the yield of a U.S. Treasury bill with a maturity date closest to the estimated time to a sale event for our stockholders. The risk-free interest rate used was 0.47% for purposes of the March 16, 2015 valuation.

 

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    We applied a discount for lack of control and marketability of 15%, which reflected the prospect of our attaining a liquidity event in the foreseeable future combined with the highly illiquid nature of our common stock, as well as the lack of control possessed by common stockholders in light of the rights and privileges of our preferred stock, including anti-dilution protection, redemption rights, protective provisions in our certificate of incorporation and rights to participate in future rounds of financing.

At the March 16, 2015 valuation date, we were in the process of pursuing an IPO. Therefore, we also utilized the PWERM valuation methodology in combination with the OPM described above to allocate the enterprise value to the common stock. Under the PWERM, the value of the common stock was estimated based upon an analysis of future values for our company assuming various investment outcomes, the timing of which was based, in part, on the plans of our board of directors and management. Under the PWERM, share value was derived from 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 under possible future stockholder exit or liquidity event scenarios, either through an IPO or an SML, then calculated by discounting the probability weighted equity value to the March 16, 2015 valuation date.

For the March 16, 2015 valuation, significant assumptions for the PWERM included the probability of occurrence of each scenario, timing to the liquidity event, discount rate and discount for lack of marketability. The key valuation assumptions included:

 

March 16, 2015

Major Assumptions

   IPO     Sale/
Merger/
Liquidation
 

Probability of Scenario

     50     50

Discount for Marketability

     15     15

Timeline to Liquidity

     0.375 years        1.75 years   

Discount Rate—Common Stock

     30     N/A   

The estimated fair value of our common stock as of March 16, 2015 using the combined results of OPM and PWERM was $0.61 per share.

June 14, 2015 Valuation

We obtained a contemporaneous valuation of our common stock on June 14, 2015 to assist our board of directors in estimating the fair value of our common stock on subsequent grant dates. This contemporaneous valuation used the OPM approach, the discounted cash flow, or DCF approach, and the PWERM approach to determine the enterprise value of our Company. The OPM was developed based on the then-current rights and attributes of the securities in our capital structure and the terms of the recent capital transaction, primarily the issuance of Series E preferred, negotiated in an arm’s length with third-party investors. These rights and attributes of our securities were determined based on their respective liquidation and conversion terms and preferences.

For the DCF approach, our projected after-tax cash flows were discounted back to present value, using a discount rate. Since it is not possible to project our after-tax cash flows beyond a limited number of years, the DCF method relies on determining a terminal or exit value representing the aggregate value of either the future after-tax cash flows or estimated sale price of the Company after the end of the period for which annual projections are possible. The discount rate, known as the weighted cost of capital, or WACC, accounts for the time value of money and the appropriate degree of risk inherent in the business and the projected cash flows. The DCF approach requires significant assumptions regarding our projected cash flows, terminal or exit value and the discount rate applicable to our business.

The OPM approach and the DCF approach were equally weighted to arrive at the estimated enterprise value for the SML scenario. We also used the guideline company method and the guideline transaction method in order to evaluate whether the DCF and OPM approaches provided a reliable estimate of our enterprise value. The

 

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estimated value in the SML scenario was then allocated using an OPM based on the rights and attributes of the securities in our capital structure at the June 14, 2015 valuation date.

For purposes of allocating the estimated SML equity value for the June 14, 2015 valuation, we relied on the following key assumptions in applying the OPM:

 

    We estimated volatility of 70% using guideline publicly traded companies and industry benchmarks with an expected term consistent with the timeline to the liquidity event.

 

    We estimated a weighted-average time to an exit scenario of 1.75 years based on the projected time to a SML.

 

    We determined the risk-free interest rate based on the yield of a U.S. Treasury bill with a maturity date closest to the estimated time to a sale event for our stockholders. The risk-free interest rate used was 0.62% for purposes of the June 14, 2015 valuation.

 

    We applied a discount for lack of control and marketability of 10%, which reflected the prospect of our attaining a liquidity event in the foreseeable future balanced against the current illiquid nature of our common stock, as well as the lack of control possessed by common stockholders in light of the rights and privileges of our preferred stock, including anti-dilution protection, redemption rights, protective provisions in our certificate of incorporation and rights to participate in future rounds of financing.

At the June 14, 2015 valuation date, we were in the process of pursuing an IPO. Therefore, we also utilized the PWERM valuation methodology in combination with the OPM and DCF approaches described above to allocate the enterprise value to the common stock. Under the PWERM, the value of the common stock was estimated based upon an analysis of future values for our company assuming various investment outcomes, the timing of which was based, in part, on the plans of our board of directors and management. Under the PWERM, share value was derived from 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 under possible future stockholder exit or liquidity event scenarios, either through an IPO or an SML, then calculated by discounting the probability weighted equity value to the June 14, 2015 valuation date.

For the June 14, 2015 valuation, significant assumptions for the PWERM included the probability of occurrence of each scenario, timing to the liquidity event, discount rate and discount for lack of marketability. The key valuation assumptions included:

 

June 14, 2015

Major Assumptions

   IPO     Sale/
Merger/
Liquidation
 

Probability of Scenario

     70     30

Discount for Marketability

     10     10

Timeline to Liquidity

     0.131 years        1.75 years   

Discount Rate

     22.5     22.5

The estimated fair value of our common stock as of June 14, 2015 was $0.89 per share.

 

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Stock Option Grants

The following table summarizes stock options granted from January 1, 2013 through June 14, 2015.

 

Grant Date

   Number of
Common

Shares
Underlying
Options
Granted
     Exercise
Price Per
Common
Share at
Grant
Date
     Reassessed
Fair

Value Per
Common

Share (1)
     Fair Value
per Option at
Grant Date
     Intrinsic
Value Per

Common
Share at
Grant
Date
 

June 14, 2015

     5,739,884       $ 0.89       $ 0.89       $ 0.60       $ —     

April 14, 2015

     13,764,096         0.61         0.61         0.41         —     

February 17, 2015

     560,000         0.36         0.40         0.29         0.04   

February 6, 2015

     560,000         0.36         0.40         0.29         0.04   

November 17, 2014

     839,728         0.36         0.40         0.29         0.04   

November 15, 2014

     4,338,500         0.36         0.40         0.29         0.04   

October 21, 2014

     1,119,637         0.30         0.40         0.30         0.10   

March 20, 2013

     250,000         0.77         0.53         0.35         —     

 

(1) The fair value of our common stock was reassessed for financial reporting purposes subsequent to the grant date based on retrospective valuations.

Stock Option Modifications

In March 2013, the board of directors effected the following changes to the terms of the then outstanding stock options: (a) an extension of option exercise period to the second anniversary of the termination of employment or consulting services; and (b) acceleration of the option vesting period upon a decision by Roche to file for regulatory approval as defined in the license agreement. In addition, during May 2014 and September 2014, the board of directors modified the exercise price of certain stock options granted to employees and executives. The incremental compensation expense, resulting from comparing the fair value of stock options immediately before and immediately after the modification, for the years ended December 31, 2013 and 2014 totaled $0.2 million and $0.4 million, respectively.

Off-Balance Sheet Arrangements

As of December 31, 2013 and 2014, and March 31, 2015 we did not have any off-balance sheet arrangements.

NOL Carryforwards

At March 31, 2015, we had federal NOL carryforwards of $27.0 million. The federal NOL carryforwards expire at various dates through 2035. At March 31, 2015, we had NOL carryforwards in our Israeli subsidiary of $0.3 million. The foreign NOLs may be carried forward indefinitely, but may not be used to offset future taxable income in the United States.

Under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382, substantial changes in our ownership may limit the amount of NOL carryforwards that can be utilized annually in the future to offset our U.S. federal taxable income. Specifically, this limitation may arise in the event of a cumulative change in our ownership of more than 50% within any three-year period. Management has determined that we experienced an ownership change for purposes of Section 382 on August 16, 2005 and May 12, 2008. These ownership changes resulted in annual limitations to the amount of NOL carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The annual limit is $0.1 million for 2014 and each year thereafter. These annual limitations resulted in the loss of our ability to utilize $8.9 million in federal NOL carryforwards, which resulted in a write-off of $3.0 million of federal deferred tax assets prior to 2013.

 

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JOBS Act

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies.

Quantitative and Qualitative Disclosures about Market Risk

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of March 31, 2015, we had $70.9 million in cash, consisting of cash in checking accounts at U.S. and Israeli banking institutions. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Since we do not hold any cash equivalents, an immediate 100 basis point change in interest rates would not have a material effect on our financial results. As of March 31, 2015, we did not have any outstanding borrowings so that we are not exposed to interest rate risk associated with credit facilities.

In addition, we are subject to currency risk for balances held, or denominated, in currencies other than U.S. dollars. We work to maintain all balances in U.S. dollars until payment in other currencies is required to minimize this currency risk. Fluctuations in the exchange rate between the U.S. dollar and each of the Euro, GBP and NIS over the past 24 months has been approximately 32%, 17% and 30%, respectively. As of March 31, 2015, we held $1.3 million in Israeli banks and petty cash funds to support our Israeli operations, the majority of which is denominated in U.S. dollars. We contract with CROs internationally, primarily for the execution of clinical trials and manufacturing activities. Transactions with these providers are settled in U.S. dollars, Euros or GBP and, therefore, we believe that we have only minimal exposure to foreign currency exchange risks. We do not hedge against foreign currency risks.

We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.

 

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BUSINESS

Overview

We are a late-stage biopharmaceutical company focused on improving the lives of patients suffering from orphan diseases by developing and commercializing novel oral forms of therapies that are available today only by injection. Using our proprietary Transient Permeability Enhancer, or TPE, technology platform, we seek to develop oral therapies that eliminate the significant limitations and burdens generally associated with existing injectable therapies. We have completed a multinational Phase 3 clinical trial of our most advanced TPE platform-based product candidate, oral octreotide, for the treatment of acromegaly, a condition that results in the body’s production of excess growth hormone. Octreotide is an analog of somatostatin, a natural inhibitor of growth hormone secretion. We believe that our lead product candidate, if approved by regulatory authorities, will be the first somatostatin analog available for oral administration. Our oral octreotide product candidate has been granted orphan designation in the United States and the European Union for the treatment of acromegaly. We submitted a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, in June 2015, seeking approval for the marketing and sale of oral octreotide for the maintenance therapy of adult patients with acromegaly. The FDA has 60 days after receipt of the NDA to preliminarily review and determine if the application is sufficiently complete to permit a substantive review and meets the threshold for filing. In light of our clinical data and feedback from patients and healthcare providers, we believe that oral octreotide, if approved, could become a new standard of care in acromegaly.

Acromegaly is a condition caused by a benign tumor of the pituitary gland that releases excess growth hormone, or GH, which in turn elevates insulin-like growth factor 1, or IGF-1. These elevated hormone levels result in a number of painful and disfiguring symptoms, including some acute, such as headaches, joint pain and fatigue, and some long-term, such as enlarged hands, feet and internal organs, as well as altered facial features. If not treated promptly, acromegaly can lead to serious illness and is associated with premature death, primarily due to cardiovascular disease. According to data published by the Mayo Clinic in 2013, the mortality rate of people afflicted by acromegaly who go untreated is two to three times higher than that of the general population. Recent data from a published study presented at the Endocrine Society’s Annual Meeting in 2015 suggest that the global prevalence of acromegaly may be between 85 and 118 cases per million people.

The current standard of care for patients diagnosed with acromegaly consists of lifelong, once-monthly injections of an extended release somatostatin analog, primarily octreotide or lanreotide. These products contain a viscous formulation and are typically administered by a healthcare professional with large-gauge needles into the muscle or deep subcutaneously, that is, deeply under the skin. While injectable somatostatin analogs are generally effective at reducing GH and IGF-1 levels and therefore providing disease control, the injections are associated with significant limitations and patient burdens, including suboptimal symptom control, pain, injection-site reactions and other injection-related side effects, inconvenience, lost work days and emotional issues. The worldwide market for injectable somatostatin analogs is approximately $2.0 billion annually, of which approximately $730 million represents annual sales for the treatment of acromegaly.

Our lead product candidate, oral octreotide, is the first somatostatin analog formulated for oral administration to complete a Phase 3 clinical trial and demonstrate clinical proof of concept in treating patients with acromegaly. In our Phase 3 clinical trial, we observed that oral octreotide maintained reduced levels of GH and IGF-1, or biochemical disease control, and improved symptom control. In this 155-patient Phase 3 clinical trial designed to evaluate oral octreotide in acromegaly patients already controlled on injectable somatostatin analogs, 65% of patients receiving oral octreotide twice a day for up to seven months achieved the primary endpoint, maintenance of biochemical disease control. This biochemical disease control was durable and 86% of patients who completed the seven-month core treatment period of the trial elected to continue on oral therapy during the six-month extension phase for up to a total of 13 months of treatment after first dosing, rather than switch back to injections. In the majority of patients in our trial, oral octreotide achieved comparable biochemical disease control and reduced incidence and severity of acromegaly symptoms relative to injectable somatostatin analogs currently used to treat this disease. The adverse events observed for oral octreotide were similar to those previously reported for injectable somatostatin analogs, but without injection-site reactions.

 

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Based in part on the data from our Phase 3 clinical trial, we submitted an NDA in June 2015 seeking approval for the marketing and sale of oral octreotide for the maintenance therapy of adult patients with acromegaly. Assuming the FDA accepts for filing, reviews and responds to our NDA in accordance with the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, and subject to the FDA’s acceptance of the NDA for filing, we anticipate a regulatory decision on marketing approval in April 2016. To support approval by the European Medicines Agency, or EMA, we intend to initiate an additional Phase 3 clinical trial of oral octreotide in acromegaly in the second half of 2015 in the United States and internationally to show parallel comparative safety and effectiveness as required by the EMA. Assuming we receive favorable results from this second Phase 3 clinical trial, we expect to submit a marketing authorization application, or MAA, to the EMA in late 2017 or early 2018. In addition, if we receive regulatory approval of oral octreotide in acromegaly, we expect to initiate a Phase 2 clinical trial in the second half of 2016 for neuroendocrine tumors, or NET, which are currently treated predominantly by injectable somatostatin analogs, and for another new indication.

Approximately 40% of people with acromegaly undergoing treatment in the United States are treated by endocrinologists at a small number of academic institutions with pituitary experts, which we refer to as pituitary centers. The remaining people with acromegaly undergoing treatment are generally treated by community endocrinologists. We believe we will be able to market oral octreotide, if approved, directly to pituitary centers that treat high volumes of patients with acromegaly through our own small, targeted sales force. We also intend to direct our sales and marketing efforts towards the larger number of community endocrinologists. We believe that oral octreotide, if approved, will be embraced by these healthcare providers who are generally hampered by the complexity and resource burden associated with the administration of currently available injectable therapies. Finally, we intend to continue to engage in direct patient outreach efforts. We believe that the clinical benefits and preferences of patients and healthcare professionals for an oral product together with our patient-centric approach could enable oral octreotide, if approved, to become a new standard of care in acromegaly.

We retain worldwide rights to develop and commercialize oral octreotide with no royalty obligations to third parties. We intend to commercialize oral octreotide ourselves in the United States and we plan to explore the strategic merits of collaboration opportunities for commercializing oral octreotide in Europe and the rest of the world. Oral octreotide is currently protected by issued patents lasting until at least 2029 in the United States, United Kingdom and Japan, and pending patent applications in additional jurisdictions that will last until 2029, if granted. We are also pursuing additional patent applications relating to particular uses, dosages and packaging for oral octreotide.

We also intend to use our TPE platform to develop a new line of oral medications, beyond oral octreotide, to help improve the lives of patients suffering from other debilitating diseases that are currently being treated with injectable therapies. In contrast to conventional small molecule drugs, the oral absorption of larger molecules, such as peptides and other protein molecules, is limited due to low intestinal permeability and digestion in the stomach and intestine. Our TPE platform transiently enhances intestine permeability, allowing peptides and other drugs that are otherwise poorly absorbed when administered orally to pass through the intestine and reach therapeutic levels in the blood. We believe our TPE platform is particularly well suited to therapies used in chronic indications for which injections are required and for which the active agent can be administered without adverse safety implications. While our technology will not be appropriate for all drugs that cannot currently be administered orally, based on our nonclinical proof of concept data we believe that we can administer a number of peptide-based drugs orally using our TPE technology and achieve therapeutic levels in the blood.

As we consider new peptide-based drugs to develop using our TPE platform, to reduce the development time and expenses and overall level of investment required we intend to focus our efforts on drugs for which we may utilize the FDA’s 505(b)(2) regulatory pathway in the United States and the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway, in Europe. With oral octreotide, we brought a TPE-based product candidate from concept to the first clinical trial within 18 months and then on to clinical proof of concept within an additional 12 months.

 

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We have assembled an experienced team with extensive drug discovery, development and commercialization capabilities. Our investors include funds affiliated with MPM Capital, Fidelity Securities, Abingworth, 7 Med Health Ventures, F2 Capital, ARCH Venture Partners, Sofinnova Ventures and Rock Springs Capital.

Strategy

Our goal is to become a leading patient-focused biopharmaceutical company by developing and commercializing oral octreotide for acromegaly and other orphan indications, and leveraging our TPE platform to develop and commercialize novel oral products for other debilitating diseases currently treated only by injectable therapies. Our strategy to pursue this goal includes the following elements:

 

    Obtain U.S. regulatory approval of oral octreotide for the treatment of acromegaly. Based in part on the results of our Phase 3 clinical trial, we submitted an NDA to the FDA in June 2015 seeking approval for the marketing and sale of oral octreotide for the maintenance therapy of adult patients with acromegaly. Assuming the FDA reviews and responds to our NDA within 10 months of receipt in accordance with the PDUFA timeline, and subject to the FDA’s acceptance of the NDA for filing, we anticipate a regulatory decision from the FDA on marketing approval in April 2016.

 

    Independently commercialize oral octreotide in the United States.  In anticipation of receiving marketing approval from the FDA, we plan to build a focused in-house sales and marketing organization to identify pituitary specialists and community endocrinologists who comprise the top prescribers of therapies for acromegaly and prepare to market oral octreotide to these physicians.

 

    Obtain European regulatory approval of oral octreotide for the treatment of acromegaly. To support approval in Europe, we intend to initiate an additional Phase 3 clinical trial in the second half of 2015, whose key design elements have been agreed with the EMA, to evaluate the comparative safety and efficacy of oral octreotide in acromegaly. Following completion of the trial, assuming favorable results, we expect to submit our MAA to the EMA in late 2017 or early 2018.

 

    Explore collaboration opportunities in Europe and the rest of the world for oral octreotide in acromegaly and other indications. We intend to explore collaborations to commercialize oral octreotide in acromegaly and other orphan indications outside of the United States. However, depending on our evaluation of the strategic merits of these collaboration opportunities, we may decide to retain commercial rights in key markets.

 

    Pursue the development of oral octreotide in additional indications currently treated by injectable therapies, such as NET. We believe that the data generated in our previous clinical trials of oral octreotide provide the necessary safety and pharmacokinetic data to allow us to move directly into Phase 2 clinical trials of oral octreotide in other orphan indications. If we receive regulatory approval of oral octreotide in acromegaly, we plan to initiate a Phase 2 clinical trial of oral octreotide for the symptomatic control of NET in the second half of 2016.

 

    Leverage our proprietary TPE platform to develop a pipeline of new high-value oral therapeutics. We have obtained nonclinical proof of concept data for intestinal absorption of several oral peptides currently available only in injectable forms. Based on these studies, we intend to pursue development of new oral therapies in reliance on the FDA’s 505(b)(2) regulatory pathway and the hybrid application pathway in Europe. In addition, we plan to evaluate collaboration opportunities to expand the scope of our pipeline and the utilization of our TPE platform to create novel oral therapies.

Competitive Strengths

We believe we are well positioned to achieve our corporate and strategic goals based on the following key strengths:

 

   

Oral octreotide has the potential to become a standard of care in the treatment of acromegaly . In our Phase 3 clinical trial, we observed the ability of oral octreotide to reduce the significant limitations and

 

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burdens associated with existing injectable somatostatin analogs, while also providing comparable biochemical disease control and improved symptom control. Based on this and other clinical data and feedback from patients and healthcare providers, we believe that oral octreotide, if approved, could become a new standard of care in acromegaly.

 

    Oral octreotide is the only somatostatin analog formulated for oral administration to complete a Phase 3 clinical trial. Based in part on the data from our completed Phase 3 clinical trial, we submitted an NDA in June 2015 seeking approval for the marketing and sale of oral octreotide for the maintenance therapy of adult patients with acromegaly. To our knowledge, there are no other oral formulations of somatostatin analogs that have achieved clinical proof of concept or that are in late-stage clinical development.

 

    Treatment of acromegaly is a well-characterized market that we believe we can address with a focused and differentiated commercial infrastructure. Approximately 40% of acromegaly patients are treated by endocrinologists at pituitary centers. The remaining patients are treated by community endocrinologists. We believe we will be able to market oral octreotide, if approved, directly to these pituitary centers through our own small, targeted sales force. We also intend to direct our sales and marketing efforts specifically towards the larger number of community endocrinologists. We believe that the clinical benefits and preferences of patients and healthcare professionals for an oral product, together with our patient-centric approach, could enable oral octreotide, if approved, to become a new standard of care in acromegaly.

 

    Our business model and regulatory strategy target shorter development timelines and lower associated expenses . Our pursuit of the 505(b)(2) regulatory pathway in the United States and the hybrid application pathway in Europe should allow shorter development timelines and reduced development expenses. For oral octreotide, we generated proof of concept clinical data in healthy volunteers three years after we began development, completed our Phase 3 clinical trial in acromegaly within a further four years, and believe that we now have sufficient data to seek U.S. regulatory approval utilizing the FDA’s 505(b)(2) regulatory pathway. For comparison, the typical timeline for development of a new chemical entity, or NCE, under a traditional NDA program is over 10 years. We intend to continue to pursue product development opportunities where we believe the FDA’s 505(b)(2) regulatory pathway and the hybrid application pathway in Europe are available.

 

    We believe that we have the ability to leverage our proprietary TPE platform to develop additional high-value oral therapeutics . Our TPE technology enhances the absorption through the intestinal wall of drugs that otherwise would not be able to be absorbed efficiently by that route. Using our TPE technology, we have identified multiple potential product candidates that may potentially address areas of unmet medical need. We have obtained nonclinical proof of concept data for intestinal absorption of several peptides that are currently available only in injectable forms. Based on data obtained from these studies, we believe we can develop new oral therapies from already approved injectable therapies using a similar development strategy as we employed with oral octreotide.

 

    Our leadership team has significant drug development and commercial experience and possesses important intellectual capital. Our President and Chief Executive Officer, Mark Leuchtenberger, has extensive experience in commercial operations, business development and preparing biopharmaceutical companies for product approval and commercialization. Our Chief Development Officer, Roni Mamluk, Ph.D., led the development of oral octreotide and is one of the primary inventors of our TPE technology. Our Chief Financial Officer, Mark J. Fitzpatrick, has more than 20 years of financial management experience in both public and private companies, having most recently served as chief financial officer at Aegerion Pharmaceuticals, Inc., Proteon Therapeutics, Inc. and RenaMed Biologics, Inc. In addition, our Senior Medical Advisor, Gary Patou, M.D., brings over 20 years of extensive experience in clinical and regulatory affairs to the organization, having taken several drugs through development and FDA approval.

 

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Our Product Candidate Pipeline

Leveraging our TPE platform, we have developed a pipeline of oral product candidates. Our most advanced product candidate is oral octreotide for acromegaly. In addition, if we receive regulatory approval of oral octreotide in acromegaly, we expect to initiate a Phase 2 clinical trial of oral octreotide for the symptomatic control of NETs, in the second half of 2016. We also intend to initiate additional clinical trials of oral octreotide in a new orphan indication, once identified, in late 2016. Using our TPE technology, we have also identified several peptides currently available only in injectable forms that we believe we can develop into oral formulations using a similar development strategy as we employed with oral octreotide. We have obtained nonclinical proof of concept data for additional product candidates, and expect that in late 2016 we will select a second product candidate for clinical development and initiate nonclinical development of a third product candidate in 2017.

 

LOGO

Our Lead Product Candidate, Oral Octreotide in Acromegaly

Our lead product candidate, oral octreotide, has completed a Phase 3 clinical trial for the treatment of acromegaly. In June 2015, we submitted our NDA for oral octreotide as a maintenance therapy for acromegaly in the United States. The FDA has 60 days after receipt of the NDA to preliminary review and determine if the application is sufficiently complete to permit a substantive review and meets the threshold for filing. Based on the 10-month PDUFA timeline, which begins after the FDA has received our NDA, and subject to the FDA’s acceptance of the NDA for filing, we anticipate a regulatory decision on marketing approval in April 2016. In addition to the clinical data we submitted to the FDA, the EMA has advised us that a clinical trial demonstrating non-inferiority of oral octreotide compared to injectable somatostatin analogs as active controls will be required prior to regulatory approval. We have agreed to key elements of the trial design with the EMA and expect to initiate this trial before the end of 2015, and, if successful, to submit our regulatory filing to the EMA in late 2017 or early 2018.

Overview of Acromegaly

Acromegaly results from the overproduction of GH, most often due to the growth of a benign tumor in the pituitary gland in middle-aged adults. GH, in turn, stimulates the production of IGF-1 in the liver which stimulates the growth of bones and other tissues.

Progression of acromegaly can result in significant health problems such as hypertension, enlargement of the heart, or cardiomyopathy, sleep apnea, type-2 diabetes, and abnormal growths in the colon and uterus. Acromegaly is associated with a number of symptoms, some acute, such as headaches, joint pain and fatigue, and some long-term, such as enlarged hands, feet and internal organs, as well as altered facial features. Because acromegaly is uncommon and physical changes occur gradually, the condition is often not recognized immediately, sometimes not for years. If not treated promptly, acromegaly can lead to serious illness and is associated with premature death, primarily due to cardiovascular disease. However, both surgical and drug treatments are available for acromegaly that can reduce the risk of complications and premature death and significantly improve symptom control.

 

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Surgery is often the first line of therapy for acromegaly and, in some cases, surgical removal of the pituitary tumor can result in normalization of GH and IGF-1 levels. In many other cases, however, the levels of GH remain elevated even after surgery due to residual tumor and many patients therefore also require a therapeutic intervention. The body’s natural inhibitor of excess GH secretion is somatostatin, a peptide hormone. Octreotide and lanreotide, analogs of somatostatin with a significantly longer half-life in the blood than natural somatostatin, have achieved widespread adoption by physicians treating patients afflicted with acromegaly. These somatostatin analogs are routinely administered by injection by a healthcare professional. If not administered with proper technique, the injection may not effectively deliver the medication. There is currently no oral formulation of a somatostatin analog on the market and none, we believe, in clinical development except oral octreotide.

Incidence and Prevalence of Acromegaly and Current Treatment Landscape

There are an estimated 62,300 individuals with acromegaly worldwide, of which an estimated 35,100 receive lifelong injections. The U.S. National Institutes of Health, or NIH, estimates that there are roughly 20,000 individuals with acromegaly in the United States, based on its published prevalence of an estimated 60 cases per million. However, recent data presented at the Endocrine Society’s Annual Meeting in 2015 suggest that pituitary tumors may be more prevalent than previously thought, and that the global prevalence of acromegaly may be higher, between 85 and 118 cases per million people. NIH also cites an annual incidence of three to four new cases per million each year.

According to publicly available financial reports, injectable forms of octreotide and lanreotide generate worldwide sales of over $2.0 billion annually for the treatment of acromegaly and NET as well as some smaller indications. Approximately $730 million represents the annual sales for the treatment of acromegaly. The great majority of these sales come from once-monthly long acting formulations that must be administered by intramuscular or deep subcutaneous injections with large-gauge needles. Although we are initially targeting acromegaly with oral octreotide, we believe that this product candidate, if approved, has the potential to become a standard of care for other indications currently treated primarily with injectable somatostatin analogs such as NET.

Current Therapeutic Options and Their Limitations

After surgery, the current standard of care for patients suffering from acromegaly involves injectable somatostatin analogs. These therapies are associated with significant limitations and burdens on patients. Currently, the first therapeutic treatment options are octreotide, marketed by Novartis AG, or Novartis, which is administered monthly and intramuscularly using a large gauge needle, and lanreotide, marketed by Ipsen SA, or Ipsen, another long-acting analog of somatostatin, which is administered monthly using a deep subcutaneous injection. For patients not controlled on these somatostatin analogs, the typical second line of treatment options includes pegvisomant daily injections, marketed by Pfizer, Inc., or Pfizer, and pasireotide LAR, marketed by Novartis, which is another somatostatin analog administered via intramuscular injection.

 

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LOGO

Injections of these somatostatin analogs present several issues related to patient comfort and convenience as well as breakthrough, or returning, symptoms of the disease near the end of the dosing cycle prior to the next scheduled injection. These issues include:

 

    Suboptimal control. In a patient-reported outcomes survey that we conducted in 195 acromegaly patients receiving injected somatostatin analogs, or our patient survey, 52% of patients reported that the treatment effects begin to wane near the end of the monthly cycle prior to the next injection, and 32% of controlled patients still experienced some symptoms.

 

    Pain. Injections with somatostatin analogs require a large-gauge needle to slowly inject a viscous solution into the muscle or deep into subcutaneous tissue. Patients report these injections to be very painful. Often, this pain persists for several days after the injection. In our patient survey, 70% of patients said they experienced pain during the injection and approximately half of these patients experienced continuing pain days later.

 

    Injection-site reactions . Patients frequently experience hardness, nodules and swelling at the site of the injection as well as bruising and inflammation.

 

    Lack of convenience. The treatment effectiveness is dependent on proper technique and thus the injections are typically administered by a healthcare professional. The monthly injection schedule for injectable somatostatin analogs and the associated travel to the healthcare provider is inconvenient for many patients.

 

    Emotional impact . In our patient survey, 36% of patients said that they felt a loss of independence due to the requirement for chronic injections that typically require them to visit a healthcare professional.

 

    Lost work days . In our patient survey, 16% of patients said that the treatment burden associated with the injectable therapies caused them to regularly miss work for injections. These patients missed an average of 11 days a year.

Since injectable somatostatin analogs are the standard of care for other pituitary diseases beyond acromegaly, including diseases such as NET, these limitations and burdens are also associated with the treatment of the other indications we intend to pursue with oral octreotide.

Our Solution: Oral Octreotide

Oral octreotide is a novel formulation of octreotide developed utilizing our TPE platform. We designed the product candidate to achieve biochemical disease control and improved symptom control while addressing the pain and treatment burdens commonly experienced with current injectable therapies. We are developing oral octreotide as a pill, liquid-filled solid gelatin capsule formulation, intended to be taken twice a day. We expect

 

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that patients who are prescribed oral octreotide, if approved, by their physicians will receive a 28-day supply of pills, which may be stored at room temperature. Based on the data from our clinical trials, we believe oral octreotide has the potential to achieve biochemical disease control while providing favorable symptom control and reducing the burden of disease and treatment in patients afflicted with acromegaly.

Clinical Program for Oral Octreotide in Acromegaly

Regulatory Pathway

We are seeking regulatory approval of oral octreotide for the maintenance therapy of acromegaly in the United States utilizing the FDA’s 505(b)(2) regulatory pathway. The 505(b)(2) pathway enables us to rely, in part, on the FDA’s prior findings of safety and efficacy of an approved product, or published literature, in support of our NDA. In the case of oral octreotide in acromegaly, the approved product to which our NDA submission refers is the short-acting subcutaneous injectable formulation of octreotide that was the original product approved by the FDA before the long-acting formulation was developed. Since this formulation of octreotide has been approved by the FDA in generic form and is therefore no longer proprietary, we are not aware of any third party from which we would be required to obtain any license or acquire any rights to commercialize oral octreotide, if approved. We have conducted a series of Phase 1 clinical trials, including a trial to demonstrate that the bioavailability of octreotide administered in our TPE formulation is comparable to the bioavailability of octreotide administered in the short-acting subcutaneous injectable formulation. We have also conducted a Phase 1 clinical trial to evaluate the bioactivity of oral octreotide in healthy subjects, and a Phase 3 clinical trial to evaluate the safety and efficacy of oral octreotide in patients with acromegaly after seven months of treatment plus after an optional six-month extension phase.

In December 2014, we met with the FDA to discuss our clinical development of oral octreotide, including the full 13-month data from our Phase 3 clinical trial. At this meeting, the FDA advised us that it had not identified an issue that would preclude us from submitting an NDA for review. Accordingly, we submitted our NDA for oral octreotide for maintenance therapy in acromegaly to the FDA in June 2015. The FDA has 60 days after receipt of the NDA to preliminarily review and determine if the application is sufficiently complete to permit a substantive review and meets the threshold for filing.

We also intend to seek regulatory approval of oral octreotide for the treatment of acromegaly in Europe utilizing the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway in the United States. In addition to the clinical data we submitted to the FDA, the EMA has advised us that a clinical trial demonstrating non-inferiority of oral octreotide compared to injectable somatostatin analogs as active controls will be required prior to regulatory approval by EMA. We have agreed to key elements of the trial design with the EMA and expect to initiate this trial in the second half of 2015, and, if successful, to submit an MAA to the EMA in late 2017 or early 2018.

Completed Phase 3 Clinical Trial

In March 2012, we initiated a Phase 3 multi-center, open-label, baseline-controlled clinical trial to evaluate the safety and efficacy of oral octreotide in patients with acromegaly who responded to and tolerated treatment with somatostatin analogs. We completed this trial in November 2014 and the results were published in the Journal of Clinical Endocrinology & Metabolism in February 2015 and presented at the Endocrine Society’s Annual Meeting in March 2015.

Trial Design

A total of 155 patients with acromegaly, each of whom was classified as a responder to a long-acting injectable somatostatin analog, were enrolled in the trial. Two weeks after their last monthly injection of the long-acting injectable somatostatin analog, patients were reassessed to obtain baseline IGF-1 and GH levels. Both the screening and baseline measurements were performed while patients were still on active injection therapy. The 155 patients enrolled in the trial are referred to as the intent to treat, or ITT, group.

 

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After baseline levels were obtained, no less than one month following their last monthly injection of the long-acting injectable somatostatin analog, a core treatment period with oral octreotide was initiated. This core treatment period consisted of a dose-escalation phase of at least two months in duration, designed to find an appropriate dose of oral octreotide for each individual patient, and a fixed-dose phase of up to five months in duration, during which period the appropriate therapeutic dose identified in the dose-escalation phase was maintained. Since data from our prior clinical trials demonstrated a significant reduction in bioavailability when oral octreotide is administered with a high-fat meal, patients in this Phase 3 clinical trial were required to fast for at least one hour before and at least one to two hours after each dose.

Patients who entered the core treatment phase of the trial initially received a 40 mg daily dose (administered in two pills a day), which was increased to daily doses of 60 mg or 80 mg on an as-required basis to maintain biochemical and/or symptom control, at the discretion of the investigator. For each patient, the core treatment phase lasted for seven months after his or her first dose of oral octreotide. Patients could then opt to continue treatment with oral octreotide during an extension period of up to an additional six months, with a two-week period for final follow-up. Four patients dropped out of the trial after receiving at least one dose of oral octreotide but before a biochemical response could be measured, resulting in a modified intent to treat, or mITT, group of 151 patients.

The primary objective of the trial was to determine the efficacy of oral octreotide in patients with acromegaly, as measured by effect on IGF-1 and GH levels, with responders defined as patients who achieve an IGF-1 level less than 1.3 times the upper limit of normal, or ULN, adjusted for age and an integrated GH level over two hours less than 2.5 ng/mL. Secondary objectives included assessment of safety and tolerability of oral octreotide, and comparison of efficacy of oral octreotide versus long-acting injectable somatostatin analog.

Phase 3 Clinical Trial Design

 

LOGO

Trial Results

Of the 155 patients enrolled, four were not evaluable and of the 151 in the mITT group, 49 patients discontinued, the majority during the dose-escalation phase. Of the 151 patients in the mITT group, patients discontinued for a variety of reasons, including treatment failures because the patient could not be controlled on 80 mg, the highest dose available (24); withdrawals due to adverse events (18); or patient choice, sponsor request and lost to follow up (7). Of the 110 patients that completed the dose-escalation phase, 52 patients, or 47%, were receiving the 40 mg daily dose, 25 patients, or 23%, were receiving the 60 mg dose, and 33 patients, or 30%, were receiving the 80 mg dose.

 

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After completion of the dose-escalation phase, the remaining 110 patients entered the fixed dose phase of the core treatment period and continued on oral octreotide at their respective doses until seven months after first dosing. A total of 102 patients completed the fixed dose phase of the trial, 88 of whom, or 86%, voluntarily chose to remain on oral octreotide during the six-month extension phase, for a total of 13 months of treatment after first dosing. A total of 82 patients completed the six-month extension phase of the trial.

Overall, 65% of patients in the mITT group were classified as responders at the end of the seven-month core treatment phase, which was the primary endpoint for the trial. Applying a worst-case imputation method, whereby all patients who withdrew from the study prematurely (regardless of reason) are treated as non-responders, 53% of patients were classified as responders at the end of the seven-month core treatment phase. By the end of the six-month extension phase, or 13 months after first dosing, the responder rate was 62% in the mITT group. Of the 110 patients that completed the dose-escalation phase, and therefore received an optimized dose of oral octreotride, 75% were classified as responders. For all 151 patients included in the mITT group, the responder rate on long-acting injectable somatostatin analogs was 89% at baseline, prior to initiation of oral octreotide.

Overall Phase 3 Response in mITT Group vs. Baseline

 

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We further assessed the quality of the responses to oral octreotide. The quality of the patient responses on oral octreotide was comparable to the quality of the responses on injectable therapies. In the mITT group, mean GH levels on oral octreotide therapy were below the baseline values on injectable therapies at all timepoints assessed through the end of the extension phase. The median GH level in the mITT group at baseline was 0.77 ng/mL, which dropped to 0.40 ng/mL within two hours of the first dose of oral octreotide and 0.49 ng/mL by the end of the extension phase, 13 months later. IGF-1 levels were stably maintained below 1.3 times the ULN for up to 13 months in the mITT group.

GH and IGF-1 Response in mITT Group Throughout the Duration of the Phase 3 Trial

 

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We also assessed control of acromegaly symptoms, the incidence of symptoms, and the severity and number of symptoms in patients using oral octreotide in a retrospective analysis performed after completion of the trial. At baseline, 81% of patients in the mITT group, the majority of whom were classified as responders, still had acromegaly symptoms, such as headaches, excessive perspiration, muscle weakness and/or joint pain and swelling. Patients who completed 13 months of treatment reported significantly fewer acromegaly symptoms at the conclusion of the trial than at the time of their baseline screening, and this result was statistically significant, with p-values of less than 0.020. P-value is a conventional statistical method for measuring the statistical significance of clinical results. A p-value of 0.05 or less is generally considered to represent statistical significance, meaning that there is a less than 1-in-20 likelihood that the observed results occurred by chance. There was also a reduction in the severity of symptoms reported. In addition, breakthrough, or returning, symptoms of acromegaly were reported by 36% of patients receiving injections at baseline compared to 22% at 13 months on oral octreotide through a questionnaire conducted in a subset of the patients in the clinical trial.

Reduced Number of Acromegaly Symptoms at Conclusion of Oral Octreotide Trial

(Fixed Dose Population (n = 110))

 

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The safety profile of oral octreotide was consistent with the known safety profile of octreotide and the disease burden of acromegaly, with the most common adverse events observed in the gastrointestinal system, such as nausea and diarrhea, the nervous system, such as headaches, and the musculoskeletal system, such as joint pain, but without adverse injection-site reactions. No new or unexpected safety signals were observed.

We only performed statistical analysis on the symptom reductions for our Phase 3 trial of oral octreotide in acromegaly and did not perform statistical analysis related to the biochemistry, specifically the reduction in GH and IGF-1 levels.

Planned Phase 3 Clinical Trial

In addition to the clinical data submitted to the FDA with our NDA, the EMA has advised us that a clinical trial demonstrating that oral octreotide is not inferior to injectable somatostatin analogs included in the same study as active controls will be required prior to regulatory approval. Comparative effectiveness is an important regulatory consideration in Europe. We have agreed to key elements of the trial design with the EMA and expect to initiate this trial in the second half of 2015.

We believe this trial will be an open-label, randomized, active-controlled study of oral octreotide in patients who have been classified as responders to a once-a-month injectable somatostatin analog based on criteria comparable to the criteria utilized in our completed Phase 3 clinical trial. The new trial is intended to demonstrate non-inferiority, comparing efficacy responses as between two randomized groups. We currently expect to enroll approximately 160 patients in the trial in the United States, Europe and other foreign countries with the goal of including at least 40 patients per group in the randomized phase.

We expect that patients will enter a dose-escalation, or run-in, phase no less than one month following their last monthly injection of the long-acting injectable somatostatin analog. Each patient will initially receive a daily dose of 40 mg of oral octreotide, which will be increased up to a maximum of 80 mg daily dose if lower doses are not effective. Similar to the requirements of our first Phase 3 clinical trial, patients will be required to fast for at least one hour before or at least two hours after each dose. As currently planned, patients that are not identified as responders during the run-in phase will be switched back to long-acting injectable somatostatin analog and followed until the end of the study, and patients identified as responders will be randomized (1:1) to either a long-acting injectable somatostatin analog or oral octreotide at the appropriate dose identified during the run-in phase. After completion of this randomized controlled phase, we expect that all eligible patients will have the option of entering an extension phase which would run through regulatory approval and subsequent commercial launch of the product in the European Union, if regulatory approval is obtained, during which period these patients would receive oral octreotide at the dose identified during the run-in phase.

We anticipate that the primary efficacy endpoint for this trial will relate to IGF-1 and GH levels, with responders defined as patients who achieve an IGF-1 level less than 1.3 times the ULN adjusted for age and an integrated GH level over two hours less than 2.5 ng/mL, the same efficacy criteria utilized in our completed Phase 3 clinical trial. In addition, assessment of symptom control and patient reported outcomes are expected to be included.

 

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Design of Planned Phase 3 to Support EMA Approval

 

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Phase 1 Clinical Trials of Oral Octreotide

Together with a group of academic collaborators, we conducted a series of Phase 1 clinical trials to demonstrate that the bioavailability of octreotide administered in our TPE formulation is comparable to the bioavailability of octreotide administered in the short-acting subcutaneous, or sc, formulation. These trials demonstrated similar pharmacokinetics for oral octreotide and octreotide 0.1 mg sc injection and that a 20 mg oral dose of oral octreotide produced systemic exposure comparable to octreotide 0.1 mg sc injection in healthy volunteers. There was no effect of route of administration on octreotide elimination, and the mean elimination half-life (t1/2) was comparable with the two treatments. However, these studies also demonstrated that the bioavailability of oral octreotide is approximately 90% lower when it is taken with a high-fat meal rather than in the fasted state. Accordingly, our Phase 3 clinical trial required fasting for at least one hour before and at least one to two hours after each dose.

Pharmacokinetics of Oral Octreotide vs. SC Octreotide in Phase 1 Trial

 

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In addition, to demonstrate the bioactivity of oral octreotide, as measured by reduction in GH levels, we conducted a Phase 1 clinical trial in 16 healthy volunteers. In this crossover study, a single 20 mg dose of oral octreotide was shown to suppress mean GH levels below 0.25 ng/mL (p < 0.05). This is similar to the effect seen in published results using octreotide injections.

 

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Suppression of GH Levels in Healthy Volunteers

 

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Also in this trial, we evaluated the ability of oral octreotide to suppress GH levels in healthy subjects whose production of GH had been transiently stimulated by dosing with growth hormone-releasing hormone, or GHRH, and arginine. GHRH and arginine are used in routine clinical testing for deficiencies in GH production. In a healthy person, their administration leads to a large increase in GH levels, which is what was observed in this trial. A single 20 mg dose of oral octreotide lowered the levels of GH by 80% (p < 0.001) following dosing with GHRH and arginine.

Data from our Phase 1 bioavailability and bioactivity clinical trials were published in the Journal of Clinical Endocrinology & Metabolism in July 2012.

A total of 11 clinical pharmacology studies have evaluated the safety of oral octreotide. In all of these studies, the safety profile of oral octreotide was consistent with the known safety profile of the short-acting octreotide 0.1 mg sc injection. No new or unexpected safety issues were detected during any of the clinical pharmacology studies. In particular, no new safety issues related to the novel formulation or route of administration were observed.

Other Indications for Oral Octreotide

If we receive regulatory approval for oral octreotide in acromegaly, we plan to submit an investigational new drug application, or IND, and initiate a Phase 2 clinical trial of oral octreotide for the symptomatic control of NET in the second half of 2016. We believe that the data generated in the Phase 1 clinical trials of oral octreotide that we have conducted, coupled with the Phase 3 clinical trial data we have generated for oral octreotide in acromegaly, will be sufficient for us to move directly to a Phase 2 clinical trial in NET. In addition, we intend to initiate clinical trials of oral octreotide in a new orphan indication, once identified, in late 2016.

NETs are formed by hormone-producing cells in the body’s neuroendocrine system. NETs most frequently form in tissues derived from the embryonic gut such as small intestine, appendix, proximal colon and pancreas. According to an article published in the Journal of Clinical Oncology in 2008, the prevalence of NETs in the United States is estimated to be 5.25 cases per 100,000 people. Over 70% of NETs from the gastrointestinal tract and pancreas express somatostatin receptors. Injectable somatostatin analogs have been approved for the treatment of symptom relief of NETs, mainly for a type known as carcinoids. NETs are associated with numerous clinical symptoms, the most debilitating of which is frequent diarrhea. Approximately 80% of patients experience frequent watery stools up to 30 times a day accompanied by abdominal cramping. Approximately 85% of patients also experience episodic flushing resulting in red to violet coloration of the head, neck and upper chest and a mild burning sensation. This flushing can also lead to reduced blood pressure. Two injectable forms of somatostatin analogs marketed by Novartis are currently the only approved therapies for relief of these symptoms.

 

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Until recently, somatostatin analogs have been indicated only for the treatment of symptoms of carcinoid or gastroentero-NETs. In December 2014, the FDA expanded the label for lanreotide to include the treatment of patients with pancreatic NETs based on its ability to improve progression-free survival in otherwise untreatable cases. This expanded label is expected to result in a substantial increase in the number of NET patients treated with somatostatin analogs.

Octreotide is known to be effective in controlling symptoms of NETs. It is the standard of care for carcinoid, a form of NET, and related symptoms. Approximately 50% of somatostatin analog sales, or approximately $1.0 billion annually, are associated with treatment of NET and we believe that oral octreotide has the potential to capture a significant portion of this market.

Our Proprietary Transient Permeability Enhancer Technology Platform

Our Transient Permeability Enhancer, or TPE, technology is a proprietary platform, developed internally by our scientists, that enhances the absorption through the intestinal wall of drugs that otherwise would not be absorbed efficiently by that route. Using our TPE technology, we can transiently and reversibly open the so-called tight junctions between the cells lining the inner intestinal wall, enabling drug molecules to be absorbed intact. Our TPE formulation is a suspension of water-soluble particles containing a precise combination of medium-chain fatty acid salts and drug substance in a fat-soluble medium. In creating a TPE formulation, we make no chemical modifications to the drug substance.

Oral delivery of peptides and nucleic acids is limited due to their inherent vulnerability to digestive processes and their poor intestinal absorption. The same intestinal absorption limitation applies to certain small molecules that have poor bioavailability. The cells at the surface of the intestine, columnar epithelial cells, are connected by tight junctions that form a barrier preventing permeation by water-soluble molecules as well as by viruses and bacteria. Our TPE technology induces the transient opening of these tight junctions, allowing peptides and other macromolecules up to a certain size, but not toxins, viruses and bacteria, to cross the intestinal barrier and enabling access to the blood.

The permeability of intestinal tight junctions is known to be altered by a number of dietary factors such as fatty acids, polysaccharides and flavonoids. Transient, reversible opening of the tight junctions and an increase in epithelial permeability are a normal part of intestinal physiology. These permeability adjustments allow the gut to balance two opposing functions: creating a barrier to the passage of microorganisms while facilitating the absorption of nutrients following a meal. In developing the TPE platform, our goal was to establish the ability to reproducibly induce transient increases in the permeability of tight junctions, allowing absorption of specifically formulated drug molecules.

We have conducted extensive nonclinical studies to demonstrate the ability of our TPE technology to increase the permeability of the intestinal epithelial layer and therefore absorb molecules of different shapes, sizes and doses. As a result of these studies, we believe that our TPE technology can be applied to multiple additional peptide drug products as well as small molecules with poor bioavailability.

 

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Our TPE Platform

 

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Other Product Candidates

We believe that our TPE platform can serve as the foundation for a pipeline of proprietary oral versions of injectable drugs. The technology is particularly well suited for drugs that are used for certain chronic indications, where frequent injections are currently required. To reduce the development time and overall level of investment required, we intend to focus on orphan indications and, where possible, follow the FDA’s 505(b)(2) regulatory pathway in the United States or the hybrid application pathway in Europe. With oral octrotide, our team completed the nonclinical work necessary to submit an IND for a TPE-based product within 18 months of initiating work on the product, and then generated clinical proof of concept data within an additional 12 months.

Using our TPE platform, we have also identified several peptides currently available only in injectable forms that we believe we can develop as oral products using a similar strategy as we employed with oral octreotide. We have obtained nonclinical proof of concept data for some of these product candidates. Our intention is to select our second product candidate for clinical development in late 2016 and to initiate nonclinical development of a third product candidate in 2017.

Prior License Agreement with Roche

In January 2013, we entered into a license agreement with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc., collectively Roche, for the development and commercialization of oral octreotide. Under the terms of the license agreement, we had responsibility for continued clinical development through completion of our Phase 3 clinical trial, establishment of commercial-scale manufacturing and completion of ongoing nonclinical activities. Roche assumed responsibility for development and commercialization thereafter. The agreement provided for an upfront payment of $65.0 million, future consideration of up to $530 million in development and commercial milestones, and the right to receive tiered, double-digit royalties on net sales of oral octreotide.

In January 2014, we received the clinical results from the seven-month core treatment period of the oral octreotide Phase 3 clinical trial. These results did not include the six-month extension period of the trial, which allowed patients the opportunity to choose to continue on oral therapy. In May 2014, Roche conducted a pre-NDA meeting with the FDA. In July 2014, Roche elected to terminate the license agreement and transitioned oral octreotide and all materials related to the clinical development programs back to us. We subsequently entered into a termination agreement with Roche, which included our purchase of active pharmaceutical ingredient for future manufacturing of oral octreotide and a trademark associated with oral octreotide for an aggregate of $5.1 million payable over three years. We have no further obligations to Roche.

In October 2014, we completed analyses of the full 13-month clinical results from our Phase 3 clinical trial of oral octreotide. Subsequently, in December 2014, we met with the FDA to discuss our clinical development of oral octreotide, including the full 13-month data from our Phase 3 clinical trial. Based on the results of this meeting, we submitted an NDA to the FDA in June 2015.

 

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Commercialization Strategy

We retain worldwide rights to develop and commercialize oral octreotide with no royalty obligations to third parties. We intend to commercialize oral octreotide ourselves in the United States employing a strategy that differentiates our product candidate, if approved, and is tailored to the needs of patients and their physicians. We have been conducting market research and other pre-commercial activities in the United States since 2010 to better understand satisfaction levels and key unmet needs with respect to current treatments for acromegaly and to build awareness of our product candidate. This market research has been conducted with endocrinologists, nurses and people with acromegaly. In surveys commissioned by us, more than 80% of people with acromegaly expressed a preference for an oral treatment, and endocrinologists surveyed predicted that an oral treatment would ultimately be prescribed for a majority of their patients. Endocrinologists indicated that effectiveness in at least 50% of patients treated would be sufficient for an oral treatment to be successful. To assess the attitudes of commercial third-party payors’ toward reimbursement for oral octreotide, we conducted research with 12 such payors collectively representing 111 million covered lives. Payors representing nearly 90% of these covered lives said they would reimburse an oral treatment assuming pricing was in a range comparable to existing injectable therapies, octreotide and lanreotide.

We believe the current U.S. market for acromegaly treatments is concentrated. Approximately 40% of people with acromegaly in the United States undergoing treatment are treated by endocrinologists at a small number of pituitary centers. The remaining people with acromegaly undergoing treatment are treated by community endocrinologists. We believe we will be able to market oral octreotide, if approved, directly to pituitary centers that treat high volumes of patients with acromegaly through our own small, targeted sales force. We also intend to direct our sales and marketing efforts towards the larger number of community endocrinologists. We believe that oral octreotide, if approved, will be embraced by these healthcare providers who are generally hampered by the complexity and resource burden associated with the administration of currently available injectable therapies. Finally, we intend to engage in direct patient outreach efforts. We believe that the combination of clinical benefits and preferences of patients and healthcare professionals for an oral product together with our patient-centric commercial approach could enable oral octreotide, if approved, to become a new standard of care in acromegaly.

We intend to seek approval to commercialize oral octreotide in Europe through the completion of the Phase 3 trial required by the EMA and subsequent submission of an MAA. We plan to explore the strategic merits of collaboration opportunities for commercializing oral octreotide in Europe and the rest of the world in order to maximize the availability of the product candidate, if approved, to patients. However, depending on our evaluation of the strategic merits of these collaboration opportunities, we may decide to retain commercial rights in key markets.

Manufacturing

We depend on third-party suppliers and contract manufacturing organizations, or CMOs, for all of our required raw materials and drug substance and to manufacture and package drug product for clinical and commercial use. We plan to establish a distribution channel in the United States utilizing third-party logistics and a specialty pharmacy to distribute product directly to patients.

We have qualified Novetide Ltd., a subsidiary of Teva Pharmaceuticals Industries Ltd., in Israel, and Bachem Americas Inc., in the United States, as suppliers of the generic active pharmaceutical ingredient, or API, octreotide acetate. We believe that the manufacturing scale and capacity at both suppliers is sufficient to supply our expected market demands for the foreseeable future.

All excipients, or substances formulated together with the API, used in manufacture of oral octreotide are readily available. The octreotide API is formulated with our TPE technology and filled into capsules and enteric-coated by Lyophilization Services of New England Inc. and Encap Drug Delivery, a division of Capsugel, in Scotland. All manufacturers periodically undergo inspections by regulatory authorities.

 

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Oral octreotide is refrigerated and our NDA includes stability data covering 24 months under these storage conditions. We have obtained data regarding additional one-month storage at room temperature, which supports storage of oral octreotide at room temperature. The FDA has indicated that the testing parameters for our control strategy and product release and stability specifications are acceptable. The manufacturing process for the API has been validated at both of our manufacturers. Process validation of certain batches of oral octreotide manufactured at the CMOs is ongoing and we believe it will be completed ahead of our planned commercial launch.

Competition

Our industry is highly competitive and subject to rapid and significant technological change as researchers learn more about diseases and develop new technologies and treatments. Our potential competitors include primarily large pharmaceutical, biotechnology companies and specialty pharmaceutical companies. Key competitive factors affecting the commercial success of oral octreotide and any other product candidates we may develop are likely to be efficacy, safety and tolerability profile, reliability, convenience of administration, price and reimbursement.

The current treatment options for patients suffering from acromegaly all involve injectable therapies. Novartis markets octreotide LAR, which is administered monthly and intramuscularly using a large gauge needle. Ipsen markets lanreotide, another long-acting analog of somatostatin, like octreotide, which is administered monthly using a deep subcutaneous injection. Both therapies, which are currently the first drug treatment options for patients, involve side effects related to the injections and inconvenience due to the timing and requirements of the injections. For patients not controlled on these somatostatin analogs, Pfizer markets pegvisomant daily injections and Novartis also markets pasireotide LAR, which is another somatostatin analog administered via intramuscular injection. Pegvisomant daily injections and pasireotide LAR are significantly more costly than injectable octreotide and lanreotide. The label for pasireotide LAR includes a warning about hyperglycemia and diabetes, which can sometimes be severe. The label advises healthcare professionals administering pasireotide LAR to monitor glucose levels periodically during therapy and to monitor glucose levels more frequently in the months that follow initiation or discontinuation of therapy and following dose adjustment. We are aware of other companies involved in early-stage nonclinical and clinical studies of similar somatostatin analogs, but all involve administration via injection.

Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of our competitors. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval of drugs and achieving widespread market acceptance. Our competitors’ drugs, or drugs they may develop in the future, may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render oral octreotide or any future product candidates we may develop obsolete or non-competitive before we can recover the expenses of developing and commercializing oral octreotide or any future product candidates we may develop. Our competitors may also obtain FDA or other regulatory approval of their products more rapidly than we may obtain approval of ours. We anticipate that we will face intense and increasing competition as new drugs enter the market and more advanced technologies become available. If we are unable to compete effectively, our opportunity to generate revenue from the sale of oral octreotide or any future product candidates we may develop, if approved, will be adversely affected.

Intellectual Property

We strive to protect the proprietary technology that we believe is important to our business, including seeking and maintaining patents intended to cover our product candidates and compositions, their methods of use and processes for their manufacture, and any other aspects of inventions that are commercially important to the development of our business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

 

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We plan to continue to expand our intellectual property estate by filing patent applications directed to compositions, methods of treatment, and dosage regimens identified in the course of our business. Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position. We seek to obtain domestic and international patent protection, and endeavor to promptly file patent applications for new commercially valuable inventions.

The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and patent scope can be reinterpreted by the courts after issuance. Moreover, many jurisdictions permit third parties to challenge issued patents in administrative proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors.

Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially even longer, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings or derivation proceedings declared by the U.S. Patent and Trademark Office, or the USPTO, to determine priority of invention.

Patents

As of March 31, 2015, our patent portfolio included two patents issued in the United States; patents issued in foreign jurisdictions; patent applications pending in the United States; and patent applications pending in various foreign jurisdictions. These patents and patent applications include narrow and broad claims directed to octreotide compositions formulated with our TPE technology; capsules containing such compositions; methods of treatment using such compositions; and methods of making various compositions with our TPE technology.

One patent family that we own includes two issued U.S. patents and one pending patent application with claims directed to capsules containing octreotide compositions, and methods of treating various conditions with related octreotide compositions. Other patents in this family have issued in Hong Kong, Japan, New Zealand, South Africa, and the United Kingdom, and patent applications are pending in other jurisdictions, including Brazil, Canada, China, Europe, Israel, Korea, Mexico, Russia, Australia, and Japan. Patents in this family are expected to expire in 2029, absent any adjustments or extensions.

We also own one pending U.S. provisional patent application with claims directed to further uses of octreotide. No U.S. nonprovisional or Patent Cooperation Treaty, or PCT, or foreign filings have yet been made, which claim priority to this U.S. provisional patent application. Patents issuing from any U.S. nonprovisional and foreign-filed patent applications claiming priority to this application are expected to expire in 2035, absent any adjustments or extensions.

We also own two pending U.S. provisional patent applications directed to a dosage regimen for octreotide and also directed to methods of treating acromegaly with certain octreotide-containing compositions and dosage regimens. No U.S. nonprovisional or PCT or foreign filings have yet been made, which claim priority to these U.S. provisional patent applications. Patents issuing from any U.S. nonprovisional and foreign-filed applications claiming priority to this application are expected to expire in 2036, absent any adjustments or extensions.

Finally, we own two patent applications directed to proprietary packaging for distribution of octreotide. One of these is a U.S. nonprovisional patent application, which, if issued, is expected to expire in 2035, absent any

 

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adjustments or extensions. No PCT or foreign filings have yet been made, which claim priority to this U.S. nonprovisional patent application. The other patent application is a U.S. design patent application, which, if issued, is expected to expire 15 years after issuance.

Patent Term

The base term of a U.S. utility patent is 20 years from the filing date of the earliest-filed non-provisional patent application from which the patent claims priority. The base term of a U.S. design patent is 15 years from issuance once the Patent Law Treaties Implementation Act of 2012 takes effect on May 13, 2015. The term of a U.S. patent can be lengthened by patent term adjustment, which compensates the owner of the patent for administrative delays at the USPTO. In some cases, the term of a U.S. patent is shortened by terminal disclaimer that reduces its term to that of an earlier-expiring patent.

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products such as our lead product candidate, oral octreotide. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.

United States Drug Development

In the United States, the FDA regulates drugs under the Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, voluntary product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

Oral octreotide must be approved by the FDA through the NDA process before it may be legally marketed in the United States. The process required by the FDA before a drug may be marketed in the United States generally involves the following:

 

    completion of extensive nonclinical or nonclinical laboratory tests, animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice, or GLP, regulations;

 

    submission to the FDA of an IND, which must become effective before human clinical trials may begin;

 

    performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical study related regulations, sometimes referred to as good clinical practices, or GCPs, to establish the safety and efficacy of the proposed drug for its proposed indication;

 

    submission to the FDA of an NDA;

 

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    a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review;

 

    satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with the FDA’s current good manufacturing practice requirements, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

 

    potential FDA audit of the clinical trial sites that generated the data in support of the NDA; and

 

    FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.

The data required to support an NDA are generated in two distinct development stages: nonclinical and clinical. For new chemical entities, the nonclinical development stage generally involves synthesizing the active component, developing the formulation and determining the manufacturing process, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the laboratory, which support subsequent clinical testing. The conduct of the nonclinical tests must comply with federal regulations and requirements including GLPs. The sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data, any available clinical data or published literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human studies. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that could cause the trial to be suspended or terminated.

The clinical stage of development involves the administration of the drug candidate to healthy volunteers and/or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completion. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

Clinical trials are generally conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3 clinical trials, and may overlap. Phase 1 generally involves a small number of healthy volunteers who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these studies is to assess the metabolism, pharmacological action, side effect tolerability and safety of the drug. Phase 2 trials typically involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. Phase 3 trials generally involve large numbers of patients at multiple sites, and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use, and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. Phase 3 trials may

 

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include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA.

Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of Phase 4 trials.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events, findings from other studies that suggest a significant risk to humans exposed to the drug, findings from animal or in vitro testing that suggest a significant risk to human subjects, and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the study. The clinical trial sponsor may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

NDA and FDA Review Process

Following trial completion, trial data are analyzed to assess safety and efficacy. The results of nonclinical studies and clinical trials are then submitted to the FDA in an NDA along with proposed labeling for the product and information about the manufacturing process and facilities that will be used to ensure product quality, results of analytical testing conducted on the chemistry of the drug, and other relevant information. The NDA is a request for approval to market the drug and must contain proof of safety, purity, potency and efficacy, which is demonstrated by extensive nonclinical and clinical testing. The application includes both negative or ambiguous results of nonclinical studies and clinical trials as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product to the satisfaction of the FDA. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. FDA approval of an NDA must be obtained before marketing a drug in the United States.

In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA 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 product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. An NDA

 

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applicant must submit to the FDA a pediatric study plan typically 60 days after an end-of-Phase 2 meeting with the agency. Because oral octreotide received orphan drug designation for the treatment of acromegaly, we do not need to comply with the requirements of PREA at this time. If, however, we seek other indications for oral octreotide or pursue approval of any other product candidate that does not have orphan drug designation, we may need to comply with PREA or otherwise seek a waiver .

The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. The decision to accept the NDA for filing means that the FDA has made a threshold determination that the application is sufficiently complete to permit a substantive review. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has ten months from the receipt of an NDA in which to complete its initial review of a standard NDA and respond to the applicant. The FDA does not always meet its PDUFA goal dates for standard NDAs, and the review process is often significantly extended by FDA requests for additional information or clarification.

After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMPs to assure and preserve the product’s identity, strength, quality and purity. The FDA may refer applications for novel drug products or drug products which 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 and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA will likely re-analyze the clinical trial data, which could result in extensive discussions between the FDA and us during the review process. The review and evaluation of an NDA by the FDA is extensive and time consuming and may take longer than originally planned to complete, and we may not receive a timely approval, if at all.

Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMPs. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data differently than we interpret the same data.

There is no assurance that the FDA will ultimately approve a drug product for marketing in the United States, and we may encounter significant difficulties or costs during the review process. If a product receives marketing approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a

 

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commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of approved products. For example, the FDA may require Phase 4 testing which involves clinical trials designed to further assess drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also place other conditions on approvals including the requirement for a risk evaluation and mitigation strategy, or REMS, to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory requirements or if problems occur following initial marketing.

505(b)(2) Approval Process

Section 505(b)(2) of the FDCA provides an alternate regulatory pathway for the FDA to approve a new drug and permits reliance for such approval on published literature or an FDA finding of safety and effectiveness for a previously approved drug product. Specifically, section 505(b)(2) permits the filing of an NDA where one or more of the investigations relied upon by the applicant for approval were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon published literature and/or the FDA’s findings of safety and effectiveness for a previously approved drug. Typically, 505(b)(2) applicants must perform additional trials to support the change from the previously approved drug and to further demonstrate the new drug’s safety and effectiveness. The FDA may then approve the new product candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication sought by the section 505(b)(2) applicant.

Our lead product candidate, oral octreotide, is based upon an already approved version of the same drug in an immediate-release formulation for subcutaneous injection, rather than a new chemical entity product candidate. Accordingly, we expect to be able to rely on information from previously conducted studies involving the immediate-release subcutaneous octreotide product in our clinical development plans and our NDA submission.

Post-Marketing Requirements

Following approval of a new product, a pharmaceutical company and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse events with the product, providing the regulatory authorities with updated safety and efficacy information, and product sampling and distribution requirements in accordance with the Prescription Drug Marketing Act, a part of the FDCA. Modifications or enhancements to the product or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result in a lengthy review process.

Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription drug promotion and advertising, including direct-to-consumer advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. In addition, a pharmaceutical company must comply with restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.

In the United States, once a product is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. cGMP

 

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regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities. NDA holders using contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMPs, could result in enforcement actions that interrupt the operation of any such facilities or the ability to distribute products manufactured, processed or tested by them. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including, among other things, recall or withdrawal of the product from the market.

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 place conditions on an approval that could restrict the distribution or use of the product. Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, untitled or warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development and impact approved products already on the market.

Other Regulatory Matters

The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

The failure to comply with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, voluntary recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, exclusion from federal healthcare programs, or refusal to allow a firm to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.

Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the voluntary recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

Orphan Designation and Exclusivity

The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States. Alternatively, orphan drug designation may be available if

 

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the disease of the condition affects more than 200,000 individuals in the United States and there is no reasonable expectation that the cost of developing and making the drug for this type of disease or condition will be recovered from sales in the United States.

Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. In addition, if a product is the first to receive FDA approval of the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity.

U.S. Marketing Exclusivity

Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications. The FDA provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use. Three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. Orphan drug exclusivity, as described below, may offer a seven-year period of marketing exclusivity, except in certain circumstances. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection and patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial.

Other Regulations

We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.

European Orphan Designation and Exclusivity

In the European Union, the EMA’s Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions that affect not more than five in 10,000 persons in the European Union Community, or when, without incentives, it is unlikely that sales of such products in the European Union would be sufficient to justify the necessary investment in developing the products. Additionally, orphan drug designation is only available where no satisfactory method of diagnosis, prevention, or treatment of the condition has been authorized (or the product would be a significant benefit to those affected).

In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following medicinal product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. Market exclusivity would not prevent the approval of a similar drug that is shown to be safer, more effective or otherwise clinically superior.

 

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Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

Coverage and Reimbursement

Sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of coverage and adequate reimbursement from third-party payors, including government healthcare program administrative authorities, managed care organizations, private health insurers, and other entities. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Therefore, our products, once approved, may not obtain market acceptance unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

The process for determining whether a third-party payor will provide coverage for a drug product typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved or that any required patient cost-sharing amount will be acceptable to the patient. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor and among the insured lives of an individual payor depending upon the benefits applicable to the insured person. One third-party payor’s decision to cover a particular drug product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming process.

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for drug products and medical services, examining the medical necessity and reviewing the cost effectiveness of drug products and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.

The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. The Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health develop research plans and periodically report on the status of the research and related expenditures to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for governmental or private payors, it is not clear what effect, if any, the research will have on the sales of our product candidates, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates, once approved.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example,

 

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the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.

Anti-Kickback and False Claims Laws and Other Regulatory Matters

In the United States, among other things, the research, manufacturing, distribution, sale and promotion of drug products and medical devices are potentially subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General), the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state attorneys general and other state and local government agencies. Our current and future business activities, including for example, sales, marketing and scientific/educational grant programs must comply with healthcare regulatory laws, including the Federal Anti-Kickback Statute, the Federal False Claims Act, as amended, the privacy regulations promulgated under the Health Insurance Portability and Accountability Act, or HIPAA, as amended, physician payment transparency laws, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.

The Federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Additionally, the intent standard under the Federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act of 2010, or collectively the ACA, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar

 

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to the Federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, and the potential for additional legal or regulatory change in this area, it is possible that our future business activities, including our sales and marketing practices and/or our future relationships with endocrinologists and other healthcare providers might be challenged under anti-kickback laws, which could harm us.

The Federal False Claims Act prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent. This statute has been interpreted to prohibit presenting claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. For example, pharmaceutical companies have been found liable under the Federal False Claims Act in connection with their off-label promotion of drugs. Penalties for a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim, the potential for exclusion from participation in federal healthcare programs, and, although the Federal False Claims Act is a civil statute, conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline in our stock price. In addition, private individuals have the ability to bring actions under the Federal False Claims Act and certain states have enacted laws modeled after the Federal False Claims Act.

Similarly, the civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

Additionally, HIPAA created federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

The ACA included a provision commonly referred to as the Sunshine Act, which requires certain pharmaceutical manufacturers to track and report annually certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” provided, as well as any ownership or investment interests held by physicians and their immediate family members. Covered manufacturers are required to submit reports to CMS by the 90th day of each subsequent calendar year. The information reported for the first reporting period was publicly available on a searchable website in September 2014. Information reported for subsequent reporting periods will also be publicly available and searchable on the CMS website. There are also an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state and federal authorities. These laws may affect our sales, marketing and other promotional activities by imposing administrative and compliance burdens on us.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for

 

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Economic and Clinical Health Act, or 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 certain of 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 created four new tiers of civil monetary penalties 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 attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

The failure to comply with applicable regulatory requirements subjects us to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, refusal to allow us to enter into supply contracts, including government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

We intend to develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the law and program requirements to which we will or may become subject because we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs.

Affordable Health Care Act and Other Reform Initiatives

In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.

In March 2010, the ACA, was enacted. The ACA includes measures that have significantly changed, and are expected to continue to significantly change, the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA of greatest importance to the pharmaceutical industry are the following:

 

    The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services in exchange for state Medicaid coverage of most of the manufacturer’s drugs. ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs and biologic agents to 23.1% of average manufacturer price, or AMP, and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP.

 

    The ACA expanded the types of entities eligible to receive discounted 340B pricing, although, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs used in orphan indications. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase. The ACA imposed a requirement on manufacturers of branded drugs and biologic agents to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D beneficiaries in the coverage gap (i.e., “donut hole”).

 

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    The ACA imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications.

 

    The ACA included the Sunshine Act, which required certain pharmaceutical manufacturers to track and annually report to CMS certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” provided, as well as any ownership or investment interests held by physicians and their immediate family members.

 

    The ACA established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.

 

    The ACA created the Independent Payment Advisory Board which has the authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings.

 

    The ACA established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation through 2019.

Many of the details regarding the implementation of the ACA are yet to be determined, and at this time, it remains unclear the full effect that the ACA would have on our business.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additional congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

A key provision of the ACA, which provides federal premium tax credits to individuals purchasing coverage through health insurance exchanges, is currently being challenged in a case before the U.S. Supreme Court, King v. Burwell . An adverse decision in that case could curtail the number of individuals who have become, or are expected to be, newly insured. A decision in King v. Burwell is expected sometime in 2015.

European Union Drug Development

In the European Union, oral octreotide and any future product candidates we may develop will also be subject to extensive regulatory requirements. As in the United States, medicinal products can only be marketed if marketing authorizations from the competent regulatory agencies have been obtained.

Similar to the United States, the various phases of nonclinical and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to

 

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harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.

On April 16, 2014, the European Commission adopted new clinical trials legislation in an effort to ensure that the rules for conducting clinical trials in the EU will be identical. The new legislation, among other things, will implement a streamlined application procedure with a single entry point for review, harmonize the process for assessing applications for clinical trials, simplify reporting procedures, and increase transparency regarding clinical trials and their outcomes. The legislation, however, is not effective until May 28, 2016, at the earliest. Until then, the current law, Clinical Trials Directive 2001/20/EC, continues to govern all clinical trials performed in the EU.

European Union Drug Review and Approval

In the European Economic Area, or EEA, which is comprised of the 27 Member States of the European Union plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations:

The Community MA , which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, such as oral octreotide, and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU.

National MAs , which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e. in the RMS and the Member States Concerned).

Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

 

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Employees

As of March 31, 2015, we had 13 full-time employees, the majority of whom are located in Israel. While none of our employees are represented by a labor union or party to any collective bargaining agreement certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees by extension orders issued by the Israel Ministry of Economy (previously the Israeli Ministry of Trade, Industry and Labor).

Israeli labor laws principally govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Our Israeli employees have defined-benefit pension plans that comply with applicable Israeli legal requirements, which also include the mandatory pension payments required by applicable law and allocations for severance pay.

We have never experienced any employment-related work stoppages and believe our relationship with our employees is good.

Property and Facilities

Our wholly owned Israeli subsidiary leases premises located in Jerusalem, Israel. The premises are in a commercial office building and house our office space of 3,940 square feet and our laboratory facilities of 3,563 square feet, where we currently conduct our research and development activities.

We lease these premises from an unaffiliated third party, pursuant to a lease that expires on September 4, 2015. In addition, we have three additional one-year lease renewal periods that can be exercised at our option. The last renewal period expires on September 4, 2018. Our annual rental costs with respect to this lease for 2014 were $305,000, and our expected rental costs for 2015 will be approximately the same.

Effective on May 12, 2015, we entered into a sublease for 6,546 square feet of commercial office space in Newton, Massachusetts, which will house our U.S. headquarters. These premises are leased from the current tenant of the space, pursuant to a sublease that expires on March 31, 2016. Our expected annualized rent for the period beginning May 12, 2015 and ending March 31, 2016 will be $229,110, payable in monthly installments of $19,092.50.

Legal Proceedings

From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.

 

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MANAGEMENT

Executive Officers and Directors

Below is a list of the names, ages and positions of the individuals who serve as our executive officers, key persons and directors as of March 31, 2015.

 

Name

   Age     

Position

Executive Officers

     

Mark Leuchtenberger

     58       President, Chief Executive Officer and Director

Roni Mamluk, Ph.D.

     48       Chief Development Officer

Mark J. Fitzpatrick

     52       Chief Financial Officer, Treasurer and Secretary

Chaime Orlev

     44       Vice President, Finance and Administration

Key Persons

     

Dana Gelbaum

     41       Vice President, Commercial Planning

Gary Patou, M.D.

     56       Senior Medical Advisor

Non-Employee Directors

     

David Stack (1)(3)

     64      

Chairman of the Board of Directors

Dror Brandwein (4)

     56       Director

Todd Foley (1)(3)

     43       Director

Ansbert Gadicke, M.D.

     57       Director

Bard Geesaman, M.D., Ph.D. (2)

     48       Director

Vincent Miles, Ph.D. (4)

     64       Director

Scott Minick (2)(3)

     63       Director

John Scarlett, M.D. (1)(2)

     64       Director

 

(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating and Corporate Governance Committee.
(4) Has indicated to us his intention to resign from our board of directors upon the closing of this offering.

Executive Officers

Mark Leuchtenberger has served as our President and Chief Executive Officer and as a member of our board of directors since March 2015. Prior to joining us, Mr. Leuchtenberger was President and Chief Executive Officer and director of Acusphere, Inc. (OTCMKTS: ACUS), a biopharmaceutical company, or Acusphere, from September 2013 to January 2015. Prior to Acusphere, from March 2010 to February 2013, Mr. Leuchtenberger served as President, Chief Executive Officer and a director at Rib-X Pharmaceuticals, Inc. (now Melinta Therapeutics, Inc.), a biopharmaceutical company. Prior to that, from 2006 to 2009, Mr. Leuchtenberger served as President and Chief Executive Officer of Targanta Therapeutics Corporation, where he led the company’s initial public offering in 2007 and its acquisition in 2009. From 2002 to 2006, Mr. Leuchtenberger served as the President and Chief Executive Officer of Therion Biologics Corporation, or Therion. Prior to Therion, Mr. Leuchtenberger was a senior officer at Biogen Inc., where he led the late-stage development of Avonex and its launch in the United States and subsequently managed North American and international commercial operations. He is a director and past chairman of the Massachusetts Biotechnology Council Board of Directors, and currently serves as a trustee for Beth Israel Deaconess Medical Center and Chairman of the Advisory Committee for the MassDevelopment Emerging Technology Fund. He is a co-founder of Albor Biologics, Inc. and Alvos Therapeutics, Inc. Mr. Leuchtenberger received his M.B.A. from the Yale School of Management and his B.A. from Wake Forest University. He served as non-executive Chairman of the Board of Directors of Xenetic Biosciences, Inc. (OTCMKTS: XBIO), a biopharmaceutical company developing next-generation biologic drugs and novel oncology therapeutics, from May 2014 to April 2015. We believe Mr. Leuchtenberger’s position as our President and Chief Executive Officer as well as his extensive experience in commercial operations, business development and preparing biopharmaceuticals companies for product approval and commercialization make him a critical member of our board of directors.

 

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Roni Mamluk, Ph.D. has served as our Chief Development Officer since March 2015. She served as our Chief Executive Officer from April 2013 to March 2015 and held various roles of increasing responsibility, including Chief Operating Officer and Vice President, Research and Development, from 2006 to April 2013. She also served as a member of our board of directors from April 2013 to March 2015. Since joining us, Dr. Mamluk has played a leading role in developing, and is one of the primary inventors of, our proprietary Transient Permeability Enhancer, or TPE, technology platform. She has also led the development of oral octreotide and ongoing improvements to our TPE platform. Dr. Mamluk joined us from Adnexus Therapeutics, Inc., where she established and led nonclinical research and development. Dr. Mamluk received her B.A. and Ph.D. from the Hebrew University. She also participated in a post-doctoral fellowship at Children’s Hospital/Harvard Medical School in the field of angiogenesis.

Mark J. Fitzpatrick has been our Chief Financial Officer since June 2015. Prior to joining us, he was Chief Financial Officer at Aegerion Pharmaceuticals, Inc. (NASDAQ: AEGR), a biopharmaceutical company specializing in the treatment of rare diseases, from May 2011 to June 2015. From July 2007 to April 2011, Mr. Fitzpatrick served as Chief Financial Officer of Proteon Therapeutics, Inc. (NASDAQ: PRTO), a biopharmaceutical company. He also held Chief Financial Officer positions at RenaMed Biologics, Inc., Dynogen Pharmaceuticals, Inc., WorldStreet Corporation, and Diacrin, Inc., and has more than 20 years of financial management experience in both public and private companies. Mr. Fitzpatrick received his B.S. in Accounting from Boston College in 1984 and earned a Certified Public Accountant certificate in the Commonwealth of Massachusetts in 1987.

Chaime Orlev has been our Vice President, Finance and Administration since December 2011. Mr. Orlev joined us in June 2010 as the Director of Finance. Prior to joining us, he was a financial consultant to several Israeli biotechnology and medical device companies from 2008 to 2010. From 2008 to 2009, Mr. Orlev served as Chief Financial Officer of Oramed Pharmaceuticals Inc. Mr. Orlev served as Chief Financial Officer of Gammacan International Inc. from 2005 to 2008 and as Vice President, Finance and Chief Financial Officer of Huntleigh from 2001 to 2004. Mr. Orlev received his M.B.A. from the Leon Recanati Graduate School of Business Administration at the Tel Aviv University and a B.A. in Business Administration from the College of Business in Israel. Mr. Orlev is a Certified Public Accountant under the laws of Israel.

Key Persons

Dana Gelbaum has been our Vice President, Commercial Planning since December 2011. Ms. Gelbaum joined us in February 2009 as Director of Business Development. Prior to joining us, she was Director of Business Development at Recoly N.V., a biotechnology company that is developing product candidates to treat hemophilia A patients. Previously, Ms. Gelbaum was an Associate at Johnson & Johnson Development Corporation, Johnson & Johnson’s investment arm, focusing on investments in biopharmaceutical companies in Europe and medical device companies in Israel. Ms. Gelbaum received her M.Sc. and M.B.A. from Tel Aviv University.

Gary Patou, M.D. has served as our Senior Medical Advisor since August 2014. Since August 2009, Dr. Patou has served as Chief Medical Officer for Pacira Pharmaceuticals, Inc. (NASDAQ: PCRX), or Pacira, a specialty pharmaceutical company. In addition, he has been a Managing Director at MPM Capital, Inc., or MPM, a venture capital fund focused on life sciences companies, since 2005. Prior to joining Pacira, Dr. Patou was Chief Medical Officer at Peplin Inc. from July 2006 to April 2007, Chief Medical Officer of Cerimon Pharmaceuticals, Inc. from June 2005 to June 2006, and Executive Vice President and Chief Medical Officer of Oscient Pharmaceuticals Corp. from February 2004 to April 2005 just after its merger with GeneSoft Pharmaceuticals, Inc., or GeneSoft. Before GeneSoft, Dr. Patou worked at SmithKline Beecham Pharmaceuticals, now a unit of GlaxoSmithKline, as Senior Vice President and Director, Project and Portfolio Management, managing all of the company’s pharmaceutical development projects. He also serves on the board of directors at Xenon Pharmaceuticals Inc. (NASDAQ: XENE). Dr. Patou has held a number of academic appointments at University College & Middlesex School of Medicine and received his B.Sc. from University of London and his M.D. from University College London.

 

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Non-Employee Directors

David Stack joined our board of directors in November 2014 as Chairman. Since 2007, Mr. Stack has served as President, Chief Executive Officer and Chairman of Pacira Pharmaceuticals, Inc. (NASDAQ: PCRX). Mr. Stack has also been a Managing Director of MPM since 2005. From 2001 to 2004, he was President and Chief Executive Officer of The Medicines Company (NASDAQ: MDCO). Previously, Mr. Stack was President and General Manager at Innovex, Inc. He was Vice President, Business Development/Marketing at Immunomedics, Inc. (NASDAQ: IMMU) from 1993 until 1995. Prior to that, Mr. Stack was with Roche Laboratories from 1981 until 1993, where he eventually served as Director of Business Development and Planning for Infectious Disease, Oncology, and Virology and was the Therapeutic World Leader for Infectious Disease. Mr. Stack received his B.S. from Albany College of Pharmacy and a B.S. from Siena College. We believe Mr. Stack’s qualifications to sit on our board of directors include his extensive experience in the life sciences sector, his financial expertise and his years of experience providing strategic and financial advisory services to biopharmaceutical organizations.

Dror Brandwein joined our board of directors in December 2012. Mr. Brandwein serves as the Chief Executive Officer of the 7 Main Group, a family office that specializes in long-term minority partnerships in industrial companies, a position he has held since 2008. Since 1999, Mr. Brandwein has served as a director of Bolder Ltd., a provider of consulting and managerial services. From 1992 to 2006, Mr. Brandwein was a founder and co-managing partner of Leshem Brandwein & Co., which later merged with Meitar, Liquornik, Geva & Co. to form Meitar Liquornik Geva Leshem Brandwein, a leading Israeli law firm. Mr. Brandwein received his LL.B. from the Hebrew University and graduated from the Owner/President Management program of Harvard Business School. We believe Mr. Brandwein’s extensive managerial experience qualifies him to serve on our board of directors. Mr. Brandwein has indicated to us his intention to resign from our board of directors upon the closing of this offering.

Todd Foley joined our board of directors in May 2008. Mr. Foley is a Managing Partner at MPM Capital, where he has focused primarily on biotechnology investments. Mr. Foley joined MPM in 1999 and has been a partner since 2007. Prior to MPM, Mr. Foley’s career in the life science industry included positions in Business Development at Genentech, Inc., a biotechnology company and subsidiary of F. Hoffman-La Roche, and in management consulting with Arthur D. Little. Mr. Foley currently serves on the boards of various biotechnology and healthcare companies, including Valeritas, Inc., OSS Healthcare Inc., Iconic Therapeutics, Inc., Rhythm Holding Company, LLC, Clinical Ink, Inc., Semma Therapeutics, Inc. and Selexys Pharmaceuticals Corporation. He received his B.S. from the Massachusetts Institute of Technology, or MIT, and an M.B.A. from Harvard Business School. We believe Mr. Foley’s extensive business strategy and financial background and experience serving on the boards of several life science companies qualify him to serve on our board of directors.

Ansbert Gadicke, M.D. joined our board of directors in December 2014. Dr. Gadicke co-founded MPM’s venture investing activities in 1997. Prior to that, Dr. Gadicke led MPM’s Advisory and Investment Banking business from 1992 to 1996, and was in Boston Consulting Group’s Health Care Group from 1989 to 1992. He is a member of the board of directors of biotechnology companies, Mitobridge, Inc., OSS Healthcare, Inc., Radius Health, Inc. (NASDAQ:RDUS), Raze Therapeutics, Inc., Sideris Pharmaceuticals, Inc. and TriNetX, Inc. Dr. Gadicke has held research positions in biochemistry and molecular biology at the Whitehead Institute at MIT and the Biochemistry Department at Harvard University. Dr. Gadicke has been published in leading scientific journals such as Nature and Cell . Dr. Gadicke is also a member of the Board of Fellows of Harvard Medical School and the Research Advisory Council of Massachusetts General Hospital. Dr. Gadicke received his M.D. from J.W. Goethe University. We believe Dr. Gadicke’s extensive experience in the healthcare industry and in investment management qualify him to serve on our board.

Bard Geesaman, M.D., Ph.D. joined our board of directors in 2004. Since January 2012, Dr. Geesaman has served as a Managing Director at MPM. From 2012 to 2015, he was Executive Director, Life Sciences of the X PRIZE Foundation. He is the founder of Solasia Pharma K.K., a specialty pharmaceutical company that

 

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develops and commercializes oncology drugs. From 2003 to 2007 he served as the Vice President, Medical Development for Elixir Pharmaceuticals Inc., where he oversaw clinical strategy for drug development and the human genetics program, and was a member of the company’s business development team. Dr. Geesaman is a General Partner at F2 and F3 Ventures, two UK-based venture capital funds, and has served on their board of directors since 2004. Dr. Geesaman became board certified in Internal Medicine in 2000, after completing a Clinical Fellowship at the Massachusetts General Hospital. He received his Ph.D. from MIT, an M.D. from Harvard Medical School and a B.S. from University of California, Berkeley. We believe Dr. Geesaman’s managerial experience and extensive experience in the healthcare industry qualify him to serve on our board.

Vincent Miles, Ph.D. joined our board of directors in July 2012. Dr. Miles has been a partner at Abingworth, a venture capital firm focused on life sciences and healthcare investment, since 2007 and has over 30 years of experience in the biotechnology industry. From 2003 to 2007 he served as Senior Vice President of Business Development at Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNY), and from 1997 to 2004 he served as a Vice President at Millennium Pharmaceuticals, Inc. Prior to that, Dr. Miles served as Director of the Office of Technology Transfer at the Dana-Farber Cancer Institute from 1996 to 1997, and as vice president of various research and development and business functions at RiboGene, Inc. (a predecessor of Questcor Pharmaceuticals (NASDAQ: QCOR), which was acquired by Mallinckrodt (NYSE: MNK) in 2014) from 1992 to 1996, and Pharmacia P-L Biochemicals Inc. from 1986 to 1992. Dr. Miles serves on the board of directors of Hydra Biosciences Inc., Magellan Diagnostics, Inc., Dynex Technologies, Inc., Avillon Development 1 Ltd. and Bond 1 Development GP Ltd., and also served on the boards of Dicerna Pharmaceuticals, Inc. (NASDAQ: DRNA) from 2013 to 2014 and PrimeraDx, Inc. from 2008 to 2014. Dr. Miles received his B.Sc. and Ph.D. from University College London. We believe Dr. Miles’s scientific and business experience serving as an executive officer, director and venture capital investor in biopharmaceutical companies qualifies him to serve on our board. Dr. Miles has indicated to us his intention to resign from our board of directors upon the closing of this offering.

Scott Minick joined our board of directors in October 2007. From January 2010 to March 2015, Mr. Minick served as President and Chief Executive Officer of BIND Therapeutics, Inc. (NASDAQ: BIND), a biopharmaceutical company, or BIND. From 1998 to 2010, Mr. Minick was Managing Director of ARCH Venture Partners and was instrumental in the startup, development and financing of numerous ARCH portfolio companies, including BIND and Chiasma. From 1995 to 1998, Mr. Minick was Director, President and Chief Operating Officer of SEQUUS Pharmaceuticals, Inc. (NASDAQ:SEQU), a biopharmaceutical company that was acquired by ALZA Corporation. Mr. Minick was formerly an executive at Baxter International, Inc. and Eli Lilly & Company. He serves as a member of the board of directors of BIND and Alzheon, Inc., and is a trustee of Beth Israel Deaconess Medical Center. Mr. Minick received his postgraduate training in neurobiology at the Salk Institute, an M.B.A. from Northwestern University, and a B.A. from the University of California, San Diego. We believe Mr. Minick’s extensive knowledge of Chiasma’s business as a company director since October 2007 and extensive experience in the biopharmaceutical industry and as a venture capitalist and senior executive qualify him to serve on our board.

John A. Scarlett, M.D. joined our board of directors in February 2015. Dr. Scarlett has been Chief Executive Officer and director of Geron Corporation (NASDAQ: GERN), a biotechnology company, since September 2011 and President since January 2012. Previously, he was the President and Chief Executive Officer of Proteolix, Inc., a biotechnology company that merged with Onyx Pharmaceuticals, Inc. (NASDAQ: ONXX) in October 2009, and a founder and Chief Executive Officer of Tercica, Inc. (NASDAQ: TRCA), which was acquired by Ipsen S.A. in 2008. From 1993 to 2001, Dr. Scarlett was also the founder and Chief Executive Officer of Sensus Drug Development Corporation, which was acquired by Pharmacia Corporation in 2001, and co-founded Covance Biotechnology Services, Inc., a contract biologics manufacturing and process development business that was acquired by Akzo Nobel’s Diosynth Division in 2001. Earlier in his career, he worked for McNeil Pharmaceutical, a subsidiary of Johnson & Johnson, and Novo Nordisk Inc. He received his B.A. from Earlham College and his M.D. from the University of Chicago, Pritzker School of Medicine. He completed his training in Internal Medicine at the Hospital of the University of Pennsylvania and his fellowship in Endocrinology and

 

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Metabolism at the University of Colorado Health Sciences Center. We believe Dr. Scarlett’s experience as chief executive officer of two publicly traded biotechnology companies, as well as experience developing life sciences companies, qualifies him to serve on our board.

In addition to the individual attributes of each of our directors listed above, we highly value the collective qualifications and experiences of our board members. We believe the collective viewpoints and perspectives of our directors results in a board that is dedicated to advancing the interests of our stockholders.

Board Composition and Election of Directors

Board Composition

Our board of directors currently consists of nine members, all of whom were elected pursuant to the board composition provisions of our stockholders voting agreement, which is described under “Certain Relationships and Related Party Transactions—Stockholders Voting Agreement” in this prospectus. The board composition provisions in our voting agreement will terminate immediately prior to the consummation of this offering. Upon the termination of these provisions, there will be no further contractual obligations regarding the election of our directors. Our nominating and governance committee and board of directors may therefore consider a broad range of factors relating to the qualifications and background of nominees, which may include diversity and is not limited to race, gender or national origin. We have no formal policy regarding board diversity. Our nominating and governance committee’s and board of directors’ priority in selecting board members is identification of persons who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding of the competitive landscape and professional and personal experiences and expertise relevant to our growth strategy. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.

Our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the completion of this offering also provide that our directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors, and that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.

Director Independence

Upon the completion of this offering, we expect that our common stock will be listed on The NASDAQ Global Market. Applicable NASDAQ rules require a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, the NASDAQ rules require that, (i) on the date of the completion of the offering, at least one member of each of a listed company’s audit, compensation and nominating and corporate governance committees be independent, (ii) within 90 days of the date of the completion of the offering, a majority of the members of such committees be independent and (iii) within one year of the date of the completion of the offering, all the members of such committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under applicable NASDAQ rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In order to be considered 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, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.

 

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In June 2015, our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that all directors other than Mr. Leuchtenberger are “independent directors” as defined under applicable NASDAQ rules. In making such determination, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining his or her independence, including the beneficial ownership of our capital stock by each non-employee director. Mr. Brandwein and Dr. Miles, currently members of our board of directors, have indicated to us their intention to resign from our board of directors upon the closing of this offering.

There are no family relationships among any of our directors or executive officers.

Staggered Board

In accordance with the terms of our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the completion of this offering, our board of directors will be divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms. Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires.

 

    Our Class I directors will be Mr. Leuchtenberger, Mr. Stack, and Dr. Scarlett;

 

    Our Class II directors will be Mr. Foley, Dr. Gadicke, and Dr. Geesaman; and

 

    Our Class III directors will be Mr. Minick.

Mr. Brandwein and Dr. Miles, currently members of our board of directors, have indicated to us their intention to resign from our board of directors upon the closing of this offering.

Our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the completion of this offering provide that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class shall consist of one third of the board of directors.

The division of our board of directors into three classes with staggered three-year terms may delay or prevent stockholder efforts to effect a change of our management or a change in control.

Board Committees

Effective upon the completion of this offering, our board of directors will have three standing committees: the audit committee, the compensation committee and the nominating and corporate governance committee. Our board of directors may establish other committees from time to time. Each of these committees will operate under a charter that has been approved by our board of directors. The composition of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, The NASDAQ Stock Market, or NASDAQ and Securities and Exchange Commission, or SEC, rules and regulations.

Audit Committee

Upon completion of this offering, our audit committee will consist of Mr. Minick, Dr. Scarlett and Dr. Geesaman, with Mr. Minick serving as chairman of the committee. Our board of directors has determined that each of the directors serving on our audit committee, other than Dr. Geesaman, meets the independence requirements of Rule 10A-3 under the Exchange Act and the applicable listing standards of NASDAQ. Our board of directors has determined that Mr. Minick is an “audit committee financial expert” within the meaning of the

 

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SEC regulations and applicable listing standards of NASDAQ. In making this determination, our board has considered the formal education and nature and scope of his previous experience, coupled with past and present service on various audit committees. Our board has also determined that Dr. Geesaman does not satisfy independence requirements under applicable SEC and NASDAQ Stock Market rules for service on the audit committee. The transition rules of The NASDAQ Stock Market provide that two members of the audit committee may be exempt from independence requirements for 90 days after the effectiveness of this registration statement, and one member may be exempt for one year after the effectiveness of this registration statement. Our board of directors intends to cause our audit committee to comply with the transition rules within the applicable time periods. Our audit committee assists our board of directors in its oversight of our accounting and financial reporting process and the audits of our financial statements. The audit committee’s responsibilities upon completion of this offering will include:

 

    appointing, approving the compensation of, reviewing the performance of, and assessing the independence of our independent registered public accounting firm;

 

    pre-approving audit and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;

 

    reviewing the internal audit plan with the independent registered public accounting firm and members of management responsible for preparing our financial statements;

 

    reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;

 

    reviewing the adequacy of our internal control over financial reporting;

 

    establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;

 

    recommending, based upon its review and discussions with management and the independent registered public accounting firm, whether our audited consolidated financial statements shall be included in our Annual Report on Form 10-K;

 

    preparing the audit committee report required by the rules of the SEC to be included in our annual proxy statement;

 

    reviewing all related party transactions for potential conflict of interest situations and approving all such transactions; and

 

    reviewing policies related to risk assessment and risk management; and establishing, maintaining and overseeing our Code of Business Conduct and Ethics.

All audit services to be provided to us and all non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.

Compensation Committee

Upon completion of this offering, our compensation committee will consist of Dr. Scarlett, Mr. Foley and Mr. Stack, with Dr. Scarlett serving as chairman of the committee. Our board of directors has determined that each member of the compensation committee is “independent” as defined under the applicable listing standards of NASDAQ. Our compensation committee assists our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers. The compensation committee’s responsibilities upon completion of this offering will include:

 

    annually reviewing and recommending for approval by the independent directors of the board individual and corporate goals and objectives relevant to the compensation of our executive officers;

 

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    evaluating the performance of our executive officers in light of such individual and corporate goals and objectives and determining the compensation of our executive officers;

 

    appointing, compensating and overseeing the work of any compensation consultant, legal counsel or other advisor retained by the compensation committee;

 

    conducting the independence assessment outlined in NASDAQ rules with respect to any compensation consultant, legal counsel or other advisor retained by the compensation committee;

 

    annually reviewing and reassessing the adequacy of the committee charter in its compliance with the listing requirements of NASDAQ;

 

    overseeing and administering our compensation and similar plans;

 

    reviewing and approving our policies and procedures for the grant of equity-based awards;

 

    reviewing and making recommendations to the board of directors with respect to director compensation;

 

    reviewing and approving stock option grants, and making recommendations to the board of directors with respect to stock option grants made to directors, executive officers, senior vice presidents or anyone reporting directly to our chief executive officer;

 

    reviewing and discussing with management the compensation discussion and analysis, if any, to be included in our annual proxy statement; and

 

    reviewing and discussing with the board of directors corporate succession plans for the chief executive officer and other senior management positions.

Nominating and Corporate Governance Committee

Upon completion of this offering, our nominating and corporate governance committee will consist of Mr. Stack, Mr. Minick and Mr. Foley, with Mr. Stack serving as chairman of the committee. Our board of directors has determined that each member of the nominating and corporate governance committee is “independent” as defined under the applicable listing standards of NASDAQ. Following this offering, the nominating and corporate governance committee’s responsibilities will include:

 

    developing and recommending to the board of directors criteria for board and committee membership;

 

    establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders;

 

    identifying individuals qualified to become members of the board of directors;

 

    recommending to the board of directors the persons to be nominated for election as directors and to each of the board’s committees; and

 

    developing and recommending to the board of directors a set of corporate governance principles.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee. None of the members of our compensation committee has ever been employed by us. For a description of transactions between us and members of our compensation committee and affiliates of such members, please see the section of this prospectus titled “Certain Relationships and Related Party Transactions.”

 

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Code of Business Conduct and Ethics

Prior to the completion of this offering, we will adopt a written code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Upon the closing of this offering, our code of business conduct and ethics will be posted on the Corporate Governance section of our website, which is located at www.chiasmapharma.com. We intend to disclose amendments to the code, or any waivers of its requirements, on our website or in a current report on Form 8-K as may be required by SEC or NASDAQ rules.

Board Leadership Structure and Board’s Role in Risk Oversight

The positions of our chairman of the board and chief executive officer are separated. Separating these positions allows our chief executive officer to focus on our day-to-day business, while allowing the chairman of the board to lead the board of directors in its fundamental role of providing advice to and independent oversight of management. Our board of directors recognizes the time, effort and energy that the chief executive officer must devote to his position in the current business environment, as well as the commitment required to serve as our chairman, particularly as the board of directors’ oversight responsibilities continue to grow. Our board of directors also believes that this structure ensures a greater role for the independent directors in the oversight of our company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our board of directors. This leadership structure is also preferred by a significant number of our stockholders. Our board of directors believes its administration of its risk oversight function has not affected its leadership structure.

Although our bylaws that will be in effect upon the completion of this offering will not require our chairman and chief executive officer positions to be separate, our board of directors believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance.

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including those described under the section titled “Risk Factors.” Our board of directors is actively involved in oversight of risks that could affect us. This oversight is conducted primarily by our full board of directors, which has responsibility for general oversight of risks.

Following the completion of this offering, our board of directors will satisfy this responsibility through full reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within our company. Our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight.

 

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EXECUTIVE COMPENSATION

Overview

Historically, our executive compensation program has reflected our growth and development-oriented corporate culture. Compensation for our executive officers consists of a combination of base salary, bonuses, long-term incentive compensation in the form of stock options and benefits programs. As we transition from a private company to a publicly traded company, we will evaluate our compensation values and philosophy and compensation plans and arrangements as circumstances require. At a minimum, we expect to review executive compensation annually with input from a compensation consultant. As part of this review process, we expect the board of directors and the compensation committee to apply our values and philosophy, while considering the compensation levels needed to ensure our executive compensation program remains competitive. We will also review whether we are meeting our retention objectives and the potential cost of replacing a key employee.

The compensation provided to our named executive officers for 2014 is detailed in the 2014 Summary Compensation Table and accompanying footnotes and narrative that follow this section. Our named executive officers in 2014 were:

 

    Roni Mamluk Ph.D., our former Chief Executive Officer and our current Chief Development Officer; and

 

    Chaime Orlev, our Vice President, Finance and Administration.

In addition, Mark Leuchtenberger joined us as our President and Chief Executive Officer in March 2015 and Mark J. Fitzpatrick joined us as our Chief Financial Officer in June 2015.

2014 Summary Compensation Table

The following table sets forth information regarding compensation awarded to, earned by or paid to each of our named executive officers during the year ended December 31, 2014.

 

Name and Principal Position

   Year      Salary
($) (2)
     Bonus
($) (2)(3)
     Option
Awards
($) (4)
    All Other
Compensation
($) (2)
    Total ($)  

Roni Mamluk, Ph.D. (1)

               

Former President and Chief Executive Officer; Chief Development Officer

     2014         302,351         122,729         850,662 (5)       58,204 (7)       1,333,946   

Chaime Orlev

               

Vice President, Finance and Administration

     2014         145,288         53,117         154,490 (6)       54,616 (8)       407,511   

 

(1) Dr. Mamluk resigned as Chief Executive Officer effective March 16, 2015 and, since that time, has served as our Chief Development Officer.
(2) Amounts reported in the Salary, Bonus and All Other Compensation columns have been converted to U.S. dollars from Israeli Shekels, or NIS, using the exchange rate on the date of payment.
(3) Represents discretionary bonuses paid to the named executive officers with respect to the year ended December 31, 2014.
(4) Amounts reflect the grant date fair value of option awards granted or modified in 2014 in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC 718. Such grant date fair value does not take into account any estimated forfeitures related to service-vesting conditions. For information regarding assumptions underlying the valuation of equity awards, see Note 11 to our financial statements and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates—Stock-based Compensation” included elsewhere in this prospectus. These amounts do not correspond to the actual value that may be recognized by the named executive officers upon vesting of applicable awards.
(5) The amount reported includes $260,743 attributable to the incremental fair value associated with the modification of three stock options held by Dr. Mamluk, in each case to reduce the per share exercise price of the stock option to $0.01 per share. The modified options cover an aggregate of 2,218,000 shares of common stock.
(6) The amount reported includes $45,437 attributable to the incremental fair value associated with the modification of four stock options held by Mr. Orlev, in each case to reduce the per share exercise price of the stock option to $0.01 per share. The modified options cover an aggregate of 381,000 shares of common stock.

 

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(7) The amount reported represents $15,945 in automobile expense reimbursement, $16,727 in company contributions to the severance plan and other fringe benefits.
(8) The amount reported represents $20,460 in automobile expense reimbursement, $12,264 in company contributions to the severance plan and other fringe benefits.

2014 Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning outstanding equity awards for each of our named executive officers as of December 31, 2014. All equity awards granted to our named executive officers were made pursuant to our 2008 Stock Incentive Plan, as amended, or the 2008 Plan.

 

Name

   Vesting Start
Date
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   Option
Exercise
Price ($)
  Option
Expiration
Date

Roni Mamluk, Ph.D.

   10/16/2008 (1)   87,270    —      0.01 (4)   10/14/2018
   9/7/2011 (2)   1,121,418    258,789    0.01 (5)   9/4/2021
   9/12/2012 (2)   422,169    328,354    0.01 (5)   9/10/2022
   10/21/2014 (3)   85,875    1,975,125    0.36   10/18/2024

Chaime Orlev

   7/20/2010 (2)   29,087    —      0.01 (4)   7/17/2020
   9/7/2011 (2)   140,991    32,536    0.01 (5)   9/4/2021
   12/13/2011 (2)   37,500    12,500    0.01 (5)   12/10/2021
   9/12/2012 (2)   72,217    56,169    0.01 (5)   9/10/2022
   10/21/2014 (3)   15,875    365,125    0.36   10/18/2024

 

(1) The shares underlying this stock option vested as follows: (i) 25% of the shares vested on the vesting start date, (ii) 25% of the shares vested on March 24, 2009 and (iii) the remaining 50% of the shares vested in equal monthly installments over the following two years.
(2) The shares underlying these stock options vest as follows: (i) 25% of the shares vested on the first anniversary of the vesting start date and (ii) the remaining 75% of the shares vest in equal quarterly installments over the following three years.
(3) The shares underlying these stock options vest in equal monthly installments over the four-year period following the vesting start date; provided, however, that 50% of the then-unvested shares shall vest upon approval by the FDA of an NDA for oral octreotide.
(4) On May 5, 2014, the board of directors approved a reduction in the per share exercise price of these stock options from $0.60 to $0.01.
(5) On May 5, 2014, the board of directors approved a reduction in the per share exercise price of these stock options from $0.21 to $0.01.

Employment Agreements with Our Named Executive Officers and Our Chief Executive Officer

Mark Leuchtenberger . On May 29, 2015, we entered into an amended and restated employment agreement with Mr. Leuchtenberger for the position of President and Chief Executive Officer. Mr. Leuchtenberger currently receives a base salary of $435,000, which is subject to periodic review and adjustment. Mr. Leuchtenberger is also eligible for an annual performance bonus targeted at 50% of his base salary. Mr. Leuchtenberger is eligible to participate in the employee benefit plans generally available to full-time employees, subject to the terms of those plans. In connection with his employment, Mr. Leuchtenberger was granted an option to purchase 6,423,515 shares of our common stock on April 14, 2015, which was equal to 3% of our issued and outstanding common stock on the date of grant, subject to vesting over four years, with 25% of the shares underlying such option vesting on the one-year anniversary of his employment start date and the remaining 75% of the shares vesting in equal monthly installments over the following 36 months. In the event that Mr. Leuchtenberger’s employment is terminated by us without cause (as defined in his employment agreement) or Mr. Leuchtenberger terminates his employment with us for good reason (as defined in his employment agreement), Mr. Leuchtenberger will be entitled to receive: (i) base salary continuation for 12 months following termination and (ii) continuation of group health plan benefits until the earlier of 12 months following the date of termination or the date he becomes eligible for health benefits through another employer or otherwise becomes ineligible for COBRA, with the cost of the premium for such benefits shared by Mr. Leuchtenberger and us in the same proportion as in effect on the date of termination. However, in the event that Mr. Leuchtenberger’s employment is terminated by us without cause, or Mr. Leuchtenberger terminates his employment with us for good reason, in either case within 12 months following the occurrence of the first event constituting a change in control (as

 

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defined in his employment agreement), in lieu of the severance payments and benefits described in the preceding sentence, Mr. Leuchtenberger will be entitled to receive: (i) base salary continuation for 18 months following termination, (ii) payment of his target bonus for the year in which the change in control occurs, (iii) continuation of group health plan benefits until the earlier of 18 months following the date of termination or the date he becomes eligible for health benefits through another employer or otherwise becomes ineligible for COBRA, with the cost of the premium for such benefits shared by Mr. Leuchtenberger and us in the same proportion as in effect on the date of termination, and (iv) full and immediate vesting and exercisability of the unvested shares underlying his new hire stock option. Receipt of the severance payments and benefits described above is conditioned upon Mr. Leuchtenberger entering into and not revoking a separation agreement with us, including a general release of claims, resigning all positions held with us and our affiliates and returning all company property. In addition, Mr. Leuchtenberger has entered into a Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement that contains, among other things, non-competition and non-solicitation provisions that apply during the term of Mr. Leuchtenberger’s employment and for 12 months thereafter.

Roni Mamluk, Ph.D. On December 16, 2014, Dr. Mamluk entered into an employment agreement with our subsidiary Chiasma (Israel) Ltd., or the Israeli Subsidiary. Dr. Mamluk currently receives a base salary of $285,000 (which is payable in NIS at a conversion rate of $1.00 to 3.84 NIS) and is eligible for an annual performance bonus targeted at 30% of her base salary. Pursuant to the terms of her employment agreement, we furnish Dr. Mamluk with a cellular telephone and an automobile and pay expenses related to such automobile, including gas and insurance. In addition, on a monthly basis we have agreed to make the following contributions on behalf of Dr. Mamluk: (i) an amount equal to 8.33% of her salary towards severance pay, (ii) an amount equal to up to 6% of her salary towards a fund for life insurance and pension and (iii) an amount towards disability insurance equal to 2.5% of her salary. In addition, we pay, on a monthly basis, an amount equal to 7.5% of Dr. Mamluk’s salary toward a study fund chosen by her. In the event that Dr. Mamluk’s employment is terminated for cause (as defined in her employment agreement), she will not be entitled to the amounts accrued in the study fund. Pursuant to the terms of her employment agreement, in the event that Dr. Mamluk’s employment is terminated due to her death or disability, she or her estate will be entitled to receive: (i) salary payments through the end of the month in which the termination occurs, (ii) any earned but unpaid bonus for the year prior to the year of termination, or the Prior Year Bonus, and (iii) a pro-rated bonus for the year of termination. If Dr. Mamluk resigns without good reason (as defined in her employment agreement) within 60 days following the earlier of (a) approval by the FDA of an NDA for oral octreotide or (b) September 16, 2016, subject to her execution of a release of claims, Dr. Mamluk will be entitled to: (i) full vesting of any outstanding stock options held by her, (ii) an amount equal to 12 months of her then-current salary, (iii) the Prior Year Bonus and (iv) any statutory severance amount. In the event that Dr. Mamluk’s employment is terminated by us without cause or by her for good reason, provided she executes a release of claims, she will be entitled to (i) 1.5 times (or 0.75 times in the event that such termination occurs in connection with a bankruptcy, liquidation or other wind down of our company that is not a change in control) her then-current annual salary, (ii) the Prior Year Bonus and (iii) 1.5 times (or 0.75 times in the event that such termination occurs in connection with a bankruptcy, liquidation or other wind down of our company that is not a change in control) the bonus earned by Dr. Mamluk in the year of termination. In the event that such termination occurs within 12 months following a change in control (as defined in her employment agreement), Dr. Mamluk’s target bonus will be used rather than her earned bonus for purposes of clause (iii) of the preceding sentence. Dr. Mamluk has also entered into a Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Assignment Agreement that contains, among other things, non-competition and non-solicitation provisions that apply during Dr. Malmuk’s employment and for 12 months thereafter.

Mark J. Fitzpatrick . On May 8, 2015, we entered into an employment agreement with Mr. Fitzpatrick for the position of Chief Financial Officer. Mr. Fitzpatrick currently receives a base salary of $350,000, which is subject to periodic review and adjustment. Mr. Fitzpatrick is also eligible for an annual performance bonus targeted at 35% of his base salary. Mr. Fitzpatrick is eligible to participate in the employee benefit plans generally available to full-time employees, subject to the terms of those plans. In connection with his employment, Mr. Fitzpatrick will receive a sign-on bonus of $25,000 no later than 30 days after his start date. In the event that Mr. Fitzpatrick’s employment is

 

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terminated prior to the one-year anniversary of his start date for any reason other than (i) by us without cause (as defined in his employment agreement), (ii) death, (iii) disability (as defined in his employment agreement) or (iv) a change in control termination (as defined in his employment agreement), Mr. Fitzpatrick must repay the net after-tax amount of the sign-on bonus to us within 30 days of termination of his employment. In addition, on June 14, 2015, Mr. Fitzpatrick was granted an option to purchase a number of shares of our common stock on equal to 1.25% of our issued and outstanding common stock on the date of grant (calculated on an as-converted, fully-diluted basis), subject to vesting over four years, with 25% of the shares underlying such option vesting on the one-year anniversary of his employment start date and the remaining 75% of the shares vesting in equal monthly installments over the following 36 months. In the event that Mr. Fitzpatrick’s employment is terminated by us without cause, he will be entitled to receive: (i) base salary continuation for 12 months following termination and (ii) continuation of group health plan benefits until the earlier of 12 months following the date of termination or the date he becomes eligible for health benefits through another employer or otherwise becomes ineligible for COBRA, with the cost of the premium for such benefits shared by Mr. Fitzpatrick and us in the same proportion as in effect on the date of termination. However, in the event that Mr. Fitzpatrick’s employment is terminated by us without cause, or Mr. Fitzpatrick terminates his employment with us for good reason (as defined in his employment agreement), in either case within 12 months following the occurrence of the first event constituting a change in control (as defined in his employment agreement), in lieu of the severance payments and benefits described in the preceding sentence, Mr. Fitzpatrick will be entitled to receive: (i) base salary continuation for 12 months following termination, (ii) payment of his target bonus for the year in which the change in control occurs, (iii) continuation of group health plan benefits until the earlier of 12 months following the date of termination or the date he becomes eligible for health benefits through another employer or otherwise becomes ineligible for COBRA, with the cost of the premium for such benefits shared by Mr. Fitzpatrick and us in the same proportion as in effect on the date of termination, and (iv) full and immediate vesting and exercisability of the unvested shares underlying his new hire stock option. Receipt of the severance payments and benefits described above is conditioned upon Mr. Fitzpatrick entering into and not revoking a separation agreement with us, including a general release of claims, resigning all positions held with us and our affiliates and returning all company property. In addition, Mr. Fitzpatrick has entered into a Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement that contains, among other things, non-competition and non-solicitation provisions that apply during the term of Mr. Fitzpatrick’s employment and for 12 months thereafter.

Chaime Orlev. On June 22, 2010, Mr. Orlev entered into an employment agreement with the Israeli Subsidiary, for the position of Director of Finance. Mr. Orlev currently receives a base salary of NIS 570,000 (equivalent to $146,875 based on a conversion rate of $1.00 to NIS 3.889). Pursuant to the terms of his employment agreement, Mr. Orlev is entitled to a company-paid automobile and we will pay, on a monthly basis: (i) an amount equal to 8.33% of Mr. Orlev’s salary towards severance pay, (ii) an amount equal to 5% of his salary towards a fund for life insurance and pension and (iii) an amount towards disability insurance equal to the lower of (a) an amount that will provide Mr. Orlev 75% of his salary or (b) an amount equal to 2.5% of his salary. In addition, we pay, on a monthly basis, an amount equal to 7.5% of Mr. Orlev’s salary toward a study fund chosen by him. In the event that Mr. Orlev’s employment is terminated for cause (as defined in his employment agreement), he will not be entitled to the amounts accrued in the study fund. Our monthly contribution of an amount equal to 8.33% of Mr. Orlev’s salary towards severance pay is in lieu of any employee severance that he may otherwise be entitled to receive. Pursuant to the terms of his employment agreement, either Mr. Orlev or the Israeli Subsidiary may terminate his employment upon 60 days’ prior written notice. Mr. Orlev has also entered into a Confidentiality, Non-Competition, Non-Solicitation and Intellectual Property Assignment Agreement that contains, among other things, non-competition and non-solicitation provisions that apply during Mr. Orlev’s employment and for 12 months thereafter.

We believe the benefits provided to our executives located in Israel are reasonable and customary for similarly situated employees in Israel.

 

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2014 Director Compensation

In the year ended December 31, 2014, other than as set forth below, we did not pay any compensation, make any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directors. We did not maintain any standard fee arrangements for the non-employee members of our board of directors for their service as a director in 2014.

 

Name

   Option
Awards ($) (1)
     Total ($)  

David Stack

     240,953         240,953   

Dror Brandwein

     —           —     

Todd Foley

     —           —     

Ansbert Gadicke, M.D.

     —           —     

Bard Geesaman, M.D., Ph.D.

     —           —     

Vincent Miles, Ph.D.

     —           —     

Scott Minick

     —           —     

John A. Scarlett, M.D.

     —           —     

 

(1) Amounts reflect the grant date fair value of option awards granted in 2014 in accordance with ASC Topic 718. Such grant-date fair value does not take into account any estimated forfeitures related to service-vesting conditions. For information regarding assumptions underlying the valuation of equity awards, see Note 11 to our consolidated financial statements and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates—Stock-based Compensation” included elsewhere in this prospectus. These amounts do not correspond to the actual value that may be recognized by the directors upon vesting.

As of December 31, 2014, Mr. Stack held an unexercised stock option covering 839,728 shares of our common stock. None of our other non-employee directors held unexercised or unvested equity awards as of such date.

Non-Employee Director Compensation Policy

Our board of directors has adopted a non-employee director compensation policy, effective as of the completion of this offering, that is designed to enable us to attract and retain, on a long-term basis, highly qualified non-employee directors. Under the policy, each director who is not an employee will be paid cash compensation from and after the completion of this offering, as set forth below:

 

     Annual
Retainer
 

Board of Directors:

  

All non-employee members

   $ 35,000   

Additional retainer for chair

     25,000   

Audit Committee:

  

Members

     7,500   

Chair

     15,000   

Compensation Committee:

  

Members

     5,000   

Chair

     10,000   

Nominating and Corporate Governance Committee:

  

Members

     4,000   

Chair

     8,000   

In addition, each non-employee director will be granted a non-qualified stock option to purchase 20,000 shares of common stock on the date of such director’s election or appointment to the board of directors, which will vest in equal annual installments over the three years following the grant date, subject to continued service as a director; provided that, if not already vested, such stock option shall vest and become fully exercisable on the date of the

 

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third annual meeting of stockholders following the grant date. On the date of each annual meeting of stockholders of our company, each continuing non-employee director who has served as a director for the previous six months will be granted a non-qualified stock option to purchase 10,000 shares of common stock, which will vest and become fully exercisable upon the earlier to occur of the first anniversary of the grant date or the date of the next annual meeting of stockholders following the date of grant, subject to continued service as a director through such date.

Compensation Risk Assessment

We believe that, although a portion of the compensation provided to our executive officers and other employees is performance-based, our executive compensation program does not encourage excessive or unnecessary risk taking. This is primarily due to the fact that our compensation programs are designed to encourage our executive officers and other employees to remain focused on both short-term and long-term strategic goals, in particular in connection with our pay-for-performance compensation philosophy. As a result, we do not believe that our compensation programs are reasonably likely to have a material adverse effect on us.

Employee Share Plans

The equity incentive plans described in this section are our 2003 Israeli Stock Option Plan, or the 2003 Plan, the 2008 Plan, our 2008 Stock Incentive Plan Sub-Plan for Participants in Israel, or the Israel Sub-Plan, the Chiasma, Inc. 2015 Stock Option and Incentive Plan, or the 2015 Plan and the Israeli Addendum to the 2015 Plan, or the Israeli Addendum, and the 2015 Employee Stock Purchase Plan, or the ESPP. Prior to this offering, we granted awards to eligible participants under the 2008 Plan and the Israel Sub-Plan. Following the closing of this offering, we expect to grant awards to eligible participants only under the 2015 Plan.

2003 Stock Incentive Plan

Our 2003 Plan was approved by our board of directors and stockholders on November 26, 2003. The 2003 Plan was most recently amended on November 14, 2006, with the approval of both our board of directors and our stockholders. Under the 2003 Plan, we have reserved for issuance an aggregate of 164,200 shares of our common stock. The number of shares of common stock reserved for issuance is subject to adjustment in the event of a stock split, combination or reclassification of shares, as well as any distribution of bonus shares.

The shares of common stock underlying options that are terminated, expire or are canceled prior to exercise or relinquishment in full are added back to the shares of common stock available for issuance under the 2003 Plan.

Our board of directors has acted as administrator of the 2003 Plan. The administrator has full power to designate, from among the individuals eligible for options, the individuals to whom options will be granted, and to determine the specific terms and conditions of each option, subject to the provisions of the 2003 Plan. Persons eligible to participate in the 2003 Plan are those employees, holders of control, as defined in the 1961 Israeli Income Tax Ordinance [New Version] 1961, or the Ordinance, consultants and other services providers to the company, as selected from time to time by the administrator in its discretion.

The 2003 Plan permits the granting of (1) options to purchase common stock to employees through a trustee pursuant to Section 102(b) of the Ordinance, (2) options to purchase common stock to employees not held in trust by a trustee pursuant to Section 102(c) of the Ordinance and (3) options to purchase common stock to grantees who are not employees and not held in trust by a trustee pursuant to Section 3(i) of the Ordinance. The per share option exercise price of each option will be determined by the administrator but may not be less than the par value of the shares of common stock. The term of each option will be fixed by the administrator and may not exceed ten years from the date of grant. Unless otherwise determined by the administrator, each option will vest over four years with 25% vesting on the one-year anniversary of the grantee’s start date and the remainder vesting in 36 equal monthly installments thereafter.

 

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The 2003 Plan provides that upon the occurrence of a “merger transaction,” as defined in the 2003 Plan, the acquiring or successor corporation may either assume or substitute outstanding options under the 2003 Plan. If the acquiring or successor corporation does not assume or substitute all of the outstanding options, then each grantee will have a period of 15 days, from the date designated by us in a written notice given to the grantee, to exercise the vested options. All options, whether vested or not, which are neither assumed or substituted nor exercised by the end of the 15-day period, will expire and terminate as of the date of the consummation of the merger transaction.

The administrator may prescribe, amend, modify, rescind or terminate the 2003 Plan at any time, subject to stockholder approval where such approval is required by applicable law. The administrator of the 2003 Plan may also amend, modify or cancel any outstanding option, provided that no amendment to an option may materially and adversely affect a grantee’s rights without his or her consent.

The 2003 Plan provides that it will continue in effect until the earlier of (1) its termination by our board of directors or (2) the date on which all of the shares available for issuance under the 2003 Plan have been issued and all restrictions on these shares and agreements evidencing options granted under the 2003 Plan have lapsed. On May 6, 2008, the board of directors resolved that no further stock options or other equity based awards would be granted under the 2003 Plan.

2008 Stock Incentive Plan

Our 2008 Plan was approved by our board of directors on May 6, 2008 and was subsequently approved by our stockholders on May 12, 2008. The 2008 Plan was most recently amended in April 2015 with the approval of both our board of directors and our stockholders. Under the 2008 Plan, we have reserved for issuance an aggregate of 38,230,000 shares of our common stock. The number of shares of common stock reserved for issuance is subject to adjustment in the event of a stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in our capitalization.

The shares of common stock underlying awards that are terminated, surrendered or canceled without having been fully exercised or are forfeited or repurchased or result in shares of common stock not being issued under the 2008 Plan are added back to the shares of common stock available for issuance under the 2008 Plan. In addition, shares of common stock tendered to us by a participant to exercise an award are added back to the shares available for grant under the 2008 Plan.

Our board of directors has acted as administrator of the 2008 Plan. The administrator has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, and to determine the specific terms and conditions of each award, subject to the provisions of the 2008 Plan. Persons eligible to participate in the 2008 Plan are those employees, officers and directors of, and consultants and advisors to, the company as selected from time to time by the administrator in its discretion.

The 2008 Plan permits the granting of (1) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. The per share option exercise price of each option will be determined by the administrator but may not be less than 100% of the fair market value of the common stock on the date of grant. The term of each option will be fixed by the administrator. The administrator will determine at what time or times each option may be exercised. In addition, the 2008 Plan permits the granting of restricted shares of common stock, restricted stock units and other stock-based awards.

The 2008 Plan provides that upon the occurrence of a “reorganization event,” as defined in the 2008 Plan, our board of directors may take one or more of the following actions as to some or all awards outstanding under the 2008 Plan: (1) provide that outstanding awards shall be assumed or substituted by the acquiring or successor corporation, (2) upon written notice to holders of outstanding awards, provide that unexercised awards will terminate immediately prior to the consummation of the reorganization event unless exercised by the participant

 

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(to the extent exercisable) within a specified period following the date of such notice, (3) provide that all awards will become exercisable, realizable or deliverable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon the reorganization event, (4) in the event of a reorganization event in which the holders of common stock will receive a cash payment for each share surrendered, make or provide for a per share cash payment to holders of awards in an amount equal to the difference between the per share cash consideration in the reorganization event and the per share exercise price of the outstanding award, (5) provide that, in connection with a liquidation or dissolution of the company, awards will convert into the right to receive liquidation proceeds or (6) any combination of the foregoing.

Upon the occurrence of a reorganization event other than a liquidation or dissolution of our company, our repurchase and other rights under each restricted stock award will inure to the benefit of our successor, and will apply to the cash, securities or other property which the common stock was converted into or exchanged for pursuant to the reorganization event. Upon the occurrence of a reorganization event involving the liquidation or dissolution of our company, except to the extent provided to the contrary in the instrument evidencing the restricted stock award or any other agreement between the holder of restricted stock and us, all restrictions and conditions on outstanding restricted stock awards will automatically be deemed terminated or satisfied.

The administrator may amend, suspend or terminate the 2008 Plan at any time, subject to stockholder approval where such approval is required by applicable law. The administrator of the 2008 Plan may also amend, modify or terminate any outstanding award, provided that no amendment to an award may materially and adversely affect a participant’s rights without his or her consent.

Our board of directors has also adopted the Israel Sub-Plan to apply to grants made to employees, directors, consultants and advisors of the company or its parent or subsidiary entities who are subject to taxation by the Israeli Income Tax, or the Israeli Service Providers. The Israel Sub-Plan allows us to grant awards to the Israeli Service Providers under the 2008 Plan under similar terms to those in the 2008 Plan, and such awards may qualify for tax-favorable treatment pursuant to Section 102 of the Ordinance.

The 2008 Plan will terminate automatically upon the earlier of 10 years from the date on which the Plan was adopted by our board of directors or the date the Plan was approved by our stockholders. Our board of directors has determined not to make any further awards under the 2008 Plan following the closing of this offering.

2015 Stock Option and Incentive Plan

Our 2015 Plan was adopted by our board of directors in             , 2015 and approved by our stockholders in                 , 2015 and will become effective on the date immediately prior to the time that the registration statement of which this prospectus is part is declared effective by the SEC. The 2015 Plan will replace the 2008 Plan as our board of directors has determined not to make additional awards under the 2008 Plan following the closing of our initial public offering. The 2015 Plan allows the compensation committee to make equity-based and cash-based incentive awards to our officers, employees, directors and other key persons (including consultants).

We have initially reserved                 shares of our common stock for the issuance of awards under the 2015 Plan, plus the shares of common stock remaining available for issuance under the 2008 Plan. The 2015 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2016, by     % of the outstanding number of shares of our common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee. The number of shares reserved under the 2015 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

The shares we issue under the 2015 Plan will be authorized but unissued shares or shares that we reacquire. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2015 Plan and the 2008 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan.

 

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Stock options and stock appreciation rights with respect to no more than                 shares of common stock may be granted to any one individual in any one calendar year. The maximum number of shares that may be issued as incentive stock options may not exceed                 cumulatively increased on January 1, 2016 and on each January 1 thereafter by the lesser of     % of the number of outstanding shares as of the immediately preceding December 31, or                 shares. The value of all awards made under the 2015 Plan and all other cash compensation paid by us to any non-employee director in any calendar year shall not exceed $2,000,000.

The 2015 Plan will be administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2015 Plan. Persons eligible to participate in the 2015 Plan will be those full or part-time officers, employees, non-employee directors and other key persons (including consultants) as selected from time to time by our compensation committee in its discretion.

The 2015 Plan permits the granting of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. The option exercise price of each option will be determined by our compensation committee but may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each option will be fixed by our compensation committee and may not exceed 10 years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.

Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each stock appreciation right will be fixed by our compensation committee and may not exceed 10 years from the date of grant. Our compensation committee will determine at what time or times each stock appreciation right may be exercised.

Our compensation committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Our compensation committee may also grant shares of common stock that are free from any restrictions under the 2015 Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.

Our compensation committee may grant performance share awards to participants that entitle the recipient to receive awards of common stock upon the achievement of certain performance goals and such other conditions as our compensation committee shall determine. Our compensation committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock.

Our compensation committee may grant cash bonuses under the 2015 Plan to participants, subject to the achievement of certain performance goals.

Our compensation committee may grant awards of restricted stock, restricted stock units, performance share awards or cash-based awards under the 2015 Plan that are intended to qualify as “performance-based compensation” under Section 162(m) of the Code. Such awards will only vest or become payable upon the attainment of performance goals that are established by our compensation committee and related to one or more performance criteria. The performance criteria that could be used with respect to any such awards include: cash flow (including, but not limited to, operating cash flow and free cash flow); sales or revenue; corporate revenue; earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of our common stock; economic value-

 

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added; development, clinical, regulatory or commercial milestones; acquisitions or strategic transactions, partnerships or joint ventures; operating income (loss); return on capital, assets, equity, or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of our common stock; sales or market shares; number of customers; operating income and/or other strategic, financial or operational objectives, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. From and after the time that we become subject to Section 162(m) of the Code, the maximum award that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code that may be made to certain of our officers during any one calendar year period is                 shares of common stock with respect to a share-based award and $         with respect to a cash-based award.

The 2015 Plan provides that upon the effectiveness of a “sale event,” as defined in the 2015 Plan, an acquirer or successor entity may assume, continue or substitute for the outstanding awards under the 2015 Plan. To the extent that awards granted under the 2015 Plan are not assumed or continued or substituted by the successor entity, all options and stock appreciation rights that are not exercisable immediately prior to the effective time of the sale event shall become fully exercisable as of the effective time of the sale event, all other awards with time-based vesting, conditions or restrictions, shall become fully vested and nonforfeitable as of the effective time of the sale event and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in the discretion of our compensation committee. Upon the effective time of the sale event, all outstanding awards granted under the 2015 Plan shall terminate. In the event of such termination, individuals holding options and stock appreciation rights will be permitted to exercise such options and stock appreciation rights (to the extent exercisable) prior to the sale event. In addition, in connection with the termination of outstanding awards upon a sale event, we may make or provide for a cash payment to participants holding vested and exercisable options and stock appreciation rights equal to the difference between the per share cash consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights.

Our board of directors may amend or discontinue the 2015 Plan and our compensation committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder’s consent. Certain amendments to the 2015 Plan require the approval of our stockholders.

Our board of directors has also adopted the Israeli Addendum to the 2015 Plan to apply to grants made to Israeli Service Providers. The Israeli Addendum allows us to grant awards to the Israeli Service Providers under the 2015 Plan under similar terms to those in the 2015 Plan, and such awards may qualify for favorable tax treatment pursuant to Section 102 of the Ordinance.

No awards may be granted under the 2015 Plan after the date that is 10 years from the effective date of the 2015 Plan. No awards under the 2015 Plan have been made prior to the date hereof.

Employee Stock Purchase Plan

In                 , 2015, our board of directors and stockholders adopted and approved the ESPP. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. The ESPP initially reserves and authorizes the issuance of up to a total of                 shares of common stock to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2016, by the lesser of (i)                  shares of common stock, (ii)         % of the outstanding number of shares of our common stock on the immediately preceding December 31 or (iii) such lesser number of shares as determined by the ESPP administrator. The number of shares reserved under the ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

All employees whose customary employment is for more than 20 hours per week are eligible to participate in the ESPP. However, any employee who owns 5% or more of the total combined voting power or value of all classes of stock is not eligible to purchase shares under the ESPP.

 

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We will make one or more offerings each year to our employees to purchase shares under the ESPP. Offerings will usually begin on each                 and                 and will continue for six-month periods, referred to as offering periods. Each eligible employee may elect to participate in any offering by submitting an enrollment form at least 15 days before the relevant offering date.

Each employee who is a participant in the ESPP may purchase shares by authorizing payroll deductions of up to 10% of his or her base compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase shares on the last business day of the offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Under applicable tax rules, an employee may purchase no more than $25,000 worth of shares of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.

The accumulated payroll deductions of any employee who is not a participant on the last day of an offering period will be refunded. An employee’s rights under the ESPP terminate upon voluntary withdrawal from the plan or when the employee ceases employment with us for any reason.

The ESPP may be terminated or amended by our board of directors at any time. An amendment that increases the number of shares of common stock authorized under the ESPP and certain other amendments require the approval of our stockholders.

Senior Executive Cash Incentive Bonus Plan

In                 , 2015, our board of directors adopted the Senior Executive Cash Incentive Bonus Plan, or the Bonus Plan. The Bonus Plan provides for cash bonus payments based upon the attainment of performance targets established by our compensation committee. The payment targets will be related to financial and operational measures or objectives with respect to our company, or Corporate Performance Goals, as well as individual performance objectives.

Our compensation committee may select Corporate Performance Goals from among the following: cash flow (including, but not limited to, operating cash flow and free cash flow); sales or revenue; corporate revenue; earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of our common stock; economic value-added; development, clinical, regulatory or commercial milestones; acquisitions or strategic transactions, partnerships or joint ventures; operating income (loss); return on capital, assets, equity, or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of our common stock; sales or market shares; number of customers; operating income and/or other strategic, financial or operational objectives, any of which may be measured in absolute terms, as compared to any incremental increase, in terms of growth, as compared to results of a peer group, against the market as a whole, compared to applicable market indices and/or measured on a pre-tax or post-tax basis.

Each executive officer who is selected to participate in the Bonus Plan will have a target bonus opportunity set for each performance period. The bonus formulas will be adopted in each performance period by the compensation committee and communicated to each executive. The Corporate Performance Goals will be measured at the end of each performance period after our financial reports have been published or such other appropriate time as the compensation committee determines. If the Corporate Performance Goals and individual performance objectives are met, payments will be made as soon as practicable following the end of each performance period. The Bonus Plan also permits the compensation committee to approve additional bonuses to executive officers in its sole discretion.

 

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401(k) Plan

Currently, we do not maintain any retirement plans for our employees in the United States but we intend to adopt a 401(k) retirement plan that is intended to qualify under Sections 401(a) and 501(a) of the Code prior to the completion of this offering.

Benefits to Israeli Employees

We are obligated to make pension and severance liability contributions for the benefit of all Israeli employees based on labor laws in Israel, subject to certain conditions. Our liability is provided for by regular deposits to funds administered by financial institutions and by an accrual for the amount of the liability which has not yet been deposited.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Other than compensation arrangements, during our last three fiscal years, we have engaged in the following transactions with our directors and executive officers and holders of more than 5% of our voting securities and affiliates of our directors, executive officers and such 5% stockholders. We believe that all of the transactions described below were made on terms no less favorable to us than could have been obtained from unaffiliated third parties.

Sales and Purchases of Securities

Series C Financing

On April 17, 2012, we issued and sold to investors an aggregate of 3,038,331 shares of Series C Convertible Preferred Stock, or Series C Preferred Stock, at a price per share of $1.00, for aggregate cash consideration of $3,038,331, pursuant to a stock purchase agreement initially entered into with investors on June 24, 2011, as amended on April 17, 2012.

The following table summarizes the participation in the April 17, 2012 closing of the Series C Preferred Stock financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

 

Name

   Shares of
Series C Preferred
Stock
 

ARCH Venture Fund VI, L.P.(1)

     381,334   

Affiliates of MPM Capital(2)

     1,644,446   

7 Med Health Ventures LP(3)

     500,001   

 

(1) ARCH Venture Fund, VI, L.P. is a holder of more than 5% of our voting securities. Scott Minick, is a venture partner of ARCH Venture Partners, of which ARCH Venture Fund VI, L.P. is an affiliated fund, and is a member of our board of directors.
(2) Includes 1,041,379 shares of Series C Convertible Preferred Stock to MPM BioVentures IV-QP, L.P., 40,121 shares of Series C Convertible Preferred Stock to MPM BioVentures IV GmbH & Co., 29,612 shares of Series C Convertible Preferred Stock to MPM Asset Management Investors BV4 LLC and 533,334 shares of Series C Convertible Preferred Stock to MPM Bio IV NVS Strategic Fund, L.P. These entities collectively hold more than 5% of our voting securities. Bard Geesaman, David Stack, Todd Foley and Ansbert Gadicke are Managing Directors of MPM Asset Management LLC and are members of our board of directors.
(3) 7 Med Health Ventures LP is a holder of more than 5% of our voting securities.

Bridge Financing

On June 1, 2012, we entered into a Second Amendment to Series C Convertible Preferred Stock Purchase Agreement, pursuant to which we sold an aggregate of $3,038,335 in subordinated convertible promissory notes to investors, or the Bridge Financing. Pursuant to the promissory notes, interest accrued at a rate of 8% per annum on all amounts outstanding, and the loans matured on September 5, 2012. The convertible promissory notes were also subject to a subordination agreement. Amounts outstanding were converted into shares of Series D Convertible Preferred Stock, or Series D Preferred Stock, on June 1, 2012 at the initial closing of the Series D Preferred Stock financing, further described below.

 

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The following table summarizes the participation in the Bridge Financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

 

Name

   Principal Amount
of Convertible
Promissory Notes
 

ARCH Venture Fund VI, L.P.(1)

   $ 381,334   

Affiliates of MPM Capital(2)

   $ 1,644,449   

7 Med Health Ventures L.P.(3)

   $ 500,001   

 

(1) ARCH Venture Fund, VI, L.P. is a holder of more than 5% of our voting securities. Scott Minick, is a venture partner of ARCH Venture Partners, of which ARCH Venture Fund VI, L.P. is an affiliated fund, and is a member of our board of directors.
(2) Includes $1,541,245 in principal to MPM BioVentures IV-QP, L.P., $59,378 in principal to MPM BioVentures IV GmbH & Co. Beteiligungs KG and $43,826 in principal to MPM Asset Management Investors BV4 LLC. These entities collectively hold more than 5% of our voting securities. Bard Geesaman, David Stack, Todd Foley and Ansbert Gadicke are Managing Directors of MPM Asset Management LLC and are members of our board of directors.
(3) 7 Med Health Ventures LP is a holder of more than 5% of our voting securities.

Series D Financing

On July 11, 2012, October 22, 2012 and March 28, 2013, we issued and sold to investors an aggregate of 38,504,439 shares of Series D Convertible Preferred Stock, or Series D Preferred Stock, along with warrants to purchase up to 15,506,791 shares of common stock, at a price per share of $1.00 for aggregate cash consideration of $35,466,104 and the conversion of certain convertible promissory notes, pursuant to a securities purchase agreement entered into with investors on July 11, 2012, as amended on March 28, 2013. The warrants have an exercise price of $0.01 per share of common stock.

The following table summarizes the participation in the Series D Preferred Stock financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

 

Name

   Shares of
Series D
Preferred Stock
     Warrants to
Purchase
Common Stock
 

Abingworth Bioventures V LP(1)

     15,000,000         3,750,000   

ARCH Venture Fund VI, L.P.(2)

     762,668         0   

Affiliates of MPM Capital(3)

     16,066,669         9,314,586   

7 Med Health Ventures L.P.(4)

     4,700,000         2,028,849   

 

(1) Abingworth Bioventures V LP is a holder of more than 5% of our voting securities. Vincent Miles, is a partner at Abingworth, of which Abingworth Bioventures V LP is an affiliated fund, and is a member of our board of directors. Dr. Miles has indicated to us his intention to resign from our board of directors upon the closing of this offering.
(2) ARCH Venture Fund VI, L.P. is a holder of more than 5% of our voting securities. Scott Minick, is a venture partner of ARCH Venture Partners, of which ARCH Venture Fund VI, L.P. is an affiliated fund, and is a member of our board of directors.
(3) Includes 14,058,587 shares of Series D Convertible Preferred Stock and a warrant to purchase 8,786,229 shares of common stock to MPM BioVentures IV-QP, L.P., 541,646 shares of Series D Convertible Preferred Stock and a warrant to purchase 338,513 shares of common stock to MPM BioVentures IV GmbH & Co. Beteiligungs KG, 399,767 shares of Series D Convertible Preferred Stock and a warrant to purchase 249,844 shares of common stock to MPM Asset Management Investors, and 1,066,669 shares of Series D Convertible Preferred Stock to MPM Bio IV NVS Strategic Fund, L.P. These entities collectively hold more than 5% of our voting securities. Bard Geesaman, David Stack, Todd Foley and Ansbert Gadicke are Managing Directors of MPM Asset Management LLC and are members of our board of directors.
(4) 7 Med Health Ventures LP is a holder of more than 5% of our voting securities.

 

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Exchange of Previously Outstanding Preferred Stock

On March 28, 2013, and in connection with the execution of our license agreement with Roche and the receipt of upfront payment pursuant thereto, we initiated a redemption of all of our then-outstanding Series D Preferred Stock, Series C Preferred Stock, and Series B1 Convertible Preferred Stock, or Series B1 Preferred Stock and together with the Series D Preferred Stock and Series C Preferred Stock, the Original Preferred Stock, in exchange for an initial cash payment, shares of Series D’ Convertible Preferred Stock, Series C’ Convertible Preferred Stock and Series B1’ Convertible Preferred Stock, or collectively, the Prime Stock, and rights to receive future contingent payments under the Roche agreement, which rights were terminated upon termination of the Roche agreement. The Prime Stock has substantially similar terms and was issued on a one-for-one basis for shares of the respective Original Preferred Stock. On March 29, 2013 and May 13, 2013, we completed the redemption.

The following table summarizes the participation in the redemption by any of our directors, officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

 

Name

  Shares of
Series B1’ Convertible
Preferred Stock Issued
Upon Redemption of
Series B1 Preferred Stock
    Shares of
Series C’ Convertible
Preferred Stock Issued
Upon Redemption of
Series C Preferred Stock
    Shares of
Series D’ Convertible
Preferred Stock Issued
Upon Redemption of
Series D Preferred Stock
    Cash Payment
Upon
Redemption of
All Shares
 

Abingworth Bioventures V LP(1)

    0        0        15,000,000      $ 21,408,451   

ARCH Venture Fund VI, L.P.(2)

    468,684        5,697,615        762,668      $ 1,088,503   

Affiliates of MPM Capital(3)

    95,225        22,721,988        16,066,669      $ 22,930,833   

Globeways Holdings Limited(4)

    0        0        333,334      $ 475,744   

7 Med Health Ventures LP(5)

    112,665        6,946,314        4,700,000      $ 6,707,981   

 

(1) Abingworth BioVentures V LP is a holder of more than 5% of our voting securities. Vincent Miles, is a partner at Abingworth, of which Abingworth Bioventures V LP is an affiliated fund, and is a member of our board of directors. Dr. Miles has indicated to us his intention to resign from our board of directors upon the closing of this offering.
(2) ARCH Venture Fund VI, L.P. is a holder of more than 5% of our voting securities. Scott Minick, is a venture partner of ARCH Venture Partners, of which ARCH Venture Fund VI, L.P. is an affiliated fund, and is a member of our board of directors.
(3) Includes 2,538 shares of Series B1’ Convertible Preferred Stock, 384,295 shares of Series C’ Convertible Preferred Stock, 399,767 shares of Series D’ Convertible Preferred Stock issued to and a cash payment of $570,559 to MPM Asset Management Investors BV4 LLC; 3,438 shares of B1’ Convertible Preferred Stock, 520,674 shares of Series C’ Convertible Preferred Stock, 541,646 shares of Series D’ Convertible Preferred issued to and a cash payment of $773,053 to MPM BioVentures IV GmbH & Co., Beteiligungs KG; 89,249 shares of Series B1’ Convertible Preferred Stock, 13,514,544 shares of Series C’ Convertible Preferred Stock 14,058,587 shares of Series D’ Convertible Preferred Stock issued to and a cash payment of $20,064,838 to MPM BioVentures IV-QP, L.P.; and 8,302,475 shares of Series C’ Convertible Preferred Stock, 1,066,669 shares of Series D’ Convertible Preferred Stock issued to and a cash payment of $1,522,382 to MPM Bio IV NVS Strategic Fund, L.P. These entities collectively hold more than 5% of our voting securities. Bard Geesaman, David Stack, Todd Foley and Ansbert Gadicke are Managing Directors of MPM Asset Management LLC and are members of our board of directors.
(4) Globeways Holdings Limited is an affiliate of F2 Capital I 2014 Limited. F2 Capital I 2014 Limited is a holder of more than 5% of our voting securities.
(5) 7 Med Health Ventures L.P. is a holder of more than 5% of our voting securities.

Series E Financing

On December 16, 2014 and February 26, 2015, we issued and sold to investors an aggregate of 69,722,786 shares of Series E Convertible Preferred Stock, or Series E Preferred Stock, along with warrants to purchase up to 17,430,693 shares of common stock, at a price per share of $1.00, for aggregate consideration of $69,722,786. The warrants have an exercise price of $1.00 per share of common stock.

 

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The following table summarizes the participation in the Series E Preferred Stock financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

 

Name

   Shares of
Series E
Preferred Stock
     Warrants to
Purchase
Common Stock
 

Abingworth Bioventures V LP(1)

     4,000,000         999,999   

ARCH Venture Fund VI, L.P.(2)

     4,000,000         1,000,000   

Affiliates of Fidelity Securities(3)

     19,948,328         4,987,080   

Affiliates of MPM Capital(4)

     13,000,000         3,249,999   

Affiliates of F2 Capital I 2014 Limited(5)

     13,584,458         3,396,115   

Affiliates of 7 Med Health Ventures L.P.(6)

     5,500,000         1,375,000   

Minick Family Trust(7)

     250,000         62,500   

 

(1) Abingworth Bioventures V LP is a holder of more than 5% of our voting securities. Vincent Miles, is a partner at Abingworth, of which Abingworth Bioventures V LP is an affiliated fund, and is a member of our board of directors. Dr. Miles has indicated to us his intention to resign from our board of directors upon the closing of this offering.
(2) ARCH Venture Fund VI, L.P. is a holder of more than 5% of our voting securities. Scott Minick, is a venture partner of ARCH Venture Partners, of which ARCH Venture Fund VI, L.P. is an affiliated fund, and is a member of our board of directors.
(3) Includes 13,978,670 shares of Series E Convertible Preferred Stock and a warrant to purchase 3,494,667 shares of common stock to Fidelity Select Portfolios: Biotechnology Portfolio, 2,023,348 shares of Series E Convertible Preferred Stock and a warrant to purchase 217,204 shares of Common Stock to Fidelity Securities Fund: Fidelity Blue Chip Growth Fund, 2,969,660 shares of Series E Convertible Preferred Stock and a warrant to purchase 742,415 shares of common stock to Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund, 868,819 shares of Series E Convertible Preferred Stock and a warrant to purchase 505,837 shares of common stock to Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund, and 107,831 shares of Series E Convertible Preferred Stock and a warrant to purchase 26,957 shares of common stock to Pyramis Lifecycle Blue Chip Growth Comingled Pool. Fidelity Select Portfolios: Biotechnology Portfolio is a holder of more than 5% of our voting securities.
(4) Includes 8,575,756 shares of Series E Preferred Stock and a warrant to purchase 2,143,939 shares of common stock to MPM BioVentures IV-QP, L.P., 330,387 shares of Series E Preferred Stock and a warrant to purchase 82,596 shares of common stock to MPM BioVentures IV GmbH & Co. Beteiligungs KG, 243,857 shares of Series E Preferred Stock and a warrant to purchase 60,964 shares of common stock to MPM Asset Management Investors BV4 LLC and 3,850,000 shares of Series E Preferred Stock and a warrant to purchase 962,500 to MPM Bio IV NVS Strategic Fund, L.P. These entities collectively hold more than 5% of our voting securities. Bard Geesaman, David Stack, Todd Foley and Ansbert Gadicke are Managing Directors of MPM Asset Management LLC and are members of our board of directors.
(5) Includes 13,500 shares of Series E Convertible Preferred Stock and a warrant to purchase 3,375,000 shares of common stock to F2 Capital I 2014 Limited and 84,458 shares of Series E Convertible Preferred Stock and a warrant to purchase 21,115 shares of common stock to Globeways Holdings Limited. F2 Capital I 2014 Limited is a holder of more than 5% of our voting securities. Globeways Holdings Limited is an affiliate of F2 Capital I 2014 Limited.
(6) Includes 3,000,000 shares of Series E Convertible Preferred Stock and a warrant to purchase 750,000 shares of common stock to 7 Med Health Ventures L.P. and 2,500,000 shares of Series E Convertible Preferred Stock and a warrant to purchase 625,000 shares of common stock to Ruth Wertheimer. 7 Med Health Ventures L.P. is a holder of more than 5% of our voting securities. Ruth Wertheimer is an affiliate of 7 Med Health Ventures L.P.
(7) Scott Minick, an affiliate of the Minick Family Trust, is a member of our board of directors.

Indemnification Agreements

We intend to enter into agreements to indemnify our directors and executive officers to the maximum extent allowed under Delaware law. Subject to the provisions of these agreements, these agreements will, among other things, indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of us or that person’s status as a member of our board of directors.

Agreements with our Stockholders

In connection with our preferred stock financings, we entered into an investor rights agreement, a right of first refusal and co-sale agreement, and stockholders’ voting agreement, in each case, with the purchasers of our preferred stock and certain holders of our common stock. Our amended and restated right of first refusal and co-

 

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sale agreement, or ROFR Agreement, provides for rights of first refusal, co-sale and drag along rights in respect of sales by certain holders of our capital stock. Our amended and restated stockholders’ voting agreement, or Voting Agreement, contains provisions with respect to the election of our board of directors and its composition.

Our amended and restated investor rights agreement, or Investor Rights Agreement, provides certain holders of our preferred stock with a participation right to purchase their  pro rata  share of new securities that we may propose to sell and issue, subject to certain exceptions. The Investor Rights Agreement further provides certain holders of our capital stock with the right to demand that we file a registration statement, subject to certain limitations, and to request that their shares be covered by a registration statement that we are otherwise filing. See “Description of Capital Stock—Registration Rights” for additional information regarding such registration rights.

The rights under each of the ROFR Agreement, Voting Agreement and Investor Rights Agreement will terminate upon the closing of this offering, other than certain registration rights for certain holders of our preferred stock as provided for in the Investor Rights Agreement and described below in “Description of Capital Stock—Registration Rights.”

Services and Consulting Agreement

In August 2014, we entered into a services agreement with MPM Asset Management LLC, or MPM, and Gary Patou, M.D., our Senior Medical Advisor. Pursuant to the terms of the services agreement, Dr. Patou agreed to devote 50% of his business time to us. The services agreement specifically tasks him with filing drug applications, clinical development and product development. Pursuant to the services agreement, we have agreed to pay MPM a services fee of $26,600 per month. In addition, we have agreed to pay Dr. Patou a bonus in the event of a change of control transaction. We also granted Dr. Patou options to purchase 1,119,637 shares of our common stock. The services agreement may be terminated by either MPM or Dr. Patou upon 30 days notice or by us immediately upon written notice. Dr. Patou is a Managing Director at MPM Capital, affiliates of which hold more than 5% of our outstanding stock.

On December 1, 2014, we entered into a consulting agreement with Waterloo Holdings Limited, an affiliate of F2 Capital, affiliates of which hold more than 5% of our outstanding stock. Pursuant to the terms of the consulting agreement, Morana-Jovan Embiricos, Ph.D., as a representative of Waterloo Holdings Limited, agreed to provide us with certain financial and consulting services as requested, up to a maximum of commitment of 20 hours per month. For so long as Dr. Embiricos is providing consulting services to us, we will pay Waterloo Holdings Limited $62,500 a month, with such number to increase to $83,333 per month from and after the date of this offering. The term of the consulting agreement shall expire upon the earlier to occur of (i) December 31, 2016 and (ii) termination of the consulting agreement with 10 days notice and the approval of at least 75% of our board of directors.

Related Person Transactions Policy

Our board of directors reviews and approves transactions with directors, officers and holders of 5% or more of our voting securities and their affiliates, or each, a related party. Prior to this offering, the material facts as to the related party’s relationship or interest in the transaction are disclosed to our board of directors prior to their consideration of such transaction, and the transaction is not considered approved by our board of directors unless a majority of the directors who are not interested in the transaction approve the transaction. Further, when stockholders are entitled to vote on a transaction with a related party, the material facts of the related party’s relationship or interest in the transaction are disclosed to the stockholders, who must approve the transaction in good faith.

In connection with this offering, we intend to adopt a written related party transactions policy that such transactions must be approved by our audit committee or another independent body of our board of directors.

 

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PRINCIPAL STOCKHOLDERS

The following table sets forth information relating to the beneficial ownership of our common stock as of March 31, 2015 by: each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of common stock; each of our directors; each of our named executive officers; and all directors and executive officers as a group.

The number of shares beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of March 31, 2015 through the exercise of any stock options or other rights. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by that person.

The percentage of shares beneficially owned is computed on the basis of 150,540,167 shares of our common stock outstanding as of March 31, 2015, which reflects the assumed conversion of all of our outstanding shares of preferred stock into an aggregate of 149,792,472 shares of common stock. Shares of our common stock that a person has the right to acquire within 60 days of March 31, 2015 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated below, the address for each beneficial owner listed is c/o Chiasma, Inc., 60 Wells Avenue, Suite 102, Newton, MA 02459.

 

            Percentage of shares
beneficially owned

Name and address of beneficial owner

   Number of shares
beneficially owned
     Before
offering
    After
offering

5% or greater stockholders:

       

Affiliates of MPM Capital(1)

     65,008,467         39.7  

Affiliates of Fidelity Securities(2)

     24,935,408         16.0  

Abingworth Bioventures V LP(3)

     23,749,999         15.3  

Affiliates of 7 Med Health Ventures LP(4)

     20,662,828         13.4  

Affiliates of F2 Capital(5)

     17,313,907         11.2  

ARCH Venture Fund VI, L.P.(6)

     11,928,967         7.9  

Directors and executive officers:

       

Mark Leuchtenberger

     —           *     

Roni Mamluk, Ph.D.(7)

     2,197,761         1.4  

Mark J. Fitzpatrick

     —           *     

Chaime Orlev (8)

     379,346         *     

David Stack(1)(9)

     104,966         *     

Dror Brandwein(10)

     —           *     

Todd Foley(1)

     —           *     

Ansbert Gadicke(1)

     —           *     

Bard Geesaman, M.D., Ph.D.(1)

     —           *     

Vincent Miles, Ph.D.(10)

     —           *     

Scott Minick(11)

     358,541         *     

John Scarlett, M.D.(12)

     35,000         *     

All executive officers and directors as a group (11 persons)(13)

     3,075,614         2.0  

 

* Represents beneficial ownership of less than one percent of our outstanding common stock.

 

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(1) Consists of (i) 2,538 shares of common stock issuable upon conversion of the Series B1’ Preferred Stock, 384,295 shares of common stock issuable upon conversion of the Series C’ Preferred Stock, 399,767 shares of common stock issuable upon conversion of the Series D’ Preferred Stock, 243,857 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 324,133 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by MPM Asset Management Investors BV4, LLC, (ii) 3,438 shares of common stock issuable upon conversion of the Series B1’ Preferred Stock, 520,674 shares of common stock issuable upon conversion of the Series C’ Preferred Stock, 541,646 shares of common stock issuable upon conversion of the Series D’ Preferred Stock, 330,387 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 439,164 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by MPM BioVentures IV GmbH & Co. Beteiligungs KG, (iii) 89,249 shares of common stock issuable upon conversion of the Series B1’ Preferred Stock, 13,514,544 shares of common stock issuable upon conversion of the Series C’ Preferred Stock, 14,058,587 shares of common stock issuable upon conversion of the Series D’ Preferred Stock, 8,575,756 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 11,398,788 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by MPM BioVentures IV-QP, L.P. and (iv) 8,302,475 shares of common stock issuable upon conversion of the Series C’ Preferred Stock, 1,066,669 shares of common stock issuable upon conversion of the Series D’ Preferred Stock, 3,850,000 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 962,500 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by MPM Bio IV NVS Strategic Fund, L.P. MPM BioVentures IV LLC is the Managing Member of MPM BioVentures IV GP LLC, which is the General Partner of MPM BioVentures IV-QP, LP and MPM Bio IV NVS Strategic Fund, L.P. and the Managing Limited Partner of MPM BioVentures IV GmbH & Co. Beteiligungs KG. MPM BioVentures IV LLC is the Manager of MPM Asset Management Investors BV4 LLC. MPM BioVentures IV LLC is the Managing Member of MPM BioVentures IV GP LLC, which is the General Partner of MPM BioVentures IV-QP, LP and MPM Bio IV NVS Strategic Fund, L.P. and the Managing Limited Partner of MPM BioVentures IV GmbH & Co. Beteiligungs KG. MPM BioVentures IV LLC is the Manager of MPM Asset Management Investors BV4 LLC. David Stack, Todd Foley, Ansbert Gadicke and Bard Geesaman, each of whom is a member of our board of directors, are Managing Directors of MPM Asset Management LLC, which is the Management Company of MPM BioVentures IV LLC. Todd Foley, Ansbert Gadicke Luke Evnin, Jim Scopa and Vaughn Kailian are the members of MPM BioVentures IV LLC. Investment and voting decisions with respect to the shares held by MPM Asset Management Investors BV4, LLC, MPM BioVentures IV GmbH & Co. Beteiligungs KG, MPM BioVentures IV-QP, L.P. and MPM Bio IV NVS Strategic Fund, L.P. are made by the members of MPM BioVentures IV LLC. MPM’s address is 450 Kendall Street, Cambridge, MA 02142.
(2) Consists of (i) 13,978,670 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 3,494,667 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by Fidelity Select Portfolios: Biotechnology Portfolio, (ii) 2,969,660 shares of common stock issuable upon conversion of Series E Preferred Stock and warrants to purchase 742,415 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund, (iii) 107,831 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 26,957 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by Pyramis Lifecycle Blue Chip Growth Commingled Pool, (iv) 868,819 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 217,204 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by Fidelity Securities Fund: Fidelity Securities Blue Chip Growth Fund and (v) 2,023,348 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 505,837 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by Fidelity Securities Fund: Fidelity Blue Chip Growth Fund. These entities are managed by direct or indirect subsidiaries of FMR LLC. Edward C. Johnson 3d is a Director and the Chairman of FMR LLC and Abigail P. Johnson is a Director, the Vice Chairman and the President of FMR LLC. Members of the family of Edward C. Johnson 3d, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B stockholders have entered into a stockholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the stockholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Edward C. Johnson 3d nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act, or the Fidelity Funds, advised by Fidelity Management & Research Company, a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds’ Boards of Trustees. Fidelity Management & Research Company carries out the voting of the shares under written guidelines established by the Fidelity Funds’ Boards of Trustees. The address of entities and individuals affiliated with Fidelity Select Portfolios: Biotechnology Portfolio, Pyramis Lifecycle Blue Chip Growth Commingled Pool, Fidelity Securities Fund: Fidelity Securities Blue Chip Growth Fund and Fidelity Securities Fund: Fidelity Blue Chip Growth Fund is Brown Brothers Harriman & Co., 525 Washington Blvd., 15 th Floor, Jersey City, NJ 07310, Attn: Michael Lerman and entities and individuals affiliated with Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund is State Street Bank & Trust, PO Box 5756, Boston, MA 02206, Attn: Bangle & Co fbo Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund.
(3)

Consists of 15,000,000 shares of common stock issuable upon conversion of the Series D’ Preferred Stock, 4,000,000 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 4,749,999 shares of common stock exercisable within 60 days of March 31, 2015. Abingworth LLP is the manager of Abingworth Bioventures V, LP and may be deemed to beneficially own the shares held by Abingworth Bioventures V, LP. An investment committee, comprised of Joseph Anderson, Michael F. Bigham, Stephen W. Bunting, Timothy J. Haines and Genghis Lloyd-Harris, approves investment and voting decisions by a majority vote, and no individual member has the sole control or voting power over the shares held by Abingworth Bioventures V, LP. Each of

 

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  Abingworth LLP, Joseph Anderson, Michael F. Bigham, Stephen W. Bunting, Timothy J. Haines and Genghis Lloyd-Harris disclaims the beneficial ownership of such shares, except to the extent of its or his pecuniary interest therein. The address of Abingworth Bioventures V, LP is 38 Jermyn Street, London SW1Y 6DN, United Kingdom.
(4) Consists of (i) 112,665 shares of common stock issuable upon conversion of the Series B1’ Preferred Stock, 6,946,314 shares of common stock issuable upon conversion of the Series C’ Preferred Stock, 4,700,000 shares of common stock issuable upon conversion of the Series D’ Preferred Stock, 3,000,000 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 2,778,849 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by 7 Med Health Ventures LP and (ii) 2,500,000 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 625,000 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by Ruth Wertheimer. 7 Med Ltd., an Israeli company, is the general partner of 7 Med Health Ventures LP. Ruth Wertheimer owns 100% of the membership interests of 7 Med Ltd. The address for all entities and individuals affiliated with 7 Med Health Ventures LP is 16B Shenkar Street, P.O.B. 12327, Herzliya Pituach, 46733 Israel.
(5) Consists of (i) 13,500,000 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 3,375,000 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by F2 Capital I 2014 Limited, and (ii) 333,334 shares of common stock issuable upon conversion of the Series D’ Preferred Stock, 84,458 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 21,115 shares of common stock exercisable within 60 days of March 31, 2015, in each case held by Globeways Holdings Limited. Globeways Holdings Limited is a member of F2 Capital 1 2014 Limited and has sole power to vote upon the acquisition, holding and disposal of all shares and warrants held by F2 Capital 1 2014 Limited. LJSJ Skye Trustees Ltd. has the sole power to vote upon the acquisition, holding and disposal of all shares and warrants held by Globeways Holdings Limited. The directors of LJSJ Skye Trustees Ltd. are Mark Vale, Robert James, Stanley Burton and Paul John Quirk. The address of LJSJ Skye Trustees Ltd. is Commerce House, 1 Bowring Road, Ramsey, Isle of Man IM8 2LQ, British Isles.
(6) Consists of 468,684 shares of common stock issuable upon conversion of the Series B1’ Preferred Stock, 5,697,615 shares of common stock issuable upon conversion of the Series C’ Preferred Stock, 762,668 shares of common stock issuable upon conversion of the Series D’ Preferred Stock, 4,000,000 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 1,000,000 shares of common stock exercisable within 60 days of March 31, 2015. ARCH Venture Partners VI, L.P. is the sole general partner of ARCH Venture Fund VI, L.P. ARCH Venture Partners VI, L.P., as the sole general partner of ARCH Venture Fund VI, L.P. may be deemed to beneficially own certain of the shares held of record by ARCH Venture Fund VI, L.P. ARCH Venture Partners VI, LLC disclaims beneficial ownership of all shares held of record of ARCH Venture Fund VI, L.P. in which it does not have an actual pecuniary interest. Keith Crandell, Clinton Bybee and Robert Nelson are the managing directors of ARCH Venture Partners VI, LLC, and may be deemed to beneficially own certain of the shares held of record by ARCH Venture Fund VI, L.P. The managing directors disclaim beneficial ownership of all shares held of record by ARCH Venture Fund VI, L.P. in which they do not have an actual pecuniary interest. The address for all entities and individuals affiliated with ARCH Venture Fund VI, L.P. is 8725 W. Higging Road, Suite 290, Chicago, IL 60631.
(7) Consists of options to purchase 2,197,761 shares of common stock presently exercisable or exercisable within sixty (60) days of March 31, 2015.
(8) Consists of options to purchase 379,346 shares of common stock presently exercisable or exercisable within sixty (60) days of March 31, 2015.
(9) Consists of options to purchase 104,966 shares of common stock presently exercisable or exercisable within sixty (60) days of March 31, 2015.
(10) Each of Dr. Miles and Mr. Brandwein has indicated his intention to resign from our board of directors upon the closing of this offering.
(11) Consists of (i) 11,041 shares of common stock issuable upon conversion of the Series B1’ Preferred Stock and options to purchase 35,000 shares of common stock presently exercisable or exercisable within 60 days of March 31, 2015, in each case held by Scott Minick and (ii) 250,000 shares of common stock issuable upon conversion of the Series E Preferred Stock and warrants to purchase 62,500 shares of common stock presently exercisable or exercisable within 60 days of March 31, 2015, in each case held by Minick Family Trust. Mr. Minick is a trustee of the Minick Family Trust.
(12) Consists of options to purchase 35,000 shares of common stock presently exercisable or exercisable within sixty (60) days of March 31, 2015.
(13) Consists of 11,041 shares of common stock issuable upon conversion of the Series B1’ Preferred Stock, 250,000 shares of common stock issuable upon conversion of the Series E Preferred Stock, options to purchase 2,752,073 shares of common stock presently exercisable or exercisable within 60 days of March 31, 2015 and warrants to purchase 62,500 shares of common stock presently exercisable or exercisable within 60 days of March 31, 2015.

 

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DESCRIPTION OF CAPITAL STOCK

The following descriptions are summaries of the material terms of our amended and restated certificate of incorporation and amended and restated bylaws, which will be effective upon consummation of this offering. The descriptions of the common stock and preferred stock give effect to changes to our capital structure that will occur immediately prior to the closing of this offering. We refer in this section to our amended and restated certificate of incorporation as our certificate of incorporation, and we refer to our amended and restated bylaws as our bylaws.

General

Upon completion of this offering, our authorized capital stock will consist of 125,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share, all of which shares of preferred stock will be undesignated.

As of March 31, 2015,                 shares of our common stock were outstanding and held by             stockholders of record. This amount assumes the conversion of all outstanding shares of our preferred stock into common stock, which will occur immediately prior to the consummation of this offering. In addition, as of March 31, 2015, we had outstanding options to purchase                 shares of our common stock, at a weighted average exercise price of $         per share,                 of which were exercisable and outstanding a warrants to purchase                 shares of our common stock, at a weighted average exercise price of $         per share.

Common Stock

The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive ratably any dividends declared by the board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. Our common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.

In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock. The shares to be issued by us in this offering will be, when issued and paid for, validly issued, fully paid and non-assessable.

Preferred Stock

Immediately prior to the consummation of this offering, all outstanding shares of our preferred stock will be converted into shares of our common stock. Immediately prior to the consummation of this offering, our amended and restated certificate of incorporation will be amended and restated to delete all references to such shares of preferred stock. Upon the consummation of this offering, our board of directors will have the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting, or the designation of, such series, any or all of which may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon our liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of our company or other corporate action. Immediately after consummation of this offering, no shares of preferred stock will be outstanding, and we have no present plans to issue any shares of preferred stock.

 

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Registration Rights

Upon the closing of this offering, the holders of our registrable shares, as described in the Investor Rights Agreement, are entitled to rights with respect to the registration of these shares under the Securities Act as hereinafter described. These rights are provided under the terms of the Investor Rights Agreement, and include demand registration rights, short-form registration rights and piggyback registration rights. All fees, costs and expenses of underwritten registrations will be borne by us and all selling expenses, including underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.

Demand Registration Rights

Upon the closing of this offering, certain holders of shares of our common stock, including shares issuable upon the conversion of preferred stock or their permitted transferees, are entitled to demand registration rights. Under the terms of the Investor Rights Agreement, we will be required, upon the written request of holders of at least 25% of the shares of our common stock issued upon conversion of our Series E Preferred Stock upon the consummation of this offering, to use our best efforts to effect the registration of our common shares issued upon conversion of our preferred stock upon consummation of this offering, subject to certain exceptions. We are required to effect only two registrations pursuant to this provision of the Investor Rights Agreement. A demand for registration may not be made until 180 days after the closing of this offering. An aggregate of                 shares of common stock and                 shares of our common stock issuable upon the exercise of outstanding warrants are entitled to these demand registration rights.

Form S-3 Registration Rights

Upon the closing of this offering, certain holders of shares of our common stock issued upon the conversion of our preferred stock or their permitted transferees are also entitled to short form registration rights. If we are eligible to file a registration statement on Form S-3, upon the written request of certain holders of our common stock issued upon conversion of our preferred stock upon consummation of this offering to register shares with an anticipated aggregate offering price of at least $3,000,000, we will be required to use our best efforts to effect a registration of such shares, subject to certain exceptions. An aggregate of                 shares of common stock and                 shares of our common stock issuable upon the exercise of outstanding warrants are entitled to these Form S-3 registration rights.

Piggyback Registration Rights

Upon the closing of this offering, certain holders of shares of our common stock issued upon the conversion of our preferred stock or their permitted transferees are entitled to piggyback registration rights. If we propose to register any of our securities, either for our own account or for the account of other security holders, the holders of these shares are entitled to include their shares in the registration, and if such holders exercise their right to be included in such registration, we will b required to use our best efforts to include them in the registration. Subject to certain exceptions, the managing underwriter may limit the number of shares included in the underwritten offering if it concludes that marketing factors require such a limitation. An aggregate of                 shares of common stock and                 shares of our common stock issuable upon the exercise of outstanding warrants are entitled to these piggyback registration rights.

Indemnification

Our Investor Rights Agreement contains customary cross-indemnification provisions, under which we are obligated to indemnify holders of registrable securities in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions attributable to them.

 

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Expiration of Registration Rights

The registration rights granted under the Investor Rights Agreement will terminate on the earliest of (i) the fifth anniversary of the closing of this offering, (ii) the date on which no stockholder party to the Investor Rights Agreement holds any Registrable Shares (as defined therein) or (iii) a Company Sale (as defined therein).

Anti-Takeover Effects of Our Certificate of Incorporation and Our Bylaws

Our certificate of incorporation and bylaws will contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of the company unless such takeover or change in control is approved by the board of directors.

These provisions include:

Classified Board . Our certificate of incorporation will provide that our board of directors will be divided into three classes of directors, with the classes as nearly equal in number as possible. As a result, approximately one-third of our board of directors will be elected each year. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board. Our certificate of incorporation will also provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the number of directors will be fixed exclusively pursuant to a resolution adopted by our board of directors. Upon completion of this offering, we expect that our board of directors will have seven members.

Action by Written Consent; Special Meetings of Stockholders . Our certificate of incorporation will provide that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting. Our certificate of incorporation and the bylaws will also provide that, except as otherwise required by law, special meetings of the stockholders can be called only by or at the direction of the board of directors pursuant to a resolution adopted by a majority of the total number of directors. Stockholders will not be permitted to call a special meeting or to require the board of directors to call a special meeting.

Removal of Directors . Our certificate of incorporation will provide that our directors may be removed only for cause by the affirmative vote of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors, voting together as a single class, at a meeting of the stockholders called for that purpose. This requirement of a supermajority vote to remove directors could enable a minority of our stockholders to prevent a change in the composition of our board.

Advance Notice Procedures . Our bylaws will establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at an annual meeting will only be able to consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our Secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Although the bylaws will not give the board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the company.

Super Majority Approval Requirements . The Delaware General Corporation Law generally provides that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless either a corporation’s certificate of incorporation or bylaws requires

 

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a greater percentage. A majority vote of our board of directors or the affirmative vote of holders of at least 75% of the total votes of the outstanding shares of our capital stock entitled to vote with respect thereto, voting together as a single class, will be required to amend, alter, change or repeal the bylaws. In addition, the affirmative vote of the holders of at least 75% of the total votes of the outstanding shares of our capital stock entitled to vote with respect thereto, voting together as a single class, will be required to amend, alter, change or repeal, or to adopt any provisions inconsistent with, any of the provisions in our certificate of incorporation relating to amendments to our certificate of incorporation and bylaws and as described under “Action by Written Consent; Special Meetings of Stockholders”, “Classified Board” and “Removal of Directors” above. This requirement of a supermajority vote to approve amendments to our bylaws and certificate of incorporation could enable a minority of our stockholders to exercise veto power over any such amendments.

Authorized but Unissued Shares . Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital and corporate acquisitions. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of a majority of our common stock by means of a proxy contest, tender offer, merger or otherwise.

Exclusive Forum . Our certificate of incorporation will provide that, subject to limited exceptions, the state or federal courts located in the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our certificate of incorporation described above. Although we believe these provisions benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against our directors and officers. 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, in connection with one or more actions or proceedings described above, a court could find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable.

Section 203 of the Delaware General Corporation Law

Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporation’s voting stock.

Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions: before the stockholder became interested, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 75% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or at or after the time the stockholder became interested, the business combination was approved by

 

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the board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

A Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. We have not opted out of these provisions. As a result, mergers or other takeover or change in control attempts of us may be discouraged or prevented.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is                                         .

Listing

We have applied to have our common stock listed on The NASDAQ Global Market under the symbol “CHMA”.

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. Future sales of our common stock, including shares issued upon the exercise of outstanding options and warrants, in the public market after this offering, or the perception that those sales may occur, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital at a time and price we deem appropriate. As described below, only a limited number of shares of our common stock will be available for sale in the public market for a period of several months after completion of this offering due to contractual and legal restrictions on resale described below.

Based on the number of shares of our common stock outstanding as of March 31, 2015, upon the closing of this offering and assuming (1) the conversion of our outstanding preferred stock into common stock, (2) no exercise of the underwriters’ option to purchase additional shares of common stock, and (3) no exercise of outstanding options and warrants, we would have had outstanding an aggregate of approximately                 shares of common stock. Of these shares, all of the shares of common stock to be sold in this offering, and any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable in the public market without restriction or further registration under the Securities Act, unless the shares are held by any of our affiliates as such term is defined in Rule 144 of the Securities Act.

Rule 144

In general, a person who has beneficially owned restricted stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we are subject to the Securities Exchange Act of 1934, as amended, or the Exchange Act, periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:

 

    1% of the number of shares then outstanding, which will equal approximately                 shares immediately after this offering assuming no exercise of the underwriters’ over-allotment option to purchase additional shares, based on the number of shares outstanding as of March 31, 2015; or

 

    the average weekly trading volume of our common stock on The NASDAQ Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.

Rule 701

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of                 shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers or directors who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements as described below in the section titled “Underwriting” included elsewhere in this prospectus and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.

 

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Lock-up Agreements

All of our directors and executive officers and certain holders of our shares, who collectively held                 shares of common stock as of March 31, 2015, have signed a lock-up agreement which prevents them from selling any of our common stock or any securities convertible into or exercisable or exchangeable for common stock for a period of not less than 180 days from the date of this prospectus, subject to certain exceptions, without the prior written consent of Barclays Capital Inc. and Cowen and Company, LLC, as representatives of the underwriters. The representatives may in their sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the 180-day period. When determining whether or not to release shares from the lock-up agreements, Barclays Capital Inc. and Cowen and Company, LLC will consider, among other factors, the stockholder’s reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time.

Registration Rights

Upon completion of this offering, the holders of                 shares of common stock or their transferees will be entitled to various rights with respect to registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. See the section titled “Description of Capital Stock—Registration Rights” for additional information.

Stock Option Plans

We intend to file one or more registration statements on Form S-8 under the Securities Act to register our shares issued or reserved for issuance under our stock option plans. The first such registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing with the Securities and Exchange Commission. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above. As of March 31, 2015, we estimate that such registration statement on Form S-8 will cover approximately                 shares.

 

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

FOR NON-U.S. HOLDERS

The following is a general discussion of the material U.S. federal income and estate tax considerations applicable to non-U.S. holders (as defined below) with respect to their ownership and disposition of shares of our common stock issued pursuant to this offering. For purposes of this discussion, a non-U.S. holder means a beneficial owner of our common stock that is not a “United States person” or a partnership for U.S. federal income tax purposes. A United States person is any of the following:

 

    an individual citizen or resident (for U.S. federal income tax purposes) of the United States;

 

    a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

    a trust (1) whose administration is subject to the primary supervision of a U.S. court and which has one or more United States persons who have the authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable Treasury regulations to be treated as a United States person for U.S. federal income tax purposes.

This discussion does not address the tax treatment of partnerships or other entities that are pass-through entities for U.S. federal income tax purposes or persons that hold their common stock through partnerships or other pass-through entities. A partner in a partnership or other pass-through entity that will hold our common stock should consult his, her or its own tax advisor regarding the tax consequences of acquiring, holding and disposing of our common stock through a partnership or other pass-through entity, as applicable.

An individual may be treated as a resident instead of a nonresident of the United States in any calendar year for U.S. federal income tax purposes if the individual was present in the United States for at least 31 days in that calendar year and for an aggregate of at least 183 days during the three-year period ending with the current calendar year. For purposes of this calculation, all of 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, subject to certain exceptions not discussed herein. The tax treatment of U.S. citizens and residents (including individuals who meet the foregoing substantial presence test) who hold shares of our common stock is not discussed in this summary.

This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, existing and proposed U.S. Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, all as in effect as of the date of this prospectus, all of which are subject to change or to differing interpretation, possibly with retroactive effect. Any change could alter the tax consequences to non-U.S. holders described in this prospectus. There can be no assurance that the Internal Revenue Service, which we refer to as the IRS, will not challenge one or more of the tax consequences described herein. We assume in this discussion that a non-U.S. holder holds shares of our common stock as a capital asset, generally property held for investment.

This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holder’s individual circumstances nor does it address any aspects of U.S. state, local or non-U.S. taxes, the alternative minimum tax, or gift tax.

This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder and does not address the special tax rules applicable to particular non-U.S. holders, including without limitation:

 

    insurance companies;

 

    tax-exempt organizations;

 

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    financial institutions;

 

    brokers or dealers in securities or currencies;

 

    pension plans;

 

    controlled foreign corporations;

 

    passive foreign investment companies;

 

    persons that have a functional currency other than the U.S. dollar;

 

    owners deemed to sell our common stock under the constructive sale provisions of the Code;

 

    corporations that accumulate earnings to avoid U.S. federal income tax;

 

    owners in special situations, such as those who have elected to mark securities to market, or those that hold our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment; and

 

    certain U.S. expatriates.

This discussion is for general information only and is not tax advice. Accordingly, all prospective non-U.S. holders of our common stock should consult their own tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition of our common stock.

Distributions on Our Common Stock

Distributions, if any, on our common stock generally 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. If a distribution exceeds our current and accumulated earnings and profits, the excess will be allocated ratably among each share of common stock with respect to which the distribution is paid and treated as a tax-free return of the non-U.S. holder’s investment, up to such holder’s adjusted tax basis in the common stock. A holder’s adjusted tax basis in a share of our common stock is generally the purchase price of such share, reduced by the amount of any such tax-free returns of capital. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in “Gain on sale, exchange or other disposition of our common stock.” Any such distributions will also be subject to the discussion below under the section titled “Withholding and Information Reporting Requirements—FATCA.”

Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder’s country of residence.

Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States and, if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder within the United States, are generally exempt from the 30% withholding tax if the non-U.S. holder satisfies applicable certification and disclosure requirements, including delivery of a properly executed IRS Form W-8ECI. However, such U.S. effectively connected income, net of specified deductions and credits, is taxed at the same graduated U.S. federal income tax rates applicable to United States persons. Any U.S. effectively connected income received by a non-U.S. holder that is a corporation may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder’s country of residence.

A non-U.S. holder of our common stock who claims the benefit of an applicable income tax treaty between the United States and such holder’s country of residence generally will be required to (i) provide a properly executed IRS Form W-8BEN or W-8BEN-E (or successor form) and certify under penalties of perjury that such holder is

 

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not a United States person and is eligible for treaty benefits, or (ii) if our common stock is held through certain foreign intermediaries, satisfy applicable certification and other requirements. Special certification and other requirements apply to certain non-U.S. holders that act as intermediaries (including partnerships). Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.

A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing a U.S. tax return with the IRS.

Gain on Sale, Exchange or Other Disposition of Our Common Stock

Subject to the discussion below regarding backup withholding and FATCA, in general, a non-U.S. holder will not be subject to any U.S. federal income tax on any gain realized upon such holder’s sale, exchange or other disposition of shares of our common stock unless:

 

    the gain is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business and, if an applicable income tax treaty so provides, is attributable to a permanent establishment or a fixed-base maintained by such non-U.S. holder in the United States, in which case the non-U.S. holder generally will be taxed on a net income basis at the graduated U.S. federal income tax rates applicable to United States persons and, if the non-U.S. holder is a foreign corporation, the branch profits tax described above in “Distributions on Our Common Stock” also may apply;

 

    the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder’s country of residence) on the net gain derived from the disposition, which may be offset by certain U.S. source capital losses (not including any capital loss carryovers) of the non-U.S. holder, if any (even though the individual is not considered a resident of the United States), provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such disposition and capital losses; or

 

    we are, or have been, at any time during the five-year period preceding such disposition (or the non-U.S. holder’s holding period, if shorter) a “U.S. real property holding corporation,” unless our common stock is regularly traded on an established securities market and the non-U.S. holder holds no more than 5% of our outstanding common stock, actually or constructively, during the shorter of the 5-year period ending on the date of the disposition or the period that the non-U.S. holder held our common stock. If we are determined to be a U.S. real property holding corporation and the foregoing exception does not apply, then a purchaser may withhold 10% of the proceeds payable to a non-U.S. holder from a sale of our common stock and the non-U.S. holder generally will be taxed on its net gain derived from the disposition at the graduated U.S. federal income tax rates applicable to United States persons. Generally, a corporation is a U.S. real property holding corporation only if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Although there can be no assurance, we do not believe that we are, or have been, a U.S. real property holding corporation, or that we are likely to become one in the future. No assurance can be provided that our common stock will be regularly traded on an established securities market for purposes of the rules described above.

Backup Withholding and Information Reporting

We must report annually to the IRS and to each non-U.S. holder the gross amount of the distributions on our common stock paid to such holder and the tax withheld, if any, with respect to such distributions. Non-U.S. holders may have to comply with specific certification procedures to establish that the holder is not a United States person (as defined in the Code) in order to avoid backup withholding at the applicable rate with respect to

 

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dividends on our common stock. Dividends paid to non-U.S. holders subject to withholding of U.S. federal income tax, as described above in “Distributions on Our Common Stock,” generally will be exempt from U.S. backup withholding.

Information reporting and backup withholding will generally apply to the proceeds of a disposition of our common stock by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder (usually on IRS Form W-8BEN or W-8BEN-E) and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.

Copies of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is incorporated under the provisions of a specific treaty or agreement.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability, if any, provided that an appropriate claim is filed with the IRS in a timely manner.

Withholding and Information Reporting Requirements—FATCA

The Foreign Account Tax Compliance Act, or FATCA, generally imposes a U.S. federal withholding tax at a rate of 30% on payments of dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a foreign entity unless (i) if the foreign entity is a “foreign financial institution,” such foreign entity undertakes certain due diligence, reporting, withholding, and certification obligations, (ii) if the foreign entity is not a “foreign financial institution,” such foreign entity identifies certain of its U.S. investors, if any, or (iii) the foreign entity is otherwise exempt under FATCA. Under applicable U.S. Treasury regulations, withholding under FATCA currently applies to payments of dividends on our common stock, and will apply to payments of gross proceeds from a sale or other disposition of our common stock made after December 31, 2016. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of the tax. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation on their investment in our common stock and the entities through which they hold our common stock.

United States Federal Estate Tax

Shares of our common stock that are owned or treated as owned at the time of death by an individual who is not a citizen or resident of the United States, as specifically defined for U.S. federal estate tax purposes, are considered U.S. situs assets and will be included in the individual’s gross estate for U.S. federal estate tax purposes. Such shares, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax or other treaty provides otherwise.

 

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UNDERWRITING

Barclays Capital Inc. and Cowen and Company, LLC are acting as the representatives of the underwriters and the joint book-running managers of this offering. Under the terms of an underwriting agreement, each of the underwriters named below has severally agreed to purchase from us the respective number of shares of common stock shown opposite its name below:

 

Underwriters

   Number of
Shares

Barclays Capital Inc.

  

Cowen and Company, LLC

  

William Blair & Company, L.L.C.

  

Oppenheimer & Co. Inc.

  
  

 

Total

  

 

The underwriting agreement provides that the underwriters’ obligation to purchase shares of common stock depends on the satisfaction of the conditions contained in the underwriting agreement, including:

 

    the obligation to purchase all of the shares of common stock offered hereby (other than those shares of common stock covered by their option to purchase additional shares as described below), if any of the shares are purchased;

 

    the representations and warranties made by us to the underwriters are true;

 

    there is no material change in our business or the financial markets; and

 

    we deliver customary closing documents to the underwriters.

The underwriters have informed us that they do not expect to sell more than 5% of the common stock in the aggregate to accounts over which they exercise discretionary authority.

Commissions and Expenses

The following table summarizes the underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay to us for the shares.

 

     No Exercise      Full Exercise  

Per Share

   $                $            

Total

   $         $     

The representatives have advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $         per share. After the offering, the representatives may change the offering price and other selling terms.

The expenses of the offering that are payable by us are estimated to be approximately $         (excluding underwriting discounts and commissions). We have also agreed to reimburse the underwriters for certain of their expenses in an amount up to $         as set forth in the underwriting agreement.

Option to Purchase Additional Shares

We have granted the underwriters an option exercisable for 30 days after the date of this prospectus to purchase, from time to time, in whole or in part, up to an aggregate of                 additional shares of common stock from us at the public offering price less underwriting discounts and commissions. To the extent that this option is

 

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exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional shares based on the underwriter’s percentage underwriting commitment in the offering as indicated in the table at the beginning of this “Underwriting” section.

Lock-Up Agreements

We, all of our directors and executive officers and holders of substantially all of our outstanding stock have agreed that, for a period of 180 days after the date of this prospectus subject to certain limited exceptions as described below, we and they will not directly or indirectly, without the prior written consent of each of Barclays Capital Inc. and Cowen and Company, LLC, (1) offer for sale, sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of common stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by us or them in accordance with the rules and regulations of the SEC and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock (other than the stock and shares issued pursuant to employee benefit plans, qualified stock option plans, or other employee compensation plans existing on the date of this prospectus or pursuant to currently outstanding options, warrants or rights not issued under one of those plans), or sell or grant options, rights or warrants with respect to any shares of common stock or securities convertible into or exchangeable for common stock (other than the grant of options pursuant to option plans existing on the date of this prospectus), (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or other securities, in cash or otherwise, (3) make any demand for or exercise any right or file or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible, exercisable or exchangeable into common stock or any of our other securities (other than any registration statement on Form S-8), or (4) publicly disclose the intention to do any of the foregoing.

The restrictions above do not apply to:

 

    transactions relating to shares of our common stock or other securities acquired in this offering, other than purchases by our officers and directors, or in the open market after the completion of this offering;

 

    bona fide gifts, sales or other dispositions of shares of any class of our capital stock, in each case that are made exclusively between and among us and them or members of our or their family, or affiliates of us or them, including its partners (if a partnership) or members (if a limited liability company);

 

    bona fide gifts of shares of any class of our capital stock to charities or educational institutions;

 

    the exercise of warrants or the exercise of stock options granted pursuant to our stock option/incentive plans or otherwise outstanding on the date of the agreement referenced above (provided, that the restrictions shall apply to shares of the common stock issued upon such exercise or conversion);

 

    transfers by a corporation, partnership, limited liability company, trust or other business entity to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate (including, a fund managed by the same manager or managing member or general partners or management company or by an entity controlling, controlled by, or under common control with such manager or managing member or general partner or management company as the undersigned or who shares a common investment advisor with the undersigned) or as part of a distribution without consideration by the undersigned to its stockholders, partners, members or other equity holders, provided that such transfer shall not involve a disposition for value;

 

    transfers by will or intestate succession upon death;

 

   

transfers in connection with the “net” or “cashless” exercise or settlement of stock options, restricted stock units or other equity awards (including any transfer for the payment of taxes due as a result of

 

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such vesting or exercise whether by means of a “net settlement” or otherwise) pursuant to an employee benefit plan disclosed in this prospectus;

 

    transfers (A) following the commencement of a tender or exchange offer made to all holders of our capital stock involving a change of control or (B) upon the consummation of a merger or sale of us, regardless of how such a transaction is structured;

 

    the conversion of the outstanding preferred into shares of our common stock;

 

    transfers by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement;

 

    the establishment of any contract, instruction or plan that meets the requirements of Rule 10b5-1, or a Rule 10b5-1 Plan, under the Exchange Act (provided, however, that no sales of the common stock or securities convertible into, or exchangeable or exercisable for, the common stock, shall be made pursuant to a Rule 10b5-1 Plan prior to the expiration of the 180-day restricted period); and

 

    any demands or requests for, exercise any right with respect to, or take any action in preparation of, our registration under the Securities Act of our or their shares of the common stock.

Barclays Capital Inc. and Cowen and Company, LLC, in their sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time. When determining whether or not to release common stock and other securities from lock-up agreements, Barclays Capital Inc. and Cowen and Company, LLC will consider, among other factors, the holder’s reasons for requesting the release, the number of shares of common stock and other securities for which the release is being requested and market conditions at the time. At least three business days before the effectiveness of any release or waiver of any of the restrictions described above with respect to an officer or director of our company, Barclays Capital Inc. and Cowen and Company, LLC will notify us of the impending release or waiver and we have agreed to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver, except where the release or waiver is effected solely to permit a transfer of common stock that is not for consideration and where the transferee has agreed in writing to be bound by the same terms as the lock-up agreements described above to the extent and for the duration that such terms remain in effect at the time of transfer.

Offering Price Determination

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

 

    the history and prospects for the industry in which we compete;

 

    our financial information;

 

    the ability of our management and our business potential and earning prospects;

 

    the prevailing securities markets at the time of this offering; and

 

    the recent market prices of, and the demand for, publicly traded shares of generally comparable companies.

Indemnification

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

 

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Stabilization, Short Positions and Penalty Bids

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

 

    Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

 

    A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the 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 their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

 

    Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.

 

    Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

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

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 the common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

Electronic Distribution

A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.

Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s web site and any information contained in any other web site maintained by an underwriter or selling group

 

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member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

Listing on The NASDAQ Global Market

We have applied to have our common stock listed on The NASDAQ Global Market under the symbol “CHMA.”

Stamp Taxes

If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

Other 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 the issuer and its affiliates, for which they received or may in the future 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 of the issuer or its affiliates. If the underwriters or their affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, the underwriters and their affiliates would 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 shares of common stock offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the shares of common stock offered hereby. The underwriters and certain of their 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.

Selling Restrictions

This prospectus does not constitute an offer to sell to, or a solicitation of an offer to buy from, anyone in any country or jurisdiction (i) in which such an offer or solicitation is not authorized, (ii) in which any person making such offer or solicitation is not qualified to do so or (iii) in which any such offer or solicitation would otherwise be unlawful. No action has been taken that would, or is intended to, permit a public offer of the shares of common stock or possession or distribution of this prospectus or any other offering or publicity material relating to the shares of common stock in any country or jurisdiction (other than the United States) where any such action for that purpose is required. Accordingly, each underwriter has undertaken that it will not, directly or indirectly, offer or sell any shares of common stock or have in its possession, distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of shares of common stock by it will be made on the same terms.

 

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European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any common stock which are the subject of the offering contemplated herein may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

    to legal entities which are qualified investors as defined under the Prospectus Directive;

 

    by the underwriters to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions 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 common stock shall result in a requirement for us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Each person in a Relevant Member State who receives any communication in respect of, or who acquires any common stock under, the offers contemplated here in this prospectus will be deemed to have represented, warranted and agreed to and with each underwriter and us that:

 

    it is a qualified investor as defined under the Prospectus Directive; and

 

    in the case of any common stock acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the common stock acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in the circumstances in which the prior consent of the representatives of the underwriters has been given to the offer or resale or (ii) where common stock have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of such common stock to it is not treated under the Prospectus Directive as having been made to such persons.

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

United Kingdom

This prospectus has only been communicated or caused to have been communicated and will only be communicated or caused to be communicated as an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000 (the “FSMA”)) as received in connection with the issue or sale of the common stock in circumstances in which Section 21(1) of the FSMA does not apply to us. All applicable provisions of the FSMA will be complied with in respect to anything done in relation to the common stock in, from or otherwise involving the United Kingdom.

 

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Notice to Residents of Canada

The offering of the common stock in Canada is being made on a private placement basis in reliance on exemptions from the prospectus requirements under the securities laws of each applicable Canadian province and territory where the common stock may be offered and sold, and therein may only be made with investors that are purchasing as principal and that qualify as both an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus and Registration Exemptions and as a “permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligation. Any offer and sale of the common stock in any province or territory of Canada may only be made through a dealer that is properly registered under the securities legislation of the applicable province or territory wherein the common stock is offered and/or sold or, alternatively, by a dealer that qualifies under and is relying upon an exemption from the registration requirements therein.

Any resale of the common stock by an investor resident in Canada must be made in accordance with applicable Canadian securities laws, which may require resales to be made in accordance with prospectus and registration requirements, statutory exemptions from the prospectus and registration requirements or under a discretionary exemption from the prospectus and registration requirements granted by the applicable Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the common stock outside of Canada.

Upon receipt of this document, each Canadian investor hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque investisseur canadien confirme par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement .

 

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LEGAL MATTERS

The validity of the common stock offered in this prospectus will be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts. Cooley LLP, New York, New York is serving as counsel to the underwriters.

EXPERTS

The consolidated financial statements of Chiasma, Inc. at December 31, 2013 and 2014, and for each of the two years in the period ended December 31, 2014, included in this prospectus and Registration Statement have been audited by Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The offices of Kost, Forer, Gabbay & Kasierer are located at 3 Aminadav St., Tel Aviv, 6706703 Israel.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 (File Number 333-                 ) 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 and schedules filed therewith. For further information with respect to us and the common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus 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 each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. 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 is www.sec.gov.

Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above.

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed Consolidated Financial Statements as of December 31, 2014 and March 31, 2015 and for the Three Months Ended March 31, 2014 and 2015 (unaudited)

Condensed Consolidated Balance Sheets

  F-2   

Condensed Consolidated Statements of Operations

  F-3   

Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

  F-4   

Condensed Consolidated Statements of Cash Flows

  F-5   

Notes to Condensed Consolidated Financial Statements

  F-6   

Consolidated Financial Statements as of and for the Years Ended December 31, 2013 and 2014

Report of Independent Registered Public Accounting Firm

  F-12   

Consolidated Balance Sheets

  F-13   

Consolidated Statements of Operations

  F-14   

Consolidated Statements of Redeemable Convertible Preferred Stock

  F-15   

Consolidated Statements of Stockholders’ Deficit

  F-16   

Consolidated Statements of Cash Flows

  F-17   

Notes to Consolidated Financial Statements

  F-18   

 

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CHIASMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     December 31,
2014
    March 31,
2015
    Pro Forma
Stockholders’
Equity
March 31,

2015
 
        
     (audited)     (unaudited)     (unaudited)  

ASSETS

      

Current assets:

      

Cash

   $ 40,160,435      $ 70,871,768     

Prepaid expenses and other current assets

     311,299        445,078     
  

 

 

   

 

 

   

Total current assets

  40,471,734      71,316,846   

Property and equipment, net

  615,242      562,377   

Other assets

  311,730      758,895   
  

 

 

   

 

 

   

Total assets

$ 41,398,706    $ 72,638,118   
  

 

 

   

 

 

   

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ (DEFICIT) EQUITY

Current liabilities:

Accounts payable

$ 317,994    $ 1,035,457   

Accrued expenses and other current liabilities

  4,000,294      2,739,893   
  

 

 

   

 

 

   

Total current liabilities

  4,318,288      3,775,350   

Long-term liabilities

  4,612,450      4,724,276   
  

 

 

   

 

 

   

Total liabilities

  8,930,738      8,499,626   
  

 

 

   

 

 

   

Redeemable convertible preferred stock, $0.01 par value:

Series B1’ preferred, 1,134,997 shares authorized, issued and outstanding at December 31, 2014 and March 31, 2015; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference and redemption value of $7,218,438 at March 31, 2015

  9,143,823      9,143,823    $ —    

Series C’ preferred, 40,719,409 shares authorized; 40,430,250 shares issued and outstanding at December 31, 2014 and March 31, 2015; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference and redemption value of $40,430,250 at March 31, 2015

  40,430,250      40,430,250      —    

Series D’ preferred, 38,504,439 shares authorized, issued and outstanding at December 31, 2014 and March 31, 2015; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference and redemption value of $22,054,186 at March 31, 2015

  22,054,186      22,054,186      —    

Series E preferred, 45,000,000 and 80,774,458 shares authorized at December 31, 2014 and March 31, 2015, respectively; 33,774,763 and 69,722,786 shares issued and outstanding at December 31, 2014 and March 31, 2015, respectively; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference and redemption value of $69,722,786 at March 31, 2015

  32,857,713      67,168,201      —    
  

 

 

   

 

 

   

 

 

 

Total redeemable convertible preferred stock

  104,485,972      138,796,460      —    
  

 

 

   

 

 

   

 

 

 

Stockholders’ (deficit) equity:

Common stock, $0.01 par value, 175,000,000 and 250,000,000 shares authorized at December 31, 2014 and March 31, 2015, respectively; 404,842 and 747,695 shares issued and outstanding at December 31, 2014 and March 31, 2015, respectively; 150,540,167 shares issued and outstanding pro forma (unaudited)

  4,048      7,477      1,505,402   

Additional paid-in capital

  9,486,022      11,086,837      148,385,372   

Accumulated deficit

  (81,508,074   (85,752,282   (85,752,282
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

  (72,018,004   (74,657,968 $ 64,138,492   
  

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity

$ 41,398,706    $ 72,638,118   
  

 

 

   

 

 

   

See accompanying notes to unaudited condensed consolidated financial statements.

 

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CHIASMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

     Three Months Ended
March 31,
 
     2014     2015  

Revenue from license agreement

   $ 4,573,478      $ —     
  

 

 

   

 

 

 

Operating expenses:

Research and development

  1,649,545      2,218,786   

Marketing, general and administrative

  954,318      1,931,210   
  

 

 

   

 

 

 

Total operating expenses

  2,603,863      4,149,996   
  

 

 

   

 

 

 

Income (loss) from operations

  1,969,615      (4,149,996

Other expenses, net

  24,839      89,482   
  

 

 

   

 

 

 

Income (loss) before provision for income taxes

  1,944,776      (4,239,478

Provision for income taxes

  (129,259   4,730   
  

 

 

   

 

 

 

Net income (loss)

  2,074,035      (4,244,208
  

 

 

   

 

 

 

Accretion of redeemable convertible preferred stock

  (339,744   (97,521
  

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

$ 1,734,291    $ (4,341,729
  

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders, basic

$ 4.36    $ (6.54
  

 

 

   

 

 

 

Weighted average common shares outstanding, basic

  397,820      663,886   
  

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders, diluted

$ 0.02    $ (6.54
  

 

 

   

 

 

 

Weighted average common shares outstanding, diluted

  101,647,520      663,886   
  

 

 

   

 

 

 

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

$ (0.03
    

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted

  127,689,277   
    

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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CHIASMA, INC.

CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ DEFICIT

 

    Redeemable Convertible Preferred Stock                 Additional
Paid-in
Capital
    Accumulated
Deficit
    Total
Stockholders’
Deficit
 
    Series B1’ Preferred     Series C’ Preferred     Series D’ Preferred     Series E Preferred     Total     Common Stock        
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Amount     Shares     Amount        

Balance, December 31, 2014

    1,134,997      $ 9,143,823        40,430,250      $ 40,430,250        38,504,439      $ 22,054,186        33,774,763      $ 32,857,713      $ 104,485,972        404,842      $ 4,048      $ 9,486,022      $ (81,508,074   $ (72,018,004

Stock-based compensation

    —          —          —          —          —          —          —          —          —          —          —          220,958        —          220,958   

Exercise of warrants

    —          —          —          —          —          —          —          —          —          342,853        3,429        —          —          3,429   

Issuance of Series E redeemable convertible preferred stock, net of issuance costs of $257,680 and warrants for common stock

    —          —          —          —          —          —          35,948,023        34,212,967        34,212,967        —          —          1,477,378        —          1,477,378   

Accretion of redeemable convertible preferred stock

    —          —          —          —          —          —          —          97,521        97,521        —          —          (97,521     —          (97,521

Net loss

    —          —          —          —          —          —          —          —          —          —          —            (4,244,208     (4,244,208
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2015

  1,134,997    $ 9,143,823      40,430,250    $ 40,430,250      38,504,439    $ 22,054,186      69,722,786    $ 67,168,201    $ 138,796,460      747,695    $ 7,477    $ 11,086,837    $ (85,752,282 $ (74,657,968
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CHIASMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

     Three Months Ended
March 31,
 
     2014     2015  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss)

   $ 2,074,035      $ (4,244,208

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     71,402        50,986   

Stock-based compensation

     128,697        220,958   

Loss (gain) on sale of property and equipment

     190        (4,286

Changes in operating assets and liabilities:

    

Deferred income taxes

     (192,604     (27,014

Prepaid expenses and other current assets

     2,194        (106,814

Accounts payable

     (996,313     717,463   

Accrued expenses and other current liabilities

     (3,285,894     (1,648,749

Deferred revenue and customer advances, net

     4,409,022        —     

Other assets

     1,207        6,614   

Long-term liabilities

     17,992        111,825   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  2,229,928      (4,923,225
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

Decrease in value of other assets

  10,401      —     

Proceeds from sale of property and equipment

  417      11,500   

Purchases of property and equipment

  —        (5,335
  

 

 

   

 

 

 

Net cash provided by investing activities

  10,818      6,165   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of Series E redeemable convertible preferred stock and warrants for common stock, net

  —        35,690,345   

Deferred offering costs.

  (65,381

Exercise of warrants

  —        3,429   
  

 

 

   

 

 

 

Net cash provided by financing activities

  —        35,628,393   
  

 

 

   

 

 

 

NET INCREASE IN CASH

  2,240,746      30,711,333   

Cash, beginning of period

  12,849,579      40,160,435   
  

 

 

   

 

 

 

Cash, end of period

$ 15,090,325    $ 70,871,768   
  

 

 

   

 

 

 

SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:

Deferred offering costs

$ —      $ 388,348   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest

  —        —     
  

 

 

   

 

 

 

Cash paid for income taxes

$ 6,037    $ 10,035   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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CHIASMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Summary of Significant Accounting Policies

Nature of business

Chiasma, Inc. is a late-stage biopharmaceutical company incorporated in 2001 under the laws of the State of Delaware. The Company is dedicated to improving the lives of patients suffering from orphan diseases by developing and commercializing novel oral therapies that are available only as injections. The Company has completed a multinational Phase 3 clinical trial of its most advanced Transient Permeability Enhancer platform-based product candidate, oral octreotide, for the treatment of acromegaly. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of redeemable convertible preferred stock, long-term debt, and proceeds from a license agreement.

Chiasma, Inc. is headquartered in Massachusetts and has a wholly owned subsidiary; Chiasma (Israel) Ltd. Chiasma, Inc. and Chiasma (Israel) Ltd. are herein collectively referred to as the Company. The Company’s product development facilities are in Israel.

The Company is subject to risks common to companies in the biopharmaceutical development industry. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain required regulatory approval or that any approved products will be commercially viable. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will generate significant product sales. The Company operates in an environment of rapid technological change and substantial competition from pharmaceutical and biotechnology companies.

Basis of presentation

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements as of and for the years ended December 31, 2013 and 2014.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2015.

Unaudited pro forma financial information

The unaudited pro forma consolidated balance sheet information at March 31, 2015 has been prepared to reflect the automatic conversion of all shares of redeemable convertible preferred stock outstanding at March 31, 2015 into 149,792,472 shares of common stock as if a proposed initial public offering had occurred on March 31, 2015. For purposes of pro forma basic and diluted net loss per share attributable to common stockholders, all shares of redeemable convertible preferred stock have been treated as if they have been converted to common stock in all periods in which such shares were outstanding. Accordingly, the pro forma basic and diluted loss per share attributable to common stockholders does not include the effects of the accretion of redeemable convertible preferred stock to redemption value.

 

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Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and sales allowances, fair values of financial instruments, useful lives of property and equipment, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Recently issued accounting pronouncements

In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09,  Revenue from Contracts with Customers (“ASU 2014-09”), which amends the guidance for revenue recognition to replace numerous industry-specific requirements. ASU 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in ASU 2014-09 are effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating the effect the adoption of ASU 2014-09 may have on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern and to provide related disclosures in certain circumstances. The requirements of ASU 2014-15 will be effective for the annual financial statement period beginning after December 15, 2016, with early adoption permitted. The Company is currently in the process of evaluating the impact of adopting ASU 2014-15.

2. Net Loss per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholder by the weighted-average common shares outstanding for the period. Because the Company has reported net loss attributable to common stockholders for the three months ended March 31, 2015, basic and diluted net loss per share attributable to common stockholders are the same as basic net loss per share attributable to common stockholders for this period.

All redeemable convertible preferred stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an anti-dilutive impact due to net losses reported during three months ended March 31, 2015.

 

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The following table sets forth the computation of basic and diluted earnings per share:

 

     Three Months
Ended

March 31, 2014
     Three Months
Ended

March 31, 2015
 

Numerator

     

Net income (loss) attributable to common stockholders, basic

   $ 1,734,291       $ (4,341,729
  

 

 

    

 

 

 

Accretion of redeemable convertible preferred stock

  339,744      —     
  

 

 

    

 

 

 

Net income (loss) attributable to common stockholders, diluted

$ 2,074,035    $ (4,341,729
  

 

 

    

 

 

 

Denominator

Weighted average common shares outstanding, basic

  397,820      663,886   
  

 

 

    

 

 

 

Effects of dilutive securities

Warrants to purchase common stock

  15,725,970      —     

Options to employees

  5,454,044      —     

Preferred Shares

  80,069,686      —     
  

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

  101,647,520      663,886   
  

 

 

    

 

 

 

Net income (loss) per share attributable to common stockholders, basic

$ 4.36    $ (6.54
  

 

 

    

 

 

 

Net income (loss) per share attributable to common stockholders, diluted

$ 0.02    $ (6.54
  

 

 

    

 

 

 

For the three months ended March 31, 2014, 640,354 options have been excluded from the calculation of the diluted income per share since their effect was anti-dilutive.

For the three months ended March 31, 2015, all outstanding options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.

The pro forma basic and diluted net loss per share attributable to common stockholders for the three months ended March 31, 2015 has been computed using the weighted-average common shares outstanding after giving pro forma effect to the automatic conversion of all shares of redeemable convertible preferred stock into shares of common stock as if such conversions had occurred at the beginning of 2015 or the date of original issuance, if later.

Pro forma basic and diluted net loss per share attributable to common stockholders is computed as follows:

 

     Three Months
Ended
March 31,
2015
 

Numerator—Net loss attributable to common stockholders, basic and diluted

   $ (4,244,208
  

 

 

 

Denominator:

Weighted-average common shares outstanding, basic and diluted

  663,886   

Adjustment for assumed effect of conversion of redeemable convertible preferred stock

  127,025,391   
  

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted

  127,689,277   
  

 

 

 

Pro forma net loss per share, basic and diluted

$ (0.03
  

 

 

 

 

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3. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

     December 31,
2014
     March 31,
2015
 

Accrued professional fees

   $ 373,727       $ 724,678   

Accrued research and development expenses

     3,028,389         1,668,569   

Accrued payroll and employee benefits

     598,178         346,646   
  

 

 

    

 

 

 

Total accrued expenses and other current liabilities

$ 4,000,294    $ 2,739,893   
  

 

 

    

 

 

 

4. License Agreement

In December 2012, the Company signed a license agreement with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. (collectively “Roche”), which was effective in January 2013, and granted Roche an exclusive, non-transferable license to the Company’s intellectual property related to the oral octreotide. Under the terms of the agreement, Roche obtained worldwide rights to research, develop, make, import, export, sell, market or distribute the commercial product. The Company retained certain research and development activities under a joint development plan. The Company retained all rights to the intellectual property contained in the agreement. The agreement provided for an upfront payment of $65,000,000, future consideration of up to $530,000,000 in development and commercial milestones, and the right to receive tiered, double-digit royalties on net sales of oral octreotide.

The Company’s total service obligations of $85,000,000 were recognized over the expected service period using the proportional performance method of revenue recognition. During the three months ended March 31, 2014, the Company recognized $4,573,478 in revenue for services rendered. In July 2014, Roche terminated the license agreement and returned all rights and documentation granted under the agreement to the Company. The Company was relieved of further obligations under the agreement. There was no remaining revenue to be recognized in the three months ended March 31, 2015.

Subsequent to the termination of the Roche agreement, the Company purchased from Roche active pharmaceutical ingredient (“API”) supplies to continue the development and manufacturing of oral octreotide as well as Roche’s proposed trade name for oral octreotide for an aggregate amount of $5,100,000 payable in three equal annual installments of $1,700,000 in January 2016, January 2017 and January 2018. The difference between the aggregate purchase price and the present value of the installment payments represents the interest component of the financing arrangement and is being recorded as interest expense over the payment term. Other than these payments, the Company has no other financial and operational obligations to Roche. Following the termination of the license agreement, the Company is not entitled to further payments from Roche, Roche has no remaining rights to oral octreotide and the Company retains all rights to oral octreotide and all related intellectual property.

5. Redeemable Convertible Preferred Stock

In February 2015, the Company increased the number of authorized shares of Series E redeemable convertible preferred stock (“Series E preferred stock”) to a total of 80,774,458 shares and subsequently sold and issued an aggregate of 35,948,023 shares of Series E preferred at $1.00 per share for gross proceeds of $35,948,023, net of issuance costs of $257,680. In connection with the issuance of Series E preferred, the Company issued holders of Series E preferred warrants to purchase 8,987,003 shares of the Company’s common stock, with an exercise price of $1.00 per share, which is accounted for as a discount on the issuance of Series E preferred.

 

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6. Warrants

A summary of warrant activity is as follows:

 

     Three Months Ended
March 31,
 
     2014      2015  

Warrants outstanding, beginning of period

     16,006,791         24,450,481   

Exercised

     —           (342,853

Issuances

     —           8,987,003   
  

 

 

    

 

 

 

Warrants outstanding, end of period

  16,006,791      33,094,631   
  

 

 

    

 

 

 

In connection with the issuance of Series E preferred in February 2015, the Company issued to holders of Series E preferred warrants to purchase 8,987,003 shares of the Company’s common stock, with an exercise price of $1.00 per share, which is accounted for as a discount on the issuance of Series E preferred. These common stock warrants were classified as a component of stockholders’ equity because they are free standing financial instruments that are legally detachable and separately exercisable from the redeemable convertible preferred stock, are contingently exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of common shares upon exercise. In addition, the common stock warrants require physical settlement and do not provide any guarantee of value or return. Common stock warrants were initially recorded at their relative fair value and were not subsequently remeasured. Common stock warrants were valued using a Black-Scholes option-pricing model (“Black-Scholes”) (level 3) based on the following assumptions:

 

Expected volatility

  7.5

Expected term (years)

  1.75   

Risk-free interest rate

  0.47

Expected dividend yield

  0

7. Stock Compensation

In February 2015, the board of directors approved the grant of options to purchase an aggregate of 1,120,000 shares of common stock, at an exercise price of $0.36 per share, to directors. The options will vest over a period of four years, and have a 10 year term.

The fair value of each of the stock options granted, estimated at the date of grant using Black-Scholes, was $0.29.

Stock-based compensation expense is classified in the consolidated statements of operations as follows:

 

     Three Months Ended
March 31,
 
     2014      2015  

Research and development

   $ 45,890       $ 136,206   

General and administrative

     82,807         84,753   
  

 

 

    

 

 

 

Total

$ 128,697    $ 220,959   
  

 

 

    

 

 

 

8. Income Taxes

Provision for income taxes was $(129,259) and $4,730 for the three months ended March 31, 2014 and 2015, respectively.

 

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The effective rate of (6.64%) for the three months ended March 31, 2014 and (0.11%) for the three months ended March 31, 2015 differs from the U.S. federal statutory income tax rate of 34% primarily due to a full valuation allowance against the Company’s U.S. deferred tax asset.

As of March 31, 2014 and 2015, the Company had provided a liability for $111,342 and $266,906, respectively, for uncertain tax positions related to various income tax matters which was classified as other long-term liabilities. For the three months ended March 31, 2014 and 2015, the Company had provided for accrued interest related to uncertain tax positions of $3,354 and $7,386, respectively. These uncertain tax positions would impact the Company’s effective tax rate, if recognized. The Company does not expect that the amounts of uncertain tax positions will change significantly within the next 12 months.

The Company files U.S. federal, various state and Israeli income tax returns. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. In the United States and Israel, the 2011 and subsequent tax years remain subject to examination by the applicable taxing authorities as of March 31, 2015. However, U.S. tax attributes that were generated prior to 2011 may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period.

9. Subsequent events

In April 2015, the board of directors approved the grant of options to purchase an aggregate of 13,764,096 shares of common stock to certain officers, directors and employees.

During April and May 2015, 1,139,347 options were exercised by directors and former employees into 1,139,347

shares of common stock.

During May 2015, the Company entered into a sublease agreement for commercial office space with an eleven month term. The monthly lease costs are $19,093 and the Company is required to provide a security deposit in the amount of $38,135.

In June 2015, the board of directors approved the grant of options to purchase an aggregate of 5,739,884 shares of common stock to certain officers, employees and consultants.

 

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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Chiasma, Inc.

We have audited the accompanying consolidated balance sheets of Chiasma, Inc. and its subsidiary (collectively, the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2014 and 2013, and the results of its consolidated operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Kost Forer Gabbay & Kasierer

KOST FORER GABBAY & KASIERER

A Member of Ernst & Young Global

Tel-Aviv, Israel

April 16, 2015 (except Note 9 and Note 11, to which the date is June 15, 2015)

 

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CHIASMA, INC.

CONSOLIDATED BALANCE SHEETS

 

     December 31,     Pro Forma
Stockholders’
Equity
December 31,
 
     2013     2014     2014  
                 (unaudited)  

ASSETS

      

Current assets:

      

Cash

   $ 12,849,579      $ 40,160,435     

Prepaid expenses and other current assets

     438,403        311,299     
  

 

 

   

 

 

   

Total current assets

  13,287,982      40,471,734   
  

 

 

   

 

 

   

Property and equipment, net

  1,056,199      615,242   

Other assets

  314,119      311,730   
  

 

 

   

 

 

   

Total assets

$ 14,658,300    $ 41,398,706   
  

 

 

   

 

 

   

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ (DEFICIT) EQUITY

Current liabilities:

Accounts payable

$ 2,339,578    $ 317,994   

Accrued expenses and other current liabilities

  9,242,189      4,000,294   

Deferred revenue and customer advances

  2,883,295      —     
  

 

 

   

 

 

   

Total current liabilities

  14,465,062      4,318,288   
  

 

 

   

 

 

   

Long-term liabilities

  96,704      4,612,450   
  

 

 

   

 

 

   

Total liabilities

  14,561,766      8,930,738   
  

 

 

   

 

 

   

Commitments and contingencies (Note 13)

Redeemable convertible preferred stock, $0.01 par value:

Series B1’ preferred, 1,134,997 shares authorized, issued and outstanding at December 31, 2013 and 2014; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference and redemption value of $7,218,438 at December 31, 2014

  9,143,823      9,143,823    $ —     

Series C’ preferred, 40,719,409 shares authorized; 40,430,250 shares issued and outstanding at December 31, 2013 and 2014; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference and redemption value of $40,430,250 at December 31, 2014

  40,430,250      40,430,250      —     

Series D’ preferred, 38,504,439 shares authorized, issued and outstanding at December 31, 2013 and 2014; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference and redemption value of $22,054,186 at December 31, 2014

  21,157,627      22,054,186      —     

Series E preferred, 45,000,000 shares authorized; 33,774,763 shares issued and outstanding at December 31, 2014; no shares issued and outstanding pro forma (unaudited); aggregate liquidation preference and redemption value of $33,774,763 at December 31, 2014

  —        32,857,713      —     
  

 

 

   

 

 

   

 

 

 

Total redeemable convertible preferred stock

  70,731,700      104,485,972      —     
  

 

 

   

 

 

   

 

 

 

Stockholders’ (deficit) equity:

Common stock, $0.01 par value, 112,000,000 and 175,000,000 shares authorized at December 31, 2013 and 2014, respectively; 397,820 and 404,842 shares issued and outstanding at December 31, 2013 and 2014, respectively; 114,249,291 shares issued and outstanding pro forma (unaudited)

  3,978      4,048      1,142,492   

Additional paid-in capital

  8,858,401      9,486,022      112,833,550   

Accumulated deficit

  (79,497,545   (81,508,074   (81,508,074
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

  (70,635,166   (72,018,004 $ 32,467,968   
  

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable convertible preferred stock, and stockholders’ (deficit) equity

$ 14,658,300    $ 41,398,706   
  

 

 

   

 

 

   

See accompanying notes to consolidated financial statements.

 

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CHIASMA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
     2013     2014  

Revenue from license agreement (Note 6)

   $ 73,134,205      $ 13,165,795   

Operating expenses:

    

Research and development

     26,455,121        11,527,385   

General and administrative

     8,065,332        3,468,866   
  

 

 

   

 

 

 

Total operating expenses

  34,520,453      14,996,251   
  

 

 

   

 

 

 

Income (loss) from operations

  38,613,752      (1,830,456

Other expenses, net

  1,208,282      4,452   
  

 

 

   

 

 

 

Income (loss) before provision for income taxes

  37,405,470      (1,834,908

Provision for income taxes

  1,224,428      175,621   
  

 

 

   

 

 

 

Net income (loss)

  36,181,042      (2,010,529
  

 

 

   

 

 

 

Accretion of deemed liquidation related to Series D redeemable convertible preferred stock

  (38,504,439   —     

Accretion of redeemable convertible preferred stock

  (3,034,132   (904,025
  

 

 

   

 

 

 

Net loss attributable to common stockholders

$ (5,357,529 $ (2,914,554
  

 

 

   

 

 

 

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

$ (13.72 $ (7.25
  

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted

  390,529      402,014   
  

 

 

   

 

 

 

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

$ (0.02
    

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)

  81,859,704   
    

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

CHIASMA, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

 

  Redeemable Convertible Preferred Stock  
  Series B1 Preferred   Series B1’ Preferred   Series C Preferred   Series C’ Preferred   Series D Preferred   Series D’ Preferred   Series E Preferred   Total  
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Amount  

Balance, January 1, 2013

  1,134,997    $ 9,143,823      —      $ —        40,239,409    $ 39,829,238      —      $ —        24,265,554    $ 22,835,482      —      $ —        —      $ —      $ 71,808,543   

Exercise of warrants into Series C redeemable convertible preferred stock

  —        —        —        —        190,841      190,841      —        —        —        —        —        —        —        —        190,841   

Issuance of Series D redeemable convertible preferred stock and warrants for common stock, net of issuance costs of $39,766

  —        —        —        —        —        —        —        —        14,238,885      12,148,439      —        —        —        —        12,148,439   

Accretion of redeemable convertible preferred stock

  —        —        —        —        —        410,171      —        —        —        1,612,982      —        1,010,979      —        —        3,034,132   

Accretion of deemed liquidation related to Series D redeemable convertible preferred stock

  —        —        —        —        —        —        —        —        —        38,504,439      —        —        —        —        38,504,439   

Redemption of Series D redeemable convertible preferred stock for cash

  —        —        —        —        —        —        —        —        —        (54,954,694   —        —        —        —        (54,954,694

Redemption of redeemable convertible preferred stock into redeemable convertible preferred prime stock

  (1,134,997   (9,143,823   1,134,997      9,143,823      (40,430,250   (40,430,250   40,430,250      40,430,250      (38,504,439   (20,146,648   38,504,439      20,146,648      —        —        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

  —        —        1,134,997      9,143,823      —        —        40,430,250      40,430,250      —        —        38,504,439      21,157,627      —        —        70,731,700   

Accretion of redeemable convertible preferred stock

  —        —        —        —        —        —        —        —        —        —        —        896,559      —        7,466      904,025   

Issuance of Series E redeemable convertible preferred stock and warrants for common stock, net of issuance costs of $150,982

  —        —        —        —        —        —        —        —        —        —        —        —        33,774,763      32,850,247      32,850,247   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2014

  —      $ —        1,134,997    $ 9,143,823      —      $ —        40,430,250    $ 40,430,250      —      $ —        38,504,439    $ 22,054,186      33,774,763    $ 32,857,713    $ 104,485,972   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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CHIASMA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

            Additional
Paid-in
Capital
    Accumulated
Deficit
    Total
Stockholders’
Deficit
 
     Common Stock         
     Shares      Amount         

Balance, January 1, 2013

     293,721       $ 2,937       $ 9,069,663      $ (77,174,148   $ (68,101,548

Stock-based compensation

     —           —           745,342        —          745,342   

Exercise of stock options

     104,099         1,041         26,848        —          27,889   

Issuance of Series D redeemable convertible preferred stock and warrants for common stock, net of issuance costs of $39,766

     —           —           2,050,680        —          2,050,680   

Accretion of redeemable convertible preferred stock

     —           —           (3,034,132     —          (3,034,132

Accretion of deemed liquidation related to Series D redeemable convertible preferred stock

     —           —           —          (38,504,439     (38,504,439

Net income

     —           —           —          36,181,042        36,181,042   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

  397,820      3,978      8,858,401      (79,497,545   (70,635,166

Stock-based compensation

  —        —        756,495      —        756,495   

Exercise of stock options

  7,022      70      1,617      —        1,687   

Accretion of redeemable convertible preferred stock

  —        —        (904,025   —        (904,025

Issuance of Series E redeemable convertible preferred stock and warrants for common stock, net of issuance costs of $150,982

  —        —        773,534      —        773,534   

Net loss

  —        —        —        (2,010,529   (2,010,529
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2014

  404,842    $ 4,048    $ 9,486,022    $ (81,508,074 $ (72,018,004
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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CHIASMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
     2013     2014  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss)

   $ 36,181,042      $ (2,010,529

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     321,582        272,030   

Stock-based compensation

     745,342        756,495   

Non-cash interest expense

     157,764        —     

Change in fair value of Series C redeemable convertible preferred stock warrant liability

     60,000        —     

Loss on sale of property and equipment

     221,330        91,361   

Changes in operating assets and liabilities:

    

Deferred income taxes

     (57,171     27,681   

Prepaid expenses and other current assets

     173,305        68,778   

Accounts payable

     1,030,062        (2,021,584

Accrued expenses and other current liabilities

     4,355,255        (5,241,895

Deferred revenue and customer advances

     2,883,295        (2,883,295

Other assets

     23,845        25,602   

Long-term liabilities

     96,704        4,515,746   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  46,192,355      (6,399,610
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

Decrease (increase) in value of other assets

  (5,601   7,432   

Purchases of property and equipment

  (23,372   —     

Proceeds from sale of property and equipment

  11,459      77,566   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

  (17,514   84,998   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of long-term debt

  (11,087,586   —     

Proceeds from issuance of Series D redeemable convertible preferred stock and warrants for common stock, net

  14,199,119      —     

Redemption of Series D redeemable convertible preferred stock

  (54,954,694   —     

Proceeds from issuance of Series E redeemable convertible preferred stock and warrants for common stock, net

  —        33,623,781   

Exercise of stock options

  27,889      1,687   
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

  (51,815,272   33,625,468   
  

 

 

   

 

 

 

NET (DECREASE) INCREASE IN CASH

  (5,640,431   27,310,856   

Cash, beginning of year

  18,490,010      12,849,579   
  

 

 

   

 

 

 

Cash, end of year

$ 12,849,579    $ 40,160,435   
  

 

 

   

 

 

 

SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:

Conversion of warrants into Series C redeemable convertible preferred stock

$ 190,841    $ —     
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest

$ 920,648    $ —     
  

 

 

   

 

 

 

Cash paid for income taxes

$ 1,175,861    $ 113,506   
  

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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CHIASMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

Nature of business

Chiasma, Inc. is a late-stage biopharmaceutical company incorporated in 2001 under the laws of the State of Delaware. The Company is dedicated to improving the lives of patients suffering from orphan diseases by developing and commercializing novel oral therapies that are available only as injections. The Company has completed a multinational Phase 3 clinical trial of its most advanced Transient Permeability Enhancer platform-based product candidate, oral octreotide, for the treatment of acromegaly. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of redeemable convertible preferred stock, long-term debt, and proceeds from a license agreement.

Chiasma, Inc. is headquartered in Massachusetts and has a wholly owned subsidiary, Chiasma (Israel) Ltd. Chiasma, Inc. and Chiasma (Israel) Ltd. are herein collectively referred to as the Company. The Company’s product development facilities are in Israel.

The Company is subject to risks common to companies in the biopharmaceutical development industry. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain required regulatory approval or that any approved products will be commercially viable. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will generate significant product sales. The Company operates in an environment of rapid technological change and substantial competition from pharmaceutical and biotechnology companies.

Basis of Presentation

The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are stated in U.S. dollars. The consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business.

Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. The Company plans to continue to fund its losses from operations and capital funding needs through the issuance of debt and/or equity or through collaborations or license agreements with other companies. Debt or equity financing may not be available on a timely basis on terms acceptable to the Company, or at all. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.

Guarantees and indemnifications

As permitted under Delaware law, the Company indemnifies its officers, directors, and employees for certain events or occurrences that happen by reason of the relationship with, or position held at, the Company. Through December 31, 2014, the Company had not experienced any losses related to these indemnification obligations, and no claims were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

 

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Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates relied upon in preparing the accompanying consolidated financial statements related to revenue recognition, the fair value of common stock and other equity instruments, accounting for stock-based compensation, present value of long-term purchase obligation, income taxes, useful lives of long-lived assets, and accounting for certain accruals. The Company assesses the above estimates on an ongoing basis; however, actual results could materially differ from those estimates.

Unaudited pro forma financial information

The unaudited pro forma consolidated balance sheet information at December 31, 2014 has been prepared to reflect the automatic conversion of all shares of redeemable convertible preferred stock outstanding at December 31, 2014 into 113,844,449 shares of common stock as if a proposed initial public offering had occurred on December 31, 2014. For purposes of pro forma basic and diluted net loss per share attributable to common stockholders, all shares of redeemable convertible preferred stock have been treated as if they have been converted to common stock in all periods in which such shares were outstanding. Accordingly, the pro forma basic and diluted loss per share attributable to common stockholders do not include the effects of the accretion of redeemable convertible preferred stock to redemption value.

2. Summary of Significant Accounting Policies

Principles of consolidation

The consolidated financial statements include the accounts of Chiasma, Inc. and its subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Foreign currency translation

The Company uses the U.S. dollar as its functional currency. Monetary assets and liabilities denominated in foreign currency are remeasured at current rates and non-monetary assets denominated in foreign currency are recorded at historical exchange rates. Realized and unrealized exchange gains or losses from transactions and remeasurement adjustments are reflected in other income (expense), net, in the accompanying consolidated statements of operations.

Comprehensive income (loss)

Net income (loss) equals comprehensive income (loss) for all periods presented; therefore, a separate consolidated statement of comprehensive income (loss) is not included in the accompanying consolidated financial statements.

Segment information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

Other assets

Other assets consist of long-term restricted deposits and prepayments. Long-term restricted deposits represent interest-bearing money market accounts held as a security deposit against a bank guarantee issued with respect to the Company’s leased laboratory and office space in Israel.

 

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Concentrations of credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and long-term restricted deposits. Periodically, the Company maintains deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at financial institutions that management believes to be of high credit quality and the Company has not experienced any losses in these deposits.

Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to operations as incurred, whereas major betterments are capitalized as additions to property and equipment. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the assets, as follows:

 

Asset Category

  

Estimated Useful Lives

Computer equipment and software

   3 years

Office furniture and equipment

   7—17 years (mainly 7)

Laboratory equipment

   7—17 years (mainly 10)

Leasehold improvements

   The lesser of lease term or estimated useful lives

Impairment of long-lived assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows the assets are expected to generate and to be recognized. The amount of impairment loss to be recognized is the excess of the carrying value over the fair value of the related asset. For the years ended December 31, 2013 and 2014, no impairments have been recorded.

Financial instruments

The Company’s financial instruments consist of accounts payable, accrued expenses, common stock warrants, and redeemable convertible preferred stock warrants. The carrying amounts of accounts payable and accrued expenses approximate their fair value due to the short-term nature of those financial instruments. Redeemable convertible preferred stock warrants are recorded at fair value.

Fair value measurements

The Company follows the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820, Fair Value Measurements and Disclosures , which defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

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To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. Due to market conditions, the observability of prices and inputs may change for many instruments. These conditions may cause an instrument to be reclassified from one level to another.

Employment termination costs

The Company accrues employment termination liabilities when (a) management, having the authority to approve the action, commits to a plan of termination; (b) the plan identifies the number of employees to be terminated, their job classifications or functions, their locations, and the expected completion date; (c) the plan establishes the terms of the arrangement, including the benefits that employees will receive upon termination, in sufficient detail to enable employees to determine the type and amount of benefits they will receive upon involuntary termination; (d) it is unlikely that significant changes to the plan will be made or withdrawn; and (e) the plan has been communicated to the affected employees. When employees are required to render services beyond the minimum retention period through the involuntary termination date in order to receive the termination benefits, a liability is measured initially at the communication date based on the fair value of the liability, and is recognized ratably over the future service period through expected termination date. The Company reverses the liability when events or circumstances occur that discharge or remove its responsibility to settle the termination liability.

Revenue recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the fee is fixed or determinable, and (4) collectability is reasonably assured. When one or more of the revenue recognition criteria are not met, the Company defers the recognition of revenue and records deferred revenue until such time that all criteria are met. For the years ending December 31, 2013 and 2014, the Company’s revenue was derived from our now terminated license agreement (see Note 6). The terms of the agreement include a non-refundable upfront fee; contingent development, commercial, and clinical milestone payments; reimbursement of certain research and development costs; and royalty payments on sales.

Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price of each deliverable and the appropriate revenue recognition principles are applied to each unit.

The Company recognizes revenue using the proportional performance method when services are rendered. Under the proportional performance method, revenue is recognized based on costs incurred to date as a percentage of total estimated cost to complete.

At the inception of the license agreement, the Company evaluates whether each milestone is substantive on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (a) the consideration is commensurate with either the Company’s performance to achieve the milestone or the enhancement of the value of the delivered items as a result of a specific outcome from the Company’s

 

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performance to achieve the milestone; (b) the consideration relates solely to past performance; and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. In making this assessment, the Company evaluates factors such as the clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required, and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement. The Company recognizes revenues related to substantive milestones in full in the period in which the substantive milestone is achieved.

The Company recognizes royalty revenue, if any, based upon actual and estimated net sales by the licensee of licensed products in licensed territories and in the period the sales occur.

Long-term purchase obligation

Long-term purchase obligation, included within long-term liabilities, represents aggregate amounts payable for the purchases of certain active pharmaceutical ingredient (“API”) supplies and a trade name for the drug pursuant to an agreement entered into following the termination of the license agreement (see Note 6). The amount is payable in three equal annual amounts and is recorded at its present value. The difference between the aggregate purchase price and the present value of the installment payments represents the interest component of the financing arrangement and is accreted over the payment term and classified as interest expense. Costs associated with the purchase of API were charged to research and development, and costs associated with the trade name were charged to general and administrative in the accompanying consolidated statements of operations.

Research and development

Research and development costs are expensed as incurred. Research and development costs include payroll and personnel expense, consulting costs, external contract research and development expenses, raw materials, drug product manufacturing costs, and allocated overhead including depreciation and amortization, rent, and utilities. Research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.

Clinical trial costs

Clinical trial costs are a component of research and development expenses. The Company accrues and expenses clinical trial activities performed by third parties on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activation, and other information provided to the Company by its vendors.

Patent costs

Patent costs are expensed as incurred as their realization is uncertain. These costs are classified as general and administrative in the accompanying consolidated statements of operations.

Redeemable convertible preferred stock

The Company classifies redeemable convertible preferred stock as temporary equity in the accompanying consolidated balance sheets due to redemption rights granted to the holders that are outside of the Company’s control. The Company recorded redeemable convertible stock initially at the original issuance price net of issuance costs and discounts, if any, according to relative fair value method. When the initial recorded amount is less than the redemption value, the Company accretes the recorded amount up to the redemption value over the redemption period using the effective interest method, plus dividends expected to be paid upon redemption, if any. The Company accretes the deemed liquidation upon the occurrence of any such event. On the effective date of a Qualified IPO, as defined in the Company’s certificate of incorporation, the redeemable convertible preferred stock will automatically convert into common stock.

 

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Warrants

The Company issued common stock warrants to investors and redeemable convertible preferred stock warrants to its lender. Common stock warrants were initially recorded based on their relative fair value in relationship to the total fair value of the hybrid debt or equity instruments. Redeemable convertible preferred stock warrants were initially recorded at fair value.

Series C redeemable convertible preferred stock (“Series C preferred”) warrants issued in connection with a loan agreement (see Note 7) were classified as liabilities and were initially recorded at fair value and remeasured at each period end while these instruments were outstanding. Changes in fair value were recognized in other expenses, net in the consolidated statements of operations. The warrant liabilities were valued using a Black-Scholes option-pricing model (“Black-Scholes”).

Common stock warrants issued in connection with the issuance of redeemable convertible preferred stock (see Note 8) were classified as a component of stockholders’ equity because they are free standing financial instruments that are legally detachable and separately exercisable from the redeemable convertible preferred stock, are contingently exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of common shares upon exercise. In addition, the common stock warrants require physical settlement and do not provide any guarantee of value or return. Common stock warrants were initially recorded at their relative fair value and were not subsequently remeasured. Common stock warrants were valued using Black-Scholes.

Stock-based compensation

The Company accounts for all stock-based compensation granted to employees and nonemployees using a fair value method. Stock-based compensation is measured at the grant date fair value of employee stock option grants and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of estimated forfeitures. Stock-based compensation awards to nonemployees are subject to revaluation over their vesting terms. For performance based awards where the vesting of the options may be accelerated upon the achievement of certain milestone performance, vesting and the related stock-based compensation is recognized as an expense when the achievement of the milestone is probable over the requisite service period.

For modification of stock compensation awards, the Company records the incremental fair value of the modified award as stock-based compensation on the date of modification for vested awards or over the remaining vesting period for unvested awards. The incremental compensation is the excess of the fair value of the modified award on the date of modification over the fair value of the original award immediately before the modification.

The Company records estimated forfeitures at the time of grant. To the extent that actual forfeitures differ from the Company’s estimates, the differences are recorded as a cumulative adjustment in the period the estimates were adjusted. Stock-based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest.

Income taxes

The consolidated financial statements reflect provisions for federal, state, local and foreign income taxes. Deferred tax assets and liabilities represent future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities and for loss carryforwards using enacted tax rates expected to be in effect in the years in which the differences reverse. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, none of the benefit attributable to

 

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the position is recognized. The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its other expenses.

Contingent liabilities

The Company accounts for its contingent liabilities in accordance with ASC No. 450, “ Contingencies ”. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2013 and 2014, the Company is not a party to any ligation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Net loss per share attributable to common stockholders and unaudited pro forma net loss per share attributable to common stockholders

The Company computes basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Net loss attributable to common stockholders and participating redeemable convertible preferred stock is allocated to each share on an as-converted basis as if all of the net loss for the period had been distributed. During periods in which the Company incurred a net loss, the Company allocates no net loss to participating securities because they do not have a contractual obligation to share in the net loss of the Company. The Company computes diluted net loss per common share after giving consideration to all potentially dilutive common shares, including stock options, and warrants outstanding during the period except where the effect of such non-participating securities would be antidilutive.

Recently issued accounting pronouncements

In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09,  Revenue from Contracts with Customers (“ASU 2014-09”), which amends the guidance for revenue recognition to replace numerous industry-specific requirements. ASU 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in ASU 2014-09 are effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating the effect the adoption of ASU 2014-09 may have on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern and to provide related disclosures in certain circumstances. The requirements of ASU 2014-15 will be effective for the annual financial statement period beginning after December 15, 2016, with early adoption permitted. The Company is currently in the process of evaluating the impact of adopting ASU 2015-15.

 

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3. Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholder by the weighted-average common shares outstanding for the period. Because the Company has reported net loss attributable to common stockholders for the years ended December 31, 2013 and 2014, basic and diluted net loss per share attributable to common stockholders are the same as basic net loss per share attributable to common stockholders for those periods.

All redeemable convertible preferred stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact due to net losses reported during 2013 and 2014.

The unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2014 has been computed using the weighted-average common shares outstanding after giving pro forma effect to the automatic conversion of all shares of redeemable convertible preferred stock into shares of common stock as if such conversions had occurred at the beginning of 2014 or the date of original issuance, if later.

Unaudited pro forma basic and diluted net loss per share attributable to common stockholders are computed as follows:

 

     Year Ended
December 31,
2014
 
     (unaudited)  

Numerator—Net loss attributable to common stockholders, basic and diluted

   $ (2,010,529
  

 

 

 

Denominator:

Weighted-average common shares outstanding, basic and diluted

  402,014   

Adjustment for assumed effect of conversion of redeemable convertible preferred stock

  81,457,690   
  

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted

  81,859,704   
  

 

 

 

Pro forma net loss per share, basic and diluted

$ (0.02
  

 

 

 

4. Property and Equipment

Property and equipment consists of the following:

 

     December 31,  
     2013      2014  

Computer equipment and software

   $ 174,666       $ 131,969   

Office furniture and equipment

     150,842         114,958   

Laboratory equipment

     1,511,633         1,396,129   

Leasehold improvements

     552,381         333,740   
  

 

 

    

 

 

 

Property and equipment, at cost

  2,429,522      1,976,796   

Less accumulated depreciation and amortization

  1,333,323      1,361,554   
  

 

 

    

 

 

 

Property and equipment, net

$ 1,056,199    $ 615,242   
  

 

 

    

 

 

 

Depreciation and amortization expense for the years ended December 31, 2013 and 2014 was $321,582 and $272,030, respectively.

 

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5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

     December 31,  
     2013      2014  

Accrued professional fees

   $ 95,866       $ 373,727   

Accrued research and development expenses

     6,998,971         3,028,389   

Accrued payroll and employee benefits

     2,046,809         598,178   

Accrued income taxes

     100,543         —     
  

 

 

    

 

 

 

Total accrued expenses and other current liabilities

$ 9,242,189    $ 4,000,294   
  

 

 

    

 

 

 

In March 2013, following the signing of the Roche license agreement, discussed in detail in Note 6 below, and in anticipation of transferring the Company’s intellectual property related to oral octreotide to Roche, management and the board of directors approved a special severance arrangement for certain employees of Chiasma (Israel) Ltd. who were identified for termination. These employees were entitled to a one-time payment upon their involuntary termination by the Company. No payment would be made for voluntary terminations or in the event the Company canceled the employee termination plan. Because the affected employees were required to continue providing services through the termination date in order to receive payment, the Company recorded the fair value of the termination payments over the period from the date the plans were approved and communicated to the affected employees through the expected termination date. The employee termination process was expected to be completed within one year.

The Company estimated the aggregate one-time termination benefit to be $1,847,172, which approximated the fair value of the liability on the day the termination plan was approved and communicated to affected employees. During 2013 and 2014, the Company paid a total of $640,219 and $480,483, respectively, of special severance arrangements to departing employees. As of December 31, 2013, $1,206,953 was recorded as termination liability. In July 2014 following Roche’s decision to terminate the license agreement, the Company canceled the employee termination plan. Accordingly, with the exception of one employee, liabilities previously recorded under the involuntary termination plan were reversed. As of December 31, 2014, a balance of $11,800 remained as a component of accrued expenses on the consolidated balance sheets and represented one employee who remained earmarked for involuntary termination.

A summary of the termination liability for the years ended December 31, 2013 and 2014 is as follows:

 

     Year Ended December 31,  
     2013      2014  

Employee termination accrual, beginning of year

   $ —         $ 1,206,953   

Charges

     1,847,172         648,847   

Arrangements

     (640,219      (480,483

Reversals

     —           (1,361,518
  

 

 

    

 

 

 

Employee termination accrual, end of year

$ 1,206,953    $ 11,800   
  

 

 

    

 

 

 

During the year ended December 31, 2013, the Company recorded $1,490,136 of termination costs as research and development expenses and $357,036 as general and administrative expenses, respectively. During the year ended December 31, 2014, the Company recorded $576,534 of net reversals of the termination liability as research and development expenses and $138,137 as general and administrative expenses, respectively.

 

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6. License Agreement

In December 2012, the Company signed a license agreement with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. (collectively “Roche”), which was effective in January 2013, and granted Roche an exclusive, non-transferable license to the Company’s intellectual property related to the oral octreotide. Under the terms of the agreement, Roche obtained worldwide rights to research, develop, make, import, export, sell, market or distribute the commercial product. The Company retained certain research and development activities under a joint development plan. The Company retained all rights to the intellectual property contained in the agreement. The agreement provided for an upfront payment of $65,000,000, future consideration of up to $530,000,000 in development and commercial milestones, and the right to receive tiered, double-digit royalties on net sales of oral octreotide.

The Company’s total service obligations of $85,000,000 were recognized over the expected service period using the proportional performance method of revenue recognition. During the year ended December 31, 2013, the Company received a total of $75,000,000 from Roche related to the license agreement, which included the upfront payment of $65,000,000 and the first milestone payment of $10,000,000. An additional $10,000,000 was received during January 2014 related to the second milestone payment. The Company evaluated the transaction and concluded that the license right did not have stand-alone value. As a result, the arrangement primarily represented a research and development arrangement provided by the Company and all elements of the arrangement were considered one unit of accounting. In 2013, the Company recognized $73,134,205 as revenue for services provided during the year using the proportional performance method based on costs included in research and development expenses. Deferred revenue and customer advances at December 31, 2013 totaled $2,883,295 which included $1,017,500 received from Roche for expected reimbursable costs that had not yet been incurred by the Company.

In April 2014, the Company and Roche entered into a joint development plan. Under the plan, the Company was to receive an aggregate amount of $2,678,000 covering certain costs incurred by the Company to be payable in three installments. During 2014, the Company received the first installment of $1,300,000.

In July 2014, Roche terminated the license agreement. Upon termination, Roche returned all rights and documentation granted under the agreement to the Company. The Company was relieved of further obligations under the agreement and recognized the remaining revenue of $13,165,795 as revenues. Subsequent to the termination, the Company purchased from Roche active pharmaceutical ingredient (“API”) supplies to continue the development and manufacturing of oral octreotide as well as Roche’s proposed trade name for oral octreotide for an aggregate amount of $5,100,000 payable in three equal annual installments of $1,700,000 in January 2016, January 2017 and January 2018. The difference between the aggregate purchase price and the present value of the installment payments represents the interest component of the financing arrangement and is being recorded as interest expense over the payment term. Other than these payments, the Company has no other financial and operational obligations to Roche. Following the termination of the license agreement, the Company is not entitled to further payments from Roche, Roche has no remaining rights to oral octreotide and the Company retains all rights to oral octreotide and all related intellectual property.

7. Long-term Debt

The Company had a secured loan agreement with General Electric Capital Corporation to borrow up to $12,000,000. Amounts borrowed under the loan bore interest at 10.85% per annum and matured in 42 months. In February 2013, the Company prepaid the outstanding principal, accrued interest, and prepayment fees totaling $11,065,843. Following the repayment, the secured loan agreement was terminated and the Company was released of all security obligations and pledges. There were no outstanding borrowings or other credit facilities available to the Company at December 31, 2013 and 2014.

In connection with the loan, the Company issued to the lender warrants to purchase 480,000 shares of Series C preferred at an exercise price of $1.00 per share. The warrants were accounted for as a liability and carried at fair

 

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value with changes in fair value recorded in the consolidated statements of operations. In March 2013, the lender exercised the warrants on a cashless basis into 190,841 shares of Series C preferred calculated using the fair value of Series C preferred on the exercise date. The fair value of the warrants at the time of exercise was recorded as Series C preferred. The change in fair value of the warrants during 2013 through the time of exercise of $60,000 was recorded in the consolidated statements of operations as other expenses.

8. Warrants

In addition to the warrants described in Note 7, the following common stock warrants have been issued by the Company:

 

Issued In Connection With

  Shares of
Common
Stock

Underlying
Warrants
    Exercise
Price
Per
Share
    Issuance Date   Expiration Date

Series C preferred

    500,000      $ 0.01      June 24, 2011   June 24, 2016

Series D redeemable convertible preferred stock, second closing

    7,753,398      $ 0.01      October 22, 2012   October 22, 2022

Series D redeemable convertible preferred stock, third closing

    7,753,393      $ 0.01      March 28, 2013   March 28, 2022

Series E redeemable convertible preferred stock

    8,443,690      $ 1.00      December 15, 2014   December 15, 2024
 

 

 

       

Total

  24,450,481   
 

 

 

       

A summary of warrant activity during 2013 and 2014 is as follows:

 

     Common
Stock
Warrants
     Series C
Preferred
Warrants
 

Warrants outstanding, January 1, 2013

     8,253,398         480,000   

Issuances

     7,753,393         —     

Exercises

     —           (480,000
  

 

 

    

 

 

 

Warrants outstanding, December 31, 2013

  16,006,791      —     

Issuances

  8,443,690      —     
  

 

 

    

 

 

 

Warrants outstanding, December 31, 2014

  24,450,481      —     
  

 

 

    

 

 

 

The reconciliation of the fair value of Series C preferred warrants using Level 3 inputs is as follows:

 

Balance, January 1, 2013

$ 130,841   

Increase in fair value recorded in financial expenses, net

  60,000   
  

 

 

 

Balance on March 27, 2013 immediately before exercising for Series C preferred

$ 190,841   
  

 

 

 

The Series C preferred warrants were valued using Black-Scholes.

 

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9. Redeemable Convertible Preferred Stock

During the years ended December 2012 and 2013, the Company issued an aggregate of 38,504,439 shares of Series D redeemable convertible preferred stock (the “Series D preferred”) and warrants to purchase up to an aggregate of 15,506,791 shares of Common Stock at an exercise price of $ 0.01 per share (the “Warrants”), for aggregate gross proceeds of $38,504,439, of which $ 34,834,570 was allocated to the Series D preferred and $3,562,336 was allocated to the Warrants, net of issuance cost in the amount of $107,533. Since the Series D preferred was issued in conjunction with freestanding detachable warrants, the proceeds from the issuance were allocated to each freestanding instrument based on their relative fair value.

The Company accreted the discount amount due to the Warrants allocation and issuance cost, using the interest method, until August 2014 which was the earliest redemption date of the instrument according to the Company’s certificate of incorporation then in effect.

In March 2013, the Company redeemed its Series B1 redeemable convertible preferred stock (“Series B1 preferred”), Series C preferred, and Series D preferred (“collectively, the “Original Preferred Stock”) using proceeds received from the license agreement with Roche (see Note 6), which redemption was effected in accordance with the deemed liquidation provisions of the Company’s certificate of incorporation then in effect. Pursuant to such deemed liquidation provisions, upon such an event the Series D preferred was entitled to a redemption amount equal to its original issuance price plus $38,504,439. Accordingly, the Company immediately recognized the change in the redemption value in the amount of $38,504,439 against accumulated deficit. The consideration for the redemption consisted of a cash payment of $54,954,694 and the issuance of 1,134,997 shares of Series B1’ redeemable convertible preferred stock (“Series B1’ preferred”), 40,430,250 shares of Series C’ redeemable convertible preferred stock (“Series C’ preferred”), and 38,504,439 shares of Series D’ redeemable convertible preferred stock (“Series D’ preferred”, and collectively with the Series B1’ preferred and Series C’ preferred, the “Prime Preferred Stock”). The Prime Preferred Stock bears similar terms, rights and preferences as the Original Preferred Stock, other than changes to reflect redemption payment of Series D preferred described above. In addition, the holders of the Original Preferred Stock received rights to receive future contingent payments under the Roche license agreement. Upon termination of the license agreement, these rights were also terminated.

The initial carrying value of the Prime Preferred Stock equaled the carrying value of the Original Preferred Stock on the redemption date. The Company accreted the carrying value of the Series D’ preferred to its redemption value until August 2014, which was the earliest redemption date of the Series D’ preferred according to the Company’s certificate of incorporation.

In December 2014, the Company issued 33,774,763 shares of Series E redeemable convertible preferred stock (“Series E preferred”) at $1.00 per share, resulting in gross proceeds of $33,774,763, with issuance costs of $150,982. In connection with the issuance of Series E preferred, the Company issued to the holders warrants to purchase 8,443,690 shares of the Company’s common stock and allocated $773,534 of the net proceeds to the warrants based on their relative fair value on the issuance date which was accounted for as a discount on Series E preferred and recorded as additional paid-in capital.

The rights, preferences, and privileges of Series E preferred and Prime Preferred Stock are as follows:

Voting

The holders of Series E preferred, Series D’ preferred and Series C’ preferred have full voting rights and powers similar to the rights and powers of the common stockholders on an as-converted basis. The holders of Series B1’ preferred are not entitled any voting rights.

Dividends

Holders of all series of redeemable convertible preferred stock are entitled to receive dividends at 8% per annum of their respective original issuance price, payable when and if declared by the Company’s board of directors.

 

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Optional conversion

Each share of Series E preferred, Series C’ preferred and Series B1’ preferred are convertible at the option of the holders thereof into common stock on a one-for-one basis. Shares of Series D’ preferred are not convertible at the option of the holder.

Mandatory conversion

Upon either: (i) the closing of the sale of shares of the Company’s common stock to the public at a price of at least $1.50 per share in an underwritten public offering pursuant to an effective registration statement under the Security Act of 1933, as amended, resulting in at least $40,000,000 of gross proceeds to the Company (a “Qualified IPO”), or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of more than 50% of the then outstanding shares of Series E preferred and Series C’ preferred voting together as a single class on an as-converted basis, all outstanding shares of redeemable convertible preferred stock will automatically be converted into fully paid and non-assessable shares of common stock on a one-for-one basis.

Liquidation preference

In the event of any liquidation, dissolution, or winding up of the Company (“liquidation event”) or a deemed liquidation event, as defined in the Company’s certificate of incorporation, the holders of Series E preferred are entitled to receive a liquidation amount of $1.00 per share, plus any dividends declared but unpaid, prior to any distribution of assets of the Company to the holders of Prime Preferred Stock. In the event the assets of the Company available for distribution are insufficient to pay the full amount to which the holders of Series E preferred are entitled, the holders of Series E preferred will share ratably any assets available for distribution in proportion to the relative shares held by each.

After full payment of Series E preferred preferential amounts and in preference to the distribution of available assets to the holders of Series C’ preferred and Series B1’ preferred, holders of Series D’ preferred are entitled to receive the greater of (1) $0.57 per share, plus any dividends declared but unpaid, or (2) an amount equal to the excess of the liquidation amount payable to common stockholders over $0.43 per share.

After full payment of the Series E preferred preferential amounts and Series D’ preferred preferential amounts and prior to any distribution of assets of the Company to the holders of Series B1’ preferred and common stock, holders of Series C’ preferred are entitled to receive a liquidation amount of $1.00 per share, plus any dividends declared but unpaid.

The holders of Series B1’ preferred are entitled to receive from available assets, after payment to the Series E preferred, Series D’ preferred, and Series C’ preferred and prior to any distribution of assets of the Company to the common stockholders, an amount of $6.36 per share, plus any dividends declared but unpaid.

After the payment of all preferential amounts required to be paid to the holders of Series E preferred, Series D’ preferred, Series C’ preferred, and Series B’ preferred, any remaining assets of the Company available for distribution shall be distributed among the common stockholders, Series C’ preferred, and Series E preferred pro-rata on an as converted to common stock basis until the amount payable to the common stockholders equals $0.43 per share. Thereafter, any remaining assets of the Company available for distribution are to be distributed among the common stockholders, Series C’ preferred, Series D’ preferred, and Series E preferred pro-rata on an as-converted to common stock basis.

Redemption rights

Unless prohibited by Delaware law governing distributions to stockholders, redeemable convertible preferred shares are redeemable on or after December 15, 2017 upon request by more than 60% of the holders of the

 

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Series E preferred, Series D’ preferred and Series C’ preferred voting together as a single class. Within 60 days of a notice of redemption, shares of Series C’ preferred, as determined by the board of directors, will be redeemed at a price equal to the greater of (1) $1.00 per share plus any dividends declared but unpaid, or (2) the fair value of a share of Series C’ preferred as determined by the board of directors. Shares of Series D’ preferred are redeemable at a price equal to the greater of (1) $0.57 plus any dividends declared but unpaid, or (2) the fair value of a share of Series D’ preferred as determined by the board of directors. Shares of Series E preferred will be redeemed at a price equal to the greater of (1) $1.00 per share, plus any dividends declared but unpaid, or (2) the fair value of a share of Series E preferred, as determined by the board of directors. Shares of Series B1’ preferred will be redeemed at a price equal to $6.36, plus any dividends declared but unpaid.

The Company has the right to redeem shares of Series B1’ preferred at any time upon the delivery of a written redemption notice, in whole or in part, at a price of $6.36 per share.

10. Common Stock

Common stockholders are entitled to one vote for each share of common stock held at all meetings of stockholders. Common stockholders are entitled to receive dividends declared out of funds legally available, subject to the payment in full of all preferential dividends to which the holders of the redeemable convertible preferred stock are entitled. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment of all preferential amounts to the holders of redeemable convertible preferred stock are entitled, the common stockholders share ratably in the remaining assets of the Company available for distribution.

The Company has reserved the following shares of common stock for future issuance:

 

     December 31,
2014
 

Conversion of Series B1’ preferred

     1,134,997   

Conversion of Series C’ preferred

     40,430,250   

Conversion of Series D’ preferred

     38,504,439   

Conversion of Series E preferred

     33,774,763   

Exercises of common stock warrants

     24,450,481   

Exercises of stock options

     13,708,331   

Conversion of shares of Series C’ preferred available for future issuance

     289,159   

Conversion of shares of Series E preferred available for future issuance

     11,225,237   

Shares available for future stock incentive plan awards

     1,774,034   
  

 

 

 

Total

  165,291,691   
  

 

 

 

11. Stock Incentive Plan

In 2008, the Company’s board of directors adopted the 2008 Stock Incentive Plan (the “2008 Plan”), which provided for the grant of incentive stock options, nonqualified stock options, and restricted stock to employees, directors, and nonemployees of the Company. Stock option awards generally vest based on the grantee’s continued service with the Company during a specified period following grant as determined by the board of directors and expire 10 years from the grant date. Option awards granted generally vest over four years, but vesting conditions can vary at the discretion of the Company’s board of directors. A total of 15,730,000 shares of common stock were authorized for issuance in accordance with the provisions of the 2008 Plan, of which 247,640 were exercised, and 1,774,034 shares available for future awards at December 31, 2014.

 

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Stock options

The fair value of each stock option issued to employees was estimated at the date of grant using Black-Scholes with the following weighted-average assumptions:

 

     Year Ended December 31,  
         2013             2014      

Expected volatility

     85     80

Expected term (years)

     6.25        6.25   

Risk-free interest rate

     1.08     1.79

Expected dividend yield

     0     0

Exercise price: In determining the exercise prices for stock options granted, the board of directors considered the fair value of common stock as of each grant date. The fair value of common stock underlying the stock options was determined by the board of directors at each award grant date based upon a variety of factors, including the results obtained from independent third-party valuations, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s products, the composition and ability of the current clinical and management team, an evaluation or benchmark of the Company’s competition, the current business climate in the marketplace, the illiquid nature of common stock, arm’s length sales of the Company’s capital stock, the effect of the rights and preferences of the redeemable convertible preferred stockholders, and the prospects of a liquidity event, among others.

Expected volatility:  As the Company is privately owned, there is not sufficient historical volatility for the expected term of the stock options. Therefore, the Company uses an average historical share price volatility based on an analysis of reported data for a peer group of comparable publicly traded companies which were selected based upon industry similarities.

Expected term (years):  Expected term represents the period that the Company’s option grants are expected to be outstanding. There is not sufficient historical share exercise data to calculate the expected term of the stock options. Therefore, the Company elected to utilize the simplified method to value option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option.

Risk-free interest rate:  The Company determined the risk-free interest rate by using a weighted-average equivalent to the expected term based on the U.S. Treasury yield curve in effect as of the date of grant.

Expected dividend yield:  The Company does not anticipate paying any dividends in the foreseeable future.

Forfeitures : Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.

The fair value of each nonemployee stock option is estimated at the date of grant using Black-Scholes with assumptions generally consistent with those used for employee stock options, with the exception of expected term, which is the contractual life.

 

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A summary of stock option activity under the 2008 Plan for employees and non-employees is presented below:

 

     Number of
Stock
Options
    Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term (Years)
     Aggregate
Intrinsic
Value
 

Outstanding, January 1, 2014

     10,324,410      $ 0.24         

Granted

     6,297,865      $ 0.35         

Exercised

     (7,022   $ 0.24         

Forfeited/Expired

     (2,906,927   $ 0.23         
  

 

 

         

Outstanding, December 31, 2014

  13,708,326    $ 0.22      7.02    $ 2,466,647   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable, December 31, 2014

  6,453,856    $ 0.14      4.40    $ 1,700,242   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and expected to vest, December 31, 2014

  13,708,326    $ 0.22      7.02    $ 2,466,647   
  

 

 

   

 

 

    

 

 

    

 

 

 

The weighted-average grant date per-share fair value of stock options granted during 2013 and 2014 were $0.35 and $0.29, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 2013 and 2014 was $28,365 and $1,231, respectively. At December 31, 2014, there was $2,046,659 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 3.37 years.

Stock-based compensation expense is classified in the consolidated statements of operations as follows:

 

     Year Ended December 31,  
     2013      2014  

Research and development

   $ 297,550       $ 424,218   

General and administrative

     447,792         332,277   
  

 

 

    

 

 

 

Total

$ 745,342    $ 756,495   
  

 

 

    

 

 

 

During 2013, the Company’s board of directors modified the terms of the then outstanding stock options by (a) extending exercisability of the options to the second anniversary upon termination of employment or services, and (b) accelerating the vesting of stock options upon Roche filing for regulatory approval under the license agreement. In addition, during 2014, the board of directors modified the exercise price of certain stock options granted to employees and executives. The incremental compensation expenses, resulting from comparing the fair value of stock options immediately before and immediately after the modifications, for the years ended December 31, 2013 and 2014 totaled $156,180 and $369,700, respectively. In 2013, $39,614 of the incremental compensation expenses was classified as research and development expense and $116,566 was classified as general and administrative expense. In 2014, $298,995 of the incremental compensation expenses was classified as research and development expense and $70,805 was classified as general and administrative expense in the accompanying consolidated financial statements.

12. Income Taxes

Income (loss) before provision for income taxes consists of the following:

 

     Year Ended December 31,  
     2013      2014  

Domestic

   $ 37,009,511       $ (1,492,573

Foreign

     395,959         (342,335
  

 

 

    

 

 

 

Total

$ 37,405,470    $ (1,834,908
  

 

 

    

 

 

 

 

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The components of income tax provision (benefit) consist of the following:

 

     Year Ended December 31,  
     2013      2014  

Current provision for income taxes:

     

U.S. federal

   $ 1,023,829       $ 1,234   

Foreign

     257,770         146,706   
  

 

 

    

 

 

 

Total current provision for income taxes

  1,281,599      147,940   

Deferred tax (benefit) provision—foreign

  (57,171   27,681   
  

 

 

    

 

 

 

Total provision for income taxes

$ 1,224,428    $ 175,621   
  

 

 

    

 

 

 

A reconciliation setting forth the differences between the effective tax rates of the Company and the U.S. federal statutory tax rate is as follows:

 

     Year Ended December 31,  
         2013             2014      

U.S. federal tax provision at statutory rate

     34.00     34.00

Foreign rate differences

     (0.17     1.09   

Non-deductible foreign stock compensation

     0.26        (10.88

Effect of other permanent differences

     0.40        (4.30

Changes in state apportionment, net of federal impact

     0.06        9.94   

Uncertain tax positions

     0.25        (8.00

Change in valuation allowance

     (32.97     (34.06

Other adjustments

     1.47        2.64   
  

 

 

   

 

 

 

Effective tax rate

  3.30   (9.57 )% 
  

 

 

   

 

 

 

During 2013, the Company generated taxable income in the United States which was reduced fully by net operating loss (“NOL”) carryforwards for federal tax purposes. However, due to NOL carryforward limitations under the alternative minimum tax regime, the Company incurred $1,023,829 of alternative minimum tax liability.

At December 31, 2013 and 2014, refundable income taxes totaling $96,171 and $95,065, respectively, were classified as prepaid expenses and other current assets in the consolidated balance sheets. Accrued income taxes totaling $100,543 was classified in accrued expenses and other current liabilities at December 31, 2013. There were no accrued income taxes at December 31, 2014.

 

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Deferred income taxes reflect 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 and for tax carryforwards. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

     Year Ended December 31,  
     2013      2014  

Deferred tax assets:

     

Federal net operating loss carryforwards

   $ 4,215,575       $ 7,789,503   

Tax credit carryforwards

     1,023,829         1,023,829   

Intangible and other related assets

     290,768         277,636   

Accrued expenses

     881,251         1,865,619   

Deferred revenue

     4,034,370         —     

Stock compensation

     269,415         329,547   

Other

     55,871         79,534   
  

 

 

    

 

 

 

Total deferred tax assets

  10,771,079      11,365,668   

Valuation allowance

  (10,703,770   (11,326,041
  

 

 

    

 

 

 

Net deferred tax assets

$ 67,309    $ 39,627   
  

 

 

    

 

 

 

When realization of a deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. Valuation allowances are provided against deferred tax assets when, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. The Company cannot be certain that future U.S. taxable income will be sufficient to realize its deferred tax assets. Accordingly, a full valuation allowance has been provided against its U.S. net deferred tax assets. The valuation allowance increased $622,271 in 2014 primarily as a result of an increase in NOL carryforwards. The Company continues to monitor the need for a valuation allowance based on the profitability of its future operations.

At December 31, 2014, the Company had federal NOL carryforwards totaling approximately $22,829,000 that expire at various dates through 2034. At December 31, 2014, the Company had Israeli NOL carryforwards totaling approximately $551,000 that have an indefinite carryforward period. At December 31, 2014, the Company had approximately $1,000,000 of federal alternative minimum tax credit carryforwards that do not expire.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in the Company’s ownership may limit the amount of NOL carryforwards that can be utilized annually in the future to offset its U.S. federal taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within any three-year period. Management has determined that the Company experienced an ownership change for purposes of Section 382 in August 2005 and May 2008. These ownership changes resulted in annual limitations to the amount of NOL carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The annual limit is approximately $95,000 for 2014, and each year thereafter. These annual limitations resulted in the loss of the Company’s ability to utilize approximately $8,900,000 in federal NOL carryforwards, which resulted in a write-off of approximately $3,000,000 of federal deferred tax assets prior to 2013.

The Company’s Israeli subsidiary has been recognized as a research and development company by the Head of the Israeli Administration of Industrial Research and Development and is entitled to tax benefits by virtue of the “beneficiary enterprise” status granted to part of its business activities under the Israeli Law for the Encouragement of Capital Investments 1959 (“the Law”). The tax benefits include reduced tax rates on the research and development portion of its income during the first ten years of the benefit period (commenced in 2008). The continued application of the tax benefits is subject to certain conditions as defined by Israeli law.

 

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The subsidiary has undistributed earnings of approximately $1,461,000 as of December 31, 2014, which is considered to be permanently reinvested in the operations of the subsidiary. At such time in the future as the Company may elect to distribute such earnings to the parent company, it could result in federal and Israeli tax liability.

The Company files income tax returns in the United States and in various U.S. states and Israel. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. In the United States and Israel, the 2011 and subsequent tax years remain subject to examination by the applicable taxing authorities as of December 31, 2014. However, carryforward attributes that were generated prior to 2011 in the United States may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period.

As of December 31, 2013 and 2014, the Company had provided a liability for $94,291 and $240,997, respectively, for uncertain tax positions related to various income tax matters which was classified as other long-term liabilities. For the years ended December 31, 2013 and 2104, the Company had provided for accrued interest related to uncertain tax positions of $2,413 and $2,707, respectively. These uncertain tax positions would impact the Company’s effective tax rate, if recognized. The Company does not expect that the amounts of uncertain tax positions will change significantly within the next 12 months.

A reconciliation of uncertain tax positions is as follows:

 

     Year Ended December 31,  
     2013      2014  

Balance at beginning of year

   $ —         $ 96,704   

Additions

     96,704         149,412   
  

 

 

    

 

 

 

Balance at end of year

$ 96,704    $ 246,116   
  

 

 

    

 

 

 

The Company recognizes interest and penalties accrued related to uncertain tax positions as an other expense. To date, the Company has recognized $5,120 in interest and penalties related to uncertain tax positions.

13. Commitments and Contingencies

The Company has a long-term purchase obligation with respect to API and trade name, with payments and terms described in Note 6.

The Company leases laboratory and office space in Israel. Total rent expense for all operating leases in 2013 and 2014 was $340,258 and $305,158, respectively. As of December 31, 2014, future minimum lease payments of $155,444 are due in 2015. In conjunction with the lease, the Company provided a bank guarantee in the amount of $195,047 as a security deposit at December 31, 2014.

14. Related Party Transactions

In August 2014, the Company signed a consulting agreement with one of the Company’s investors and a representative of this investor to serve as senior medical advisor. Costs incurred for services rendered by the senior medical advisor during 2014 totaling $128,200 were classified as research and development expenses with $75,000 in accrued expenses at December 31, 2014.

In October 2014, the Company granted its senior medical advisor options to purchase 1,119,637 shares of common stock at an exercise price of $0.30 per share.

In December 2014, the Company entered into a consulting agreement with a representative of another investor to provide financial and strategic consulting services to the Company. Fees incurred during 2014 totaling $62,500 were classified as general and administrative expenses. There were no unpaid balances as of December 31, 2014.

 

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15. Employee Benefit Plan

Pursuant to the Israeli Severance Pay Law 1963, Israeli employees are entitled to severance pay equal to one month’s salary for each year of employment, or a portion thereof. The employees of Chiasma (Israel) Ltd. are included under Section 14 of the Severance Pay Law, under which these employees are entitled to monthly deposits, which relieve the Company from future obligations under this law. As a result, no assets or liabilities are recorded in the accompanying consolidated balance sheets. During the years ended December 31, 2013 and 2014, the Company recorded expenses of $234,640 and $199,744, respectively.

16. Other expenses, net

Other expenses, net is as follows:

 

     Year Ended December 31,  
     2013      2014  

(Loss) gain on foreign currency transactions, net

   $ (72,481    $ 38,964   

Interest income

     4,535         2,518   

Interest expense

     (1,065,664      (26,649

Change in fair value of Series C redeemable convertible preferred stock warrant liability

     (60,000      —     

Other expenses

     (14,672      (19,285
  

 

 

    

 

 

 

Total

$ (1,208,282 $ (4,452
  

 

 

    

 

 

 

17. Subsequent Events

The Company has evaluated subsequent events which may require adjustment to or disclosure in the consolidated financial statements through April 16, 2015, the date on which the December 31, 2014 consolidated financial statements were originally issued.

In February 2015, the Company increased the number of shares authorized under Series E preferred to a total of 80,774,458 and subsequently issued 35,948,023 shares of Series E preferred at $1.00 per share for gross proceeds of $35,948,023, with issuance costs of $250,677. In connection with the issuance of Series E preferred, the Company issued holders of Series E preferred warrants to purchase 8,987,003 shares of the Company’s common stock, which is accounted for as a discount on the issuance of Series E preferred.

In February and April 2015, the board of directors approved the grant of options to purchase an aggregate of 14,884,096 shares of common stock to certain officers, directors, employees and a consultant.

 

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             Shares

 

LOGO

Common Stock

 

 

Prospectus

, 2015

 

 

Barclays

Cowen and Company

 

 

William Blair

Oppenheimer & Co.

Through and including                 , 2015 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, 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.


Table of Contents

Part II

Information Not Required in Prospectus

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except for the SEC registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fee and NASDAQ listing fee.

 

Item

   Amount to be
paid
 

SEC registration fee

   $ 10,023   

FINRA filing fee

     12,938   

NASDAQ listing fee

     *   

Printing and engraving expenses

     *   

Legal fees and expenses

     *   

Accounting fees and expenses

     *   

Transfer Agent fees and expenses

     *   

Miscellaneous expenses

     *   
  

 

 

 

Total

$ *   
  

 

 

 

 

* To be filed by amendment.

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law, or the DGCL, authorizes a corporation to indemnify its directors and officers against liabilities arising out of actions, suits and proceedings to which they are made or threatened to be made a party by reason of the fact that they have served or are currently serving as a director or officer to a corporation. The indemnity may cover expenses (including attorneys’ fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by the director or officer in connection with any such action, suit or proceeding. Section 145 permits corporations to pay expenses (including attorneys’ fees) incurred by directors and officers in advance of the final disposition of such action, suit or proceeding. In addition, Section 145 provides that a corporation has the power to purchase and maintain insurance on behalf of its directors and officers against any liability asserted against them and incurred by them in their capacity as a director or officer, or arising out of their status as such, whether or not the corporation would have the power to indemnify the director or officer against such liability under Section 145.

We have adopted provisions in our certificate of incorporation and bylaws to be in effect at the completion of this offering that limit or eliminate the personal liability of our directors to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for 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;

 

    any unlawful payments related to dividends or unlawful stock purchases, redemptions or other distributions; or

 

    any transaction from which the director derived an improper personal benefit.

These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or rescission.

 

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In addition, our bylaws provide that:

 

    we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended; and

 

    we will advance reasonable expenses, including attorneys’ fees, to our directors and, in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings relating to their service for or on behalf of us, subject to limited exceptions.

We have entered into indemnification agreements with each of our directors and intend to enter into such agreements with certain of our executive officers. These agreements provide that we will indemnify each of our directors, certain of our executive officers and, at times, their affiliates to the fullest extent permitted by Delaware law. We will advance expenses, including attorneys’ fees (but excluding judgments, fines and settlement amounts), to each indemnified director, executive officer or affiliate in connection with any proceeding in which indemnification is available and we will indemnify our directors and officers for any action or proceeding arising out of that person’s services as a director or officer brought on behalf of the Company and/or in furtherance of our rights. Additionally, each of our directors may have certain rights to indemnification, advancement of expenses and/or insurance provided by their affiliates, which indemnification relates to and might apply to the same proceedings arising out of such director’s services as a director referenced herein. Nonetheless, we have agreed in the indemnification agreements that the Company’s obligations to those same directors are primary and any obligation of the affiliates of those directors to advance expenses or to provide indemnification for the expenses or liabilities incurred by those directors are secondary.

We also maintain general liability insurance which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification of us and our directors and officers by the underwriters against certain liabilities under the Securities Act and the Exchange Act.

Item 15. Recent Sales of Unregistered Securities

The following list sets forth information as to all securities we have sold since January 1, 2012, which were not registered under the Securities Act.

1. On April 17, 2012, we issued and sold an aggregate of 3,038,331 shares of Series C Convertible Preferred Stock at a price of $1.00 per share.

2. On June 1, 2012, we sold subordinated convertible promissory notes for aggregate proceeds of $3,038,335.

3. On July 11, 2012, October 22, 2012 and March 28, 2013, we issued and sold an aggregate of 38,504,439 shares of Series D Convertible Preferred Stock, along with warrants to purchase 15,506,791 shares of common stock, for aggregate consideration of $35,466,104, and conversion of subordinated convertible promissory notes with an aggregate value of $3,038,335. The warrants have an exercise price of $0.01 per share. On March 29, 2013, we redeemed all outstanding shares of Series D Convertible Preferred Stock, Series C Convertible Preferred Stock and Series B-1 Convertible Preferred Stock for cash and shares of Series D’ Convertible Preferred Stock, Series C’ Convertible Preferred Stock, and Series B1’ Convertible Preferred Stock.

4. On December 16, 2014 and February 26, 2015, we issued and sold an aggregate of 69,722,786 shares of Series E Convertible Preferred Stock, along with warrants to purchase up to 17,430,693 shares of common stock, at an exercise price of $1.00 per share for aggregate consideration of $69,722,786.

 

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5. Between January 1, 2012 and June 14, 2015, we granted stock options to purchase an aggregate of 31,338,710 shares of our common stock, with exercise prices ranging from $0.01 to $0.89 per share, to our employees, directors and consultants pursuant to our 2008 Stock Incentive Plan.

We deemed the offers, sales and issuances of the securities described in paragraphs (1) through (4) above to be exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, regarding transactions by an issuer not involving a public offering. All purchasers of securities in transactions exempt from registration pursuant to Regulation D represented to us that they were accredited investors and were acquiring the shares for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the securities for an indefinite period of time. The purchasers received written disclosures that the securities had not be registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from such registration.

We deemed the grants of stock options described in paragraph (5) as exempt pursuant to Section 4(a)(2) of the Securities Act or to be exempt from registration under the Securities Act in reliance on Rule 701 of the Securities Act as offers and sales of securities under compensatory benefit plans and contracts relating to compensation in compliance with Rule 701. Each of the recipients of securities in any transaction exempt from registration had ether received or had adequate access, through employment, business or other relationships, to information about us.

All certificates representing the securities issued in the transactions described in this Item 15 included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities. There were no underwriters employed in connection with any of the transaction set forth in this Item 15.

Item 16. Exhibits and financial statement schedules

 

(a) Exhibits

See the Exhibit Index attached to this Registration Statement, which is incorporated by reference herein.

 

(b) Financial statement schedules

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

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 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the 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 Act and will be governed by the final adjudication of such issue.

 

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The undersigned Registrant hereby undertakes:

(1) That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Boston, Massachusetts on June 15, 2015.

 

CHIASMA, INC.

By:

 

/s/ Mark Leuchtenberger

 

Name:

  Mark Leuchtenberger
 

Title:

  President and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints Mark Leuchtenberger and Chaime Orlev, and each of them singly, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including, without limitation, post-effective amendments) to this Registration Statement and any subsequent registration statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act of 1933, which relates to this Registration Statement, and to file the same, with all exhibits thereto, and all documents in connection herewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, 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/ Mark Leuchtenberger

Mark Leuchtenberger

   President, Chief Executive Officer and Director (Principal Executive Officer)     June 15, 2015   

/s/ Chaime Orlev

Chaime Orlev

   Vice President, Finance and Administration (Principal Financial and Accounting Officer)     June 15, 2015   

/s/ David Stack

David Stack

   Director     June 15, 2015   

/s/ Dror Brandwein

Dror Brandwein

   Director     June 15, 2015   

/s/ Todd Foley

Todd Foley

   Director     June 15, 2015   

/s/ Ansbert Gadicke, M.D.

Ansbert Gadicke, M.D.

   Director     June 15, 2015   

/s/ Bard Geesaman, M.D., Ph.D.

Bard Geesaman, M.D., Ph.D.

   Director     June 15, 2015   

/s/ Vincent Miles, Ph.D.

Vincent Miles, Ph.D.

   Director     June 15, 2015   

/s/ Scott Minick

Scott Minick

   Director     June 15, 2015   

/s/ John Scarlett, M.D.

John Scarlett, M.D.

   Director     June 15, 2015   

 

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EXHIBIT INDEX

 

Exhibit
No.
      
    1.1*       Form of Underwriting Agreement.
    3.1*       Form of Amended and Restated Certificate of Incorporation (to be effective upon pricing of this offering).
    3.2       Form of Amended and Restated Certificate of Incorporation (to be effective upon completion of this offering).
    3.3       Amended and Restated By-laws of the Registrant, as amended and currently in effect.
    3.4       Form of Amended and Restated Bylaws of the Registrant (to be effective upon completion of this offering).
    4.1*       Form of Common Stock certificate.
    4.2       Amended and Restated Investor Rights Agreement, by and between the Registrant and the Investors named therein, dated as of December 16, 2014, and amended as of February 26, 2015.
    4.3       Form of Warrant to Purchase Shares of Common Stock (issued in connection with the Registrant’s Series D preferred stock financing).
    4.4       Form of Warrant to Purchase Shares of Common Stock (issued in connection with the Registrant’s Series E preferred stock financing).
    5.1*       Opinion of Goodwin Procter LLP.
  10.1†       Israeli Stock Option Plan—2003 and forms of agreements thereunder.
  10.2†       2008 Stock Incentive Plan and forms of agreements thereunder.
  10.3†*       2015 Stock Option and Incentive Plan and forms of agreement thereunder (to be effective upon completion of this offering).
  10.4†*       2015 Employee Stock Purchase Plan (to be effective upon completion of this offering).
  10.5†       Senior Executive Cash Incentive Bonus Plan (to be effective upon completion of this offering).
  10.6†       Amended and Restated Employment Agreement dated as of May 29, 2015 by and between the Registrant and Mark Leuchtenberger.
  10.7†       Employment Agreement dated as of December 16, 2014, as amended, by and between Chiasma (Israel) Ltd. and Roni Mamluk.
  10.8†       Employment Agreement dated as of May 8, 2015 by and between the Registrant and Mark J. Fitzpatrick.
  10.9†       Employment Agreement dated as of June 22, 2010, as amended, by and between Chiasma (Israel) Ltd. and Chaime Orlev.
  10.10*       Form of Indemnification Agreement, to be entered into between the Registrant and its directors and officers (to be effective upon completion of this offering).
  10.11       Lease Agreement dated as of September 5, 2008, as amended, by and between Chiasma (Israel) Ltd. and RMPA Assets Ltd.
  10.12       Sublease effective as of May 12, 2015 by and between Cyber-Ark Software, Inc. and the Registrant.
  21.1       Subsidiaries.
  23.1       Consent of Kost Forer Gabbay & Kasierer.
  23.2*       Consent of Goodwin Procter LLP (included in Exhibit 5.1).
  24.1       Power of Attorney (included in signature page).

 

* To be filed by amendment.
Indicates a management contract or compensatory plan.

Exhibit 3.2

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

CHIASMA, INC.

Chiasma, Inc., a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), hereby certifies as follows:

1. The name of the Corporation is Chiasma, Inc. The date of the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was April 12, 2001 (the “ Original Certificate ”).

2. This Amended and Restated Certificate of Incorporation (the “ Certificate ”) amends, restates and integrates the provisions of the Amended and Restated Certificate of Incorporation that was filed with the Secretary of State of the State of Delaware on [●], 2015, as amended (the “ Existing Certificate ”), and was duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware (the “ DGCL ”).

3. The text of the Existing Certificate is hereby amended and restated in its entirety to provide as herein set forth in full.

ARTICLE I

The name of the Corporation is Chiasma, Inc.

ARTICLE II

The address of the registered office of the Corporation in the State of Delaware and New Castle County is 1313 N. Market Street, Suite 5100, in the City of Wilmington, Delaware 19801. The name of the Corporation’s registered agent is PHS Corporate Services, Inc.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

ARTICLE IV

CAPITAL STOCK

The total number of shares of capital stock which the Corporation shall have authority to issue is one hundred and thirty million (130,000,000) of which (i) one hundred twenty-five million (125,000,000) shares shall be a class designated as common stock, par value $0.01 per


share (the “ Common Stock ”), and (ii) five million (5,000,000) shares shall be a class designated as undesignated preferred stock, par value $0.01 per share (the “ Undesignated Preferred Stock ”).

Except as otherwise provided in any certificate of designations of any series of Undesignated Preferred Stock, the number of authorized shares of the class of Common Stock or Undesignated Preferred Stock may from time to time be increased or decreased (but not below the number of shares of such class outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation irrespective of the provisions of Section 242(b)(2) of the DGCL.

The powers, preferences and rights of, and the qualifications, limitations and restrictions upon, each class or series of stock shall be determined in accordance with, or as set forth below in, this Article IV.

A. COMMON STOCK

Subject to all the rights, powers and preferences of the Undesignated Preferred Stock and except as provided by law or in this Certificate (or in any certificate of designations of any series of Undesignated Preferred Stock):

(a) the holders of the Common Stock shall have the exclusive right to vote for the election of directors of the Corporation (the “ Directors ”) and on all other matters requiring stockholder action, each outstanding share entitling 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, as such, shall not be entitled to vote on any amendment to this Certificate (or on any amendment to a certificate of designations of any series of Undesignated Preferred Stock) that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of Undesignated Preferred Stock if the holders of such affected series of Undesignated Preferred Stock are entitled to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to this Certificate (or pursuant to a certificate of designations of any series of Undesignated Preferred Stock) or pursuant to the DGCL;

(b) dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends, but only when and as declared by the Board of Directors or any authorized committee thereof; and

(c) upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock.

 

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B. UNDESIGNATED PREFERRED STOCK

The Board of Directors or any authorized committee thereof is expressly authorized, to the fullest extent permitted by law, to provide by resolution or resolutions for, out of the unissued shares of Undesignated Preferred Stock, the issuance of the shares of Undesignated Preferred Stock in one or more series of such stock, and by filing a certificate of designations pursuant to applicable law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof.

ARTICLE V

STOCKHOLDER ACTION

1. Action without Meeting . Any action required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be taken or effected by a written consent of stockholders in lieu thereof.

2. Special Meetings . Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office, and special meetings of stockholders may not be called by any other person or persons. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation.

ARTICLE VI

DIRECTORS

1. General . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided herein or required by law.

2. Election of Directors . Election of Directors need not be by written ballot unless the By-laws of the Corporation (the “ By-laws ”) shall so provide.

3. Number of Directors; Term of Office . The number of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The Directors, other than those who may be elected by the holders of any series of Undesignated Preferred Stock, shall be classified, with respect to the term for which they severally hold office, into three classes. The initial Class I Directors of the Corporation shall be Mark Leuchtenberger, David Stack and John (Chip) Scarlett; the initial Class II Directors of the Corporation shall be Todd Foley, Ansbert Gadicke and Bard Geesaman, M.D., Ph.D.; and the initial Class III Director of the Corporation shall be Scott Minick. The initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2016, the initial Class II Directors shall serve for a term expiring at the annual meeting of

 

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stockholders to be held in 2017, and the initial Class III Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2018. At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Notwithstanding the foregoing, the Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation, death or removal.

Notwithstanding the foregoing, whenever, pursuant to the provisions of Article IV of this Certificate, the holders of any one or more series of Undesignated Preferred Stock shall have the right, voting separately as a series or together with holders of other such series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate and any certificate of designations applicable to such series.

4. Vacancies . Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors and to fill vacancies in the Board of Directors relating thereto, any and all vacancies in the Board of Directors, however occurring, including, without limitation, by reason of an increase in the size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely and exclusively by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors, and not by the stockholders. Any Director appointed in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director’s successor shall have been duly elected and qualified or until his or her earlier resignation, death or removal. Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors, when the number of Directors is increased or decreased, the Board of Directors shall, subject to Article VI.3 hereof, determine the class or classes to which the increased or decreased number of Directors shall be apportioned; provided , however , that no decrease in the number of Directors shall shorten the term of any incumbent Director. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, shall exercise the powers of the full Board of Directors until the vacancy is filled.

5. Removal . Subject to the rights, if any, of any series of Undesignated Preferred Stock to elect Directors and to remove any Director whom the holders of any such series have the right to elect, any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office (i) only with cause and (ii) only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock then entitled to vote at an election of Directors. At least forty-five (45) days prior to any annual or special meeting of stockholders at which it is proposed that any Director be removed from office, written notice of such proposed removal and the alleged grounds thereof shall be sent to the Director whose removal will be considered at the meeting.

 

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ARTICLE VII

LIMITATION OF LIABILITY

A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (a) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any transaction from which the Director derived an improper personal benefit. If the DGCL is amended after the effective date of this Certificate to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

Any amendment, repeal or modification of this Article VII by either of (i) the stockholders of the Corporation or (ii) an amendment to the DGCL, shall not adversely affect any right or protection existing at the time of such amendment, repeal or modification with respect to any acts or omissions occurring before such amendment, repeal or modification of a person serving as a Director at the time of such amendment, repeal or modification.

ARTICLE VIII

EXCLUSIVE JURISDICTION OF DELAWARE COURTS

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 (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or the Corporation’s Certificate of Incorporation or By-laws, or (iv) 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 consented to the provisions of this Article VIII.

ARTICLE IX

AMENDMENT OF BY-LAWS

1. Amendment by Directors . Except as otherwise provided by law, the By-laws of the Corporation may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the Directors then in office.

2. Amendment by Stockholders . The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class; provided , however , that if the Board of Directors recommends that stockholders approve such amendment

 

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or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class.

ARTICLE X

AMENDMENT OF CERTIFICATE OF INCORPORATION

The Corporation reserves the right to amend or repeal this Certificate in the manner now or hereafter prescribed by statute and this Certificate, and all rights conferred upon stockholders herein are granted subject to this reservation. Whenever any vote of the holders of capital stock of the Corporation is required to amend or repeal any provision of this Certificate, and in addition to any other vote of holders of capital stock that is required by this Certificate or by law, such amendment or repeal shall require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, at a duly constituted meeting of stockholders called expressly for such purpose; provided , however , that the affirmative vote of not less than 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, shall be required to amend or repeal any provision of Article V, Article VI, Article VII, Article VIII, Article IX or Article X of this Certificate.

 

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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this      day of             , 2015.

 

Chiasma, Inc.
By:

/s/ Mark Leuchtenberger

Name: Mark Leuchtenberger
Title: Chief Executive Officer

Exhibit 3.3

FORM OF AMENDED AND RESTATED

BY-LAWS

OF

CHIASMA, INC.


TABLE OF CONTENTS

 

              Page  
ARTICLE I STOCKHOLDERS      1   
 

1.1

   Place of Meetings      1   
 

1.2

   Annual Meeting      1   
 

1.3

   Special Meetings      1   
 

1.4

   Notice of Meetings      1   
 

1.5

   Voting List      1   
 

1.6

   Quorum      2   
 

1.7

   Adjournments      2   
 

1.8

   Voting and Proxies      2   
 

1.9

   Action at Meeting      2   
 

1.10

   Conduct of Meetings      3   
 

1.11

   Action without Meeting      3   
ARTICLE II DIRECTORS      4   
 

2.1

   General Powers      4   
 

2.2

   Number, Election and Qualification      4   
 

2.3

   Chairman of the Board; Vice Chairman of the Board      4   
 

2.4

   Tenure      4   
 

2.5

   Quorum      4   
 

2.6

   Action at Meeting      5   
 

2.7

   Removal      5   
 

2.8

   Vacancies      5   
 

2.9

   Resignation      5   
 

2.10

   Regular Meetings      5   
 

2.11

   Special Meetings      5   
 

2.12

   Notice of Special Meetings      5   
 

2.13

   Meetings by Conference Communications Equipment      5   
 

2.14

   Action by Consent      6   
 

2.15

   Committees      6   
 

2.16

   Compensation of Directors      6   
ARTICLE III OFFICERS      6   
 

3.1

   Titles      6   
 

3.2

   Election      6   
 

3.3

   Qualification      7   
 

3.4

   Tenure      7   
 

3.5

   Resignation and Removal      7   
 

3.6

   Vacancies      7   
 

3.7

   President; Chief Executive Officer      7   
 

3.8

   Vice Presidents      7   
 

3.9

   Secretary and Assistant Secretaries      7   
 

3.10

   Treasurer and Assistant Treasurers      8   
 

3.11

   Salaries      8   
 

3.12

   Delegation of Authority      8   
ARTICLE IV CAPITAL STOCK      8   
 

4.1

   Issuance of Stock      8   

 

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4.2

Stock Certificates; Uncertificated Shares   8   

4.3

Transfers   9   

4.4

Lost Stolen or Destroyed Certificates   9   

4.5

Record Date   9   

4.6

Regulations   10   

ARTICLE V GENERAL PROVISIONS

  10   

5.1

Fiscal Year   10   

5.2

Corporate Seal   10   

5.3

Waiver of Notice   10   

5.4

Voting of Securities   10   

5.5

Evidence of Authority   10   

5.6

Certificate of Incorporation   11   

5.7

Severability   11   

5.8

Pronouns   11   

ARTICLE VI AMENDMENTS

  11   

6.1

By the Board of Directors   11   

6.2

By the Stockholders   11   

 

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ARTICLE I

STOCKHOLDERS

1.1 Place of Meetings . All meetings of stockholders shall be held at such place as maybe designated from time to time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President or, if not so designated, at the principal office of the corporation, The Board of Directors may, in its sole discretion, determine that a meeting shall not be held at any place, but may instead be held solely by means of remote communication in a manner consistent with the General Corporation Law of the State of Delaware.

1.2 Annual Meeting . The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on a date and at a time designated by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President (which date shall not be a legal holiday in the place where the meeting is to be held).

1.3 Special Meetings . Special meetings of stockholders for any purpose or purposes may be called at any time by only the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, and may not be called by any other person or persons. The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.

1.4 Notice of Meetings . Except as otherwise provided by law, notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. Without limiting the manner by which notice otherwise may be given to stockholders, any notice shall be effective if given by a form of electronic transmission consented to (in a manner consistent with the General Corporation Law of the State of Delaware) by the stockholder to whom the notice is given. The notices of all meetings shall state the place, if any, date and time of the meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If notice is given by mail, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation. If notice is given by electronic transmission, such notice shall be deemed given at the time specified in Section 232 of the General Corporation Law of the State of Delaware.

1.5 Voting List . The Secretary shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least 10 days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. If the meeting is to be held at a physical location (and not solely by means of remote communication), then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.


1.6 Quorum . Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, the holders of a majority in voting power of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at the meeting, present in person, present by means of remote communication in a manner, if any, authorized by the Board of Directors in its sole discretion, or represented by proxy, shall constitute a quorum for the transaction of business; provided, however, that where a separate vote by a class or classes or series of capital stock is required by law or the Certificate of Incorporation, the holders of a majority in voting power of the shares of such class or classes or series of the capital stock of the corporation issued and outstanding and entitled to vote on such matter, present in person, present by means of remote communication in a manner, if any, authorized by the Board of Directors in its sole discretion, or represented by proxy, shall constitute a quorum entitled to take action with respect to the vote on such matter. A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum.

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

1.8 Voting and Proxies . Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by law or the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action without a meeting, may vote or express such consent or dissent in person (including by means of remote communications, if any, by which stockholders may be deemed to be present in person and vote at such meeting) or may authorize another person or persons to vote or act for such stockholder by a proxy executed or transmitted in a manner permitted by the General Corporation Law of the State of Delaware by the stockholder or such stockholder’s authorized agent and delivered (including by electronic transmission) to the Secretary of the corporation. No such proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period.

1.9 Action at Meeting . When a quorum is present at any meeting, any matter other than the election of directors to be voted upon by the stockholders at such meeting shall be decided by the vote of the holders of shares of stock having a majority in voting power of the votes cast by the holders of all of the shares of stock present or represented at the meeting and voting affirmatively or negatively on such matter (or if there are two or more classes or series of stock entitled to vote as separate classes, then in the case of each such class or series, the holders of a majority in voting power of the shares of stock of that class or series present or represented at the meeting and voting affirmatively or negatively on such matter), except when a different vote is required by law, the Certificate of Incorporation or these By-laws. When a quorum is present at any meeting, any election by stockholders of directors shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election.

 

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1.10 Conduct of Meetings

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

(b) Rules, Regulations and Procedures . The Board of Directors may adopt by resolution such rules, regulations and procedures for the conduct of any meeting of stockholders of the corporation as it shall deem appropriate including, without limitation, such guidelines and procedures as it may deem appropriate regarding the participation by means of remote communication of stockholders and proxyholders not physically present at a meeting. Except to the extent inconsistent with such rules, regulations and procedures as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to, stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as shall be determined; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

1.11 Action without Meeting

(a) Taking of Action by Consent . Any action required or permitted to be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is 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 on such action were present and voted. Except as otherwise provided by the Certificate of Incorporation, stockholders may act by written consent to elect directors; provided, however, that, if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.

(b) Electronic Transmission of Consents . A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, 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 proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or

 

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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. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be 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 a corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board of Directors. 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.

(c) Notice of Taking of Corporate Action . Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation.

ARTICLE II

DIRECTORS

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

2.2 Number, Election and Qualification . Subject to the rights of holders of any series of Preferred Stock to elect directors, the number of directors of the corporation shall be established from time to time by the stockholders or the Board of Directors. The directors shall be elected at the annual meeting of stockholders by such stockholders as have the right to vote on such election. Election of directors need not be by written ballot. Directors need not be stockholders of the corporation.

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

2.4 Tenure . Each director shall hold office until the next annual meeting of stockholders and until a successor is elected and qualified, or until such director’s earlier death, resignation or removal.

2.5 Quorum . The greater of (a) a majority of the directors at any time in office and (b) one-third of the number of directors fixed pursuant to Section 2.2 of these By-laws shall constitute a quorum

 

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of the Board of Directors. If at any meeting of the Board of Directors there shall be less than such a quorum, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present

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

2.7 Removal . Except as otherwise provided by the General Corporation Law of the State of Delaware, any one or more or all of the directors of the corporation may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that the directors elected by the holders of a particular class or series of stock may be removed without cause only by vote of the holders of a majority of the outstanding shares of such class or series.

2.8 Vacancies . Subject to the rights of holders of any series of Preferred Stock to elect directors, unless and until filled by the stockholders, any vacancy or newly-created directorship on the Board of Directors, however occurring, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for the unexpired term of such director’s predecessor in office, and a director chosen to fill a position resulting from a newly-created directorship shall hold office until the next annual meeting of stockholders and until a successor is elected and qualified, or until such director’s earlier death, resignation or removal.

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

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

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

2.12 Notice of Special Meetings . Notice of the date, place, if any, and time of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director (a) in person or by telephone at least 24 hours in advance of the meeting, (b) by sending written notice by reputable overnight courier, telecopy, facsimile or electronic transmission, or delivering written notice by hand, to such director’s last known business, home or electronic transmission address at least 48 hours in advance of the meeting, or (c) by sending written notice by first-class mail to such director’s last known business or home address at least 72 hours in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting.

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

 

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

2.15 Committees . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation with such lawfully delegable powers and duties as the Board of Directors thereby confers, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors. and subject to the provisions of law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By-laws for the Board of Directors. Except as otherwise provided in the Certificate of Incorporation, these By-laws, or the resolution of the Board of Directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.

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

ARTICLE III

OFFICERS

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

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

 

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

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

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

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

3.7 President; Chief Executive Officer . Unless the Board of Directors has designated another person as the corporation’s Chief Executive Officer, the President shall be the Chief Executive Officer of the corporation. The Chief Executive Officer shall have general charge and supervision of the business of the corporation subject to the direction of the Board of Directors, and shall perform all duties and have all powers that are commonly incident to the office of chief executive or that are delegated to such officer by the Board of Directors. The President shall perform such other duties and shall have such other powers as the Board of Directors or the Chief Executive Officer (if the President is not the Chief Executive Officer) may from time to time prescribe. In the event of the absence, inability or refusal to act of the Chief Executive Officer or the President (if the President is not the Chief Executive Officer), the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the Chief Executive Officer and when so performing such duties shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer,

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

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

 

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

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

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

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

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

3.12 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.

ARTICLE IV

CAPITAL STOCK

4.1 Issuance of Stock . Subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any shares of the authorized capital stock of the corporation held in the corporation’s treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such lawful consideration and on such terms as the Board of Directors may determine.

4.2 Stock Certificates; Uncertificated Shares . The shares of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the corporation’s stock shall be uncertificated shares. Every holder of stock of the corporation represented by certificates shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, representing the number of shares held by such holder registered in certificate form. Each such certificate shall be signed in a manner that complies with Section 158 of the General Corporation Law of the State of Delaware.

Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, these By-laws, applicable securities laws or any agreement among any

 

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number of stockholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.

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

Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 202(a) or 218(a) of the General Corporation Law of the State of Delaware or, with respect to Section 151 of General Corporation Law of the State of Delaware, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

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

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

4.5 Record Date . The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent (or dissent) to corporate action without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not precede the date on which the resolution fixing the record date is adopted, and such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 10 days after the date of adoption of a record date for a consent without a meeting, nor more than 60 days prior to any other action to which such record date relates.

 

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If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. If no record date is fixed, the record date for determining stockholders entitled to express consent to corporate action without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first consent is properly delivered to the corporation. If no record date is fixed, the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.

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

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

ARTICLE V

GENERAL PROVISIONS

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

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

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

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

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

 

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

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

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

ARTICLE VI

AMENDMENTS

6.1 By the Board of Directors . These By-laws may be altered, amended or repealed, in whole or in part, or new by-laws may be adopted by the Board of Directors.

6.2 By the Stockholders . These By-laws may be altered, amended or repealed, in whole or in part, or new by-laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at any annual meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting.

 

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Exhibit 3.4

AMENDED AND RESTATED

BY-LAWS

OF

CHIASMA, INC.

(the “Corporation”)

ARTICLE I

Stockholders

SECTION 1. Annual Meeting . The annual meeting of stockholders of the Corporation (any such meeting being referred to in these By-laws as an “Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen (13) months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings shall be deemed to also refer to any special meeting(s) in lieu thereof.

SECTION 2. Notice of Stockholder Business and Nominations .

(a) Annual Meetings of Stockholders .

(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this By-law as to such nomination or business. For the avoidance of doubt, the foregoing clause (ii) shall be the exclusive means for a stockholder to bring nominations or business properly before an Annual Meeting (other than matters properly brought under Rule 14a-8 or Rule 14a-11 (or any successor rules) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and such stockholder must comply with the notice and other procedures set forth in Article I, Section 2(a)(2) and (3) of this By-law to bring such nominations or business properly before an Annual Meeting. In addition to the other requirements set forth in this By-law, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.


(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this By-law, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this By-law and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or business proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by this By-law. To be timely, a stockholder’s written notice shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the one-year anniversary of the preceding year’s Annual Meeting; provided , however , that in the event the Annual Meeting is first convened more than thirty (30) days before or more than sixty (60) days after such anniversary date, or if no Annual Meeting were held in the preceding year, notice by the stockholder to be timely must be received by the Secretary of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as “Timely Notice”). Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholder’s notice shall be timely if received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation. Such stockholder’s Timely Notice shall set forth:

(A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is 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);

(B) 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 each Proposing Person (as defined below);

(C) (i) the name and address of the stockholder giving the notice, as they appear on the Corporation’s books, and the names and addresses of the other Proposing Persons (if any) and (ii) as to each Proposing Person, the following information: (a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares of any class or series of capital stock of the Corporation as to which such

 

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Proposing Person or any of its affiliates or associates has a right to acquire beneficial ownership at any time in the future; (b) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates, directly or indirectly, holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and disclosure, for each such Synthetic Equity Interest, as to (x) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such Proposing Person, (y) whether or not such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest; (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation; (d) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation; and (e) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (a) through (e) are referred to, collectively, as “Material Ownership Interests”) and (iii) a description of the material terms of all agreements, arrangements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation;

(D) (i) a description of all agreements, arrangements or understandings by and among any of the Proposing Persons, or by and among any Proposing Persons and any other person (including with any proposed nominee(s)), pertaining to the nomination(s) or other business proposed to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s); and

(E) a statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of

 

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voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the “Solicitation Statement”).

For purposes of this Article I of these By-laws, the term “Proposing Person” shall mean the following persons: (i) the stockholder of record providing the notice of nominations or business proposed to be brought before a stockholders’ meeting, and (ii) the beneficial owner(s), if different, on whose behalf the nominations or business proposed to be brought before a stockholders’ meeting is made. For purposes of this Section 2 of Article I of these By-laws, the term “Synthetic Equity Interest” shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called “stock borrowing” agreement or arrangement, the purpose or effect of which is to, directly or indirectly: (a) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any shares of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.

(3) A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to such Annual Meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the Annual Meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth (8th) business day prior to the date of the Annual Meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).

(4) Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this By-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the

 

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increased Board of Directors made by the Corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with the second sentence of Article I, Section 2(a)(2), a stockholder’s notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary of the Corporation not 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.

(b) General .

(1) Only such persons who are nominated in accordance with the provisions of this By-law or in accordance with Rule 14a-11 under the Exchange Act shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this By-law or in accordance with Rule 14a-8 under the Exchange Act. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-law. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this By-law. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this By-law, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.

(2) Except as otherwise required by law, nothing in this Article I, Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director or any other matter of business submitted by a stockholder.

(3) Notwithstanding the foregoing provisions of this Article I, Section 2, if the nominating or proposing stockholder (or a qualified representative of the stockholder) does not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Article I, Section 2, to be considered a qualified representative of the proposing stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, to the presiding officer at the meeting of stockholders.

 

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(4) For purposes of this By-law, “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.

(5) Notwithstanding the foregoing provisions of this By-law, 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 in this By-law. Nothing in this By-law shall be deemed to affect any rights of (i) stockholders to have nominations or proposals included in the Corporation’s proxy statement pursuant to Rule 14a-8 or Rule 14a-11 (or any successor rules), as applicable, under the Exchange Act and, to the extent required by such rule, have such nominations or proposals considered and voted on at an Annual Meeting or (ii) the holders of any series of Undesignated Preferred Stock to elect directors under specified circumstances.

SECTION 3. Special Meetings . Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office. The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation and stockholder proposals of other business shall not be brought before a special meeting of stockholders to be considered by the stockholders unless such special meeting is held in lieu of an annual meeting of stockholders in accordance with Article I, Section 1 of these By-laws, in which case such special meeting in lieu thereof shall be deemed an Annual Meeting for purposes of these By-laws and the provisions of Article I, Section 2 of these By-laws shall govern such special meeting.

SECTION 4. Notice of Meetings; Adjournments .

(a) A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books. Without limiting the manner by which notice may otherwise be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (“DGCL”).

(b) Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called.

 

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(c) Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed, or waiver of notice by electronic transmission is provided, before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

(d) The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these By-laws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under this Article I of these By-laws.

(e) When any meeting is convened, the presiding officer may adjourn the meeting if (i) no quorum is present for the transaction of business, (ii) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (iii) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than thirty (30) days from the meeting date, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amended and/or restated, the “Certificate”) or these By-laws, is entitled to such notice.

SECTION 5. Quorum . A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article I. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

 

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SECTION 6. Voting and Proxies . Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation as of the record date, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.

SECTION 7. Action at Meeting . When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors.

SECTION 8. Stockholder Lists . The Secretary or an Assistant Secretary, if any (or the Corporation’s transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten (10) days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

SECTION 9. Presiding Officer . The Board of Directors shall designate a representative to preside over all Annual Meetings or special meetings of stockholders, provide that if the Board of Directors does not so designate such a presiding officer, then the Chairman of the Board, if one is elected, shall preside over such meetings. If the Board of Directors does not so designate such a presiding officer and there is no Chairman of the Board or the Chairman of the Board is unable to so preside or is absent, then the Chief Executive Officer, if one is elected, shall preside over such meetings, provided further that if there is no Chief Executive Officer or the Chief Executive Officer is unable to so preside or is absent, then the President shall preside over such meetings. The presiding officer at any Annual Meeting or special meeting of stockholders shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 4 and 5 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.

 

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SECTION 10. Inspectors of Elections . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors 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 presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting 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. The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.

ARTICLE II

Directors

SECTION 1. Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.

SECTION 2. Number and Terms . The number of directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The directors shall hold office in the manner provided in the Certificate.

SECTION 3. Qualification . No director need be a stockholder of the Corporation.

SECTION 4. Vacancies . Vacancies in the Board of Directors shall be filled in the manner provided in the Certificate.

SECTION 5. Removal . Directors may be removed from office only in the manner provided in the Certificate.

SECTION 6. Resignation . A director may resign at any time by giving written notice to the Chairman of the Board, if one is elected, the President or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.

 

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SECTION 7. Regular Meetings . The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.

SECTION 8. Special Meetings . Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairman of the Board, if one is elected, or the President. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.

SECTION 9. Notice of Special Meetings . Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairman of the Board, if one is elected, or the President or such other officer designated by the Chairman of the Board, if one is elected, or the President. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least forty-eight (48) hours in advance of the meeting. Such notice shall be deemed to be delivered when hand-delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if sent by facsimile transmission or by electronic mail or other form of electronic communications. A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

SECTION 10. Quorum . At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice. Any business that might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.

SECTION 11. Action at Meeting . At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.

 

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SECTION 12. Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. 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. Such consent shall be treated as a resolution of the Board of Directors for all purposes.

SECTION 13. Manner of Participation . Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.

SECTION 14. Presiding Director . The Board of Directors shall designate a representative to preside over all meetings of the Board of Directors, provided that if the Board of Directors does not so designate such a presiding director or such designated presiding director is unable to so preside or is absent, then the Chairman of the Board, if one is elected, shall preside over all meetings of the Board of Directors. If both the designated presiding director, if one is so designated, and the Chairman of the Board, if one is elected, are unable to preside or are absent, the Board of Directors shall designate an alternate representative to preside over a meeting of the Board of Directors.

SECTION 15. Committees . The Board of Directors, by vote of a majority of the directors then in office, may elect one or more committees, including, without limitation, a Compensation Committee, a Nominating & Corporate Governance Committee and an Audit Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.

SECTION 16. Compensation of Directors . Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and who receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.

 

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ARTICLE III

Officers

SECTION 1. Enumeration . The officers of the Corporation shall consist of a President, a Treasurer, a Secretary and such other officers, including, without limitation, a Chairman of the Board of Directors, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.

SECTION 2. Election . At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the President, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.

SECTION 3. Qualification . No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time.

SECTION 4. Tenure . Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

SECTION 5. Resignation . Any officer may resign by delivering his or her written resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective upon receipt, unless the resignation otherwise provides.

SECTION 6. Removal . Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.

SECTION 7. Absence or Disability . In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.

SECTION 8. Vacancies . Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

SECTION 9. President . The President shall, subject to the direction of the Board of Directors, have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

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SECTION 10. Chairman of the Board . The Chairman of the Board, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 11. Chief Executive Officer . The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 12. Vice Presidents and Assistant Vice Presidents . Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 13. Treasurer and Assistant Treasurers . The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation. He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 14. Secretary and Assistant Secretaries . The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose. In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities. Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 15. Other Powers and Duties . Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.

 

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ARTICLE IV

Capital Stock

SECTION 1. Certificates of Stock . Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the Chairman of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such 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 he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporation’s stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.

SECTION 2. Transfers . Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.

SECTION 3. Record Holders . Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.

SECTION 4. Record Date . 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 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

 

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stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

SECTION 5. Replacement of Certificates . In case of the alleged loss, destruction or mutilation of a certificate of stock of the Corporation, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.

ARTICLE V

Indemnification

SECTION 1. Definitions . For purposes of this Article:

(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, (iii) as a Non-Officer Employee of the Corporation, or (iv) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

(b) “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

(c) “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

(d) “Expenses” means all attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without

 

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limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

(e) “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;

(f) “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

(g) “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;

(h) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

(i) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) fifty percent (50%) or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) fifty percent (50%) or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

SECTION 2. Indemnification of Directors and Officers .

(a) Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized 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), and to the extent authorized in this Section 2.

(1) Actions, Suits and Proceedings Other than By or In the Right of the Corporation . Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer

 

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reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

(2) Actions, Suits and Proceedings By or In the Right of the Corporation . Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.

(3) Survival of Rights . The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.

(4) Actions by Directors or Officers . Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.

SECTION 3. Indemnification of Non-Officer Employees . Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer

 

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Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.

SECTION 4. Determination . Unless otherwise ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

SECTION 5. Advancement of Expenses to Directors Prior to Final Disposition .

(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these By-laws.

(b) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.

(c) 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 Director has not met any applicable standard for indemnification set forth in the DGCL.

 

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SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition .

(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

(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 Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 7. Contractual Nature of Rights .

(a) The provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Article V nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article V shall eliminate or reduce any right conferred by this Article V in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article V shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributes of such person.

 

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(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 8. Non-Exclusivity of Rights . The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.

SECTION 9. Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.

SECTION 10. Other Indemnification . The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”). Any indemnification or advancement of Expenses under this Article V owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.

 

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ARTICLE VI

Miscellaneous Provisions

SECTION 1. Fiscal Year . The fiscal year of the Corporation shall be determined by the Board of Directors.

SECTION 2. Seal . The Board of Directors shall have power to adopt and alter the seal of the Corporation.

SECTION 3. Execution of Instruments . All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairman of the Board, if one is elected, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or the executive committee of the Board may authorize.

SECTION 4. Voting of Securities . Unless the Board of Directors otherwise provides, the Chairman of the Board, if one is elected, the President or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by the Corporation.

SECTION 5. Resident Agent . The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

SECTION 6. Corporate Records . The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at an office of its counsel, at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.

SECTION 7. Certificate . All references in these By-laws to the Certificate shall be deemed to refer to the Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.

SECTION 8. Exclusive Jurisdiction of Delaware Courts . 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 (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the

 

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Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Certificate or By-laws, or (iv) 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 consented to the provisions of this Section 8 .

SECTION 9. Amendment of By-laws .

(a) Amendment by Directors . Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.

(b) Amendment by Stockholders . These By-laws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose in accordance with these By-Laws, by the affirmative vote of at least seventy-five percent (75%) of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these By-laws, or other applicable law.

SECTION 10. Notices . If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.

SECTION 11. Waivers . A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in such a waiver.

ADOPTED:             , 2015

EFFECTIVE:             , 2015

 

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Exhibit 4.2

CHIASMA, INC.

AMENDED AND RESTATED

INVESTOR RIGHTS AGREEMENT

This Amended and Restated Investor Rights Agreement (this “ Agreement ”), dated as of December 16, 2014, is entered into by and among Chiasma, Inc., a Delaware corporation (the “ Company ”), the individuals and entities listed on Exhibit A attached hereto (the “ Purchasers ”), the individuals and entities listed on Exhibit B attached hereto (the “ Existing Preferred Stockholders ”), and the individuals and entities listed on Exhibit C attached hereto (the “ Common Stockholders ”).

Recitals

WHEREAS, certain of the Purchasers, Existing Preferred Stockholders and Common Stockholders are parties to that certain Amended and Restated Investor Rights Agreement (as amended, the “ Prior Agreement ”), dated as of July 11, 2012, by and among the Company and the other parties named therein, and the Company and such stockholders desire to amend and restate the Prior Agreement in its entirety;

WHEREAS, certain of the Purchasers, as a condition precedent to their purchase of shares of the Company’s Series E Convertible Preferred Stock, $0.01 par value per share (“ Series E Preferred Stock ”), under the terms of the Series E Convertible Preferred Stock Purchase Agreement of even date herewith (the “ Purchase Agreement ”), have required that the parties hereto enter into this Agreement; and

WHEREAS, the Company and the Stockholders (as defined below) desire to provide for certain arrangements with respect to (i) the registration of shares of capital stock of the Company under the Securities Act (as defined below), (ii) certain Purchasers’ right of first refusal with respect to certain issuances of securities of the Company and (iii) certain covenants of the Company.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties to this Agreement agree that the Prior Agreement shall be amended and restated in its entirety to read as follows:

 

  1. Certain Definitions .

As used in this Agreement, the following terms shall have the following respective meanings:

Affiliated Party ” means, with respect to any Purchaser or Existing Preferred Stockholder, any person or entity which, directly or indirectly, controls, is controlled by or is under common control with such Purchaser or Existing Preferred Stockholder, including, without limitation, any general partner, officer or director of such Purchaser or Existing Preferred Stockholder and any venture capital fund now or hereafter existing which is controlled by one or more general partners of, or shares the same management company as, such Purchaser or Existing Preferred Stockholder.

Available Undersubscription Amount ” means the difference between the total of all of the Basic Amounts available for purchase by Qualified Purchasers pursuant to Section 3.1 and the Basic Amounts subscribed for pursuant to Section 3.1.

Basic Amount ” means, with respect to a Qualified Purchaser, its pro rata portion of the Offered Securities determined by multiplying the number of Offered Securities by a fraction, the numerator of which is the aggregate number of shares of Common Stock issuable upon conversion of the


shares of Series C’ Preferred Stock, Series D’ Preferred Stock or Series E Preferred Stock then held by such Qualified Purchaser, and the denominator of which is the total number of shares of Common Stock issuable upon conversion of the shares of Series C’ Preferred Stock, Series D’ Preferred Stock or Series E Preferred Stock then held by all Qualified Purchasers.

Code ” means the Internal Revenue Code of 1986, as amended.

Commission ” means the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act.

Common Stock ” means the common stock, $0.01 par value per share, of the Company.

Company ” has the meaning ascribed to it in the introductory paragraph hereto.

Company Sale ” means: (a) a merger or consolidation in which (i) the Company is a constituent party, or (ii) a Company Subsidiary is a constituent party and the Company issues shares of its capital stock pursuant to such merger or consolidation, except in the case of either clause (i) or (ii) any such merger or consolidation involving the Company or a Company 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 which represent, immediately following such merger or consolidation, more than 50% by voting power of the capital stock of (A) the surviving or resulting corporation or (B) 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; (b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Company or a Company Subsidiary of all or substantially all the assets of the Company and the Company Subsidiaries taken as a whole (except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned Company Subsidiary); or (c) the sale or transfer, in a single transaction or series of related transactions, by the stockholders of the Company of more than 50% by voting power of the then-outstanding capital stock of the Company to any person or entity or group of affiliated persons or entities.

Company Subsidiary ” means any corporation, partnership, trust, limited liability company or other non-corporate business enterprise in which the Company (or another Company Subsidiary) holds stock or other ownership interests representing (a) more than 50% of the voting power of all outstanding stock or ownership interests of such entity or (b) the right to receive more than 50% of the net assets of such entity available for distribution to the holders of outstanding stock or ownership interests upon a liquidation or dissolution of such entity.

Confidential Information ” means any information that is labeled as confidential, proprietary or secret which a Stockholder obtains from the Company or a Company Subsidiary pursuant to financial statements, reports and other materials provided by the Company or a Company Subsidiary to such Stockholder pursuant to this Agreement or pursuant to visitation or inspection rights granted hereunder or otherwise.

Exchange Act ” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect.

Existing Preferred Stockholder ” has the meaning ascribed to it in the introductory paragraph hereto, provided that the individuals and entities listed on Exhibit B attached hereto shall not have any of the rights of, or be entitled to any of the benefits provided to, an Existing Preferred Stockholder hereunder unless such individual or entity owns Shares (but shall nevertheless be subject to the obligations hereunder).

 

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Holder ” means a holder of Registrable Shares who is a party to this Agreement.

Immediate Family Member ” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a natural person referred to herein.

Indemnified Party ” means a party entitled to indemnification pursuant to Section 2.5.

Indemnifying Party ” means a party obligated to provide indemnification pursuant to Section 2.5.

Initial Public Offering ” means the initial underwritten public offering of shares of Common Stock pursuant to an effective Registration Statement.

Initiating Holders ” means the Stockholders initiating a request for registration pursuant to Section 2.1(a) or 2.1(b), as the case may be.

Investor Majority ” means the holders of shares representing at least sixty percent (60%) of the voting power of the then outstanding shares of Series C’ Preferred Stock, Series D’ Preferred Stock and Series E Preferred Stock, voting together as a single class.

Notice of Acceptance ” means a written notice from a Qualified Purchaser to the Company containing the information specified in Section 3.1(b).

Offer ” means a written notice of any proposed or intended issuance, sale or exchange of Offered Securities containing the information specified in Section 3.1(a).

Offered Securities ” means (a) any shares of Common Stock, (b) any other equity securities of the Company, including, without limitation, shares of preferred stock, or (c) any option, warrant or other right to subscribe for, purchase or otherwise acquire any equity securities of the Company.

Other Holders ” means holders of securities of the Company (other than Stockholders) who are entitled, by contract with the Company, to have securities included in a Registration Statement.

Preferred Stock ” means, collectively, shares of the Series E Preferred Stock, the Series D’ Preferred Stock, the Series C’ Preferred Stock, and the Series B1’ Preferred Stock.

Prospectus ” means the prospectus included in any Registration Statement, as amended or supplemented by an amendment or prospectus supplement, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

Purchase Agreement ” has the meaning ascribed to it in the recitals hereto.

Purchaser ” has the meaning ascribed to it in the introductory paragraph hereto.

Qualified Purchaser ” means a Purchaser that is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

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Refused Securities ” means those Offered Securities as to which a Notice of Acceptance has not been given by the Qualified Purchasers pursuant to Section 3.1.

Registrable Shares ” means: (a) the shares of Common Stock issued or issuable upon conversion of the Shares; (b) the shares of Common Stock issued or issuable upon conversion or exercise of the Warrants; (c) the shares of Common Stock owned by the Stockholders on the date hereof; (d) any other shares of Common Stock, and any shares of Common Stock issued or issuable upon the conversion or exercise of any other securities, acquired by the Stockholders; and (e) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations or similar events); provided, however, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares upon any sale pursuant to a Registration Statement or Rule 144 under the Securities Act. Wherever reference is made in this Agreement to a request or consent of holders of a certain percentage of Registrable Shares, the determination of such percentage shall include shares of Common Stock issuable upon conversion of the Shares even if such conversion has not been effected.

Registration Expenses ” means all expenses incurred by the Company in complying with the provisions of Section 2, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and expenses of counsel for the Company and the fees and expenses (up to $30,000) of one counsel selected by the Selling Stockholders to represent the Selling Stockholders, state Blue Sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts, selling commissions, stock transfer taxes applicable to the sale of the Registrable Shares and the fees and expenses of Selling Stockholders’ own counsel (other than the counsel selected to represent all Selling Stockholders).

Registration Statement ” means a registration statement filed by the Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a similar limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation).

Securities Act ” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect.

Selling Stockholder ” means any Stockholder owning Registrable Shares included in a Registration Statement.

Series B1’ Preferred Stock ” means the Company’s Series B1’ Convertible Preferred Stock, par value $0.01 per share.

Series C’ Preferred Stock ” means the Company’s Series C’ Convertible Preferred Stock, par value $0.01 per share.

Series D’ Preferred Stock ” means the Company’s Series D’ Convertible Preferred Stock, par value $0.01 per share.

Shares ” means shares of Preferred Stock.

Stockholders ” means (i) the Purchasers, (ii) the Existing Preferred Stockholders, (iii) other than for the purposes of Section 2.1, the Common Stockholders and (iv) any persons or entities to which the rights granted under this Agreement are transferred by any Purchaser or Existing Preferred Stockholder, or their successors or assigns.

 

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Undersubscription Amount ” means, with respect to a Qualified Purchaser, any additional portion of the Offered Securities attributable to the Basic Amounts of other Qualified Purchasers as such Qualified Purchaser indicates it will purchase or acquire should the other Qualified Purchasers subscribe for less than their Basic Amounts.

Warrants ” means those certain warrants to purchase shares of Common Stock issued to certain of the Purchasers (i) pursuant to that certain Series C Convertible Preferred Stock Purchase Agreement, dated as of June 24, 2011, as amended, by and among the Company and the other parties named therein, (ii) pursuant to that certain Series D Convertible Preferred Stock Purchase Agreement, dated as of July 11, 2012, by and among the Company and the other parties named therein and (iii) pursuant to the Purchase Agreement.

 

  2. Registration Rights .

2.1 Required Registrations .

(a) At any time after the earlier of (i) two years after the date of this Agreement or (ii) six months after the closing of the Initial Public Offering, a Stockholder or Stockholders holding, in the aggregate, at least 25% of the Registrable Shares issued or issuable upon conversion of the outstanding shares of Series E Preferred Stock then held by the Purchasers may request, in writing, that the Company effect the registration on Form S-1 (or any successor form) of Registrable Shares owned by such Stockholder or Stockholders.

(b) At any time after the Company becomes eligible to file a Registration Statement on Form S-3 (or any successor form relating to secondary offerings), a Stockholder or Stockholders holding Registrable Shares may request, in writing, that the Company effect the registration on Form S-3 (or such successor form), of Registrable Shares having an aggregate value of at least $3,000,000 (based on the public market price on the date of such request).

(c) Upon receipt of any request for registration pursuant to this Section 2, the Company shall promptly give written notice of such proposed registration to all other Stockholders. Such Stockholders shall have the right, by giving written notice to the Company within 30 days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such Stockholders may request in such notice of election, subject in the case of an underwritten offering to the terms of Section 2.1(d). Thereupon, the Company shall, as expeditiously as possible, use its best efforts to effect the registration on an appropriate registration form of all Registrable Shares which the Company has been requested to so register; provided, however, that in the case of a registration requested under Section 2.1(b), the Company will only be obligated to effect such registration on Form S-3 (or any successor form).

(d) If the Initiating Holders intend to distribute the Registrable Shares covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1(a) or (b), as the case may be, and the Company shall include such information in its written notice referred to in Section 2.1(c). In such event, (i) the right of any other Stockholder to include its Registrable Shares in such registration pursuant to Section 2.1(a) or (b), as the case may be, shall be conditioned upon such other Stockholder’s participation in such underwriting on the terms set forth herein, and (ii) all Stockholders including Registrable Shares in such registration shall enter into an underwriting agreement upon customary terms with the underwriter or underwriters

 

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managing the offering; provided that such underwriting agreement shall not provide for indemnification or contribution obligations on the part of the Stockholders materially greater than the obligations of the Stockholders pursuant to Section 2.5. The Initiating Holders shall have the right to select the managing underwriter(s) for any underwritten offering requested pursuant to Section 2.1(a) or (b), subject to the approval of the Company, which approval will not be unreasonably withheld, conditioned or delayed. If any Stockholder who has requested inclusion of its Registrable Shares in such registration as provided above disapproves of the terms of the underwriting, such Stockholder may elect, by written notice to the Company, to withdraw its Registrable Shares from such Registration Statement and underwriting. If the managing underwriter advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of Registrable Shares to be included in the Registration Statement and underwriting shall be allocated first among all Purchasers, second among all Existing Preferred Stockholders and thereafter among the other Stockholders requesting registration in proportion, as nearly as practicable, to the respective number of Registrable Shares held by them on the date of the request for registration made by the Initiating Holders pursuant to Section 2.1(a) or (b), as the case may be. If any Stockholder would thus be entitled to include more Registrable Shares than such Stockholder requested to be registered, the excess shall be allocated first among the other requesting Purchasers, second among the other requesting Existing Preferred Stockholders, and then among the other requesting Stockholders pro rata in the manner described in the preceding sentence.

(e) The Company shall not be required to effect more than two registrations pursuant to Section 2.1(a). In addition, the Company shall not be required to effect any registration within six months after the effective date of the Registration Statement relating to the Initial Public Offering. For purposes of this Section 2.1(e), a Registration Statement shall not be counted until such time as such Registration Statement has been declared effective by the Commission (unless the Initiating Holders withdraw their request for such registration (other than as a result of information concerning the business or financial condition of the Company which is made known to the Stockholders after the date on which such registration was requested) and elect not to pay the Registration Expenses therefor pursuant to Section 2.4). For purposes of this Section 2.1(e), a Registration Statement shall not be counted if, as a result of an exercise of the underwriter’s cut-back provisions, less than 50% of the total number of Registrable Shares that Stockholders have requested to be included in such Registration Statement are so included.

(f) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a Registration Statement pursuant to this Section 2.1 a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company (the “ Board ”) it would be materially detrimental to the Company and its stockholders for such registration statement to become effective or to remain effective as long as such registration statement would otherwise be required to remain effective because such action (x) would materially interfere with a significant acquisition, corporate reorganization or other similar transaction involving the Company, (y) would require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential or (z) would render the Company unable to comply with requirements under the Securities Act or Exchange Act, the Company shall have the right to defer taking action with respect to such filing for a period of not more than forty-five (45) days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such forty-five (45) day period.

2.2 Incidental Registration .

(a) Whenever the Company proposes to file a Registration Statement (other than a Registration Statement filed pursuant to Section 2.1) at any time and from time to time, it will,

 

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prior to such filing, give written notice to all Stockholders of its intention to do so. Upon the written request of a Stockholder or Stockholders given within 20 days after the Company provides such notice (which request shall state the intended method of disposition of such Registrable Shares), the Company shall, subject to the provisions of Section 2.2(b), use its best efforts to cause all Registrable Shares which the Company has been requested by such Stockholder or Stockholders to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Stockholder or Stockholders; provided that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 2.2, whether or not any Holder has elected to include Registrable Shares in such registration, without obligation to any Stockholder.

(b) If the registration for which the Company gives notice pursuant to Section 2.2(a) is a registered public offering involving an underwriting, the Company shall so advise the Stockholders as a part of the written notice given pursuant to Section 2.2(a). In such event, (i) the right of any Stockholder to include its Registrable Shares in such registration pursuant to this Section 2.2 shall be conditioned upon such Stockholder’s participation in such underwriting on the terms set forth herein and (ii) all Stockholders including Registrable Shares in such registration shall enter into an underwriting agreement upon customary terms with the underwriter or underwriters selected for the underwriting by the Company; provided that such underwriting agreement shall not provide for indemnification or contribution obligations on the part of Stockholders materially greater than the obligations of the Stockholders pursuant to Section 2.5. If any Stockholder who has requested inclusion of its Registrable Shares in such registration as provided above disapproves of the terms of the underwriting, such person may elect, by written notice to the Company, to withdraw its shares from such Registration Statement and underwriting. If the managing underwriter advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the shares held by holders of securities of the Company other than Stockholders and Other Holders shall be excluded from such Registration Statement and underwriting to the extent deemed advisable by the managing underwriter, and, if a further reduction of the number of shares is required, the number of shares that may be included in such Registration Statement and underwriting shall be allocated first to the shares being sold for account of the Company, second among all Purchasers, third among all Existing Preferred Stockholders and thereafter among the other Stockholders requesting registration in proportion, as nearly as practicable, to the respective number of shares of Common Stock (on an as-converted basis) held by them on the date the Company gives the notice specified in Section 2.2(a); provided that, unless such registration is in connection with the Company’s Initial Public Offering, the number of Registrable Shares permitted to be included therein shall in any event be at least 25% of the securities included therein (based on aggregate market values). If any Stockholder would thus be entitled to include more shares than such holder requested to be registered, the excess shall be allocated first among other requesting Purchasers, second among the other requesting Existing Preferred Stockholders and then among the other Stockholders pro rata in the manner described in the preceding sentence.

2.3 Registration Procedures .

(a) If and whenever the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any Registrable Shares under the Securities Act, the Company shall:

(i) file with the Commission a Registration Statement with respect to such Registrable Shares and use its best efforts to cause that Registration Statement to become effective as soon as possible;

 

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(ii) as expeditiously as reasonably possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to comply with the provisions of the Securities Act (including the anti-fraud provisions thereof) and to keep the Registration Statement effective for one hundred eighty (180) days from the effective date or such lesser period until all such Registrable Shares are sold; provided, however, that (i) such 180-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Shares on Form S-3 which are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such 180-day period shall be extended for up to two hundred forty (240) days, if necessary, to keep the registration statement effective until all such Registrable Shares are sold;

(iii) as expeditiously as reasonably possible furnish to each Selling Stockholder such reasonable numbers of copies of the Prospectus, including any preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Selling Stockholder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by such Selling Stockholder;

(iv) as expeditiously as reasonably possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under the securities or Blue Sky laws of such states as the Selling Stockholders shall reasonably request; provided, however, that the Company shall not be required in connection with this paragraph (iv) to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(v) 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 underwriter(s) of such offering;

(vi) as expeditiously as reasonably possible cause all such Registrable Shares to be listed on each securities exchange or automated quotation system on which similar securities issued by the Company are then listed;

(vii) provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such Registration Statement;

(viii) promptly make available for inspection by the Selling Stockholders, any managing underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the Selling Stockholders, all financial and other records, pertinent corporate documents and properties of the Company and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement;

(ix) notify each Selling Stockholder, promptly after it shall receive notice thereof, of the time when such Registration Statement has become effective or a supplement to any Prospectus forming a part of such Registration Statement has been filed; and

 

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(x) as expeditiously as reasonably possible following the effectiveness of such Registration Statement, notify each seller of such Registrable Shares of any request by the Commission for the amending or supplementing of such Registration Statement or Prospectus.

(b) If the Company has delivered a Prospectus to the Selling Stockholders and after having done so the Prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the Selling Stockholders of the same and, if requested by the Company, the Selling Stockholders shall immediately cease making offers of Registrable Shares and return all Prospectuses to the Company. The Company shall promptly provide the Selling Stockholders with revised Prospectuses and, following receipt of the revised Prospectuses, the Selling Stockholders shall be free to resume making offers of the Registrable Shares.

(c) In the event that, in the judgment of the Company, it is advisable to suspend use of a Prospectus included in a Registration Statement due to pending material developments or other events that have not yet been publicly disclosed and as to which the Company believes public disclosure would be detrimental to the Company, the Company shall notify all Selling Stockholders to such effect, and, upon receipt of such notice, each such Selling Stockholder shall immediately discontinue any sales of Registrable Shares pursuant to such Registration Statement until such Selling Stockholder has received copies of a supplemented or amended Prospectus or until such Selling Stockholder is advised in writing by the Company that the then current Prospectus may be used and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. Notwithstanding anything to the contrary herein, the Company shall not exercise its rights under this Section 2.3(c) to suspend sales of Registrable Shares for a period in excess of 30 days consecutively or 60 days in any 365-day period.

2.4 Allocation of Expenses . The Company will pay all Registration Expenses for all registrations under this Agreement; provided, however, that if a registration under Section 2.1 is withdrawn at the request of the Initiating Holders (other than as a result of information concerning a material adverse change in the business or financial condition of the Company which is made known to the Selling Stockholders after the date on which such registration was requested) and if the Initiating Holders elect not to have such registration counted as a registration requested under Section 2.1, the Selling Stockholders shall pay the Registration Expenses of such registration pro rata in accordance with the number of their Registrable Shares included in such registration.

2.5 Indemnification and Contribution .

(a) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each Selling Stockholder, each underwriter of such Registrable Shares, and each other person, if any, who controls such Selling Stockholder 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 such Selling Stockholder, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, (ii) the omission or alleged omission to state 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 Registration Statement

 

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or the offering contemplated thereby; and the Company will reimburse such Selling Stockholder, underwriter and each such controlling person for any legal or any other expenses reasonably incurred by such Selling Stockholder, underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus or prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such Selling Stockholder, underwriter or controlling person specifically for use in the preparation thereof.

(b) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each Selling Stockholder, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any) and each person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such directors and officers, underwriter or controlling person may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or (ii) any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if and to the extent (and only to the extent) that the statement or omission was made in reliance upon and in conformity with information relating to such Selling Stockholder furnished in writing to the Company by such Selling Stockholder specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment or supplement; provided, however, that the obligations of a Selling Stockholder hereunder shall be limited to an amount equal to the net proceeds to such Selling Stockholder of Registrable Shares sold in connection with such registration.

(c) Each Indemnified Party shall give notice to the Indemnifying Party promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld, conditioned or delayed); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.5 except to the extent that the Indemnifying Party is adversely affected by such failure. The Indemnified Party may participate in such defense at such party’s expense; provided, however, that the Indemnifying Party shall pay such expense if the Indemnified Party reasonably concludes that representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding; provided further that in no event shall the Indemnifying Party be required to pay the expenses of more than one law firm per jurisdiction as counsel for the Indemnified Party. The Indemnifying Party also shall be responsible for the expenses of such defense if the Indemnifying Party does not elect to assume such defense. 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 of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld, conditioned or delayed.

 

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(d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 2.5 is due in accordance with its terms but for any reason is held to be unavailable to an Indemnified Party in respect to any losses, claims, damages and liabilities referred to herein, then the Indemnifying Party shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities to which such party may be subject in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Selling Stockholders on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the Selling Stockholders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact related to information supplied by the Company or the Selling Stockholders and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Selling Stockholders agree that it would not be just and equitable if contribution pursuant to this Section 2.5(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 2.5(d), (i) in no case shall any one Selling Stockholder be liable or responsible for any amount in excess of the net proceeds received by such Selling Stockholder from the offering of Registrable Shares and (ii) the Company shall be liable and responsible for any amount in excess of such proceeds; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section 2.5(d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not relieve such party from any other obligation it or they may have thereunder or otherwise under this Section 2.5(d). No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(f) The rights and obligations of the Company and the Selling Stockholders under this Section 2.5 shall survive the termination of this Agreement.

2.6 Other Matters with Respect to Underwritten Offerings . In the event that Registrable Shares are sold pursuant to a Registration Statement in an underwritten offering pursuant to Section 2.1, the Company agrees to (a) enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of the Company and customary covenants and agreements to be performed by the Company, including without limitation customary provisions with respect to indemnification by the Company of the underwriters of such offering; (b) use its best efforts to cause its legal counsel to render customary opinions to the underwriters and the Selling Stockholders with respect to the Registration Statement; and (c) use its best efforts to cause its independent public accounting firm to issue customary “cold comfort letters” to the underwriters and the Selling Stockholders with respect to the Registration Statement.

 

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2.7 Information by Stockholder . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Shares of any Selling Stockholder that such holder of Registrable Shares included in a registration shall furnish to the Company such information regarding such holder and the distribution proposed by such holder as the Company may reasonably request in writing and as shall be reasonably required to effect the registration of such Holder’s Registrable Shares.

2.8 “Lock-Up” Agreement; Confidentiality of Notices . Each Stockholder agrees, if requested by the Company and the managing underwriter of the Initial Public Offering, (i) not to (a) offer, pledge, announce the intention to sell, 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 Registrable Shares or other securities of the Company (excluding securities acquired in the Initial Public Offering or in the public market after such offering) or (b) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any Registrable Shares or other securities of the Company (excluding securities acquired in the Initial Public Offering or in the public market after such offering), whether any transaction described in clause (a) or (b) is to be settled by delivery of securities, in cash or otherwise, during the period beginning on the date of the filing of such registration statement with the Commission and ending 180 days after the date of the final prospectus relating to the Initial Public Offering (plus up to an additional 34 days to the extent requested by the managing underwriters for such offering in order to address Rule 2711(f) of FINRA or any similar successor provision) and (ii) to execute any agreement reflecting clause (i) above as may be requested by the Company or the managing underwriters at the time of such offering; provided , that all stockholders of the Company then holding at least 1% of the outstanding Common Stock (on an as-converted basis) and all officers and directors of the Company enter into similar agreements.

The Company may impose stop-transfer instructions with respect to the Registrable Shares or other securities subject to the foregoing restriction until the end of such period.

As a condition to the obligation of the Stockholders under this Section 2.8, the Company agrees to use its reasonable best efforts to ensure that the “lock-up” obligation of the Stockholders under this Section 2.8, and any agreement entered into by the Stockholders as a result of their obligations under this Section 2.8, shall (i) allow for periodic early releases of portions of the securities subject to such “lock-up” obligations, which may be conditioned upon the trading price of the Company’s Common Stock and (ii) provide that all Stockholders will participate on a pro rata basis in any early release of any stockholder.

Any Stockholder receiving any written notice from the Company regarding the Company’s plans to file a Registration Statement shall treat such notice confidentially and shall not disclose such information to any person other than as necessary to exercise its rights under this Agreement.

2.9 Limitation on Subsequent Registration Rights . The Company shall not, without the prior written consent of the Purchasers holding a majority of the Registrable Shares then held by the Purchasers, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include such securities in any registration unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of Registrable Shares of the Stockholders that are included or (b) to demand registration of any securities held by such holder or prospective holder.

 

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2.10 Rule 144 Requirements . After the earliest of (i) the closing of the sale of securities of the Company pursuant to a Registration Statement, (ii) the registration by the Company of a class of securities under Section 12 of the Exchange Act, or (iii) the issuance by the Company of an offering circular pursuant to Regulation A under the Securities Act, the Company agrees to:

(a) make and keep current public information about the Company available, as those terms are understood and defined in Rule 144;

(b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and

(c) furnish to any holder of Registrable Shares upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as such holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration.

2.11 Termination . All of the Company’s obligations to register Registrable Shares under Sections 2.1 and 2.2 shall terminate upon the earliest of (a) five years after the closing of the Initial Public Offering, (b) the date on which no Stockholder holds any Registrable Shares or (c) a Company Sale.

 

  3. Right of First Refusal .

3.1 Rights of Purchasers to Acquire Offered Securities .

(a) The Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, any Offered Securities, unless in each such case the Company shall have first complied with this Section 3.1. The Company shall deliver to each Purchaser an Offer, which shall (i) identify and describe the Offered Securities, (ii) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (iii) identify the persons or entities (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged, and (iv) offer to issue and sell to or exchange with such Purchaser that is a Qualified Purchaser (A) such Qualified Purchaser’s Basic Amount and (B) such Qualified Purchaser’s Undersubscription Amount.

(b) To accept an Offer, in whole or in part, a Qualified Purchaser must deliver to the Company, on or prior to the date 20 days after the date of delivery of the Offer, a Notice of Acceptance providing a representation letter certifying that such Qualified Purchaser is an accredited investor within the meaning of Rule 501 under the Securities Act and indicating the portion of the Qualified Purchaser’s Basic Amount that such Qualified Purchaser elects to purchase and, if such Qualified Purchaser shall elect to purchase all of its Basic Amount, the Undersubscription Amount (if any) that such Qualified Purchaser elects to purchase. If the Basic Amounts subscribed for by all Qualified Purchasers are less than the total of all of the Basic Amounts available for purchase, then each Qualified Purchaser who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that if the Undersubscription Amounts subscribed for exceed the Available Undersubscription Amount, each Qualified Purchaser who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available

 

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Undersubscription Amount as the Undersubscription Amount subscribed for by such Qualified Purchaser bears to the total Undersubscription Amounts subscribed for by all Qualified Purchasers, subject to rounding by the Board to the extent it deems reasonably necessary.

(c) The Company shall have 90 days from the expiration of the period set forth in Section 3.1(b) to issue, sell or exchange all or any part of the Refused Securities, but only to the offerees or purchasers described in the Offer (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) which are not more favorable, in the aggregate, to the acquiring person or persons or less favorable to the Company than those set forth in the Offer.

(d) In the event the Company shall propose to sell less than all the Refused Securities, then each Qualified Purchaser may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that the Qualified Purchaser elected to purchase pursuant to Section 3.1(b) multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Qualified Purchasers pursuant to Section 3.1(b) prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Qualified Purchaser so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Qualified Purchasers in accordance with Section 3.1(a).

(e) Upon (i) the closing of the issuance, sale or exchange of all or less than all of the Refused Securities or (ii) such other date agreed to by the Company and Qualified Purchasers who have subscribed for a majority of the Offered Securities subscribed for by the Qualified Purchasers, such Qualified Purchaser or Purchasers shall acquire from the Company and the Company shall issue to such Qualified Purchaser or Purchasers, the number or amount of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to Section 3.1(d) if any of the Qualified Purchasers has so elected, upon the terms and conditions specified in the Offer.

(f) The purchase by the Qualified Purchasers of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and the Qualified Purchasers of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to the Qualified Purchasers and their respective counsel.

(g) Any Offered Securities not acquired by the Qualified Purchasers or other persons in accordance with Section 3.1(c) may not be issued, sold or exchanged until they are again offered to the Qualified Purchasers under the procedures specified in this Agreement.

(h) The rights of the Qualified Purchasers under this Section 3.1 shall not apply to:

(i) the issuance of any shares of Common Stock as a stock dividend to holders of Common Stock or upon any subdivision or combination of shares of Common Stock;

(ii) the issuance of any shares of Common Stock upon conversion of convertible preferred stock, regardless of whether such conversion is voluntary or mandatory. and the issuance of any capital stock upon the exercise and/or conversion of any warrants outstanding on the date hereof;

 

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(iii) the issuance of any shares of Common Stock or options, warrants, or other rights to acquire Common Stock issued or issuable to employees, directors or officers of, or consultants to, the Company or any Company Subsidiary pursuant to any plan, agreement or arrangement approved by the Board;

(iv) the issuance of securities solely in consideration for the acquisition (whether by merger or otherwise) by the Company or any Company Subsidiary of all or substantially all of the stock or assets of any other entity, or of a division, business unit or line of business of any other entity;

(v) the issuance of shares of Series E Preferred Stock pursuant to the Purchase Agreement;

(vi) up to 250,000 shares of Common Stock or options, warrants, or other rights to acquire Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board;

(vii) the Warrants and any Common Stock issuable upon the exercise or conversion thereof;

(viii) the issuance of Common Stock, other capital stock or other securities that has been approved in writing by the Investor Majority; or

(ix) the issuance of shares of Common Stock by the Company in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act.

(i) Each Qualified Purchaser (an “ Assigning Investor ”) may assign to one or more of its affiliated entities or persons (an “ Assignee Investor ”) its right to purchase from the Company all or a portion of the Offered Securities that the Assigning Investor is entitled to purchase from the Company, provided the Assigning Investor notifies the Company of such assignment prior to the closing of the issuance, sale or exchange of the Offered Securities. An Assignee Investor shall then have such assigned right to purchase Offered Securities from the Company, including pursuant to Section 3.3, as if it were a recipient of the applicable Offered Securities offer.

(j) Notwithstanding the foregoing, in the event that F2 Venture Capital Partnership L.P. (“ F2 ”) and/or F3 Venture Capital Partnership L.P. (“ F3 ”) distribute all of their shares of the Company’s capital stock to its equity holders, such equity holders shall have the right to purchase up to an aggregate of 1,347,470 shares of Series E Preferred Stock pursuant to Section 2.2 of the Purchase Agreement (the “Participation Right”). For the avoidance of doubt, the Participation Right is separate and apart from any rights that F2 and/or F3 may have under this Agreement. The Participation Right shall expire on December 31, 2014.

3.2 Rights of Purchasers to Acquire Debt Securities .

(a) The Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, any debt securities, including without limitation, debt securities convertible into capital stock of the Company and debt securities accompanied by the issuance of options, warrants or other securities convertible into capital stock of the Company, or

 

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otherwise incur or become liable for any indebtedness (collectively, “ Debt ”), unless in each such case the Company shall have first complied with this Section 3.2. The Company shall deliver to each Purchaser written notice of any proposed or intended issuance, sale, exchange or incurrence of Debt (the “ Debt Offer ”), which notice shall (i) identify and describe the Debt, (ii) describe the price and other terms upon which it will be issued, and the number or amount of Debt to be issued, sold, exchanged or incurred, (iii) identify the persons or entities (if known) to which or with which the Debt is to be offered, issued, sold, exchanged or borrowed and (iv) offer to issue and sell to, exchange with or borrow from such Purchaser that is a Qualified Purchaser (A) such Qualified Purchaser’s pro rata portion of the Debt determined by multiplying the number or amount, as the case may be, of Debt by a fraction, the numerator of which is the aggregate number of shares of Series E Preferred Stock then held by such Qualified Purchaser and the denominator of which is the total number of shares of Series E Preferred Stock then held by all Qualified Purchasers (the “ Basic Debt Amount ”) and (B) such Qualified Purchaser’s additional portion of Debt attributable to the Basic Debt Amounts of other Qualified Purchasers as such Qualified Purchaser indicates it will purchase or acquire should the other Qualified Purchasers subscribe for less than their Basic Debt Amounts (the “ Undersubscription Debt Amount ”).

(b) To accept a Debt Offer (which must be accepted in whole and not in part), a Qualified Purchaser must deliver to the Company, on or prior to the date 20 days after the date of delivery of the Debt Offer, a written notice from such Qualified Purchaser (“ Notice of Debt Acceptance ”) providing a representation letter certifying that such Qualified Purchaser is an accredited investor within the meaning of Rule 501 under the Securities Act and indicating the portion of the Qualified Purchaser’s Basic Debt Amount that such Qualified Purchaser elects to purchase or lend and, if such Qualified Purchaser shall elect to purchase all of its Basic Debt Amount, the Undersubscription Debt Amount (if any) that such Qualified Purchaser elects to purchase or lend. If the Basic Debt Amounts subscribed for by all Qualified Purchasers are less than the total of all of the Basic Debt Amounts available for purchase, then each Qualified Purchaser who has set forth an Undersubscription Debt Amount in its Notice of Debt Acceptance shall be entitled to purchase, in addition to the Basic Debt Amounts subscribed for, the Undersubscription Debt Amount it has subscribed for; provided, however, that if the Undersubscription Debt Amounts subscribed for exceed the difference between the total of all of the Basic Debt Amounts available for purchase by Qualified Purchasers pursuant to this Section 3.2 and the Basic Debt Amounts subscribed for pursuant to this Section 3.2 (the “ Available Undersubscription Debt Amount ”), each Qualified Purchaser who has subscribed for any Undersubscription Debt Amount shall be entitled to purchase only that portion of the Available Undersubscription Debt Amount as the Undersubscription Debt Amount subscribed for by such Qualified Purchaser bears to the total Undersubscription Debt Amounts subscribed for by all Qualified Purchasers, subject to rounding by the Board to the extent it deems reasonably necessary.

(c) The Company shall have 90 days from the expiration of the period set forth in Section 3.2(b) to issue, sell, exchange or borrow all or any portion of the Debt as to which a Notice of Debt Acceptance has not been given by the Qualified Purchasers pursuant to Section 3.2(b) (the “ Refused Debt ”), but only to the offerees or purchasers described in the Debt Offer (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) which are not more favorable, in the aggregate, to the acquiring person or persons or less favorable to the Company than those set forth in the Debt Offer.

(d) In the event the Company shall propose to sell less than all the Refused Debt, then each Qualified Purchaser may, at its sole option and in its sole discretion, reduce the number or amount of Debt specified in its Notice of Debt Acceptance to an amount that shall be not less than the number or amount of Debt that the Qualified Purchaser elected to purchase or lend pursuant to Section 3.2(b) multiplied by a fraction, (i) the numerator of which shall be the number or amount of Debt the Company actually proposes to issue, sell, exchange or borrow (including Debt to be issued or sold to

 

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Qualified Purchasers pursuant to Section 3.2(b) prior to such reduction) and (ii) the denominator of which shall be the original amount of Debt. In the event that any Qualified Purchaser so elects to reduce the number or amount of Debt specified in its Notice of Debt Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of Debt unless and until such securities or indebtedness have again been offered to the Qualified Purchasers in accordance with Section 3.2(a).

(e) Upon (i) the closing of the issuance, sale, exchange or borrowing of all or less than all of the Refused Debt or (ii) such other date agreed to by the Company and Qualified Purchasers who have subscribed for a majority of the Debt subscribed for by the Qualified Purchasers, such Qualified Purchaser or Purchasers shall acquire from the Company and the Company shall issue to such Qualified Purchaser or Purchasers, the number or amount of Debt specified in the Notices of Debt Acceptance, as reduced pursuant to Section 3.2(d) if any of the Qualified Purchasers has so elected, upon the terms and conditions specified in the Debt Offer.

(f) The purchase by the Qualified Purchasers of any Debt is subject in all cases to the preparation, execution and delivery by the Company and the Qualified Purchasers of a purchase or loan agreement relating to such Debt reasonably satisfactory in form and substance to the Qualified Purchasers and their respective counsel.

(g) Any Debt not acquired by the Qualified Purchasers or other persons in accordance with Section 3.2(c) may not be issued, sold or exchanged until they are again offered to the Qualified Purchasers under the procedures specified in this Agreement.

(h) Each Assigning Investor may assign to one or more of its Assignee Investors its right to purchase from or lend to the Company all or a portion of the Debt that the Assigning Investor is entitled to purchase from or lend to the Company, provided the Assigning Investor notifies the Company of such assignment prior to the closing of the issuance, sale, exchange or borrowing of the Debt. An Assignee Investor shall then have such assigned right to purchase Debt or otherwise lend funds to the Company as if it were a recipient of the applicable Debt offer. Notwithstanding any provision of this Agreement to the contrary, the Company and each of the other Purchasers acknowledge and agree that any Debt that is issued by the Company and is held by an Assignee Investor shall be automatically reassigned to the respective Assigning Investor as of the earlier of: (i) the time that such Assigning Investor notifies the Company that such reassignment is to be effective; or (ii) the time immediately prior to the conversion of such Debt into capital stock of the Company or securities convertible into capital stock of the Company.

(i) The Company and each Purchaser severally agrees and covenants that at any time and from time to time it will promptly execute and deliver to each other or any other parties such further instruments and documents and take such further action as the Company or a Purchaser may reasonably require in order to carry out the full intent and purpose of this Section 3.2.

3.3 Additional Rights of the Purchasers .

(a) In connection with any Offer, in the event that the Company desires to offer, issue or sell Offered Securities to, or exchange Offered Securities with, a Purchaser in an amount that exceeds the sum of such Qualified Purchaser’s Basic Amount and the Undersubscription Amount that such Qualified Purchaser is entitled to purchase (an “ Excess Qualified Purchaser ”), the Company shall deliver to each Purchaser that has indicated its election to purchase Offered Securities a notice (the “ Excess Amount Notice ”), which shall (i) identify each Excess Qualified Purchaser, (ii) disclose the amount by which the total number of Offered Securities that the Company desires to offer, issue, sell or exchange to Excess Qualified Purchasers exceeds the total of the Basic Amounts and Undersubscription

 

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Amounts that all such Excess Qualified Purchasers are entitled to purchase pursuant to Section 3.1 (such excess amount, the “ Excess Amount ”) and (iii) offer to issue and sell to each Purchaser that has indicated its election to purchase Offered Securities (including without limitation, each Excess Qualified Purchaser) its pro rata portion of the Excess Amount determined by multiplying the Excess Amount by a fraction, the numerator of which is the sum of the Basic Amount and Undersubscription Amount that such holder is entitled to purchase and the denominator of which is the Excess Amount.

(b) To accept an offer contained in an Excess Amount Notice pursuant to this Section 3.3, in whole or in part, a Qualified Purchaser must deliver to the Company, on or prior to the date 10 days after the date of delivery of the Excess Amount Notice, a notice of acceptance indicating the portion of the Excess Amount that such Excess Qualified Purchaser elects to purchase, provided, however, that if any Excess Qualified Purchaser does not elect to purchase all of its pro rata portion of the Excess Amount, such available portion of the Excess Amount shall be allocated to each Excess Qualified Purchaser who has elected to purchase all of its pro rata portion of the Excess Amount that it is entitled to purchase, pro rata based on the sum of such Excess Qualified Purchaser’s Basic Amount, the Undersubscription Amount that such Excess Qualified Purchaser is entitled to purchase and the portion of the Excess Amount that such Excess Qualified Purchaser is entitled to purchase (prior to any such allocation), subject to rounding by the Board to the extent it deems reasonably necessary.

(c) The Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, any Offered Securities, unless in each case the Company shall have first complied with Section 3.1 and this Section 3.3.

3.4 Termination . This Section 3 shall terminate upon the earlier of the closing of a Company Sale or the closing of an Initial Public Offering.

 

  4. Covenants .

4.1 Affirmative Covenants . So long as any shares of Series C’ Preferred Stock, Series D’ Preferred Stock or Series E Preferred Stock are outstanding, the Company covenants and agrees with the Purchasers that, without the prior written consent of the Investor Majority, it will perform and observe the following covenants and provisions and will cause each Company Subsidiary to perform and observe such of the following covenants and provisions as are applicable to such Company Subsidiary:

(a) Payment of Taxes . Pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or business, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims, which, if unpaid, might become a lien or charge upon any properties of the Company or a Company Subsidiary, other than those which are being contested in good faith if the Company shall have set aside on its books and shall have provided, in accordance with generally accepted accounting principles, adequate reserves with respect thereto.

(b) Maintenance of Insurance . Maintain with responsible and reputable insurance companies or associations, insurance in such amounts, on such terms and covering such risks as the Company reasonably deems advisable. Maintain directors’ and officers’ liability insurance in an amount and on such terms satisfactory to the Board.

(c) Preservation of Corporate Existence . Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required, unless the failure to so qualify does not and will not have a material and adverse effect on the business, operations or

 

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financial condition of the Company; and preserve and maintain all material licenses and other rights to use patents, processes, licenses, trademarks, trade names, inventions, intellectual property rights or copyrights owned or possessed by it as are reasonably necessary or advisable for it to conduct its business.

(d) Compliance with Laws . Comply with all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which could materially adversely affect its business or condition, financial or otherwise, except non-compliance being contested in good faith through appropriate proceedings so long as the Company shall have set up and funded sufficient reserves, if any, required under generally accepted accounting principles with respect to such items.

(e) Keeping of Records and Books of Account . Keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection within its business shall be made.

(f) Maintenance of Properties, etc . Maintain and preserve all of its properties that the Company reasonably deems necessary or useful in the proper conduct of its business in good repair, working order and condition, ordinary wear and tear excepted, and from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements thereto; and comply with the provisions of all material leases to which it is a party or under which it occupies property so as to prevent any material loss or forfeiture thereof or thereunder.

4.2 Inspection Rights . The Company shall permit, and shall cause the Company Subsidiary to permit, each Purchaser (other than MPM Bio IV NVS Strategic Fund, L.P.) owning, or committing to purchase under the Purchase Agreement, not less than an aggregate of 5,000,000 shares of Series C’ Preferred Stock, Series D’ Preferred Stock and/or Series E Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such shares), or any authorized representative thereof, to visit and inspect the properties of the Company or the Company Subsidiary, including its corporate and financial records, and to discuss its business and finances with officers of the Company or the Company Subsidiary, during normal business hours following reasonable notice and as often as may be reasonably requested.

4.3 Financial Statements and Other Information .

(a) The Company shall deliver to each Purchaser and Existing Preferred Stockholder owning, or committing to purchase under the Purchase Agreement, not less than an aggregate of 5,000,000 shares of Series C’ Preferred Stock, Series D’ Preferred Stock and/or Series E Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such shares):

(i) within 90 days after the end of each fiscal year of the Company, an audited balance sheet of the Company as at the end of such year and audited statements of income and of cash flows of the Company for such year, certified by certified public accountants of established national reputation selected by the Company, and prepared in accordance with generally accepted accounting principles consistently applied;

(ii) within 45 days after the end of each fiscal quarter of the Company (other than the fourth quarter), an unaudited balance sheet of the Company as at the end of such quarter, and unaudited statements of income and of cash flows of the Company for such fiscal quarter and for the current fiscal year to the end of such fiscal quarter;

 

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(iii) as soon as practicable, but in any event 30 days before the end of each fiscal year, a budget and business plan for the next fiscal year, approved by the Board and prepared on a quarterly basis, including projected revenues, expenses and cash positions for such quarters and, promptly after prepared, any other budgets or revised budgets prepared by the Company;

(iv) promptly following the end of each of the first three (3) quarters of each fiscal year of the Company, an updated fully diluted as-converted capitalization table of the Company;

(v) such other notices, information and data with respect to the Company as the Company delivers to the holders of its capital stock at the same time it delivers such items to such holders; and

(vi) with reasonable promptness, such other information and data as such Purchaser or Existing Preferred Stockholder may from time to time reasonably request.

(b) The foregoing financial statements shall be prepared on a consolidated basis if the Company then has any subsidiaries. The financial statements delivered pursuant to clause (ii) of Section 4.3(a) shall be accompanied by a certificate of the chief executive officer and chief financial officer of the Company or, if the Company does not have a chief executive officer or chief financial officer, such other officer of the Company who performs the functions of a chief executive officer or chief financial officer, as applicable, stating that such statements have been prepared in accordance with generally accepted accounting principles consistently applied (subject to the absence of footnotes and normal year end audit adjustments and with the understanding that such financial statements will not account for stock-based compensation ordinarily required by generally accepted accounting principles) and fairly present the financial condition and results of operations of the Company at the date thereof and for the periods covered thereby.

4.4 Material Changes and Litigation . The Company shall promptly notify the Purchasers of any material adverse change in the business, prospects, assets or condition, financial or otherwise, of the Company and of any litigation or governmental proceeding or investigation brought or, to the best of the Company’s knowledge, threatened against the Company, or against any officer, director, key employee or principal stockholder of the Company which, if adversely determined, would have a material adverse effect on the business, prospects, assets or condition (financial or otherwise) of the Company.

4.5 Agreements with Employees; Options.

(a) The Company and any Company Subsidiary shall require (i) all persons who commence employment with the Company or a Company Subsidiary after the date of this Agreement to enter into non-disclosure, assignment of inventions, non-competition and non-solicitation agreements substantially in the form as provided to the Purchasers (or such other form as may be approved by the Board and by a majority of the members of the Board who are not employees of the Company or a Company Subsidiary) and (ii) all independent contractors utilized by the Company or a Company Subsidiary who have access to confidential or proprietary information of the Company or Company Subsidiary and perform development work for the Company or Company Subsidiary that is intended to be owned by the Company or Company Subsidiary to enter into non-disclosure and assignment of inventions agreements.

 

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(b) Each of the Company and all Company Subsidiaries agrees that it will not, unless otherwise approved by the Board and by a majority of the members of the Board who are not employees of the Company or a Company Subsidiary, terminate, amend or waive any rights under any inventions, confidentiality, non-competition or restricted stock agreement between the Company or a Company Subsidiary and any employee or consultant thereof.

(c) Unless otherwise approved by the Board and by a majority of the members of the Board who are not employees of the Company or a Company Subsidiary, all options or restricted stock granted or issued by the Company shall become exercisable at the rate of 25% on the first anniversary of grant or issue and 2.083% per month thereafter over the subsequent three years so long as the holder continues to be an employee or consultant of the Company or a Company Subsidiary.

4.6 Board of Directors .

(a) The Company shall promptly reimburse in full each director of the Company who is not an employee of the Company for all of his or her reasonable out-of-pocket expenses incurred in attending each meeting of the Board or any committee thereof.

(b) The Board shall meet on at least a quarterly basis, unless otherwise agreed by a majority of the members of the Board who are not employees of the Company or a Company Subsidiary.

(c) The Company’s Certificate of Incorporation shall at all times provide for the indemnification of the members of the Board to the fullest extent provided by the law of the jurisdiction in which the Company is organized. In the event that the Company or any of its successors or assigns (i) consolidates with or merges into any other entity and shall not be the continuing or surviving corporation in such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any entity, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Company assume the obligations of the Company with respect to indemnification of members of the Board as contained in the Company’s Certificate of Incorporation.

4.7 Related Party Transactions .

(a) The Company shall not enter into any agreement with any stockholder, officer or director of the Company, or any “affiliate” of such persons (as such term is defined in the rules and regulations promulgated under the Securities Act), including without limitation any agreement or other arrangement providing for the furnishing of services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity, without the consent of at least a majority of the members of the Board having no interest in such agreement or arrangement.

(b) The approval of the Board and a majority of the members of the Board who are not employees of the Company or a Company Subsidiary shall be required to (i) establish or increase the compensation of executive officers of the Company or (ii) grant stock options to any officer of the Company.

4.8 Reservation of Common Stock . The Company shall reserve and maintain a sufficient number of shares of Common Stock for issuance upon conversion of all of the outstanding Shares.

 

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4.9 International Investment and Trade in Services Survey Act . The Company shall use its best efforts to file on a timely basis all reports required to be filed by it under 22 U.S.C. Section 3104, or any similar statute, relating to a foreign person’s direct or indirect investment in the Company.

4.10 Termination of Covenants . Other than the covenants contained in Section 4.9, all covenants of the Company contained in this Section 4 shall terminate upon the earlier of the closing of a Company Sale or the closing of an Initial Public Offering.

5. Confidentiality . Each Stockholder agrees that he, she or it will keep confidential and will not disclose, divulge or use for any purpose (other than (x) to monitor its investment in the Company and (y) in the case of a Stockholder that is an employee of the Company or a Company Subsidiary, in the performance of the Stockholder’s duties as an employee of the Company or a Company Subsidiary), any Confidential Information, unless such Confidential Information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 5 by such Stockholder), (b) is or has been independently developed or conceived by the Stockholder without use of the Confidential Information or (c) is or has been made known or disclosed to the Stockholder by a third party without a breach of any obligation of confidentiality such third party may have to the Company or a Company Subsidiary; provided, however, that a Stockholder may disclose Confidential Information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company subject to customary confidentiality undertakings, (ii) to any prospective purchaser of any Shares from such Stockholder as long as such prospective purchaser agrees to be bound by the provisions of this Section 5, (iii) to any Affiliated Party of such Stockholder, or (iv) as may otherwise be required by law, provided that the Stockholder provides to the Company reasonable prior notice of such required disclosure and takes reasonable steps to minimize the extent of any such required disclosure. Notwithstanding the foregoing, such information shall not be deemed confidential for the purpose of enforcing this Agreement. In the event of a conflict between Section 5 of this Agreement and the terms of any other confidentiality agreement between the Company and a Stockholder, the Company and such Stockholder acknowledge and agree that the terms of such other confidentiality agreement shall control and the obligations in this Section 5 shall be deemed satisfied by compliance with such other confidentiality agreement.

 

  6. Transfers of Rights; Calculation of Share Numbers .

6.1 Transfer of Rights . This Agreement, and the rights and obligations of each Stockholder hereunder, may be assigned (but only with all related obligations) by such Stockholder to a transferee of Shares that (a) is an Affiliated Party (except in the case of MPM Bio IV NVS Strategic Fund, L.P., other than Novartis AG or any direct or indirect majority-owned subsidiary of Novartis AG) of such Stockholder, (b) is a Stockholder’s Immediate Family Member or trust for the benefit of such Stockholder or one or more of such Stockholder’s Immediate Family Members, (c) after such transfer, holds at least five percent (5%) of the Series D’ Preferred Stock then outstanding, (d) after such transfer, holds at least five percent (5%) of the Series E Preferred Stock then outstanding or (e) in the case a Stockholder that is an entity, is a stockholder, member, partner or other equity holder of such Stockholder (provided such Stockholder may only assign this Agreement, and the rights and obligations of such Stockholder hereunder, to an aggregate of twelve or fewer of its stockholders, members, partners or other equity holders), and, in each case, such transferee shall be deemed a “Purchaser”, “Existing Preferred Stockholder” and/or “Common Stockholder”, as the case may be depending on the nature of the transferor, for purposes of this Agreement; provided that such assignment of rights shall be contingent upon the transferee providing a written instrument to the Company notifying the Company of such transfer and assignment and agreeing in writing to be bound by the terms of this Agreement. Notwithstanding the foregoing, any person or entity to which any Shares or Registrable Shares are

 

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transferred by a Stockholder, whether voluntarily or by operation of law, shall be bound by the obligations under Section 2.8 to the same extent as if such transferee were a Stockholder hereunder and no Stockholder shall transfer any Shares or Registrable Shares unless the transferee provides a written instrument to the Company notifying the Company of such transfer and agreeing in writing to be bound by the terms of Section 2.8.

6.2 Calculation of Share Numbers . In determining the number of Shares owned by a Stockholder for purposes of exercising rights under this Agreement, (a) Shares owned by a Stockholder shall be deemed to include Shares which have been converted into Common Stock so long as such Common Stock is owned by such Stockholder and (b) all Shares held by affiliated entities or persons shall be aggregated together (provided that no shares shall be attributed to more than one entity or person within any such group of affiliated entities or persons). In determining the number of shares of Series C’ Preferred Stock, Series D’ Preferred Stock or Series E Preferred Stock owned by a Stockholder for purposes of exercising rights under this Agreement, all shares of Series C’ Preferred Stock, Series D’ Preferred Stock and Series E Preferred Stock held by affiliated entities or persons shall be aggregated together (provided that no shares shall be attributed to more than one entity or person within any such group of affiliated entities or persons).

 

  7. General .

7.1 Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

7.2 Specific Performance . In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Stockholder shall be entitled to specific performance of the agreements and obligations of the Company hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction.

7.3 Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts (without reference to the conflicts of law provisions thereof that would require the application of laws of any other jurisdiction).

7.4 Notices . All notices, requests, consents and other communications under this Agreement shall be in writing and shall be deemed delivered (i) three business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (ii) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below:

If to the Company, at

Chiasma, Inc.

831 Beacon St.

Suite 313

Newton Centre, MA 02459

Attention: Chief Executive Officer

or at such other address as may have been furnished in writing by the Company to the other parties hereto,

 

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with a copy to:

Latham & Watkins LLP

John Hancock Tower, 27th Floor

200 Clarendon Street

Boston, Massachusetts 02116

Attention: Peter N. Handrinos, Esq.; or

If to a Purchaser, at its address set forth on Exhibit A (with copies as set forth therein), or at such other address as may have been furnished in writing by such Purchaser to the other parties hereto; or

If to an Existing Preferred Stockholder, at its address set forth on Exhibit B (with copies as set forth therein), or at such other address as may have been furnished in writing by such Existing Preferred Stockholder to the other parties hereto; or

If to a Common Stockholder, at its address set forth on Exhibit C (with copies as set forth therein), or at such other address as may have been furnished in writing by such Common Stockholder to the other parties hereto.

Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, facsimile, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section 7.4.

7.5 Complete Agreement . This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter, including without limitation the Prior Agreement.

7.6 Amendments and Waiver s. This Agreement may be amended or terminated and the observance of any term of 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), with the written consent of the Company, the Stockholders holding Registrable Shares representing a majority of the voting power of all Registrable Shares then held by the Stockholders and the Investor Majority; provided that any amendment, termination or waiver to the terms of Section 2 (or a defined term used therein) that occurs after the closing of the Initial Public Offering shall instead require the written consent of the Company, the Purchasers holding Registrable Shares representing a majority of all Registrable Shares then held by the Purchasers and the Stockholders holding Registrable Shares representing a majority of all Registrable Shares then held by the Stockholders. Notwithstanding the foregoing, (a) this Agreement may not be amended or terminated and the observance of any term hereunder may not be waived with respect to any Purchaser, Qualified Purchaser, Stockholder, Existing Preferred Stockholder or Common Stockholder without the written consent of such Purchaser, Qualified Purchaser, Stockholder, Existing Preferred Stockholder or Common Stockholder, as the case may be, unless such amendment, termination or waiver applies to all Purchasers, Qualified Purchasers, Stockholders, Existing Preferred Stockholders or Common Stockholders, as the case may be, in the same fashion (it being agreed that a waiver of the provisions of Section 3 with respect to a particular transaction shall be deemed to apply to all Qualified Purchasers in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Qualified Purchasers may nonetheless, by agreement with the Company, purchase securities in such transaction); (b) this Agreement may not be amended, and the observance of any term of this Agreement

 

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may not be waived, without the written consent of the holders of at least 75% of the then outstanding shares of Series D’ Preferred Stock then held by the Purchasers (the “ Special Series D’ Vote ”), if such amendment or waiver would materially alter the rights of the Series D’ Preferred; (c) this Agreement may not be amended, and the observance of any term of this Agreement may not be waived, without the written consent of the holders of a majority of the then outstanding shares of Series E Preferred Stock then held by the Purchasers (the “ Special Series E Vote ”), if such amendment or waiver would materially alter the rights of the Series E Preferred; and (d) prior to December 31, 2014, Section 3.1(j) of this Agreement may not be amended or terminated and the observance of any term thereunder may not be waived without, prior to the distribution of Shares by F2 and/or F3 to their respective equity holders, the written consent of F2 and F3 and, after such distribution, the respective equity holders of F2 and/or F3 that received the Shares distributed by F2 and/or F3, as the case may be. For the sake of clarity, neither the Special Series D’ Vote nor the Special Series E Vote shall be required for any amendment or modification to this Agreement to add additional investors or provide for a new class or series of preferred stock in connection with a financing. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 7.6 shall be binding on all parties hereto, even if they do not consent thereto. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

7.7 Pronouns . Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.

7.8 Counterparts; Facsimile Signatures . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same document. This Agreement may be executed by facsimile signatures or other electronic means.

7.9 Section Headings and References . The section headings are for the convenience of the parties and in no way alter, modify, amend, limit or restrict the contractual obligations of the parties. Any reference in this agreement to a particular section or subsection shall refer to a section or subsection of this Agreement, unless specified otherwise.

7.10 Additional Parties .

(a) Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of Preferred Stock after the date hereof to a person or entity not already a party to this Agreement, as a condition to the issuance of such shares the Company shall require that such person or entity become a party to this Agreement by executing and delivering a counterpart signature page hereto agreeing to be bound by and subject to the terms of this Agreement as an Existing Preferred Stockholder (and if such person or entity purchased Series C’ Preferred Stock, Series D’ Preferred Stock or Series E Preferred Stock, a Purchaser) hereunder. Each such person or entity shall thereafter be deemed an Existing Preferred Stockholder (and if such person or entity purchased Series C’ Preferred Stock, Series D’ Preferred Stock or Series E Preferred Stock, a Purchaser) for all purposes under this Agreement. The Company shall have the ability to amend Exhibit B (and Exhibit A , if applicable) to add contact information regarding such additional Existing Preferred Stockholder without obtaining the consent of any other party to this Agreement.

 

-25-


(b) In the event that after the date of this Agreement, the Company enters into an agreement with any person to issue shares of capital stock to such person (other than to a purchaser of Preferred Stock described in Section 7.10(a) above), following which such person shall hold shares of the Company’s capital stock representing on an as-converted to common stock basis two percent (2%) or more of the Company’s then outstanding capital stock (treating for this purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised and/or converted or exchanged), then the Company shall cause such person, as a condition precedent to entering into such agreement, to become a party to this Agreement by executing and delivering a counterpart signature page hereto agreeing to be bound by and subject to the terms of this Agreement as a Common Stockholder hereunder. Each such person shall thereafter be deemed a Common Stockholder for all purposes under this Agreement. The Company shall have the ability to amend Exhibit C to add contact information regarding such additional Common Stockholder without obtaining the consent of any other party to this Agreement.

7.11 Submission to Jurisdiction . Each of the parties (a) submits to the jurisdiction of any state or federal court sitting in Boston, Massachusetts or Wilmington, Delaware in any action or proceeding arising out of or relating to this Agreement, (b) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court, (c) waives any claim of inconvenient forum or other challenge to venue in any such court, (d) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court and (e) waives any right it may have to a trial by jury with respect to any action or proceeding arising out of or relating to this Agreement. Each party agrees to accept service of any summons, complaint or other initial pleading made in the manner provided for the giving of notices in Section 7.4, provided that nothing in this Section 7.11 shall affect the right of any party to serve such summons, complaint or other initial pleading in any other manner permitted by law.

7.12 Delays or Omissions . No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

[Remainder of Page Intentionally Left Blank]

 

-26-


Executed as of the date first written above.

 

CHIASMA, INC.
By:

/s/ Roni Mamluk

Name: Roni Mamluk, Ph.D.
Title: Chief Executive Officer and President

[Signature Page to Amended and Restated Investor Rights Agreement]


ARCH VENTURE FUND VI, L.P.

By: ARCH Venture Partners VI, L.P., its General Partner
By: ARCH Venture Partners VI, LLC, its General Partner
By:

/s/ Clinton W. Bybee

Name: Clinton W. Bybee
Title: Managing Director
F2 CAPITAL I 2014 LIMITED
By:

/s/ Vanessa Briceno

Name: Vanessa Briceno, Clambake Limited
Title: Director of Corporate Directors
By:

/s/ Vincent McCartney

Name:

Vincent McCartney, Cellar Limited,

Title: Director of Corporate Directors
F2 VENTURE CAPITAL PARTNERSHIP, L.P.
By: F2 CAPITAL LIMITED, its General Partner
By:

/s/ Bard J. Geesaman

Name: Bard J. Geesaman
Title: Partner
F3 VENTURE CAPITAL PARTNERSHIP, L.P.
By: F3 CAPITAL LIMITED, its General Partner
By:

/s/ Bard J. Geesaman

Name: Bard J. Geesaman
Title: Partner
7 MED HEALTH VENTURES LP
By: 7 HEALTH VENTURES, its General Partner
By:

/s/ Dror Brandwein

Name: Dror Brandwein
Title: Chief Executive Officer

[Signature Page to Amended and Restated Investor Rights Agreement]


MPM BIOVENTURES IV-QP, L.P.
By: MPM BIOVENTURES IV GP LLC, its General Partner
By: MPM BIOVENTURES IV LLC, its Managing Member
By:

/s/ Todd Foley

Name: Todd Foley
Title: Member
MPM BIOVENTURES IV GMBH & CO. BETEILIGUNGS KG
By: MPM BIOVENTURES IV GP LLC, in its capacity as the Managing Limited Partner
By: MPM BIOVENTURES IV LLC, its Managing Member
By:

/s/ Todd Foley

Name: Todd Foley
Title: Member
MPM ASSET MANAGEMENT INVESTORS BV4 LLC
By: MPM BIOVENTURES IV LLC, its Manager
By:

/s/ Todd Foley

Name: Todd Foley
Title: Member
MPM BIO IV NVS STRATEGIC FUND, L.P.
By: MPM BIOVENTURES IV GP LLC, its General Partner
By: MPM BIOVENTURES IV LLC, its Managing Member
By:

/s/ Todd Foley

Name: Todd Foley
Title: Member

[Signature Page to Amended and Restated Investor Rights Agreement]


ABINGWORTH BIOVENTURES V LP, acting by
Its Manager Abingworth LLP
By:

/s/ James Abell

Name: James Abell
Title: Partner
L. SCOTT MINICK AND BETH R. MINICK,
AS TRUSTEES OF THE MINICK FAMILY TRUST
By:

/s/ L. Scott Minick

Name: L. Scott Minick
Title: Trustee
By:

/s/ Beth R. Minick

Name: Beth R. Minick
Title: Trustee
GLOBEWAYS HOLDINGS LIMITED
By:

/s/ Barbara Bianchi

Name: Barbara Bianchi, Clambake Limited
Title:

as Alternate Director to Barbara Haldi

Director of Corporate Directors

By:

/s/ Vanessa Briceno Ramos

Name: Vanessa Briceno Ramos, Cellar Limited
Title: Director of Corporate Directors

/s/ Fredric D. Price

Fredric D. Price

/s/ Sam Teichman

Sam Teichman

/s/ Scott Minick

Scott Minick

[Signature Page to Amended and Restated Investor Rights Agreement]


EXHIBIT A

Purchasers

 

MPM BioVentures IV-QP, L.P.

200 Clarendon Street, 54th Floor

Boston, MA 02116

MPM Bio IV NVS Strategic Fund, L.P.

200 Clarendon Street, 54th Floor

Boston, MA 02116

MPM Asset Management Investors BV4 LLC

200 Clarendon Street, 54th Floor

Boston, MA 02116

MPM BioVentures IV GmbH & Co.

Beteiligungs KG

200 Clarendon Street, 54th Floor

Boston, MA 02116

F2 Capital I 2014 Limited

Sterling Group

Suite 205A Safrrey Square

Bay Street

P.O. Box N-9934

Nassau, Bahamas

with a copy to:

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, MA 02109

Abingworth Bioventures V LP

Abingworth LLP

38 Jermyn Street

London SW1Y 6DN

United Kingdom

Attn: General Counsel

ARCH Venture Fund VI, L.P.

8725 West Higgins Road, Suite 290

Chicago, IL 60631

7 Med Health Ventures LP

16B Shenkar Street, P.O.B. 12327

Herzliya Pituach

46733 Israel

Sam Teichman

Globeways Holdings Limited

Rue du Seyon 2, PO Box 2048

2001 Neuchatel

SWITZERLAND

 

L. Scott Minick and Beth R. Minick,

as Trustees of the Minick Family Trust

 

A-1


EXHIBIT B

Existing Preferred Stockholders

 

MPM BioVentures IV-QP, L.P.

200 Clarendon Street, 54th Floor

Boston, MA 02116

MPM Bio IV NVS Strategic Fund, L.P.

200 Clarendon Street, 54th Floor

Boston, MA 02116

MPM Asset Management Investors BV4 LLC

200 Clarendon Street, 54th Floor

Boston, MA 02116

MPM BioVentures IV GmbH & Co.

Beteiligungs KG

200 Clarendon Street, 54th Floor

Boston, MA 02116

F2 Venture Capital Partnership L.P.

Sterling Group

Suite 205A Safrrey Square

Bay Street

P.O. Box N-9934

Nassau, Bahamas

with a copy to:

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, MA 02109

F3 Venture Capital Partnership L.P.

Sterling Group

Suite 205A Safrrey Square

Bay Street

P.O. Box N-9934

Nassau, Bahamas

with a copy to:

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, MA 02109

Abingworth Bioventures V LP

Abingworth LLP

38 Jermyn Street

London SW1Y 6DN

United Kingdom

Attn: General Counsel

ARCH Venture Fund VI, L.P.

8725 West Higgins Road, Suite 290

Chicago, IL 60631

Globeways Holdings Limited

Rue du Seyon 2, PO Box 2048

2001 Neuchatel

SWITZERLAND

Priestley Pitblado Trust

Flag House, Market Hill

St Aubin JE3 8AE

JERSEY

 

B-1


7 Med Health Ventures LP

16B Shenkar Street, P.O.B. 12327

Herzliya Pituach

46733 Israel

GE Capital Equity Investments

c/o GE Healthcare Financial Services

Two Bethesda Metro Center, Suite 600

Bethesda, MD 20814

Ofer Hi Tech Investments Ltd.

(as transferee of Orlin Technologies Ltd.)

P.O. Box 1509

Matam, Haifa 31905, Israel

Yissum Research Development Company of The Hebrew University of Jerusalem

Hi Tech Park

Edmond J. Safra Campus,

Givat Ram

Jerusalem 91390, Israel

with a copy to:

E.S. Shimron, I. Molho, Persky & Co.

Technology Park, Building 1

Manahat, Jerusalem 91487, Israel

 

Scott Minick

 

Fredric D. Price

Sam Teichman

 

B-2


EXHIBIT C

Common Stockholders

 

Yissum Research Development Company

of The Hebrew University of Jerusalem

Hi Tech Park

Edmond J. Safra Campus,

Givat Ram

Jerusalem 91390, Israel

with a copy to:

E.S. Shimron, I. Molho, Persky & Co.

Technology Park, Building 1

Manahat, Jerusalem 91487, Israel

HIB Inc.

c/o Abacus Trust Management Services Ltd.

Road Town, Tortola

British Virgin Islands

with a copy to:

Dr. Avi Alter & Co. Law Offices

8 Shaul Hamelech Blvd.

Tel Aviv 64733, Israel

Scheer & Company, Inc .

250 West Main Street

Branford, Connecticut 06405

Ofer Hi Tech Investments Ltd.

(as transferee of Orlin Technologies Ltd.)

P.O. Box 1509

Matam, Haifa 31905, Israel

Einat Cohen

Guy Yachin

Sam Teichman

 

C-1


OMNIBUS AMENDMENT AGREEMENT

THIS OMNIBUS AMENDMENT AGREEMENT (this “ Amendment ”), dated as of February 26 , 2015, amends: (i) that certain Series E Convertible Preferred Stock Purchase Agreement, dated as of December 16, 2014, by and among Chiasma, Inc., a Delaware corporation (the “ Company ”), and the other parties thereto (the “ Purchase Agreement ”); (ii) that certain Amended and Restated Investor Rights Agreement, dated as of December 16, 2014, by and among the Company and the other parties thereto (the “ Investor Rights Agreement ”); (iii) that certain Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of December 16, 2014, by and among the Company and the other parties thereto (the “ Right of First Refusal and Co-Sale Agreement ”); and (iv) that certain Amended and Restated Stockholders’ Voting Agreement, dated as of December 16, 2014, by and among the Company and the other parties thereto (the “ Voting Agreement ”, and collectively with the Purchase Agreement, the Investor Rights Agreement and the Right of First Refusal and Co-Sale Agreement, the “ Agreements ”).

WHEREAS, the undersigned desire to amend each of the Agreements in the manner set forth herein.

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby agree as follows:

 

  1. Amendment of Purchase Agreement

Acting in accordance with Section 7.10 of the Purchase Agreement, the Company and the holders of a majority of the shares of Series E Preferred (as defined in the Purchase Agreement) held by the Purchasers (as defined in the Purchase Agreement), hereby agree as follows:

(a) The first recital to the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“WHEREAS, the Company wishes to issue and sell to the Purchasers an aggregate of up to 80,774,458 shares of the authorized but unissued Series E Convertible Preferred Stock, $0.01 par value per share, of the Company (the “ Series E Preferred ”);”

(b) The first sentence of Section 1.1 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“The Company has duly authorized the sale and issuance, pursuant to the terms of this Agreement, of up to 80,774,458 shares of Series E Preferred, having the rights, privileges, preferences and restrictions set forth in the Amended and Restated Certificate of Incorporation of the Corporation attached hereto as Exhibit E (as amended, the “ Restated Certificate ”).”


(c) The first sentence of Section 1.2 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“Subject to the terms and conditions of this Agreement, at the Closing (as defined below), the Company will sell and issue to the Purchasers, and the Purchasers will purchase, (i) an aggregate of up to 80,774,458 shares of Series E Preferred for the purchase price of $1.00 per share (the “ Series E Purchase Price ”), and (ii) warrants, in substantially the form attached hereto as Exhibit F , to purchase an aggregate of up to 20,193,614 shares of Common Stock at an exercise price of $1.00 per share (collectively, the “ Warrants ”).”

(d) The first sentence of Section 2.2 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“After the Initial Closing, the Company may sell, on the same terms and conditions as those contained in this Agreement, including the closing conditions set forth in Sections 5.1 and 5.2, up to 46,999,695 additional shares (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or similar recapitalization affecting such shares) of Series E Preferred (the “ Additional Shares ”), and Warrants to one or more purchasers (the “ Additional Purchasers ”), provided that (i) such subsequent sale is consummated on or prior to March 6, 2015 and (ii) each Additional Purchaser shall become a party to the Ancillary Agreements (as defined below), by executing and delivering a counterpart signature page to each of the Ancillary Agreements.”

(e) The references to “Restated Certificate” in (i) Section 3.3 of the Purchase Agreement shall mean the Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on December 15, 2014 and (ii) Section 3.6(a)(i) of the Purchase Agreement, with respect to each Closing other than the Initial Closing, shall mean the Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on December 15, 2014, as amended and/or restated as of the date of such Closing.

(f) Section 5.2(a) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“(a) the Company shall have delivered to the Purchasers the Disclosure Schedule, dated as of such Closing;”

(g) Section 5.2(h) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“(h) Latham & Watkins LLP, U.S. Counsel to the Company, shall have delivered to the Purchasers an opinion, dated as of such Closing, in substantially the form attached hereto as Exhibit I ;”

 

36


(h) Section 5.2(i) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“(i) Pearl Cohen Zedek Latzer Baratz, Israeli Counsel to the Subsidiary, shall have delivered to the Purchasers an opinion, dated as of such Closing, in substantially the form attached hereto as Exhibit J ;”

(i) Section 5.2(j) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“(j) the representations and warranties of the Company set forth in Section 3, except as disclosed by the Company in the Disclosure Schedule, shall be true and correct as of the date of such Closing as if made on the date of such Closing, except for those representations and warranties that address matters only as of a particular date (which shall be true and correct as of such date); provided, however, in connection with the sale of Additional Shares to an Additional Purchaser pursuant to Section 2.2, the representations and warranties of the Company set forth in Sections 3.3(a), 3.3(b) and 3.11(d) hereof shall be true and correct as of the date of such Closing (assuming for this purpose that the references to the “Initial Closing” in such sections shall mean the date of such Closing);”

(j) Section 5.2(m) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“(m) the Company shall have delivered to each of the Purchasers that has tendered full payment to the Company for the number of shares of Series E Preferred set forth opposite such Purchaser’s name under the heading “No. of Shares of Series E Preferred” on Exhibit A hereto (i) a certificate registered in the name of such Purchaser for such number of shares of Series E Preferred and (ii) a Warrant for the number of shares of Common Stock, if any, set forth opposite such Purchaser’s name under the heading “No. of Warrants” on Exhibit A hereto; provided, however, that each Purchaser advised or subadvised by Fidelity Management & Research Company (“ Fidelity ”) or one of its affiliates (each such Purchaser, a “ Fidelity Investor ”) shall not be required to send its payment by wire transfer for the Shares being purchased by such Fidelity Investor, as applicable, until it (or its designated custodian per its delivery instructions) confirms receipt of the stock certificate representing its Shares and a fully executed original copy of its Warrant.”

(k) Section 7.3 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“7.3 Expenses . Each party shall pay all fees and disbursements of its counsel in connection with the negotiation and preparation of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby. Notwithstanding the foregoing: (i) at the Initial Closing, the Company shall reimburse F2 Capital I 2014 Limited for reasonable fees and expenses incurred in the negotiation and preparation of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, in an amount not to exceed $50,000 in the aggregate, as well as all such reasonable expenses incurred in connection with any future amendments, modifications, or waivers to this Agreement or any Ancillary Document; and (ii) at any Closing following the Initial Closing, the Company shall pay the reasonable fees and expenses of counsel

 

37


to the Fidelity Investors incurred in connection with such counsel’s due diligence review of the Company, the negotiation and preparation of any amendments, modifications, or waivers to this Agreement or any Ancillary Document and the consummation of the transactions contemplated hereby and thereby, in an amount not to exceed $35,000 in the aggregate, as well as all such reasonable expenses incurred in connection with any future amendments, modifications, or waivers to this Agreement or any Ancillary Document.”

(l) Section 7.4 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:

“7.4 Brokers . The Company and each Purchaser (a) represents and warrants to the other parties hereto that he, she or it has not retained a finder or broker in connection with the transactions contemplated by this Agreement and (b) will indemnify and save the other parties harmless from and against any and all claims, liabilities or obligations with respect to brokerage or finders’ fees or commissions, or consulting fees in connection with the transactions contemplated by this Agreement asserted by any person on the basis of any statement or representation alleged to have been made by such indemnifying party. Notwithstanding anything to the contrary set forth herein, the foregoing clause (b) shall not apply to any Fidelity Investor and the Company shall not have any obligation under the foregoing clause (b) to any Fidelity Investor.”

(m) A new Section 7.16 is hereby added to the Purchase Agreement, to read as follows:

“7.16 No Promotion . The Company agrees that it will not, and shall cause each of its subsidiaries to not, without the prior written consent of Fidelity, use in advertising, or otherwise use publicly, the name of any Fidelity Investor or Fidelity, or any partner or employee of Fidelity or any Fidelity Investor, nor any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof owned by Fidelity, any Fidelity Investor or any of their respective affiliates. The Company further agrees that it shall obtain the written consent of Fidelity prior to the Company’s issuance of any public statement detailing the purchase of Shares by Fidelity Investors pursuant to this Agreement. Anything herein to the contrary notwithstanding, this Section 7.16 shall not be amended without the prior written consent of each Fidelity Investor. Notwithstanding the foregoing, this Agreement and any other agreement to which the Company and a Fidelity Investor is a party may be filed by the Company with the Securities and Exchange Commission.”

 

  2. Amendment of Investor Rights Agreement

Acting in accordance with Section 7.6 of the Investor Rights Agreement, the Company, the Stockholders (as defined in the Investor Rights Agreement) holding Registrable Shares (as defined in the Investor Rights Agreement) representing a majority of the voting power of all Registrable Shares held by the Stockholders and the Investor Majority (as defined in the Investor Rights Agreement), hereby agree as follows:

(a) The references to “Purchase Agreement” in the Investor Rights Agreement shall mean the Purchase Agreement (as defined in the Investor Rights Agreement), as amended by this Amendment.

 

38


(b) Section 1 of the Investor Rights Agreement is hereby amended by amending and restating the definition of “Investor Majority” therein to read as follows:

““ Investor Majority ” means the holders of shares representing at least sixty-eight percent (68%) of the voting power of the then outstanding shares of Series C’ Preferred Stock, Series D’ Preferred Stock and Series E Preferred Stock, voting together as a single class.”

(c) The first sentence of Section 2.2 of the Investor Rights Agreement is hereby amended and restated in its entirety to read as follows:

“Whenever the Company proposes to file a Registration Statement (other than a Registration Statement filed pursuant to Section 2.1 or relating to the Initial Public Offering) at any time and from time to time, it will, prior to such filing, give written notice to all Stockholders of its intention to do so.”

(d) Section 4.3(a) of the Investor Rights Agreement is hereby amended and restated in its entirety to read as follows:

“(a) The Company shall deliver to (i) each Purchaser and Existing Preferred Stockholder owning, or committing to purchase under the Purchase Agreement, not less than an aggregate of 5,000,000 shares of Series C’ Preferred Stock, Series D’ Preferred Stock and/or Series E Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such shares) and (ii) each Purchaser owning shares of capital stock of the Company and advised or subadvised by Fidelity Management & Research Company or one of its affiliates (each such Purchaser, a “ Fidelity Investor ”):

(i) within 90 days after the end of each fiscal year of the Company, an audited balance sheet of the Company as at the end of such year and audited statements of income and of cash flows of the Company for such year, certified by certified public accountants of established national reputation selected by the Company, and prepared in accordance with generally accepted accounting principles consistently applied;

(ii) within 45 days after the end of each fiscal quarter of the Company (other than the fourth quarter), an unaudited balance sheet of the Company as at the end of such quarter, and unaudited statements of income and of cash flows of the Company for such fiscal quarter and for the current fiscal year to the end of such fiscal quarter;

(iii) as soon as practicable, but in any event 30 days before the end of each fiscal year, a budget and business plan for the next fiscal year, approved by the Board and prepared on a quarterly basis, including projected revenues, expenses and cash positions for such quarters and, promptly after prepared, any other budgets or revised budgets prepared by the Company;

 

39


(iv) promptly following the end of each of the first three (3) quarters of each fiscal year of the Company, an updated fully diluted as-converted capitalization table of the Company;

(v) such other notices, information and data with respect to the Company as the Company delivers to the holders of its capital stock at the same time it delivers such items to such holders; and

(vi) with reasonable promptness, such other information and data as such Purchaser, Existing Preferred Stockholder or Fidelity Investor may from time to time reasonably request.”

(e) A new Section 4.3(c) is hereby added to the Investor Rights Agreement, to read as follows:

“(c) For so long as the Fidelity Investors own the shares of Series E Preferred Stock purchased by the Fidelity Investors under the Purchase Agreement, the Company shall give to each Fidelity Investor copies of all notices, minutes, consents and other materials that it provides to the Board at the same time and in the same manner as provided to the Board; provided, however, that the Fidelity Investors shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any such information if (i) the disclosure of such information to a third party could render the Company unable to comply with requirements under the Securities Act or Exchange Act, (ii) access to such information could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets or result in a conflict of interest, or (iii) such Fidelity Investor is a competitor of the Company. Notwithstanding anything else in this Section 4.3(c) to the contrary, the Company may cease providing the information set forth in this Section 4.3(c) during the period starting with the date sixty (60) days before the Company’s good-faith estimate of the date of submission or filing of a registration statement if it reasonably concludes it must do so to comply with the Commission rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Section 4.3(c) shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.”

(f) Section 7.6 of the Investor Rights Agreement is hereby amended and restated in its entirety to read as follows:

“7.6 Amendments and Waivers . This Agreement may be amended or terminated and the observance of any term of 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), with the written consent of the Company, the Stockholders holding Registrable Shares representing a majority of the voting power of all Registrable Shares then held by the

 

40


Stockholders and the Investor Majority; provided that any amendment, termination or waiver to the terms of Section 2 (or a defined term used therein) that occurs after the closing of the Initial Public Offering shall instead require the written consent of the Company, the Purchasers holding Registrable Shares representing a majority of all Registrable Shares then held by the Purchasers and the Stockholders holding Registrable Shares representing a majority of all Registrable Shares then held by the Stockholders. Notwithstanding the foregoing, (a) this Agreement may not be amended or terminated and the observance of any term hereunder may not be waived with respect to any Purchaser, Qualified Purchaser, Stockholder, Existing Preferred Stockholder or Common Stockholder without the written consent of such Purchaser, Qualified Purchaser, Stockholder, Existing Preferred Stockholder or Common Stockholder, as the case may be, unless such amendment, termination or waiver applies to all Purchasers, Qualified Purchasers, Stockholders, Existing Preferred Stockholders or Common Stockholders, as the case may be, in the same fashion (it being agreed that a waiver of the provisions of Section 3 with respect to a particular transaction shall be deemed to apply to all Qualified Purchasers in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Qualified Purchasers may nonetheless, by agreement with the Company, purchase securities in such transaction); (b) this Agreement may not be amended, and the observance of any term of this Agreement may not be waived, without the written consent of the holders of at least 75% of the then outstanding shares of Series D’ Preferred Stock then held by the Purchasers (the “ Special Series D’ Vote ”), if such amendment or waiver would materially alter the rights of the Series D’ Preferred; (c) this Agreement may not be amended, and the observance of any term of this Agreement may not be waived, without the written consent of the holders of a majority of the then outstanding shares of Series E Preferred Stock then held by the Purchasers (the “ Special Series E Vote ”), if such amendment or waiver would materially alter the rights of the Series E Preferred; (d) prior to December 31, 2014, Section 3.1(j) of this Agreement may not be amended or terminated and the observance of any term thereunder may not be waived without, prior to the distribution of Shares by F2 and/or F3 to their respective equity holders, the written consent of F2 and F3 and, after such distribution, the respective equity holders of F2 and/or F3 that received the Shares distributed by F2 and/or F3, as the case may be; and (e) any amendment, termination or waiver to the terms of Sections 2.8 and 4.3 (or a defined term used therein) in a manner adverse to any Fidelity Investor(s) shall require the written consent of the applicable Fidelity Investor(s). For the sake of clarity, neither the Special Series D’ Vote nor the Special Series E Vote shall be required for any amendment or modification to this Agreement to add additional investors or provide for a new class or series of preferred stock in connection with a financing. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 7.6 shall be binding on all parties hereto, even if they do not consent thereto. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.”

 

  3. Amendment of Right of First Refusal and Co-Sale Agreement

Acting in accordance with Section 13.6 of the Right of First Refusal and Co-Sale Agreement, the Company, the Investors (as defined in the Right of First Refusal and Co-Sale Agreement) holding shares of Preferred Stock (as defined in the Right of First Refusal and

 

41


Co-Sale Agreement) representing a majority of the voting power of all shares of Preferred Stock held by Investors, the Stockholders (as defined in the Right of First Refusal and Co-Sale Agreement) holding Shares (as defined in the Right of First Refusal and Co-Sale Agreement) representing a majority of the voting power of all Shares then held by the Stockholders and the Investor Majority (as defined in the Right of First Refusal and Co-Sale Agreement), hereby agree as follows:

(a) The first sentence of Section 8.1 of the Right of First Refusal and Co-Sale Agreement is hereby amended and restated in its entirety to read as follows:

“If (i) any person or the Company or any other entity proposes to engage in a transaction or series of related transactions that (A) would be a Deemed Liquidation Event (as defined in the Company’s Certificate of Incorporation, as may be amended and/or restated from time to time (the “ Company Certificate ”)) or (B) involves the sale, to any person or entity or group of affiliated persons or entities, of shares of capital stock representing a majority of the voting power of all outstanding capital stock of the Company ((A) and (B), a “ Sale of the Company ”), (ii) such Sale of the Company is approved by the Board and (iii) the holders of shares representing at least sixty-eight percent (68%) of the voting power of the then outstanding shares of Series C’ Preferred Stock, Series D’ Preferred Stock and Series E Preferred Stock, voting together as a single class (the “ Investor Majority ”), vote in favor of or consent in writing to such Sale of the Company (including, without limitation, by means of a proxy or stockholder consent voting in favor of such transaction), then each Stockholder shall be obligated to (a) vote all of his, her or its Shares in favor of such Sale of the Company, to the extent any such vote is required for the consummation of such Sale of the Company, (b) if applicable, sell, transfer or exchange all of his, her or its Shares in connection with such Sale of the Company on the same terms as those consented to by such Investors (with appropriate adjustment to reflect the conversion of convertible securities and the preference and priorities of the Preferred Stock) and (c) execute and deliver such instruments of sale, transfer and exchange and take such other action, including, without limitation, executing any purchase agreement, merger agreement, indemnity agreement, escrow agreement or related documents, as may be reasonably required by the Company in order to carry out the terms and provisions of this Section 8.1.”

 

  4. Amendment of Voting Agreement

Acting in accordance with Section 10(h) of the Voting Agreement, the Company, the Stockholders (as defined in the Voting Agreement) holding Shares (as defined in the Voting Agreement) representing a majority of the voting power of all Shares then held by the Stockholders and the Investor Majority (as defined in the Voting Agreement), hereby agree as follows:

(a) The references to “Series E Purchase Agreement” in the Voting Agreement shall mean the Series E Purchase Agreement (as defined in the Voting Agreement), as amended by this Amendment.

 

42


(b) Section 1 of the Voting Agreement is hereby amended and restated in its entirety to read as follows:

“1. Voting of Shares .

(a) In any and all elections of directors of the Company (whether at a meeting or by written consent in lieu of a meeting), each Stockholder shall vote or cause to be voted all Shares (as defined below) owned by him, her, or it, or over which he, she, or it has voting control, and otherwise use his, her, or its respective best efforts, so as to fix the number of directors of the Company at nine (9) and to elect as directors:

(i) the individual then employed as the Chief Executive Officer of the Company (the “ CEO Director ”), which directorship shall initially be held by Roni Mamluk, provided that, if for any reason such individual shall cease to serve as the Chief Executive Officer of the Company, each of the Stockholders shall promptly vote their respective Shares (A) to remove him or her from the Board if he or she has not resigned from such position and (B) to elect the person who replaces him or her as Chief Executive Officer of the Company as the new CEO Director;

(ii) two (2) individuals designated by MPM BioVentures IV-QP, L.P., for so long as it (together with its affiliated entities) holds at least 50% of the aggregate number of shares of Series E Preferred Stock that it and its affiliated entities purchase pursuant to the Series E Purchase Agreement, who shall initially be Todd T. Foley and Ansbert K. Gadicke;

(iii) one (1) individual designated by Abingworth Bioventures V LP, for so long as it (together with its affiliated entities) holds at least 50% of the aggregate number of shares of Series E Preferred Stock that it and its affiliated entities purchase pursuant to the Series E Purchase Agreement, who shall initially be Vincent Miles;

(iv) one (1) individual designated by 7 Med Health Ventures LP, for so long as it (together with its affiliated entities) holds at least 50% of the aggregate number of shares of Series E Preferred Stock that it and its affiliated entities purchase pursuant to the Series E Purchase Agreement, who shall initially be Dror Brandwein;

(v) one (1) individual designated by ARCH Venture Fund VI, L.P., for so long as it (together with its affiliated entities) holds at least 50% of the aggregate number of shares of Series E Preferred Stock that it and its affiliated entities purchase pursuant to the Series E Purchase Agreement, who shall initially be Scott Minick;

(vi) one (1) individual designated by F2 Capital I 2014 Limited, for so long as it (together with its affiliated entities) holds at least 50% of the aggregate number of shares of Series E Preferred Stock that it and its affiliated entities purchase pursuant to the Series E Purchase Agreement, who shall initially be Bard J. Geesaman; and

(vii) two (2) individuals designated by the holders of shares representing at least sixty-eight percent (68%) of the voting power of the then outstanding shares of the Company’s Series C’ Convertible Preferred Stock, par value $0.01 per share, the Company’s Series D’ Convertible Preferred Stock, par value $0.01

 

43


per share (the “ Series D’ Preferred Stock ”), and Series E Preferred Stock held by the Stockholders, voting together as a single class (collectively, the “ Investor Majority ”), who shall initially be John A. Scarlett and David M. Stack.”

(b) Section 3 of the Voting Agreement is hereby amended and restated in its entirety to read as follows:

“3. Irrevocable Proxy and Power of Attorney . Each party to this Agreement hereby constitutes and appoints as the proxies of the party and hereby grants a power of attorney to the President of the Company and a designee of the Investor Majority, and each of them, with full power of substitution, with respect to the matters set forth in this Agreement, including without limitation, election of persons as members of the Board in accordance with Section 1 hereof and votes to increase authorized shares pursuant to Section 8 hereof, and hereby authorizes each of them to represent and to vote, if and only if the party (a) fails to vote or (b) attempts to vote (whether by proxy, in person or by written consent), in a manner which is inconsistent with the terms of this Agreement, all of such party’s Shares in favor of the election of persons as members of the Board determined pursuant to and in accordance with the terms and provisions of this Agreement or the increase of authorized shares pursuant to and in accordance with the terms and provisions of Section 8 hereof or to take any action necessary to effect Section 8 hereof. Each of the proxy and power of attorney granted pursuant to the immediately preceding sentence is given in consideration of the agreements and covenants of the Company and the parties in connection with the transactions contemplated by this Agreement and, as such, each is coupled with an interest and shall be irrevocable unless and until this Agreement terminates or expires pursuant to Section 4 hereof. Each party hereto hereby revokes any and all previous proxies or powers of attorney with respect to the Shares and shall not hereafter, unless and until this Agreement terminates or expires pursuant to Section 4 hereof, purport to grant any other proxy or power of attorney with respect to any of the Shares, deposit any of the Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of any of the Shares, in each case, with respect to any of the matters set forth herein. Notwithstanding anything herein to the contrary, the provisions of this Section 3 shall not be applicable to any Stockholder advised or subadvised by Fidelity Management & Research Company, or one of its Affiliates.”

3. Miscellaneous . Except as provided herein, each of the Agreements shall remain unchanged and in full force and effect. This Amendment may be executed in several counterparts by facsimile or other electronic means, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Amendment 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 the internal laws of the Commonwealth of Massachusetts (without reference to the conflicts of law provisions thereof that would require the application of laws of any other jurisdiction), as to all other matters.

[ Signature Page Follows ]

 

44


Executed as of the date first written above.

 

COMPANY:
CHIASMA, INC.
By: /s/ Roni Mamluk, Ph.D.
 

 

Name: Roni Mamluk, Ph.D.
Title: Chief Executive Officer and President
STOCKHOLDERS:
ABINGWORTH BIOVENTURES V LP, acting by ABINGWORTH LLP, its Manager
By: /s/ James Abell
 

 

Name: James Abell
Title: Partner
ARCH VENTURE FUND VI, L.P.
By: ARCH Venture Partners VI, L.P., its General Partner
By: ARCH Venture Partners VI, LLC, its General Partner
By: /s/ Robert Nelsen
 

 

Name: Robert Nelsen
Title: Managing Director
F2 CAPITAL I 2014 LIMITED
By: /s/ Barbara Bianchi
 

 

Name:

Barbara Bianchi, Clambake Limited

Title: as Alternate Director to Barbara Haldi
By: /s/ Vanessa Briceno Ramos
 

 

Name: Vanessa Briceno Ramos, Cellar Limited
Title:

Director of Corporate Directors

F2 VENTURE CAPITAL PARTNERSHIP, L.P.
By: F2 CAPITAL LIMITED, its General Partner
By: /s/ Bard Geesaman
 

 

Name: Bard Geesaman
Title: Partner

OMNIBUS AMENDMENT AGREEMENT


F3 VENTURE CAPITAL PARTNERSHIP, L.P.
By: F3 CAPITAL LIMITED, its General Partner
By: /s/ Bard Geesaman
 

 

Name: Bard Geesaman
Title:

Partner

GLOBEWAYS HOLDINGS LIMITED
By: /s/ Vanessa Briceno Ramos
 

 

Name: Vanessa Briceno Ramos, Cellar Limited
Title:

Director of Corporate Directors

By: /s/ Barbara Bianchi
 

 

Name:

Barbara Bianchi, Clambake Limited

Title:

as Alternate Director to Barbara Haldi

OMNIBUS AMENDMENT AGREEMENT


ICENIC LIMITED
Derek Priestley
The Flag house
Market hill.
St. Aubin
Jersey, JE3 8AE
Occupation: Director of Icenic Limited
Signature: /s/ M. Waterhouse
 

 

Witness: M. Waterhouse
Witness address: Bank Farm Oldcastle Malpas UK

L. SCOTT MINICK AND BETH R. MINICK,

AS TRUSTEES OF THE MINICK FAMILY TRUST

By: /s/ L. Scott Minick
 

 

Name: L. Scott Minick
Title: Trustee

OMNIBUS AMENDMENT AGREEMENT


MPM BIOVENTURES IV-QP, L.P.
By: MPM BIOVENTURES IV GP LLC, its General Partner
By: MPM BIOVENTURES IV LLC, its Managing Member
By: /s/ Todd Foley
 

 

Name: Todd Foley
Title: Member
MPM BIOVENTURES IV GMBH & CO. BETEILIGUNGS KG
By: MPM BIOVENTURES IV GP LLC, in its capacity as the Managing Limited Partner
By: MPM BIOVENTURES IV LLC, its Managing Member
By: /s/ Todd Foley
 

 

Name: Todd Foley
Title: Member
MPM ASSET MANAGEMENT INVESTORS BV4 LLC
By: MPM BIOVENTURES IV LLC, its Manager
By: /s/ Todd Foley
 

 

Name: Todd Foley
Title: Member
MPM BIO IV NVS STRATEGIC FUND, L.P.
By: MPM BIOVENTURES IV GP LLC, its General Partner
By: MPM BIOVENTURES IV LLC, its Managing Member
By: /s/ Todd Foley
 

 

Name: Todd Foley
Title: Member

OMNIBUS AMENDMENT AGREEMENT


FIDELITY SELECT PORTFOLIOS:
BIOTECHNOLOGY PORTFOLIO
By: /s/ Stacie M. Smith
 

 

Name: Stacie M. Smith
Title: Authorized Signatory
FIDELITY ADVISOR SERIES VII:
FIDELITY ADVISOR BIOTECHNOLOGY FUND
By: /s/ Stacie M. Smith
 

 

Name: Stacie M. Smith
Title: Authorized Signatory
PYRAMIS LIFECYCLE BLUE CHIP GROWTH
COMMINGLED POOL
By: Pyramis Global Advisors Trust Company, as Trustee
By: /s/ Richard Synod
 

 

Name: Richard Synod
Title: Director
FIDELITY SECURITIES FUND:
FIDELITY SERIES BLUE CHIP GROWTH FUND
By: /s/ Stacie M. Smith
 

 

Name: Stacie M. Smith
Title: Authorized Signatory
FIDELITY SECURITIES FUND:
FIDELITY BLUE CHIP GROWTH FUND
By: /s/ Stacie M. Smith
 

 

Name: Stacie M. Smith
Title: Authorized Signatory

OMNIBUS AMENDMENT AGREEMENT


PRIESTLEY PITBLADO TRUST
By: /s/ Derek Priestley
 

 

Name: Derek Priestley
Title: Trustee
ROCK SPRINGS CAPITAL MASTER FUND LP
By: Rock Springs GP LLC, its General Partner
By: /s/ Graham McPhail
 

 

Name: Graham McPhail
Title:

Managing Director

7 MED HEALTH VENTURES LP
By: 7 HEALTH VENTURES, its General Partner
By: /s/ Dror Brandwein
 

 

Name:

Dror Brandwein

Title: CEO
SOFINNOVA VENTURE PARTNERS IX, L.P.
By: Sofinnova Management IX, L.L.C., its General Partner
By: /s/ Michael F. Powell
 

 

Name: Michael F. Powell
Title: Managing Member

OMNIBUS AMENDMENT AGREEMENT


/s/ Scott Minick

 

Scott Minick
/s/ Fredric D. Price

 

Fredric D. Price
/s/ Sam Teichman

 

Sam Teichman
/s/ Ruth Werthaimer

 

Ruth Werthaimer

OMNIBUS AMENDMENT AGREEMENT

Exhibit 4.3

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

 

Warrant No. 20[●]-[●] Date of Issuance: [●], 20[●]

CHIASMA, INC.

WARRANT TO PURCHASE SHARES OF COMMON STOCK

THIS CERTIFIES THAT, for value received, [●] (the “ Holder ”) is entitled to purchase from Chiasma, Inc., a Delaware corporation (the “ Company ”), subject to the terms and conditions of this Warrant, at any time prior to the Expiration Date (as defined below), [●] ([●]) shares of the Company’s Common Stock, par value $0.01 (“ Common Stock ”), at an exercise price per Warrant Share of $0.01 (the “ Exercise Price ”). The shares of Common Stock purchasable upon exercise of this Warrant are hereinafter referred to as the “ Warrant Shares ”. The Warrant Shares and the Exercise Price are subject to further adjustment as set forth in Section 2.

1. Exercise of Warrant .

1.1 Term . This Warrant shall terminate and no longer be exercisable on [•], 2022; provided, however, that if the Holder is obligated to purchase shares of the Company’s Series D Convertible Preferred Stock, $0.01 par value per share, at the Second Closing (as defined in the Purchase Agreement (as defined below)) or the Third Closing (as defined in the Purchase Agreement) and the Holder fails to purchase (subject to the second sentence of Section 2.5 of the Purchase Agreement) the Holder’s Second Closing Amount (as defined in the Purchase Agreement) at or prior to the Second Closing or the Holder’s Third Closing Amount (as defined in the Purchase Agreement) at or prior to the Third Closing, then this Warrant shall terminate and no longer be exercisable effective upon, subject to and concurrently with the consummation of the Closing (as defined in the Purchase Agreement) at which the Holder becomes a Defaulting Purchaser (as defined in the Purchase Agreement). For purposes of this Warrant, (a) “ Expiration Date ” shall mean the date upon which this Warrant expires in accordance with the terms of this Section 1.1, and (b) “ Purchase Agreement ” shall mean that certain Series D Convertible Preferred Stock Purchase Agreement, dated as of July 11, 2012, by and among the Company and the other parties thereto.

1.2 Method . This Warrant may be exercised by the Holder, in whole or in part, by:


(a) the surrender of this Warrant (with the Notice of Exercise form attached hereto as Attachment A and the Investment Representation Statement attached hereto as Attachment B duly executed) at the principal office of the Company; and

(b) the payment to the Company, by check, wire or cancellation of indebtedness, of an amount equal to the Exercise Price per share multiplied by the number of Warrant Shares then being purchased.

1.3 Net Exercise . In lieu of Section 1.2 hereof, the Holder may elect to convert this Warrant or any portion thereof (the “ Conversion Right ”), by surrender of this Warrant at the principal office of the Company together with notice of the Holder’s intention to exercise the Conversion Right, into that number of Warrant Shares computed using the following formula:

 

X = Y(A-B)
A

Where:

 

  X = The number of Warrant Shares to be issued to the Holder upon exercise of the Conversion Right.

 

  Y = The number of Warrant Shares for which this Warrant is being exercised.

 

  A = The Fair Market Value (as defined below) of one Warrant Share at the time the Conversion Right is exercised.

 

  B = Exercise Price (as adjusted to the date of such calculation).

For purposes of Section 1.3, “ Fair Market Value ” shall mean:

(a) If the Warrant is exercised in connection with and contingent upon an initial public offering, and if the Company’s registration statement relating to such initial public offering has been declared effective by the Securities and Exchange Commission, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

(b) If the Warrant is exercised in connection with and contingent upon a sale of the Company, then the purchase price per share actually received by a holder of Common Stock.

(c) If the Warrant is exercised following the Company’s initial public offering, the average of the closing price of the Common Stock quoted in the over-the-counter market in which the Common Stock is traded or the closing price quoted on any exchange or electronic securities market on which the Common Stock is listed, whichever is applicable, for the thirty (30) trading days prior to the date of determination of the Fair Market Value (or such shorter period of time during which such Common Stock was traded over-the-counter or on such exchange).If none of (a), (b) or (c) is applicable, then the fair market value as determined in good faith by the Board of Directors of the Company.

 

2


1.4 Delivery; Certificate . Upon receipt by the Company of this Warrant and such Notice of Exercise, together with, if applicable, the aggregate Exercise Price, at its principal office, or by the stock transfer agent or warrant agent of the Company at its office, the Holder shall be deemed to be the holder of record of the applicable Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. The Company shall, as soon as practicable after the exercise of this Warrant in accordance with the terms hereof, prepare a certificate for the Warrant Shares purchased in the name of the Holder. If this Warrant should be exercised in part only, the Company shall, as soon as practicable after the surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder.

1.5 Exercise Upon a Company Sale . Notwithstanding anything herein to the contrary, upon and effective as of the occurrence of a Company Sale (as defined in the Amended and Restated Investor Rights Agreement, dated as of July 11, 2012, by and among the Company and the other parties thereto, as may be amended and/or restated from time to time), to the extent not previously exercised this Warrant shall automatically be exercised by the Holder pursuant to Section 1.3 herein without any further action necessary on the part of the Holder (a “ Sale Exercise ”) unless the Holder notifies the Company in writing to the contrary prior to such automatic exercise; provided, however , that such automatic exercise shall not occur and this Warrant shall instead be terminated upon and effective as of the occurrence of a Company Sale if the Exercise Price equals or exceeds the Fair Market Value calculated in accordance with Section 1.3(b) hereof in connection with such Sale Exercise.

2. Adjustment of Exercise Price and Number of Warrant Shares . The number and kind of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of the following events:

2.1 Subdivision or Combination . If the Company at any time prior to the Expiration Date shall subdivide or combine its Common Stock, the Exercise Price shall be proportionately decreased (and the number of Warrant Shares issuable upon exercise of this Warrant proportionately increased to the nearest whole) in the case of a subdivision or the Exercise Price shall be proportionately increased (and the number of Warrant Shares issuable upon exercise of this Warrant proportionately decreased to the nearest whole) in the case of a combination.

2.2 Reclassification, Reorganization and Consolidation . In case of any reclassification, capital reorganization or change in the type of securities of the Company issuable upon exercise of this Warrant (other than as a result of a subdivision, combination or stock dividend provided for in Section 2.1 above or Section 2.3 below), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the

 

3


kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Warrant Shares by the Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Warrant Share payable hereunder, provided the aggregate Exercise Price shall remain the same.

2.3 Stock Dividends . If the Company at any time prior to the Expiration Date shall pay a dividend with respect to Common Stock payable in Common Stock (except any distribution accounted for in the foregoing Section 2:1), then the Exercise Price shall be adjusted, from and after the record date for shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (a) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution.

3. Fractional Warrant Shares . No fractional Warrant Shares will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.

4. Stock Fully Paid; Reservation of Warrant Shares . All Warrant Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. In the event that there is an insufficient number of shares of Common Stock reserved for issuance pursuant to the exercise of this Warrant, the Company will take appropriate action to authorize an increase in the capital stock to allow for such issuance or similar issuance acceptable to the Holder.

5. Securities Laws; Transfer .

5.1 Compliance with Securities Act . The Holder, by acceptance hereof, agrees that this Warrant and the Warrant Shares are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the “ Act ”). Upon exercise of this Warrant, the Holder hereof shall confirm in writing, in the form attached hereto as Attachment B , that the Warrant Shares so purchased are being acquired for investment and not with a view toward distribution or resale. In addition, the Holder shall provide such additional information regarding such Holder’s financial and investment background as the Company may reasonably request. This Warrant and all Warrant Shares (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form:

 

4


THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

5.2 Transferability of Warrant . This Warrant may not be transferred or assigned in whole or in part without (a) the prior written consent of the Company and (b) compliance with applicable federal and state securities laws; provided, however , that this Warrant may be transferred without the prior written consent of the Company to an affiliate of the Holder.

5.3 Disposition of Warrant Shares . The Holder agrees not to make any disposition of all or any portion of the Warrant Shares unless and until (a) the 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, (b) the transferee has agreed in writing for the benefit of the Company to be bound by this Section 5 and (c):

(i) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(ii) the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of the Warrant Shares under the Act; provided that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.

5.4 Market Standoff . Each Holder agrees, in connection with the Company’s initial public offering (the “ IPO ”) of its equity securities, and upon request of the Company or the underwriters managing such offering, (a) not to sell, make any short sale of, loan, grant any option for the purchase of or otherwise dispose of any of the Warrants or the Warrant Shares (other than those included in the registration, if any) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days (or such longer period of time as may be required to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), as applicable, (or any successor rules or amendments thereto))) from the effective date of such registration as may be requested by the Company or such underwriters and (b) to execute any agreement regarding (a) above as may be requested by the Company or underwriters at the time of the public offering; provided, that the officers and directors of the Company who own stock of the Company also agree to such restrictions. The Company may impose stop transfer instructions to enforce this Section 5.4.

 

5


6. Rights of Stockholders . No Holder of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of capital stock or any other equity securities of the Company, nor shall anything contained herein be construed to confer upon the Holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant has been exercised and the Warrant Shares shall have become deliverable, as provided herein.

7. Miscellaneous .

7.1 Governing Law . This terms and conditions of this Warrant shall be governed in all respects by the internal laws of the Commonwealth of Massachusetts without regard to conflicts of laws principles that would result in the application of the laws of any other jurisdiction.

7.2 Successors and Assigns . This Warrant shall be binding upon any successors or assigns of the Company and inure to the benefit of the Holder and any successors or assigns.

7.3 Waivers and Amendments . This Warrant is one of a series of Warrants (collectively, the “ Warrants ”) that were originally issued by the Company pursuant to the Purchase Agreement. This Warrant and any provisions hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holders of Warrants representing a majority of the number of Warrant Shares then issuable upon the exercise of the Warrants, provided, however, that the consent of the holder of this Warrant shall be required if such amendment or waiver adversely affects such holder in a different and disproportionate manner than the holders of the other Warrants.

7.4 Loss of Warrant . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will execute and deliver a new Warrant of like terms.

7.5 Headings . The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof.

7.6 Notices . All notices and other communications given or made pursuant hereto 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 facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) forty-eight (48) hours after having been sent by registered or certified mail, return receipt requested, postage prepaid,

 

6


or after being deposited in the U.S. mail, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt, in the case of the Holder, addressed to the Holder at the address set forth on the signature page hereto and, in the case of the Company, to Chiasma, Inc., 831 Beacon Street, Suite 313, Newton Center, Massachusetts 02459, Attention: Chief Executive Officer, with a copy to Latham & Watkins LLP, John Hancock Tower, 20 th  Floor, 200 Clarendon Street, Boston, Massachusetts 02116, Attention: Peter N. Handrinos; or as subsequently modified by written notice to the other party.

7.7 Counterparts . This Warrant may be executed in two or more counterparts (including, but not limited to, by facsimile, PDF or other electronic copy), each of which shall be deemed an original and all of which together shall constitute one instrument.

(Signature, page follows)

 

7


IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by a duly authorized officer.

 

CHIASMA, INC.
By:

 

Name: Fredric D. Price
Its: Chairman, Chief Executive Officer and President

 

ACKNOWLEDGED:

 

[                        ]

 

 

Address:

 

 

 

Facsimile:

 

WARRANT SIGNATURE PAGE


ATTACHMENT A

NOTICE OF EXERCISE

 

  TO: CHIASMA, INC.

¨         The undersigned hereby elects to purchase                  shares of Common Stock of Chiasma, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full.

¨         The undersigned hereby elects to convert the attached Warrant into Warrant Shares in the manner specified in Section 1.3 of the Warrant. This conversion is exercised with respect to                  of the shares covered by the Warrant.

[Check the box next to the paragraph above that applies.]

2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

Name:

 

Address:

 

 

3. The undersigned represents that the aforesaid shares of stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. In support thereof, the undersigned has executed an Investment Representation Statement attached hereto as Attachment B .

 

 

HOLDER
By:

 

Title:

 

Date:

 

NOTICE OF EXERCISE


ATTACHMENT B

INVESTMENT REPRESENTATION STATEMENT

In connection with the exercise or conversion of a Warrant to purchase shares of Common Stock (the “ Warrant Shares ”) of Chiasma, Inc. (the “ Company ”), the undersigned (the “ Holder ”) hereby represents and warrants to the Company the following:

(a) Investment Experience . It is an “accredited investor” within the meaning of Rule 501(a) of the Securities Act of 1933, as amended (the “ Act ”), and has substantial experience in evaluating and investing in private placement transactions of. securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. It 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 Warrant Shares.

(b) Purchase Entirely for Own Account . The Warrant Shares are being acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. Holder has no present intention of selling, granting any participation in, or otherwise distributing the Warrant Shares. The Holder further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations, to such person or to any third person, with respect to the Warrant Shares.

(c) Restricted Securities . The Holder understands that the Warrant Shares are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Warrant Shares may be resold without registration under the Act only in certain limited circumstances. In this connection, the Holder represents that it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. The Holder must bear the economic risk of this investment indefinitely unless the Warrant Shares are registered pursuant to the Act, or an exemption from registration is available. The Holder understands that the Company has no present intention of registering the Warrant Shares. The Holder also understands that there is no assurance that any exemption from registration under the Act will be available and that, even if available, such exemption may not allow the Holder to transfer all or any portion of the Warrant Shares under the circumstances, in the amounts or at the times the Holder might propose.

 

 

HOLDER
By:

 

Name:
Title:
Date:

 

INVESTMENT REPRESENTATION STATEMENT

EXHIBIT 4.4

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

 

Warrant No. 2014-[●] Date of Issuance: [●], 201[●]

CHIASMA, INC.

WARRANT TO PURCHASE SHARES OF COMMON STOCK

THIS CERTIFIES THAT, for value received, [●] (the “ Holder ”) is entitled to purchase from Chiasma, Inc., a Delaware corporation (the “ Company ”), subject to the terms and conditions of this Warrant, at any time prior to 5:00 p.m. Eastern time, on December 16, 2024 (the “ Expiration Date ”), [●] ([●]) shares of the Company’s Common Stock, par value $0.01 (“ Common Stock ”), at an exercise price per Warrant Share of $1.00 (the “ Exercise Price ”). The shares of Common Stock purchasable upon exercise of this Warrant are hereinafter referred to as the “ Warrant Shares ”. The Warrant Shares and the Exercise Price are subject to further adjustment as set forth in Section 2.

1. Exercise of Warrant .

1.1 Term . This Warrant shall terminate and no longer be exercisable on the . Expiration Date. For purposes of this Warrant, “ Purchase Agreement ” shall mean that certain Series E Convertible Preferred Stock Purchase Agreement, dated as of December 16, 2014, by and among the Company and the other parties thereto.

1.2 Method . This Warrant may be exercised by the Holder, in whole or in part, by:

(a) the surrender of this Warrant (with the Notice of Exercise form attached hereto as Attachment A and the Investment Representation Statement attached hereto as Attachment B duly executed) at the principal office of the Company; and

(b) the payment to the Company, by check, wire or cancellation of indebtedness, of an amount equal to the Exercise Price per share multiplied by the number of Warrant Shares then being purchased.


1.3 Net Exercise . In lieu of Section 1.2 hereof, the Holder may elect to convert this Warrant or any portion thereof (the “Conversion Right” ), by surrender of this Warrant at the principal office of the Company together with notice of the Holder’s intention to exercise the Conversion Right, into that number of Warrant Shares computed using the following formula:

X= Y(A-B)

A

 

Where:
X= The number of Warrant Shares to be issued to the Holder upon exercise of the Conversion Right.
Y = The number of Warrant Shares for which this Warrant is being exercised.
A= The Fair Market Value (as defined below) of one Warrant Share at the time the Conversion Right is exercised.
B = Exercise Price (as adjusted to the date of such calculation).

For purposes of Section 1.3, “Fair Market Value” shall mean:

(a) If the Warrant is exercised in connection with and contingent upon an initial public offering, and if the Company’s registration statement relating to such initial public offering has been declared effective by the Securities and Exchange Commission, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

(b) If the Warrant is exercised in connection with and contingent upon a Company Sale (as defined in the Amended and Restated Investor Rights Agreement, dated as of December 16, 2014, by and among the Company and the other parties thereto, as may be amended and/or restated from time to time), then the purchase price per share actually received by a holder of Common Stock.

(c) If the Warrant is exercised following the Company’s initial public offering, the average of the closing price of the Common Stock quoted in the over-the-counter market in which the Common Stock is traded or the closing price quoted on any exchange or electronic securities market on which the Common Stock is listed, whichever is applicable, for the thirty (30) trading days prior to the date of determination of the Fair Market Value (or such shorter period of time during which such Common Stock was traded over-the-counter or on such exchange).

If none of the immediately preceding clauses (a), (b) or (c) is applicable, then the fair market value as determined in good faith by the Board of Directors of the Company.

1.4 Delivery; Certificate . Upon receipt by the Company of this Warrant and such Notice of Exercise, together with, if applicable, the aggregate Exercise Price, at its principal office, or by the stock transfer agent or warrant agent of the Company at its office, the Holder shall be deemed to be the holder of record of the applicable Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. The Company shall, as soon as practicable after the exercise of this Warrant in accordance with the terms hereof, direct its stock transfer agent to prepare a certificate for the Warrant Shares purchased in the name of the Holder. If this Warrant should be exercised in part only, the Company shall, as soon as practicable after the surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder.

 

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1.5 Exercise Upon a Company Sale . Notwithstanding anything herein to the contrary, upon and effective as of the occurrence of a Company Sale, to the extent not previously exercised this Warrant shall automatically be exercised by the Holder pursuant to Section 1.3 herein without any further action necessary on the part of the Holder (a “ Sale Exercise ”) unless the Holder notifies the Company in writing to the contrary prior to such automatic exercise; provided, however, that such automatic exercise shall not occur and this Warrant shall instead be terminated upon and effective as of the occurrence of a Company Sale if the Exercise. Price equals or exceeds the Fair Market Value calculated in accordance with Section 1.3(b) hereof in connection with such Sale Exercise.

2. Adjustment of Exercise Price and Number of Warrant Shares . The number and kind of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of the following events:

2.1 Subdivision or Combination . If the Company at any time prior to the Expiration Date shall subdivide or combine its Common Stock, the Exercise Price shall be proportionately decreased (and the number of Warrant Shares issuable upon exercise of this Warrant proportionately increased to the nearest whole) in the case of a subdivision or the Exercise Price shall be proportionately increased (and the number of Warrant Shares issuable upon exercise of this Warrant proportionately decreased to the nearest whole) in the case of a combination.

2.2 Reclassification, Reorganization and Consolidation . Subject to Section 1.5 above, in case of any reclassification, capital reorganization or change in the type of securities of the Company issuable upon exercise of this Warrant (other than as a result of a subdivision, combination or stock dividend provided for in Section 2.1 above or Section 2.3 below) or consolidation or merger involving the Company in which the Common Stock is converted into or exchanged for securities, cash or other property, then, as a condition of such reclassification, reorganization, change, consolidation or merger, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization, change, consolidation or merger by a holder of the same number and type of securities as were purchasable as Warrant Shares by the Holder immediately prior to such reclassification, reorganization, change, consolidation or merger. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Warrant Share payable hereunder, provided the aggregate Exercise Price shall remain, as nearly as reasonably may be, the same.

 

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2.3 Stock Dividends . If the Company at any time prior to the Expiration Date shall pay a dividend with respect to Common Stock payable in Common Stock (except any distribution accounted for in the foregoing Section 2.1), then the Exercise Price shall be adjusted (and the number of Warrant Shares issuable upon exercise of this Warrant proportionately increased), from and after the record date for shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (a) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution and (b) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution.

3. Fractional Warrant Shares . No fractional Warrant Shares will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.

4. Stock Fully Paid; Reservation of Warrant Shares . All Warrant Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. In the event that there is an insufficient number of shares of Common Stock reserved for issuance pursuant to the exercise of this Warrant, the Company will take appropriate action to authorize an increase in the capital stock to allow for such issuance or similar issuance acceptable to the Holder.

5. Securities Laws; Transfer .

5.1 Compliance with Securities Act . The Holder, by acceptance hereof, agrees that this Warrant and the Warrant Shares are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the Act ”). Upon exercise of this Warrant, the Holder hereof shall confirm in writing, in the form attached hereto as Attachment B , that the Warrant Shares so purchased are being acquired for investment and not with a view toward distribution or resale. In addition, the Holder shall provide such additional information regarding such Holder’s financial and investment background as the Company may reasonably request. This Warrant and all Warrant Shares (unless registered under the Act) shall be stamped or imprinted with a legend in substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION RELATED THERETO OR AN OPINION OF COUNSEL IN

 

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A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

5.2 Transferability of Warrant . This Warrant may not be transferred or assigned in whole or in part without (a) the prior written consent of the Company and (b) compliance with applicable federal and state securities laws; provided, however, that this Warrant may be transferred without the prior written consent of the Company to an affiliate of the Holder.

5.3 Disposition of Warrant Shares . The Holder agrees not to make any disposition of all or any portion of the Warrant Shares unless and until (a) the 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, (b) the transferee has agreed in writing for the benefit of the Company to be bound by this Section 5 and (c):

(i) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(ii) the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of the Warrant Shares under the Act; provided that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.

5.4 Market Standoff . Each Holder agrees, in connection with the Company’s initial public offering (the “IPO” ) of its equity securities, and upon request of the Company or the underwriters managing such offering, (a) not to sell, make any short sale of, loan, grant any option for the purchase of or otherwise dispose of any of the Warrants or the Warrant Shares (other than those included in the registration, if any) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days (or such longer period of time as may be required to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), as applicable, (or any successor rules or amendments thereto))) from the effective date of such registration as may be requested by the Company or such underwriters and (b) to execute any agreement regarding (a) above as may be requested by the Company or underwriters at the time of the public offering; provided, that the officers and directors of the Company who own stock of the Company also agree to such restrictions. The Company may impose stop transfer instructions to enforce this Section 5.4.

 

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6. Rights of Stockholders . No Holder of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of capital stock or any other equity securities of the Company, nor shall anything contained herein be construed to confer upon the Holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant has been exercised and the Warrant Shares shall have become deliverable, as provided herein.

7. Miscellaneous.

7 .1 Governing Law . The terms and conditions of this Warrant shall be governed in all respects by the internal laws of the Commonwealth of Massachusetts without regard to conflicts of laws principles that would result in the application of the laws of any other jurisdiction.

7.2 Successors and Assigns . This Warrant shall be binding upon any successors or assigns of the Company and inure to the benefit of the Holder and any successors or assigns.

7.3 Waivers and Amendments . This Warrant is one of a series of Warrants (collectively, the “Warrants”) that were originally issued by the Company pursuant to the Purchase Agreement. This Warrant and any provisions hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holders of Warrants representing a majority of the number of Warrant Shares then issuable upon the exercise of the Warrants, provided, however, that the consent of the holder of this Warrant shall be required if such amendment or waiver adversely affects such holder in a different and disproportionate manner than the holders of the other Warrants.

7.4 Loss of Warrant . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation ofthis Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will execute and deliver a new Warrant of like terms.

7.5 Headings . The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof.

7.6 Notices . All notices and other communications given or made pursuant hereto 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 facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day; (c) forty-eight (48) hours after having been sent by registered or certified mail, return receipt requested, postage prepaid, or after being deposited in the U.S. mail, postage prepaid; or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of

 

- 6 -


receipt, in the case of the Holder, addressed to the Holder at the address set forth on the signature page hereto and, in the case of the Company, to Chiasma, Inc., 831 Beacon Street, Suite 313, Newton Centre, Massachusetts 02459, Attention: Chief Executive Officer, with a copy to Latham & Watkins LLP, John Hancock Tower, 27 th Floor, 200 Clarendon Street, Boston, Massachusetts 02116, Attention: Peter N. Handrinos; or as subsequently modified by written notice to the other party.

7.7 Counterparts . This Warrant may be executed in two or more counterparts (including, but not limited to, by facsimile, PDF or other electronic copy), each of which shall be deemed an original and all of which together shall constitute one instrument.

(Signature page follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by a duly authorized officer.

 

CHIASMA, INC.
By:

 

Name: Roni Mamluk, Ph.D.
Its: Chief Executive Officer and President

ACKNOWLEDGED:

[                    ]

 

                 

Address:

 

 

Facsimile:

 

WARRANT SIGNATURE PAGE


ATTACHMENT A

NOTICE OF EXERCISE

TO: C HIASMA , I NC .

¨ The undersigned hereby elects to purchase                      shares of Common Stock of Chiasma, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment pf the purchase price of such shares in full.

¨ The undersigned hereby elects to convert the attached Warrant into Warrant Shares in the manner specified in Section 1.3 ofthe Warrant. This conversion is exercised with respect to                      of the shares covered by the Warrant.

[Check the box next to the paragraph above that applies.]

2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

Name:

 

Address:

 

 

3. The undersigned represents that the aforesaid shares of stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. In support thereof, the undersigned has executed an Investment Representation Statement attached hereto as Attachment B .

 

 

HOLDER
By:

 

Title:

 

Date:

 

NOTICE OF EXERCISE


ATTACHMENT B

INVESTMENT REPRESENTATION STATEMENT

In connection with the exercise or conversion of a Warrant to purchase shares of Common Stock (the “Warrant Shares” ) of Chiasma, Inc. (the “Company” ), the undersigned (the “Holder” ) hereby represents and warrants to the Company the following:

(a) Investment Experience . It is an “accredited investor” within the meaning of Rule 501 (a) of the Securities Act of 1933, as amended (the “Act” ), and has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. It 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 Warrant Shares.

(b) Purchase Entirely for Own Account . The Warrant Shares are being acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. Holder has no present intention of selling, granting any participation in, or otherwise distributing the Warrant Shares. The Holder further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations, to such person or to any third person, with respect to the Warrant Shares.

(c) Restricted Securities . The Holder understands that the Warrant Shares are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Warrant Shares may be resold without registration under the Act only in certain limited circumstances. In this connection, the Holder represents that it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. The Holder must bear the economic risk of this investment indefinitely unless the Warrant Shares are registered pursuant to the Act, or an exemption from registration is available. The Holder understands that the Company has no present intention of registering the Warrant Shares. The Holder also understands that there is no assurance that any exemption from registration under the Act will be available and that, even if available, such exemption may not allow the Holder to transfer all or any portion of the Warrant Shares under the circumstances, in the amounts or at the times the Holder might propose.

(d) Bad Actor Matters . If the Holder is (or, as a result of the exercise of the Warrant, will become) a Covered Person described in the first paragraph of Rule 506(d)(l) promulgated under the Act, none of the “Bad Actor” disqualifying events described in Rule 506(d)(l )(i) to (viii) promulgated under the Act (a “Disqualification Event” ) is applicable to the Holder or any of its Rule 506(d) Related Parties, except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. For purposes of this section, “Rule 506(d) Related Party” shall mean a person that is a beneficial owner of the Holder’s securities for purposes of Rule 506(d) of the Act.

INVESTMENT REPRESENTATION STATEMENT


                 

HOLDER
By:

 

Name:

 

Title:

 

Date:

 

Exhibit 10.1

CHIASMA, INC.

THE COMPANY’S ISRAELI STOCK OPTION PLAN - 2003

 

1. Definitions

As used herein the following terms shall have the meanings hereinafter set forth, unless the context clearly indicates to the contrary.

 

1.1 Affiliated Company ” - means any “employing company” within the meaning of Section 102(a) of the Ordinance.

 

1.2 Applicable Laws ” - means the requirements relating to the administration of stock option plans under Israeli law, U.S. state corporate laws, U.S. federal and state securities laws, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws, rules and regulations of any other country or jurisdiction where Options are granted under the Plan.

 

1.3 Approved 102 Options ” - an Option granted pursuant to Section 102(b) of the Ordinance and held in trust by a Trustee.

 

1.4 Board ” - means the Board of Directors of the Company.

 

1.5 Cause ” - (a) conviction of any felony involving moral turpitude or affecting the Company or any Affiliated Company; (b) embezzlement of funds of the Company or any Affiliated Company; (c) any breach of the Grantee’s fiduciary duties or duties of care towards the Company or any Affiliated Company (including, without limitation, disclosure of confidential information of the Company or any Affiliated Company or breach of a non-competition undertaking); (d) any conduct in bad faith reasonably determined by the Board to be materially detrimental to the Company or, with respect to any Affiliated Company, reasonable determined by the Board of Directors of such Affiliated Company; or (e) any other event classified under the relevant agreement between the Grantee and the Company or the Affiliated Company, as applicable, as a “cause” for termination or by other language of similar substance.

 

1.6 Company ” - Chiasma, Inc., a Delaware corporation.

 

1.7 Date of Grant ” - as defined in Section 6.4 hereinbelow.

 

1.8 Date of Start ” - as defined in Section 7.2 hereinbelow.

 

1.9 Election ” - the election by the Company, with respect to granting of Approved 102 Options, of either one of the following tax tracks — “Capital Gains Tax Track” or “Ordinary Income Tax Track”, which election shall be in accordance with and bind the Company as provided in Section 102(g) of the Ordinance.

 

1.10 Employee ” - any employee of the Company or an Affiliated Company, including an office holder or a director, but excluding a Holder of Control in such company or a person who as a result of the granting of the Options pursuant to this Plan shall become a Holder of Control in such company.

 

1.11 Exercise Notice ” - as defined in Section 7.6 hereinbelow.

 

1.12 Exercise Period ” - as defined in Section 7.4 hereinbelow.

 

1.13 Exercise Price ” - the price to be paid for the exercise of each Option.

 

1.14 Exercised Shares ” - the Shares that are issued upon the exercise of the Options.

 

1.15 Expiration Date ” - as defined in Section 7.3 hereinbelow.

 

1.16 Grantee ” - an Employee, a Holder of Control, a consultant or other services providers of the Company or an Affiliated Company, to whom Options are granted.


1.17 Holder of Control ” - as defined in Section 32(9) to the Ordinance.

 

1.18 IPO ” - an initial public offering of securities of the Company in a recognized stock exchange market or the listing thereof on NASDAQ or another recognized automated quotation system.

 

1.19 Merger Transaction ” - as defined in Section 7.5 hereinbelow.

 

1.20 Option(s) ” - an option or options granted within the framework of this Plan, each of which imparts the right to purchase one Share.

 

1.21 3(i) Option ” - an Option granted pursuant to section 3(i) of the Ordinance.

 

1.22 Ordinance ” - the Israeli Income Tax Ordinance [New Version], 1961, and the rules and regulations promulgated thereunder as are in effect from time to time and any similar successor rules and regulations promulgated.

 

1.23 Plan ” - this Company’s Israeli Stock Option Plan - 2003, as may be amended from time to time as set forth hereinbelow.

 

1.24 Restricted Period ” - as defined in Section 9.1 hereinbelow.

 

1.25 Section 102 ” - Section 102 of the Ordinance and the rules and regulations promulgated thereunder as are in effect from time to time and any similar successor rules and regulations promulgated.

 

1.26 Service ” - means a Grantee’s employment or service with the Company or an Affiliated Company, whether in the capacity of an Employee or otherwise. A Grantee’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Grantee renders Service to the Company or an Affiliated Company or a change in the identity the Company or the Affiliated Company for which the Grantee renders such Service, provided that there is no interruption or termination of the Grantee’s Service. Furthermore, a Grantee’s Service with the Company or an Affiliated Company shall not be deemed to have terminated if the Grantee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company or the Affiliated Company by which the Grantee is employed or engaged, as applicable; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave the Grantee’s Service shall be deemed to have terminated unless the Grantee’s right to return to Service with the Company or an Affiliated Company is secured by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or an Affiliated Company, as the case may be, or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the vesting schedule of the Options. The Grantee’s Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Grantee performs Service ceasing to be an Affiliated Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Grantee’s Service has terminated and the effective date of such termination.

 

1.27 Share(s) ” - Share(s) of Common Stock, US $ 0.01 par value each, of the Company, to which, subject to the provisions herein, are attached the rights specified in the Company’s Certificate of Incorporation and By-Laws.

 

1.28 Trustee ” - the trustee designated by the Company for the purposes of this Plan and approved by the applicable tax assessor.

 

1.29 Unapproved 102 Option ” - an Option granted pursuant to Section 102(c) of the Ordinance and not held in trust by a Trustee.

 

1.30 Vested Option(s) ” - that portion of the Options which the Grantee is entitled to exercise in accordance with the provisions of Section 7.2 of the Plan or the provisions of the option agreement executed with such Grantee.

 

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2. The Plan

 

2.1 Purpose

The purpose and intent of the Plan is to advance the interests of the Company by affording to selected Employees, Holders of Control, consultants and other services providers of the Company or an Affiliated Company an opportunity to acquire a proprietary interest in the Company or to increase their proprietary interest therein, as applicable, by the grant in favor of such Employees, Holders of Control, consultants and other services providers, of Options under the terms set forth herein, and thus, to provide an additional incentive to such Employees, Holders of Control, consultants and other services providers, to be employed and/or engaged by and remain in the employ of and/or engagement with the Company or the Affiliated Company, as the case may be, to encourage the sense of proprietorship of such employees, Holders of Control, consultants and other services providers, and to stimulate then-active interest in the success of the Company and the Affiliated Company in which he/she is employed and/or engaged.

 

2.2 Framework

Options may be granted under this Plan in one of the following ways: (i) Approved 102 Options - to Employees through a Trustee, in accordance with those provisions of Section 102 applicable to the granting of Options through a Trustee, in such tax track as determined in accordance with the Election of the Company; or (ii) Unapproved 102 Options - to Employees, not through a Trustee; or (iii) 3(i) Options - to Grantees who are not Employees, not through a Trustee.

 

2.3 Effective Date and Term

The Plan shall become effective as of the day it was adapted by the Board, and shall continue in effect until the earlier of (i) its termination by the Board; or (ii) the date on which all of the Shares available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed; provided however, that in any event no Options shall be granted under the Plan following the lapse often (10) years from the date the Plan is adopted by the Board. Without derogating from the authorities of the Board herein, the Company shall obtain the approval of the Company’s shareholders for the adoption of this Plan or for any amendment to this Plan, if shareholders’ approval is necessary or desirable to comply with any Applicable Laws.

 

3. Administration

 

3.1 The Plan shall be administered by the Board or by a committee appointed by the Board. Unless the powers of such committee have been specifically limited, the committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by Applicable Laws (in which event of such limitations, such committee may make recommendations to the Board). Subject to the above, the term “Board” whenever used herein, shall mean the Board or such appointed committee, as applicable.

 

3.2 The Board shall have sole and full discretion and authority, without the need for shareholders’ approval, unless such approval is required to comply with Applicable Laws, to administer the Plan and all actions thereunder or related thereto, including, without limitation, to perform any and all of the following, from time to time and at any time:

 

  3.2.1 To designate Grantees;

 

  3.2.2 To determine the tax-track of the Options to be issued (Approved 102 Options, Unapproved 102 Options, 3(i) Options);

 

  3.2.3 To make the Election;

 

  3.2.4 To determine the terms of the option agreements to be signed between the Company and the Grantee (which need not be identical), including, without limitation the number of Options to be granted in favor of each Grantee, the Exercise Price thereof, the time when an Option can be exercised, and the conditions under which such Options may be exercised;

 

  3.2.5 To interpret the Plan;

 

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  3.2.6 To make all other determinations deemed necessary or advisable for the administration of the Plan;

 

  3.2.7 To prescribe, amend, modify (including by adding new terms and rules), and to rescind and terminate the Plan or any of its terms; and

 

  3.2.8 To prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options.

 

  3.2.9 to modify and amend, including decreasing, the Exercise Price of the Options, including following their grant;

 

  3.2.10 to re-price Options;

 

  3.2.11 to grant to the holder of an outstanding Option, in exchange for the surrender and cancellation of such Option, a new Option having a purchase price equal to, lower than or higher than the Exercise Price provided in the Option so surrendered and canceled, and containing suck other terms and conditions as the Board may prescribe in accordance with the provisions of the Plan;

 

  3.2.12 to determine the fair market value of the Shares, and the mechanism of such determination.

 

3.3 Unless otherwise determined by the Board, any amendment or modification of the Plan shall be deemed to have been included, ab initio, in the Plan and shall have full effect over the relationship between the Company and the Grantee.

 

3.4 Termination of the Plan shall not affect the Board’s ability to exercise its powers with respect to Options granted under the Plan prior to the date of such termination.

 

3.5 In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Company or any Affiliated Company, members of the Board and any officers or employees of the Company or an Affiliated Company to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of diem may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.

 

4. Eligibility

The persons eligible for participation in the Plan as Grantees may include Employees, Holders of Control, consultants and other services providers of the Company or any Affiliated Company. In determining the persons in favor of whom Options shall be granted, the number of Options to be granted and the terms thereof, the Board may take into account the nature of the services rendered by such person, his/her present and future potential contribution to the Company and the Affiliated Company in which he/she is employed and/or engaged, and such other factors as the Board in its discretion shall deem relevant.

 

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5. Reserved Shares

The Company has reserved (            ) authorized but unissued Shares for the purpose of the Plan, subject to adjustment as set forth in Section 14 hereinbelow.

Any of such Shares which may remain unissued and which are not subject to outstanding Options at the termination of the Plan shah cease to be reserved for the purpose of the Plan, but until termination of the Plan the Company shall at all times reserve sufficient number of Shares to meet the requirements of the Plan. Should any Option for any reason expire or be canceled prior to its exercise or relinquishment in full, the Shares subject to such Option may again be subjected lo an Option under the Plan.

 

6. Grant of Options and Issuance of Shares in Trust

 

6.1 The Options shall be granted at no cost.

 

6.2 Each Option granted pursuant to the Plan shall be evidenced by a written executed option agreement or other written instrument determined by the Board, which shall set forth the terms and conditions with respect to the Options, as the Board may deem necessary.

 

6.3 The Approved 102 Options granted hereunder shall be granted to the Trustee and the Exercised Shares issued pursuant to the exercise of the Approved 102 Options shall be issued to the Trustee, and both shall be registered in the name of the Trustee, who shall hold the Approved 102 Options and such Exercised Shares in trust until such time when they are released, as provided in Section 9 hereunder.

 

6.4 In addition to the execution of the option agreement, all Grantees shall be required to execute all other documents required by the Company, whether before or after the grant of the Options (including without derogating, any customary documents and undertakings towards the Trustee and the tax authorities).

Unless otherwise determined by the Board, which determination shall not require shareholders’ approval, unless such approval is required to comply with Applicable Laws, the granting of Options pursuant to the Plan shall be subject to the signing of all required documents by the Grantee, and shall be deemed to occur on the date resolved by the Board and stated in the Grantee’s option agreement (the “ Date of Grant ”).

 

7. Terms of Options

Option agreements between the Company and a Grantee will be in such form approved by the Board, which may be a general form or a specific form with respect to a certain Grantee.

Unless otherwise determined by the Board, which determination shall not require shareholders’ approval, unless such approval is required to comply with Applicable Laws, and provided accordingly in the option agreement, the option agreement shall include, by appropriate language, the number of options granted and the substance of all of the following provisions:

 

7.1 Exercise Price:

The Exercise Price for each Grantee shall be determined by the Board, which determination shall not require shareholders’ approval, unless such approval is required to comply with Applicable Laws, and shall be specified in the option agreement; provided however, that the Exercise Price shall not be less than the par value of the Shares.

 

7.2 Vesting:

Unless otherwise determined by the Board, which determination shall not require shareholders’ approval, unless such approval is required to comply with Applicable Laws, with respect to any specific Grantee, and provided accordingly in the option agreement, the Options shall vest (become exercisable) according to the following 4 (four) year vesting schedule:

 

Period of Grantee’s Continuous Service from the Date of Start: Portion of Total Number of Options that is Vested and Excercisable
   
Upon the lapse of full 12 (twelve) months of continuous Service, 1/4
   
Upon the lapse of each full additional month of the Grantee’s continuous Service thereafter, until all the Options are vested, an additional 1/48

 

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For the purposes herein, the “ Date of Start ” shall mean the Date of Grant, unless otherwise determined by the Board, which determination shall not require shareholders’ approval, unless such approval is required to comply with Applicable Laws, and provided accordingly in the option agreement.

 

7.3 Expiration Date:

Options not exercised, shall expire and terminate and become null and void, forthwith upon 10 (ten) years from the Date of Grant, unless expired prior to that date pursuant to Sections 7.5 or 10 below. Such date(s) at which an Option expires and terminates shall be hereinafter referred to as the “ Expiration Date ”.

 

7.4 Exercise Period:

Each Option shall be exercisable after it becomes vested and until the Expiration Date of such Option (the “ Exercise Period ”)

 

7.5 Effect of A Merger:

In the event of a merger of the Company with or into another corporation, or the sale of all or substantially all the assets or the shares of the Company (such merger or sale: the “ Merger Transaction ”), the surviving or the acquiring entity, as the case may be, or their respective parent company or subsidiary (the “Successor Entity”), may either assume the Company’s rights and obligations under outstanding Options or substitute the outstanding Options with substantially equivalent options exercisable to shares of the Successor Entity’s shares.

For purposes of this Section 7.5, the outstanding Options shall be deemed assumed or substituted by the Successor Entity if, following the consummation of the Merger Transaction, the outstanding Options confer the right to receive, for each share subject to any outstanding Option immediately prior to the consummation of the Merger Transaction, the same consideration (whether shares, cash or other securities or property) lo which an existing holder of a Share on the effective date of consummation of the Merger Transaction was entitled; provided however, that if the consideration to which such existing holder is entitled is not solely securities of the Successor Entity, then the Board may determine, with the consent of the Successor Entity, that the consideration to be received by the Grantees for their outstanding Options, will be solely securities of the Successor Entity equal in their market value to the per share consideration received by the holders of shares in the Merger Transaction.

In the event that the Successor Entity does not assume or substitute all of the outstanding Options of a Grantee, then the Grantee shall have a period of 15 days, from the date designated by the Company in a written notice given to the Grantee, to exercise the Vested Options of the Grantee. All Options, whether vested or not, which are neither assumed or substituted by the Successor Entity, nor exercised by the end of the said 15 day period, shall expire and terminate effective as of the date of the consummation of the Merger Transaction, shall become null and void and shall not entitle the Grantee to any right in or towards the Company or the Successor Entity.

 

7.6 Exercise Notice and Payment:

Vested Options may be exercised at one time or from time to time during the Exercise Period, by giving a written notice of exercise (the “ Exercise Notice ”) to the Company (and in the case of Approved 102 Options, with a copy to the Trustee), at their principal offices, in accordance with the following terms:

 

  (a) The Exercise Notice must be signed by the Grantee and must be delivered to the Company (and in the case of Approved 102 Options, with a copy to the Trustee), prior to the termination of the Options, by certified or registered mail—return receipt requested, with a copy delivered to the Chief Financial Officer (or such outer authorized representative) of the Affiliated Company with which the Grantee is employed or engaged, if applicable.

 

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  (b) The Exercise Notice will specify the number of Vested Options being exercised.

 

  (c) The Exercise Notice will be accompanied by payment in full of the Exercise Price for the exercised Options and by such other representations and agreements as required by the Company with respect to the Grantee’s investment intent regarding the Exercised Shares. Payment will be made by personal check or cashier’s check payable to the -order of the Company, provided however, that in case of payment by personal check (and not by cashier’s check), the Options shall not be deemed exercised, and the Company shall not issue the Exercised Shares in respect thereof, until the personal check shall have been fully and irrevocably honored by the bank on which it was drawn.

 

7.7 Conditions of Issuance

The Company shall not issue the Shares and the Options shall not be deemed exercised until the Company has been provided with the tax authorities’ confirmation which either (i) waives or defers the tax withholding obligation; or (ii) confirms the payment of the tax with respect to such exercise; or (iii) confirms the conclusion of another arrangement with the Grantee regarding the tax amounts, if any, that are to be withheld by the Company or any Affiliated Company under law with respect to such exercise, and which is satisfactory to the Company, and if such arrangement requires the approval of the Trustee, is also satisfactory to the Trustee.

Furthermore, notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver Shares under the Plan unless the exercise of the Option and the issuance and delivery of such Shares complies with Applicable Laws and may be further subject to the approval of counsel for the Company with respect to such compliance. The Company may further require the Grantee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with Applicable Laws.

As a condition to the exercise of an Option, the Company may require, inter alia: (i) the Grantee 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 necessary or desirable; (ii) the Grantee to make such other representations, warranties and covenants as may be reasonably required to comply with Applicable Laws; (iii) a legend on the Shares indicating that such Shares may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided (and agreed to by counsel to the Company) slating that such transfer is not in violation of any applicable law or regulation, may be stamped on the stock certificates to ensure exemption from registration; and/or (iv) the Grantee to execute and deliver to the Company an agreement as may be in use by the Company at such time that describes certain terms and conditions applicable to the Shares.

 

8. Transferability

 

8.1 Other than by will or laws of descent, Options or any of the rights in connection therewith shall not be assignable, transferable, made subject to attachment, lien or encumbrance of any kind, and the Grantee shall not be entitled with regard to the same, and shall not grant with regard thereto, any power of attorney or transfer deed, whether valid immediately or in the future.

 

8.2 Exercised Shares may be subject to a right of first refusal, one or more repurchase options, a market stand-off/lock up period, or other conditions and restrictions as may be included in the Company’s Certificate of Incorporation and/or By-Laws and/or option agreement, upon determination of the Board to its discretion at the time the Options are granted, provided however, that if the Options are subject to a right of first refusal or a repurchase option, then for as long as the Company is not publicly traded, a Grantee shall not transfer any Exercised Shares, prior to the lapse of six (6) months and one day from the date on which he exercised the Options. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Grantee shall execute any agreement evidencing such transfer restrictions prior to the receipt of Exercised Shares hereunder, and shall promptly present to the Company any and all certificates representing Exercised Shares for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.

 

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The Grantee may transfer or sell only Exercised Shares, or any part thereof, to any third party, provided that all of the following conditions have been met prior to such transfer: (i) the transfer is made in accordance with and subject to the provisions of the Company’s Certificate of Incorporation and/or By-Laws (including, without limitation, any rights of first refusal provided therein, if any); and (ii) the transferee confirmed in writing its acceptance of the terms and conditions of the Plan and the option agreement with respect to the Exercised Shares being transferred, instead of the Grantee, to the satisfaction of the Board (including the execution of the proxy referred to in Section 11.2 hereinbelow); and (iii) the actual payment of all taxes required to be paid upon such sale and transfer of the Exercised Shares have been made to the tax assessor, and the Trustee (if applicable) received confirmation from the tax assessor that all taxes required to be paid upon such sale and transfer have been paid.

Any transfer that is not made in accordance with the Plan or the option agreement shall be null and void.

 

8.3 No transfer of an Exercised Share or Option by the Grantee by will or by the laws of descent shall be effective against the Company, unless the Company shall have been furnished with written notice thereof, and with an authenticated copy of the will and/or such other evidence as the Board may deem necessary to establish the validity of the transfer, and with the acceptance by the transferee or transferees of the terms and conditions of the Plan and the option agreement signed with the Grantee and, if applicable, Section 102.

 

8.4 Notwithstanding anything to the contrary herein, in the event that prior to an IPO, holders holding in the aggregate no less than the majority of the Company’s then issued shares of capital stock, wish to sell their shares to a third parry, or in the event of a transaction in which one stockholder or an affiliate of one of the stockholders, purchases a majority of the Company’s then issued shares of capital stock from other stockholders of the Company (not including shares which were issued under an employee share option plan), then, if so requested by the purchaser, the Grantee shall be obligated to join such sale and to sell all of his/her shares in the Company (and if requested, also his/her Vested Options—to the extent not expired), all under the same terms under which the other shares are being sold (provided that with respect to Vested Options, the Exercise Price shall be deducted from the purchase price paid for the shares in such transaction) and in accordance with the provisions of the Certificate of Incorporation and/or By-Laws of the Company.

 

9. Release of Approved 102 Options

 

9.1 Approved 102 Options and Exercised Shares issued pursuant to the exercise thereof, and all rights attached thereto (including bonus shares), shall be held by the Trustee for such period of time as required by the provisions of Section 102 applicable to options granted through a Trustee in the tax track applicable to the Options, as per the Election (the “ Restricted Period ”).

 

9.2 The Grantee shall not be entitled to receive the Approved 102 Options, the Exercised Shares issued pursuant to the exercise thereof or any right attached thereto (including bonus shares), or to request the transfer thereof to any third party, before the lapse of the Restricted Period.

 

9.3 The Trustee may release only Exercised Shares (and not Options); Exercised Shares issued pursuant to the exercise of Approved 102 Options and all rights attached thereto (including bonus shares), shall not be released before the end of the Restricted Period. Subject to the aforesaid, the Trustee may, pursuant to the written request of the Grantee, release and transfer the Exercised Shares to the Grantee, or to any third party lo whom the Grantee wishes to sell the Exercised Shares, as indicated in the Grantee’s written notice, provided however that the Trustee shall not release, transfer or do any other transaction or action with respect to the Exercised Shares before both of the following conditions have been fulfilled: (i) payment has been remitted to the tax authorities of all taxes required to be paid upon the release and transfer of the Exercised Shares, and confirmation of such payment has been received by the Trustee (except if the transfer is by will or laws of descent); and (ii) the Trustee has received written confirmation issued by the Company or the applicable. Affiliated Company to the Trustee, to the effect that all requirements for said release and transfer have been fulfilled according to the terms of the Company’s Certificate of Incorporation and/or By-Laws, the Plan and the option agreement.

 

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10. Termination of Options

 

10.1 Notwithstanding anything to the contrary, any Option granted in favor of any Grantee but not exercised by such Grantee within the Exercise Period and in strict accordance with the terms of the Plan and the option agreement, shall, upon the lapse of the Exercise Period, immediately expire and terminate, become null and void, and shall not entitle the Grantee to any right in, or towards the Company or any Affiliated Company in connection with the same, and all interests and rights of the Grantee, in and to the same, shall expire.

 

10.2 Notwithstanding anything to the contrary herein, upon the termination of a Grantee’s Service, for any reason whatsoever, any Options granted in favor of such Grantee which are not Vested Options, shall immediately expire and terminate, become null and void, and shall not entitle the Grantee to any right in, or towards the Company or any Affiliated Company m connection with the same, and all interests and rights of the Grantee, in and to the same, shall expire.

 

10.3 Notwithstanding anything to the contrary herein, upon the termination of a Grantee’s Service for “Cause” all of such Grantee’s Vested Options shall also immediately expire and terminate, become null and void, and shall not entitle the Grantee to any right in, or towards the Company or any Affiliated Company in connection with the same, and all interests and rights of the Grantee, in and to the same, shall expire.

 

10.4 Notwithstanding anything to the contrary herein, following termination of Grantee’s Service, not for “Cause”, the Grantee may exercise Options which are Vested Options at the date of such termination, subject to the following terms (unless otherwise determined by the Board, which determination shall not require shareholders’ approval, unless such approval is required to comply with Applicable Laws), and subject to the Expiration Date:

 

  10.4.1 the Vested Options may be exercised within a period of 3 (three) months from the date of such termination; and

 

  10.4.2 if such termination is the result of death or disability of the Grantee, the Vested Options may be exercised within a period of 12 (twelve) months from the date of such termination;

 

10.5 Notwithstanding anything to the contrary herein, upon the issuance of a court order declaring the bankruptcy of a Grantee, or the appointment of a receiver or a provisional receiver for a Grantee over all of his assets, or any material part thereof, or upon making a general assignment for the benefit of his creditors, any Options issued in favor of such Grantee which are not Vested Options shall immediately expire and terminate, become null and void and shall not entitle the Grantee, his receiver,-successors, creditors or assignees, to any right in, or towards the Company in connection with the same, and all interests and rights of the Grantee, his receiver, successors, creditors or assignees, in and to the same, shall expire.

 

10.6 Without derogating from the foregoing, an Employee for whom Unapproved 102 Options were granted must sign, upon termination of his/her employment, a guarantee in the form required by the Company, to secure payment of all taxes which become due upon the future transfer of his/her Exercised Shares which may be issued following the exercise of his/her outstanding Unapproved 102 Options.

 

11. Rights as Shareholder and Voting Rights

 

11.1 It is hereby clarified that a Grantee shall not, by virtue of the Plan, the option agreement or any Option granted in his/her favor thereunder, have any of the rights of a shareholder with respect to any Shares represented by the Options, until the Options have been exercised and the Exercised Shares have been issued in the Grantee’s name.

Furthermore, with respect to Exercised Shares issued following the exercise of Approved 102 Options, as long as such Exercise Shares are registered in the name of the Trustee, the Company shall consider only the Trustee as the owner of such shares for all purposes whatsoever (including without limitation, for the purpose of delivering notices), and except as specifically designated otherwise herein (such as with respect to the right to receive dividends as provided in Section 12.1 hereafter), the Grantee shall not have any rights by virtue of such Exercised Shares until such Exercised Shares shall have been transferred to the Grantee by registering them in the Grantee’s name.

 

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11.2 Prior to the closing of an IPO, the Board shall be entitled to require, as a condition to the exercise of any Option, that the Grantee (and the Trustee, if the Trustee wall be the holder of the Exercised Shares) sign and deliver to such person as may be designated by the Board (the “ Nominee ”) an irrevocable proxy, in a form to be provided by the Company, appointing the Nominee as the sole person entitled to exercise the voting rights conferred by such shares. The Nominee shall not exercise the voting rights conferred by the Exercised Shares held by him or with respect to which the Nominee has been given an irrevocable proxy as aforesaid, in any way whatsoever, and shall not issue a proxy to any person or entity to vote such shares, unless otherwise instructed by the Board, and in accordance with such instructions. The Nominee shall be indemnified and held harmless by the Company, to the extent permitted by applicable law, against any cost or expense (including counsel fees) reasonably incurred by rum/it, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the voting of the aforesaid proxy unless arising out of such Nominee’s own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the Nominee(s) may have as a director or otherwise under the Company’s Certificate of Incorporation and/or By-Laws, any agreement, any vote of shareholders or disinterested directors, insurance policy or otherwise. Without derogating from the above, with respect to Exercised Shares of Approved 102 Options, such Shares shall be voted in accordance with the provisions of Section 102.

 

11.3 Notwithstanding anything to the contrary herein or in the Company’s Certificate of Incorporation and/or By-Laws, none of the Grantees shall have (and they hereby waive the right to have), any pre-emptive rights to purchase, along with the other shareholders in the Company, a pro rata portion of any securities proposed to be offered by the Company prior to the offering thereof to any third party and any rights of first refusal to purchase any securities of the Company offered by the other shareholders of the Company.

 

12. Dividends and Bonus Shares

 

12.1 Cash dividends paid or distributed, if any, with respect to the Exercised Shares shall be remitted directly to the Grantee who is entitled to the Exercised Shares for which the dividends are being paid or distributed, subject to any applicable taxation on such distribution of dividend, and the withholding thereof, and when applicable, subject to the provisions of Section 102.

 

12.2 All bonus shares to be issued by the Company, if any, with regard to the Exercised Shares held by the Trustee, shall be registered in the name of the Trustee and all provisions applying to the Exercised Shares, shall apply to the bonus shares, mutatis mutandis . Said bonus shares shall be subject to the Restricted Period applicable to the Exercised Shares with respect to which they were issued.

 

13. Liquidation

If the Company is liquidated or dissolved while unexercised Options remain outstanding under the Plan, then the Board in its own discretion may determine that all or part of such outstanding Options may be exercised in full by the Grantees as of immediately prior to the effective date of any such liquidation or dissolution of the Company, without regard to the vesting terms thereof.

 

14. Adjustments

The number of Shares to which each outstanding Option is exercisable, together with those Shares otherwise reserved for the purposes of the Plan for Options not yet exercised as provided under Section 5 above, shall be proportionately adjusted for any increase or decrease in the number of Shares resulting from a stock split, reverse stock split, combination or reclassification of the Shares, as well as for any distribution of bonus shares. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.

 

15. Rights to Changes, Etc.

The Plan or the option agreement shall not affect, in any way, the rights, power or freedom of the Company or of its stockholders to make or authorize any sale, transfer or any change whatsoever in all or any part of the Company’s assets, obligations or business, or any other business, commercial or corporate act or proceeding, whether of a similar character or otherwise; any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or business; any merger or consolidation of the Company; any issue of bonds, debentures, shares (including preferred or prior preference shares ahead of or affecting the existing shares of the Company including the shares into which

 

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the Options granted hereunder are exercisable or the Exercised Shares or the rights thereof, etc.); or the dissolution or liquidation of the Company; and none of the above acts or authorizations shall entitle the Grantee to any right or remedy, including, without limitation, a right of compensation for any dilution resulting from any issuance of any shares or of any other securities in the Company to any person or entity whatsoever.

 

16. No Employment / Engagement Obligations

Nothing in the Plan, the option agreement or in any Option granted hereunder shall guarantee the Grantee’s employment or engagement in the Company or any Affiliated Company, and no obligation of the Company or any Affiliated Company as to the length of employment or engagement of the Grantee or as to any other term of employment shall be implied by the same; the Company and any Affiliated Company reserve the right to terminate the employment or engagement of any Grantee pursuant to such Grantee’s terms of employment or engagement and any law.

 

17. No Representation

The Company does not and shall not, through this Plan or through any option agreement, make or be deemed to make any representation toward any Grantee with regard to the Company, its business, its value or with regard to the Company’s shares in general, and the Exercised Shares in particular, their value or rights.

The Grantee, in entering the option agreement, represents and warrants toward the Company, that his/her consent to the grant of the Options issued in favor of him/her and their exercise (if so exercised), is not, in any respect, made on the basis of any representation or warranty made by the Company or by any of its directors, officers, shareholders or employees, and is made based only upon his examination and expectations of the Company, on an “as is” basis, The Grantee waives any claim whatsoever of “non conformity” of any kind or any other cause of action or claim of any kind with respect to the Options and/or the Shares exercised thereupon.

 

18. Tax Consequences

 

18.1 All tax consequences arising from the grant or exercise of any Option, the payment for or the transfer of the Exercised Shares to the Grantee, or from any other event or act (of the Company, any Affiliated Company, the Trustee or the Grantee) hereunder, shall be borne solely by the Grantee; the Grantee shall indemnify the Company and the Trustee and hold them harmless from and against any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Grantee, unless the said liability is a result of default of the Company.

The Company, any Affiliated Company and the Trustee may withhold, from any payment made to the Grantee, the amount of the tax and/or other mandatory payment the withholding of which is required with respect to the Options and/or the Exercised Shares under any law. The Company or an Affiliated Company shall have the right to require the Grantee, through payroll withholding, cash payment or otherwise, to make adequate provision for any such tax withholding obligations of the Company, an Affiliated Company or the Trustee arising in connection with the Options or the Exercised Shares.

 

18.2 Without derogating from the foregoing, it is hereby clarified that the Grantee shall bear and be liable for all tax and other consequences in the event that his/her Approved 102 Options and/or Exercised Shares are not held for the entire Restricted Period, all as provided in Section 102.

 

19. Subordination

It is clarified that the grant of the Approved 102 Options hereunder is subject to the approval by the Tax Authorities of the Plan and the Trustee, in accordance with the Ordinance and the provisions of Section 102 applicable to the granting of Options through a Trustee in the tax track applicable to the Options, in accordance with the Election. It is also clarified that the Approved 102 Options, the Plan and the option agreements are subject to the provisions of Section 102 applicable to the granting of options through a Trustee in the tax track applicable to any granted Options, in accordance with the Election, and the terms of the Tax Authorities permit, if any, which shall be deemed an integral part of each, accordingly, and which

 

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shall prevail over any term that is inconsistent with such provisions of Section 102. Any provision of Section 102 and/or such permit which is necessary in order to receive and/or to keep any tax benefit pursuant to Section 102 which is not expressly specified in the Plan or in the option agreement shall be considered binding upon the Company and the Grantee.

It is further clarified that Unapproved 102 Options granted to Employees hereunder, and their respective option agreements, are subject to the provisions of Section 102 applicable to the granting of Options not through a Trustee, which shad be deemed an integral part of each, accordingly, and which shall prevail over any term that is inconsistent with such provisions of Section 102.

 

20. Non-Exclusivity of the Plan

The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangements or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of options for shares in the Company otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.

 

21. Termination or Amendment of Plan

The Board may terminate or amend the Plan at any time. However, subject to changes in applicable law, regulations or rules dial would permit otherwise, without the approval of the Company’s stockholders there shall be no amendment of the Plan that would require approval of the Company’s stockholders under any applicable law, regulation or rule. No termination or amendment of the Plan shall affect any then outstanding Options unless expressly provided by the Board.

 

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CHIASMA, INC.

Increase in Reserved Shares for Issuance Under 2003 Plan

RESOLVED , that the number of shares of common stock of the Company, par value $0.01 per share (the “ Common Stock ”), reserved for issuance upon exercise of stock options to purchase shares of Common Stock granted to employees, directors, consultants and service providers of the Company under the Company’s 2003 Israeli Stock Option Plan (the “ 2003 Plan ”) be increased by 30,000 shares of Common Stock to a total of 164,200 Shares of Common Stock; that the 2003 Plan be amended to reflect such increase; that the number of shares of Common Stock reserved for issuance under the 2003 Plan be and hereby is increased to a total of 164,200; and that the amendment to the 2003 Plan be submitted to the stockholders of the Company for their approval.

RESOLVED , that the Board of Directors hereby ratifies and approves, as of the date of their respective initial grant, all options granted under the Company’s 2003 Plan.

 

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FORM OF OPTION AGREEMENT

OPTION AGREEMENT made and entered into in Jerusalem Effective as of [●] day of [●] 20[●], (the “ Date of Grant ”) by and between CHIASMA, INC., (the “ Company ”) of the first part and [●] (the “ Grantee ”) of the second part.

WHEREAS , the Company has decided to grant options in favor of the Grantee to purchase share(s) of Common Stock having a par value of US $0.01 each of the Company, under and in accordance with the Company’s Israeli Stock Option Plan - 2003, attached hereto as Annex A (hereinafter the “ Plan ”), adopted by the Board on November 26, 2003; and

WHEREAS , the Grantee has agreed to such grant, subject to all the terms and conditions as set forth in the Plan and as provided herein.

NOW, THEREFORE , in consideration of the premises and mutual covenants and agreements herein contained, the parties agree as follows:

 

1. Preamble and Interpretation

1.1 The preamble to this Option Agreement and the Annexes attached hereto form an integral part hereof.

1.2 The captions of clauses in this Option Agreement are intended solely for convenience and will have no meaning in the interpretation of this Option Agreement.

1.3 All the capitalized terms not defined herein shall have the meaning given to them in the Plan, unless the context clearly indicates to the contrary.

 

2. The Plan

This Option Agreement and the Options granted hereunder, are subject to the provisions of the Plan (as may be amended from time to time), which shall be deemed an integral part hereof. The grant of the Options, the exercise thereof and all the other terms in connection therewith shall be in accordance with and pursuant to the terms of the Plan. The Grantee hereby undertakes to comply with the terms of the Plan. Any interpretation of this Option Agreement will be made in accordance with the Plan, but in the event there is any contradiction between the provisions of this Option Agreement and the Plan, the provisions of the Option Agreement will prevail

 

3. Grant of Options

After the execution by the Grantee of this Option Agreement and any other documents required by the Company in connection herewith, the Company shall execute this Option Agreement and issue [●] Options which shall be:

Approved 102 Options - subject to the “Capital Gain Income Tax Track” of Section 102 - and shall be granted to the Trustee in favor of the Grantee.


and which shall be governed by and subject to the terms and conditions set forth in the Plan, applicable to such tax track of Options {the “ Grantee’s Options ”).

 

4. Vesting and Exercise of Options

4.1 Without derogating from and subject to the provisions of the Plan the Grantee’s Options shall vest over a total of four years as follows:

 

Period of Grantee’s Continuous
Service from the Date of Start:

  

Portion of Total Number

of Options that is

Vested and Exercisable

Upon the lapse of full 12 (twelve) months of continuous Service   
Upon the lapse of each full additional month of the Grantee’s continuous Service thereafter, until all the Options are vested, an additional   

For the purposes herein, the “ Date of Start ” of the Grantee’s Options shall be [●].

4.2 Subject to the applicable terms and conditions of the Plan, and during the Exercise Period, the Options which are vested with the Grantee in accordance with Section 4.1 above, may be exercised by the Grantee, in accordance with the applicable provisions of the Plan. Pursuant to Section 11.2 of the Plan and, when applicable, subject to the provisions of the Section 102, until the closing of an IPO, the Board shall be entitled to require, as a condition to the exercise of any Option, that the Grantee (and the Trustee, If the Trustee will be the holder of the Exercised Shares) sign and deliver to such person as may be designated by the Board an irrevocable proxy, in a form to be provided by the Company.

4.3 Without derogating from the provisions of the Plan, and in addition thereto, the grant of the Options and the issuance of Exercised Shares shall be subject to compliance with all Applicable Laws. The Options may not be exercised if the issuance of the Exercised Shares would constitute a violation of any Applicable Laws, In addition, the Options may not be exercised unless (i) a registration statement under the United States Securities Act of 1933, as now in effect or as hereafter amended (the “ Securities Act ”) shall at the time of exercise of the Options be in effect with respect to the shares issuable upon exercise of the Options or (ii) in the opinion of legal counsel to the Company, the Exercised Shares may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act or any other applicable securities laws. THE GRANTEE IS CAUTIONED THAT THE OPTIONS MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE GRANTEE MAY NOT BE ABLE TO EXERCISE THE OPTIONS WHEN DESIRED EVEN THOUGH THE OPTIONS ARE VESTED. The inability of the Company or any Affiliated Company to obtain from any regulatory body having jurisdiction, the authority if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Exercised Shares 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. As a condition to the exercise of the Options, the Company may require the Grantee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any Applicable Laws and to make any representation or warranty with respect thereto as may be requested by the Company.

 

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4.4 The Company shall not be required to issue fractional shares upon the exercise of the Options. If any fractional Share would be deliverable upon exercise, such fraction shall be rounded up one-half or less, or otherwise rounded down, to the nearest whole number.

 

5. Exercise Price

The Exercise Price for each Option shall be $[●].

 

6. Restrictions on Transfer and Voting of Shares

6.1 The transfer of the Exercised Shares shall be subject to the limitations and restrictions set forth in the Plan (including without limitation, the bring along obligation), and in the Company’s Certificate of Incorporation and By-Laws, as shall be in effect from time to time, any shareholders’ agreement to which the holders of Shares are bound, and the right of first refusal described below in this Section 6.

6.2 Additionally, the Grantee acknowledges that if the Company’s shares are registered for trading in any public market, the Grantee’s right to sell shares may be subject to some limitations, as set forth by the Company or its underwriters, including without limitation, customary lockup requirements. In such event, the Grantee will unconditionally agree to any such limitations.

Notwithstanding anything to the contrary contained herein and without derogating from the other provisions of this Section 6.2 above, in connection with any underwritten public offering by the Company of its securities, pursuant to an effective registration statement filed under the Securities Act. including an initial public offering of the Company’s securities, the Grantee shall not, directly or indirectly, sell or otherwise transfer, hypothecate, pledge, grant or otherwise dispose of the Options (whether or not vested), the Exercised Shares, or Shares issued by virtue of the Exercised Shares (together, the “ Restricted Shares ”), without the prior written consent of the Company or its underwriters. Such restrictions shall be in effect for a period of one hundred and eighty (180) days following the effective date of the registration statement filed by the Company under the Securities Act or for a longer period as may be requested by the Company or such underwriters (hereinafter, the “ Lock-Up Period ”).

In order to enforce the above restrictions, the Company may impose stop-transfer instructions with respect to the Restricted Shares until the end of the applicable Lock-Up Period.

6.3 The Grantee further acknowledges that without derogating from the provisions of Section 6.2 above, Approved 102 Options and the Exercised Shares issued pursuant to the exercise thereof and all rights attached thereto (including bonus shares), shall also be subject to those special limitations and restrictions applicable under the Plan and the Ordinance and shall not be released before the end of the Restricted Period, applicable to the type (tax track) of the Approved 102 Option granted hereunder,

 

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6.4 The Grantee shall not dispose of any Shares in transactions which violate, in the opinion of the Company, any applicable rules and regulations. Without derogating from the above, the Grantee understands and acknowledges that the Shares have not been registered under the Securities Act, and that consequently the Shares must be held indefinitely unless they are subsequently registered under the Securities Act, an exemption from such registration is available, or they are sold in accordance with Rule 144 or Rule 701 under the Securities Act. The Grantee further understands and acknowledges that the Company is under no obligation to register the Shares, The Grantee understands that the certificate or certificates evidencing the Shares may be imprinted with legends which prohibit the transfer of the-Shares unless they are registered or such registration is not required in the opinion of legal counsel satisfactory to the Company. The Grantee is aware that Rule 144 under the Securities Act (“ Rule 144 ”), which permits limited public resale of securities acquired in a nonpublic offering, is not currently available with respect to the Shares and, in any event, is available only if certain conditions are satisfied. The Grantee understands that any sale of the Shares that might be made in reliance upon Rule 144 may only be made in limited amounts in accordance with the terms and conditions of such rule and that a copy of Rule 144 will be delivered to the Grantee upon request.

6.5 The Grantee agrees that the Company shall have the authority to endorse upon the: certificate or certificates representing the shares of the Grantee such legends referring to the foregoing restrictions, and any other applicable restrictions, as it may deem appropriate (which do not violate the Grantee’s rights according to this Option Agreement).

6.6 Without derogating from the provisions of the Plan, and in addition thereto, the Grantee will be required by the Company, at the Company’s discretion, to give a declaration in writing upon exercising the Option, that the Grantee is acquiring the Exercised Shares for his or her own account, for investment and not with a view to immediate sale upon, the distribution of such Exercised Shares.

6.7 Without derogating from the restrictions and limitations regarding transferability as provided in the Plan and in this Option Agreement, and in addition thereto, the Exercised Shares shall also be subject to the following:

6.7.1 Limitation of Transfer and Grant of Right of First Refusal . Notwithstanding anything to the contrary herein, unless otherwise determined by the Board, until such time as the Company shall complete an IPO, s Grantee shall not have the right to sell, exchange, assign, pledge, encumber, charge or otherwise transfer or dispose of (“ Transfer ”) Exercised Shares, within six (6) months and one day of the date of exercise of the Options by virtue of which such Exercised Share was issued. Additionally, and without derogating from the above, except as provided in Section 6.7.8 below, in the event the Grantee, the Grantee’s legal representative or other holder of shares acquired upon exercise of the Options proposes to Transfer any Exercised Shares which in accordance with the Plan and this Option Agreement are permitted to be Transferred (the “ Transfer Shares’ ) to any person or entity, including, without limitation, any stockholder of the Company, the Company shall have the right regarding the Transfer Shares as set forth in this Section 6.7 (the “ Right of First Refusal ”).

 

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6.7.2 Notice of Proposed Transfer . Prior to any proposed Transfer of the Transfer Shares, the Grantee shall deliver written notice (the “ Transfer Notice ”) to the Company describing fully the proposed Transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the “ Proposed Transferee ”) and, if the Transfer is voluntary, the proposed Transfer price, and containing such information necessary to show the bona fide nature of the proposed Transfer, In the event of a bona fide gift or involuntary Transfer, the proposed Transfer price shall be deemed to be the fair market value of the Transfer Shares.

6.7.3 Bona Fide Transfer . If the Company determines that the information provided by the Grantee in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary Transfer, the Company shall give the Grantee written notice of the Grantee’s failure to comply with the procedure described in this Section 6.7, and the Grantee shall have no right to Transfer the Transfer Shares without first complying with the procedure described in this Section 6.7. The Grantee shall not be permitted to Transfer the Transfer Shares if the proposed transfer is not bona fide.

6.7.4 Exercise of Right of First Refusal . The Company shall have the right to purchase all or a portion of the Transfer Shares at the purchase price, and on the terms, set forth in the Transfer Notice by delivery to the Grantee of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is duly delivered to the Company. The Company’s exercise or failure to exercise the Right of First Refusal with respect to any proposed Transfer described in a Transfer Notice shall not affect the Company’s right to exercise the Right of First Refusal with respect to any proposed Transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Grantee or issued by a person other than the Grantee with respect to a proposed Transfer to the same Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the Grantee shall thereupon consummate the sale of the Transfer Shares to the Company on the terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided, however , that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, the Company shall have the option of paying for the Transfer Shares by the present value cash equivalent of the consideration described in the Transfer Notice as reasonably determined by the Company. For purposes of the foregoing, cancellation of any indebtedness of the Grantee to the Company or any Affiliate shall be treated as payment to the Grantee in cash.

6.7.5 Failure to Exercise Right of First Refusal . If the Company fails to exercise the Right of First Refusal in full (or to such lesser extent as the Company and the Grantee otherwise agree) within the period specified in Section 6.7.4 above, the Grantee may conclude a Transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice; provided such transfer occurs not later than ninety (90) days following delivery to the Company of the Transfer Notice. The Company shall have the right to demand further assurances from the Grantee and the Proposed Transferee (in a form satisfactory to the Company) that the Transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice. No Transfer Shares shall be transferred on the books of the Company until the Company has received such assurances, if so demanded, and has approved the proposed Transfer as bona fide. Any proposed Transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed Transfer by the Grantee, shall again be subject to the Right of First Refusal and shall require compliance by the Grantee with the procedure described in this Section 6.7.

 

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6.7.6 Transferees of Transfer Shares . All transferees of the Transfer Shares or any interest therein, other than the Company, shall be required as a condition of such Transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Transfer Shares or interest therein subject to all of the terms and conditions of the Plan and this Option Agreement, including this Section 6.7 providing for the Right of First Refusal with respect to any subsequent transfer. Any Transfer of any shares acquired upon exercise of the Options shall be void unless the provisions of this Section 6.7 are met.

6.7.7 Assignment of Right of First Refusal . The Company shall have the right to assign the Right of First Refusal at any time, whether or not there has been an attempted Transfer, to one or more persons as may be selected by the Company.

6.7.8 Early Termination of Right of First Refusal . The other provisions of this Option Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Merger Transaction, unless the Successor Entity assumes the Company’s rights and obligations under the Options or substitutes substantially equivalent options for the Successor’s Entity’s stock for the Options, or (b) the existence of a public market for the class of shares subject to the Right of First Refusal. A “public market” shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Securities Exchange Act of 1934) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal.

6.7.9 Any transfer of Exercised Shares that is not made in accordance with the Plan or this Option Agreement shall be null and void. The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred.

6.7.10 If, from time to time, there is any stock dividend, stock split or other change, as described in the Plan, in the character or amount of any of the outstanding stock of the corporation the stock of which is subject to the provisions of this Option Agreement, then in such event any and all new, substituted or additional securities to which the Grantee is entitled by reason of the Grantee’s ownership of the Exercised Shares shall be immediately subject to the Right of First Refusal and any security interest held by the Company with the same force and effect as the shares subject to such restrictions immediately before such event.

 

7. Taxes and Indemnification:

7.1 The receipt of the Option and the exercise thereof may result in tax consequences. THE GRANTEE IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF RECEIVING OR EXERCISING THE OPTIONS OR DISPOSING OF THE SHARES

 

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7.2 All tax consequences arising from the grant or exercise of any Option, the payment for or the transfer of the Exercised Shares to the Grantee, or from any other event or act (of the Company, any Affiliated Company, the Trustee or the Grantee) hereunder, shall be borne solely by the Grantee; the Grantee shall indemnify the Company and/or any Affiliated Company and/or the Trustee and hold them harmless from and against any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Grantee.

The Company, any Affiliated Company and the Trustee may withhold, from any payment made to the Grantee, the amount of the tax and/or other mandatory payment the withholding of which is required with respect to the Options and/or the Exercised Shares under any law. The Company or an Affiliated Company shall have the right to require the Grantee, through payroll withholding, cash payment or otherwise, to make adequate provision for any such tax withholding obligations of the Company, an Affiliated Company or the Trustee arising in connection with the Options or the Exercised Shares.

7.3 Without derogating from the foregoing, it is hereby clarified that the Grantee shall bear and be liable for all tax and other consequences in the event that his/her Approved 102 Options and/or Exercised Shares are not held for the entire Restricted Period, all as provided in Section 102.

7.4 Without derogating from the provisions of the Plan, it is further clarified that the Grantee shall not be entitled to receive any Exercised Shares prior to the Company being provided with the tax authorities’ confirmation which either (i) waives or defers the tax withholding obligation; or (ii) confirms the payment of the tax with respect to such exercise; or (iii) confirms the conclusion of another arrangement with the Grantee regarding the tax amounts, if any, that are to be withheld by the Company or any Affiliated Company under law with respect to such exercise, and which is satisfactory to the Company, and if such arrangement requires the approval of the Trustee, is also satisfactory to the Trustee.

 

8. Subordination

8.1 With regard to Approved 102 Options, the provisions of the Plan and/or the Option Agreement shall be subject to the provisions of Section 102 applicable to the granting of Options through a Trustee in the tax track applicable to any granted Options in accordance with the Election, and the terms of the Tax Assessing Officer’s permit, if any, which shall be deemed an integral part of each, and which shall prevail over any term that is inconsistent with such provisions of Section 102. Any provision of Section 102 and/or the said permit which is necessary in order to receive and/or to keep any tax benefit pursuant to Section 102, which is not expressly specified in the Plan or the Option Agreement, shall be considered binding upon the Company and the Grantees.

8.2 With regard to Unapproved 102 Options granted to Employees hereunder, such Options and their respective Option Agreements, are subject to the provisions of Section 102 applicable to the granting of Options not through a Trustee, which shall be deemed an integral part of each, and which shall prevail over any term that is inconsistent with such provisions of Section 102.

 

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9. Miscellaneous

9.1 The invalidity or unenforceability of any provision herein shall not affect the validity or enforceability of the balance hereof.

9.2 The Plan and this Option Agreement represents the entire undertaking by the Company regarding the subject matter and supersedes all prior undertakings with respect thereto.

9.3 No provision hereof may be waived or discharged except by a written document signed by a duly authorized representative of the Company.

9.4 The failure of the Company at any time or times to require performance of any provision hereof shall in no manner affect the right of the Company at a later time to enforce the same. No waiver by the Company of the breach of any of the terms or covenants contained in this Option Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any breach, or a waiver of the breach of any of the terms or covenants contained in this Option Agreement.

9.5 All notices given by one Party to the other hereunder will be given in writing, and will be deemed to have been delivered to the addressee immediately on its delivery if delivered by hand or upon transmission if sent by facsimile and confirmed by written reply by facsimile immediately thereafter, or within seven (7) business days after being sent by registered mail, as per the addresses indicated hereinabove, or such other address or facsimile number as a Party may thereafter give by written notice to the other Party to this Option Agreement.

9.6 This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Israel, without giving effect to the principles of conflict of laws. The competent courts of Tel-Aviv, Israel shall have the sole jurisdiction in any matters pertaining to this Agreement, to the complete exclusion of any other courts.

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF , the parties hereto have caused this Option Agreement to be duly executed on the day and year first written above.

 

COMPANY:
CHIASMA, INC.
By:

 

Name:
Title:

I, the undersigned, hereby acknowledge receipt of a copy of the Plan and am familiar with the terms and provisions thereof and accept the Options subject to all of the terms and provisions thereof. I have reviewed the Plan and this Option Agreement in its entirety, have had an opportunity to obtain the advice of counsel prior to executing this Option Agreement, and fully understand all provisions of this Option Agreement I agree to notify the Company upon any change in the residence address indicated above.

I hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Board upon any question arising under the Plan or this Option Agreement.

In case of Approved 102 Options:

I hereby further acknowledge that I am aware that I am being granted an Approved 102 Option, of the “Capital Gain Income Tax Track”, and that I am familiar with the provisions of Section 102 and the regulations and rules promulgated thereunder, applicable to such Option type, including without limitations, the tax implications applicable to such grant, and agree to be bound by said provisions. I accept the provisions of the trust agreement signed between the Company and the Trustee, attached as Annex B hereto, and agree to be bound by its terms.

In case of Unapproved 102 Options:

I further undertake that if I cease to be employed by the Company or any Affiliated Company, I shall execute upon such termination, a guarantee in the form required by the Company, to secure payment of all taxes which become due upon the future sale of my Exercised Shares which may be issued following the exercise of my outstanding Unapproved 102 Options.

 

GRANTEE:

 

[Signature Page to Option Agreement]

Exhibit 10.2

CHIASMA, INC.

2008 STOCK INCENTIVE PLAN

1. Purpose

The purpose of this 2008 Stock Incentive Plan (the “Plan”) of Chiasma, Inc., a Delaware corporation (the “Company”), is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to better align the interests of such persons with those of the Company’s stockholders. Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest as determined by the Board of Directors of the Company (the “Board”).

2. Eligibility

All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock, restricted stock units (“RSUs”) and other stock-based awards (each, an “Award”) under the Plan. Each person who receives an Award under the Plan is deemed a “Participant”.

3. Administration and Delegation

(a) Administration by Board of Directors . The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may construe and interpret the terms of the Plan and any Award agreements entered into under the Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.

(b) Appointment of Committees . To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a “Committee”). All references in the Plan to the “Board” shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee or officers.


(c) Delegation to Officers . To the extent permitted by applicable law, the Board may delegate to one or more officers of the Company the power to grant Awards (subject to any limitations under the Plan) to employees or officers of the Company or any of its present or future subsidiary corporations and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of the Awards to be granted by such officers (including the exercise price of such Awards, which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to Awards that the officers may grant; provided further, however, that no officer shall be authorized to grant Awards to any “executive officer” of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or to any “officer” of the Company (as defined by Rule 16a-1 under the Exchange Act).

4. Stock Available for Awards

(a) Number of Shares . Subject to adjustment under Section 8, Awards may be made under the Plan for up to 500,000 shares (after giving effect to the 1,000-into-l reverse stock split approved by the Board in May 2008) of common stock, $0.01 par value per share, of the Company (the “Common Stock”). If any Award expires or is terminated, surrendered or canceled without having been frilly exercised, is. forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right), or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. Further, shares of Common Stock tendered to the Company by a Participant to exercise an Award shall be added to the number of shares of Common Stock available for the grant of Awards under the Plan. However, in the case of Incentive Stock Options (as hereinafter defined), the foregoing provisions shall be subject to any limitations under the Code, Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

(b) Substitute Awards . In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Awards may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the Plan. Substitute Awards shall not count against the overall share limit set forth in Section 4(a), except as may be required by reason of Section 422 and related provisions of the Code.

5. Stock Options

(a) General . The Board may grant options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. Unless otherwise determined by the Board, an Option that is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a “Nonstatutory Stock Option”.

 

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(b) Incentive Stock Options . An Option that the Board intends to be an “incentive stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall only be granted to employees of Chiasma, Inc., any of Chiasma, it’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Code, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code, and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) that is intended to be an Incentive Stock Option is not an Incentive Stock Option or for any action taken by the Board, including without limitation the conversion of an Incentive Stock Option to a Nonstatutory Stock Option.

(c) Exercise Price . The Board shall establish the exercise price of each Option and specify the exercise price in the applicable option agreement. The exercise price shall be not less than 100% of the Fair Market Value (as defined below) on the date the Option is granted.

(d) Duration of Options . Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement.

(e) Exercise of Option . Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. Shares of Common Stock subject to the Option will be delivered by the Company as soon as practicable following exercise.

(f) Payment Upon Exercise . Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

(1) in cash or by check, payable to the order of the Company;

(2) when the Common Stock is registered under the Exchange Act, except as may otherwise be provided in the applicable option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding;

(3) when the Common Stock is registered under the Exchange Act and to the extent provided for in the applicable option agreement or approved by the Board, in its sole discretion, by delivery (either by actual delivery or attestation) of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board (“Fair Market Value”), provided (i) such method of payment is then permitted under applicable law, (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time, if any, as may be established by the Board in its discretion and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;

 

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(4) to the extent permitted by applicable law and provided for in the applicable option agreement or approved by the Board, in its sole discretion, by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or

(5) by any combination of the above permitted forms of payment.

6. Restricted Stock: Restricted Stock Units

(a) General . The Board may grant Awards entitling recipients to acquire shares of Common Stock (“Restricted Stock”), subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award. Instead of granting Awards for Restricted Stock, the Board may grant Awards entitling the recipient to receive .shares of Common Stock or cash to be delivered at the time such Award vests (“Restricted Stock Units”) (Restricted Stock and Restricted Stock Units are each referred to herein as a “Restricted Stock Award”).

(b) Terms and Conditions for All Restricted Stock Awards . The Board shall determine the terms and conditions of a Restricted Stock Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.

(c) Additional Provisions Relating to Restricted Stock .

(1) Dividends . Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such shares, unless otherwise provided by the Board. Unless otherwise provided, by the Board, if any dividends or distributions are paid in shares, or consist of a dividend or distribution to holders of Common Stock other than an ordinary cash dividend, the shares, cash or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.

(2) Stock Certificates . The Company may require that any stock certificates issued in respect of shares of Restricted Stock shall be deposited in escrow by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant m the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, “Designated Beneficiary” shall mean the Participant’s estate.

7. Other Stock-Based Awards

Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property,

 

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may be granted hereunder to Participants (“Other Stock-Based Awards”), including without limitation stock appreciation rights (“SARs”) and Awards entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other Stock-Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based Awards may be paid in shares of Common Stock or cash, as the Board shall determine. Subject to the provisions of the Plan, the Board shall determine the terms and conditions of each Other Stock-Based Award, including any purchase price applicable thereto.

8. Adjustments for Changes in Common Stock and Certain Other Events

(a) Changes in Capitalization . In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under this Plan, (ii) the number and class of securities and exercise price per share of each outstanding Option, (iii) the number of shares subject to and the repurchase price per share subject to each outstanding Restricted Stock Award, and (iv) the terms of each other outstanding Award shall he equitably adjusted by the Company (or substituted Awards may be made, if applicable) in the manner determined by the Board. Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to an outstanding Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

(b) Reorganization Events .

(1) Definition . A “Reorganization Event” shall mean: (i) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (ii) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction or (iii) any liquidation or dissolution of the Company.

(2) Consequences of a Reorganization Event on Awards Other than Restricted Stock Awards . In connection with a Reorganization Event, the Board may take any one or more of the following actions as to all or any (or any portion of) outstanding Awards other than Restricted Stock Awards on such terms as the Board determines: (i) provide that Awards shall be assumed, or substantially equivalent Awards shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice to a Participant, provide that the Participant’s unexercised Awards will terminate immediately prior to the consummation of such Reorganization Event unless exercised by the Participant within a specified period following the date of such notice, (iii) provide that outstanding Awards shall become exercisable, realizable, or

 

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deliverable, or restrictions applicable to an Award shall lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event (the “Acquisition Price”), make or provide for a cash payment to a Participant equal to the excess, if any, of (A) the Acquisition Price times the number of shares of Common Stock subject to the Participant’s Awards (to the extent the exercise price does not exceed the Acquisition Price) over (B) the aggregate exercise price of all such outstanding Awards and any applicable tax withholdings, in exchange for the termination of such Awards, (v) provide that, in connection with a liquidation or dissolution of the Company, Awards shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof and any applicable tax withholdings) and (vi) any combination of the foregoing. In taking any of the actions permitted under this Section 8(b), the Board shall not be obligated by the Plan to treat all Awards, all Awards held by a Participant, or all Awards of the same type, identically.

For purposes of clause (i) above, an Option shall be considered assumed if, following consummation of the Reorganization Event the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.

(3) Consequences of a Reorganization Event on Restricted Stock Awards . Upon the occurrence of a Reorganization Event other than a liquidation or dissolution of the Company, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company’s successor and shall, unless the Board determines otherwise, apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. Upon the occurrence of a Reorganization Event involving the liquidation or dissolution of the Company, except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied.

 

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9. General Provisions Applicable to Awards

(a) Transferability of Awards . Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an Incentive Stock Option, pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

(b) Documentation . Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan.

(c) Board Discretion . Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.

(d) Termination of Status . The Board shall determine the effect on an Award of the disability, death, termination or other cessation of employment, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.

(e) Withholding . The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will deliver stock certificates or otherwise recognize ownership of Common Stock under an Award. The Company may decide to satisfy the withholding obligations through additional withholding on salary or wages. If the Company elects not to or cannot withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding obligations. Payment of withholding obligations is due before the Company will issue any shares on exercise or release from forfeiture of an Award or, if the Company so requires, at the same time as is payment of the exercise price unless the Company determines otherwise. If provided for in an Award or approved by the Board in its sole discretion, a Participant may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). Shares surrendered to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.

 

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(f) Amendment of Award .

(1) The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option. The Participant’s consent to such action shall be required unless (i) the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant’s rights under the Plan or (ii) the change is permitted under Section 8 hereof.

(2) The Board may, without stockholder approval, amend any outstanding Award granted under the Plan to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Award. The Board may also, without stockholder approval, cancel any outstanding award (whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled award.

(g) Conditions on Delivery of Stock . The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

(h) Acceleration . The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

10. Miscellaneous

(a) No Right To Employment or Other Status . No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan: except as expressly provided in the applicable Award.

(b) No Rights As Stockholder . Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares.

(c) Effective Date and Term of Plan . The Plan shall become effective on the date on which it is adopted by the Board. No Awards shall be granted under the Plan after the expiration

 

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of 10 years from the earlier of (i) the date on which the Plan was adopted by the Board or (ii) the date the Plan was approved by the Company’s stockholders, but Awards previously granted may extend beyond that date.

(d) Amendment of Plan . The Board may amend, suspend or terminate the Plan or any portion thereof at any time; provided that if at any tune the approval of the Company’s stockholders is required as to any modification or amendment under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, the Board may not effect such modification or amendment without such approval. Unless otherwise specified in the amendment, any amendment to the Plan adopted in accordance with this Section 10(d) shall apply to, and be binding on the holders of, all Awards outstanding under the Plan at the time the amendment is adopted, provided the Board determines that such amendment does not materially and adversely affect the rights of Participants under the Plan.

(e) Authorization of Sub-Plans . The Board may from time to time establish one or more sub-plans or procedures under the Plan for purposes of satisfying applicable blue sky. securities or tax laws of various jurisdictions or to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. The Board shall establish such sub-plans by adopting supplements to this Plan containing (i) such limitations on the Board’s discretion under the Plan as the Board deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction which is not the subject of such supplement.

(f) Compliance with Code Section 409A . No Award shall provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A of the Code. The Company shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A is not so exempt or compliant or for any action taken by the Board.

(g) Currency Exchange Rates . Except as otherwise determined by the Board, all monetary values with respect to Awards, including without limitation the Fair Market Value, the exercise price and issue price, shall be stated in United States Dollars. In the event that any such amount is in fact to be paid in any other currency, the exchange rate shall be the last known representative rate of the United States Dollar to such other currency on the date of payment.

(h) Governing Law . The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.

 

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CHIASMA, INC.

AMENDMENT TO THE

2008 STOCK INCENTIVE PLAN

The Chiasma, Inc. 2008 Stock Incentive Plan (the “Plan”) is hereby amended as follows:

The first sentence of Section 4(a) of the Plan is hereby amended and restated in its entirety to read as follows:

“Subject to adjustment under Section 8, Awards may be made under the Plan for up to 38,230,000 shares of common stock, $0.01 par value per share, of the Company (the “ Common S t ock ”).”

 

ADOPTED BY BOARD OF DIRECTORS: April 14, 2015
ADOPTED BY STOCKHOLDERS: May 7, 2015


CHIASMA, INC.

Incentive Stock Option Agreement

Granted Under 2008 Stock Incentive Plan

 

1. Grant of Option .

This agreement evidences the grant by Chiasma, Inc. , a Delaware corporation (the “Company”), on             , 20[    ] (the “Grant Date”) to [            ], an employee of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2008 Stock Incentive Plan (the “Plan”), a total of [                ] shares (the “Shares”) of common stock, $0.01 par value per share, of the Company (“Common Stock”) at $[            ] per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on [                ] (the “Final Exercise Date”).

It is intended that the option evidenced by this agreement shall be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”). Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

 

2. Vesting Schedule .

This option will become exercisable (“vest”) as to [25]% of the original number of Shares on the first anniversary of the Grant Date and as to an additional [2.0833]% of the original number of Shares at the end of each successive [month] following the first anniversary of the Grant Date until the [fourth] anniversary of the Grant Date.

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.

 

3. Exercise of Option .

(a) Form of Exercise . Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share or for fewer than ten whole shares.

(b) Continuous Relationship with the Company Required . Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).


(c) Termination of Relationship with the Company . If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon such violation.

(d) Exercise Period Upon Death or Disability . If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date.

(e) Termination for Cause . If, prior to the Final Exercise Date, the Participant’s employment is terminated by the Company for Cause (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such termination of employment. If, prior to the Final Exercise Date, the Participant is given notice by the Company of the termination of his or her employment by the Company for Cause, and the effective date of such employment termination is subsequent to the date of delivery of such notice, the right to exercise this option shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participant’s employment shall not be terminated for Cause as provided in such notice or (ii) the effective date of such termination of employment (in which case the right to exercise this option shall, pursuant to the preceding sentence, terminate upon the effective date of such termination of employment). If the Participant is party to an employment or severance agreement with the Company that contains a definition of “Cause” for termination of employment, “Cause” shall have the meaning ascribed to such term in such agreement. Otherwise, “Cause” shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for Cause if the Company determines, within 30 days after the Participant’s resignation, that discharge for cause was warranted.

 

4. Company Right of First Refusal .

(a) Notice of Proposed Transfer . If the Participant proposes to sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively, “transfer”) any Shares acquired upon exercise of this option, then the Participant shall first give

 

2


written notice of the proposed transfer (the “Transfer Notice”), to the Company. The Transfer Notice shall name the proposed transferee and state the number of such Shares the Participant proposes to transfer (the “Offered Shares”), the price per share and all other material terms and conditions of the transfer.

(b) Company Right to Purchase . For 30 days following its receipt of such Transfer Notice, the Company shall have the option to purchase all or part of the Offered Shares at the price and upon the terms set forth in the Transfer Notice. In the event the Company elects to purchase all or part of the Offered Shares, it shall give written notice of such election to the Participant within such 30-day period. Within 10 days after his or her receipt of such notice, the Participant shall tender to the Company at its principal offices the certificate or certificates representing the Offered Shares to be purchased by the Company, duly endorsed in blank by the Participant or with duly endorsed stock powers attached thereto, all in a form suitable for transfer of the Offered Shares to the Company. Promptly following receipt of such certificate or certificates, the Company shall deliver or mail to the Participant a check in payment of the purchase price for such Offered Shares; provided that if the terms of payment set forth in the Transfer Notice were other than cash against delivery, the Company may pay for the Offered Shares on the same terms and conditions as were set forth in the Transfer Notice; and provided further that any delay in making such payment shall not invalidate the Company’s exercise of its option to purchase the Offered Shares.

(c) Shares Not Purchased By Company . If the Company does not elect to acquire all of the Offered Shares, the Participant may, within the 30-day period following the expiration of the option granted to the Company under subsection (b) above, transfer the Offered Shares which the Company has not elected to acquire to the proposed transferee, provided that such transfer shall not be on terms and conditions more favorable to the transferee than those contained in the Transfer Notice. Notwithstanding any of the above, all Offered Shares transferred pursuant to this Section 4 shall remain subject to the right of first refusal set forth in this. Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4.

(d) Consequences of Non-Delivery . After the time at which the Offered Shares are required to be delivered to the Company for transfer to the Company pursuant to subsection (b) above, the Company shall not pay any dividend to the Participant on account of such Offered Shares or permit the Participant to exercise any of the privileges or rights of a stockholder with respect to such Offered Shares, but shall, insofar as permitted by law, treat the Company as the owner of such Offered Shares.

(e) Exempt Transactions. The following transactions shall be exempt from the provisions of this Section 4:

(1) any transfer of Shares to or for the benefit of any spouse, child or grandchild of the Participant, or to a trust for their benefit;

(2) any transfer pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended (the “Securities Act”); and

 

3


(3) the sale of all or substantially all of the outstanding shares of capital stock of the Company (including pursuant to a merger or consolidation);

provided , however , that in the case of a transfer pursuant to clause (1) above, such Shares shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4.

(f) Assignment of Company Right . The Company may assign its rights to purchase Offered Shares in any particular transaction under this Section 4 to one or more persons or entities.

(g) Termination . The provisions of this Section 4 shall terminate upon the earlier of the following events:

(1) the closing of the sale of shares of Common Stock in an underwritten public offering pursuant to an effective registration statement filed by the Company under the Securities Act; or

(2) the sale of all or substantially all of the outstanding shares of capital stock, assets or business of the Company, by merger, consolidation, sale of assets or otherwise (other than a merger or consolidation in which all or substantially all of the individuals and entities who were beneficial owners of the Company’s voting securities immediately prior to such transaction beneficially own, directly or indirectly, more than 75% (determined on an as-converted basis) of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction).

(h) No Obligation to Recognize Invalid Transfer . The Company shall not be required (1) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Section 4, or (2) to treat as owner of such Shares or to pay dividends to any transferee to whom any such Shares shall have been so sold or transferred.

(i) Legends . The certificate representing Shares shall bear a legend substantially in the following form (in addition to, or in combination with, any legend required by applicable federal and state securities laws and agreements relating to the transfer of the Company securities):

“The shares represented by this certificate are subject to a right of first refusal in favor of the Company, as provided in a certain stock option agreement with the Company.”

 

5. Agreement in Connection with Initial Public Offering .

The Participant agrees, in connection with the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Securities Act, (i) not to (a) offer, pledge, announce the intention to sell, 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,

 

4


or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any other securities of the Company or (b) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of shares of Common Stock or other securities of the Company, whether any transaction described in clause (a) or (b) is to be settled by delivery of securities, in cash or otherwise, during the period beginning on the date of the filing of such registration statement with the Securities and Exchange Commission and ending 180 days after the date of the final prospectus relating to the offering (plus up to an additional 34 days to the extent requested by the managing underwriters for such offering in order to address Rule 2711(f) of the National Association of Securities Dealers, Inc. or any similar successor provision), and (ii) to execute any agreement reflecting clause (i) above as may be requested by the Company or the managing underwriters at the time of such offering. 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.

 

6. Tax Matters .

(a) Withholding . No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

(b) Disqualifying Disposition . If the Participant disposes of Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such disposition.

 

7. Nontransferability of Option .

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

 

8. Provisions of the Plan .

This option is subject to the provisions of the Plan (including the provisions relating to amendments to the Plan), a copy of which is furnished to the Participant with this option.

 

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IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument.

 

CHIASMA, INC.
By:

 

Name:

 

Title:

 

 

6


PARTICIPANT’S ACCEPTANCE

The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company’s 2008 Stock Incentive Plan.

 

PARTICIPANT:

 

Address:

 

 

 

7


CHIASMA, INC.

Nonstatutory Stock Option Agreement

Granted Under 2008 Stock Incentive Plan

 

1. Grant of Option .

This agreement evidences the grant by Chiasma, Inc. , a Delaware corporation (the “Company”), on             , 200[ ] (the “Grant Date”) to [            ] an [employee], [consultant], [director] of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2008 Stock Incentive Plan (the “Plan”), a total of [            ] shares (the “Shares”) of common stock, $0.01 par value per share, of the Company (“Common Stock”) at $[            ] per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on [            ] (the “Final Exercise Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”). Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

 

2. Vesting Schedule .

This option will become exercisable (“vest”) as to [25]% of the original number of Shares on the first anniversary of the Grant Date and as to an additional [2.0833]% of the original number of Shares at the end of each successive [month] following the first anniversary of the Grant Date until the [fourth] anniversary of the Grant Date.

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.

 

3. Exercise of Option .

(a) Form of Exercise . Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share or for fewer than ten whole shares.

(b) Continuous Relationship with the Company Required . Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any other entity the employees, officers, directors, consultants, or advisors of which are eligible to receive option grants under the Plan (an “Eligible Participant”).


(c) Termination of Relationship with the Company . If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon such violation.

(d) Exercise Period Upon Death or Disability . If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date.

(e) Termination for Cause . If, prior to the Final Exercise Date, the Participant’s employment or other relationship with the Company is terminated by the Company for Cause (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such termination of employment or other relationship. If, prior to the Final Exercise Date, the Participant is given notice by the Company of the termination of his or her employment or other relationship by the Company for Cause, and the effective date of such employment or other termination is subsequent to the date of the delivery of such notice, the right to exercise this option shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participant’s employment or other relationship shall not be terminated for Cause as provided in such notice or (ii) the effective date of such termination of employment or other relationship (in which case the right to exercise this option shall, pursuant to the preceding sentence, terminate immediately upon the effective date of such termination of employment or other relationship). If the Participant is party to an employment, consulting or severance agreement with the Company that contains a definition of “cause” for termination of employment or other relationship, “Cause” shall have the meaning ascribed to such term in such agreement. Otherwise, “Cause” shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for “Cause” if the Company determines, within 30 days after the Participant’s resignation, that discharge for cause was warranted.

 

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4. Company Right of First Refusal

(a) Notice of Proposed Transfer . If the Participant proposes to sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively, “transfer”) any Shares acquired upon exercise of this option, then the Participant shall first give written notice of the proposed transfer (the “Transfer Notice”) to the Company. The Transfer Notice shall name the proposed transferee and state the number of such Shares the Participant proposes to transfer (the “Offered Shares”), the price per share and all other material terms and conditions of the transfer.

(b) Company Right to Purchase . For 30 days following its receipt of such Transfer Notice, the Company shall have the option to purchase all or part of the Offered Shares at the price and upon the terms set forth in the Transfer Notice. In the event the Company elects to purchase all or part of the Offered Shares, it shall give written notice of such election to the Participant within such 30-day period. Within 10 days after his or her receipt of such notice, the Participant shall tender to the Company at its principal offices the certificate or certificates representing the Offered Shares to be purchased by the Company, duly endorsed in blank by the Participant or with duly endorsed stock powers attached thereto, all in a form suitable for transfer of the Offered Shares to the Company. Promptly following receipt of such certificate or certificates, the Company shall deliver or mail to the Participant a check in payment of the purchase price for such Offered Shares; provided that if the terms of payment set forth in the Transfer Notice were other than cash against delivery, the Company may pay for the Offered Shares on the same terms and conditions as were set forth in the Transfer Notice; and provided further that any delay in making such payment shall not invalidate the Company’s exercise of its option to purchase the Offered Shares.

(c) Shares Not Purchased By Company . If the Company does not elect to acquire all of the Offered Shares, the Participant may, within the 30-day period following the expiration of the option granted to the Company under subsection (b) above, transfer the Offered Shares which the Company has not elected to acquire to the proposed transferee, provided that such transfer shall not be on terms and conditions more favorable to the transferee than those contained in the Transfer Notice. Notwithstanding any of the above, all Offered Shares transferred pursuant to this Section 4 shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4.

(d) Consequences of Non-Delivery . After the time at which the Offered Shares are required to be delivered to the Company for transfer to the Company pursuant to subsection (b) above, the Company shall not pay any dividend to the Participant on account of such Offered Shares or permit the Participant to exercise any of the privileges or rights of a stockholder with respect to such Offered Shares, but shall, insofar as permitted by law, treat the Company as the owner of such Offered Shares.

 

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(e) Exempt Transactions . The following transactions shall be exempt from the provisions of this Section 4:

(1) any transfer of Shares to or for the benefit of any spouse, child or grandchild of the Participant, or to a trust for their benefit;

(2) any transfer pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended (the “Securities Act”); and

(3) the sale of all or substantially all of the outstanding shares of capital stock of the Company (including pursuant to a merger or consolidation);

provided , however , that in the case of a transfer pursuant to clause (1) above, such Shares shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4.

(f) Assignment of Company Right . The Company may assign its rights to purchase Offered Shares in any particular transaction under this Section 4 to one or more persons or entities.

(g) Termination . The provisions of this Section 4 shall terminate upon the earlier of the following events:

(1) the closing of the sale of shares of Common Stock in an underwritten public offering pursuant to an effective registration statement filed by the Company under the Securities Act; or

(2) the sale of all or substantially all of the outstanding shares of capital stock, assets or business of the Company, by merger, consolidation, sale of assets or otherwise (other than a merger or consolidation in which all or substantially all of the individuals and entities who were beneficial owners of the Company’s voting securities immediately prior to such transaction beneficially own, directly or indirectly, more than 75% (determined on an as-converted basis) of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction).

(h) No Obligation to Recognize Invalid Transfer . The Company shall not be required (1) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Section 4, or (2) to treat as owner of such Shares or to pay dividends to any transferee to whom any such Shares shall have been so sold or transferred.

(i) Legends . The certificate representing Shares shall bear a legend substantially in the following form (in addition to, or in combination with, any legend required by applicable federal and state securities laws and agreements relating to the transfer of the Company securities):

“The shares represented by this certificate are subject to a right of first refusal in favor of the Company, as provided in a certain stock option agreement with the Company.”

 

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5. Agreement in Connection with Initial Public Offering

The Participant agrees, in connection with the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Securities Act, (i) not to (a) offer, pledge, announce the intention to sell, 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 Common Stock or any other securities of the Company or (b) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of shares of Common Stock or other securities of the Company, whether any transaction described in clause (a) or (b) is to be settled by delivery of securities, in cash or otherwise, during the period beginning on the date of the filing of such registration statement with the Securities and Exchange Commission and ending 180 days after the date of the final prospectus relating to the offering (plus up to an additional 34 days to the extent requested by the managing underwriters for such offering in order to address Rule 2711(f) of the National Association of Securities Dealers, Inc. or any similar successor provision), and (ii) to execute any agreement reflecting clause (i) above as may be requested by the Company or the managing underwriters at the time of such offering. 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.

 

6. Withholding .

No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

 

7. Nontransferability of Option .

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

 

8. Provisions of the Plan .

This option is subject to the provisions of the Plan (including the provisions relating to amendments to the Plan), a copy of which is furnished to the Participant with this option.

 

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IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument.

 

CHIASMA, INC.

By:

 

 

 

Name:                                                                                     

 

Title:                                                                                       

 

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PARTICIPANT’S ACCEPTANCE

The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company’s 2008 Stock Incentive Plan.

 

PARTICIPANT:

 

Address:                                                                                         
                                                                                                        

 

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CHIASMA, INC.

2008 STOCK INCENTIVE PLAN

SUB-PLAN FOR PARTICIPANTS IN ISRAEL

This Sub-Plan (the “ Sub-Plan ”) is a supplement to the 2008 Stock Incentive Plan (the “ Plan ”) for purposes of all Awards granted under the Plan to Participants who are subject to Israeli taxation. This Sub-Plan shall apply to all Awards that the Board determines shall be governed by the Sub-Plan.

1. Definitions

As used herein, the following terms shall have the meanings set forth below, unless the context clearly indicates to the contrary. All capitalized terms, to the extent not defined herein, shall have the meanings set forth in the Plan.

 

1.1 Affiliated Company ” — for purposes of eligibility under the Sub-Plan shall mean the Company’s present or future parent or subsidiary corporations, provided however that in the event of any other business venture, such other business venture shall be an “employing company” within the meaning of such term in Section 102 of the Ordinance.

 

1.2 Fair Market Value ” — solely for the purposes of 102 Trustee Awards, if and to the extent Section 102 prescribes a specific mechanism for determining the Fair Market Value of the Awards, then notwithstanding Section 5(c) of the Plan, the Fair Market Value of 102 Trustee Awards shall be as prescribed in Section 102, if applicable.

 

1.3 102 Non-Trustee Award ” — an Award granted in accordance with and pursuant to Section 102, not through a Trustee.

 

1.4 3(i) Award ” — an Award granted pursuant to Section 3(i) of the Ordinance.

 

1.5 Ordinance ” — the Israeli Income Tax Ordinance [New Version], 1961, and the rules and regulations promulgated thereunder, as are in effect from time to time, and any similar successor rules and regulations.

 

1.6 Restricted Period ” — as defined in Section 4.3 below.

 

1.7 Section 102 ” — Section 102 of the Ordinance and the rules and regulations promulgated thereunder, as are in effect from time to time, and any similar successor rules and regulations.

 

1.8 Trustee ” — the trustee designated or replaced by the Company and/or applicable Affiliated Company for the purposes of the Plan and approved by the Israeli tax authorities, pursuant to and in accordance with the provisions of Section 102.

 

1.9 102 Trustee Award ” — an Award granted through a Trustee in accordance with and pursuant to Section 102,


2. General

 

2.1 The purpose of this Sub-Plan is to establish certain rules and limitations applicable to Awards granted to Participants, the grant of an Award to whom (or the exercise/issuance thereof by whom) is subject to taxation by the Israeli Income Tax (“ Israeli Participants ”), in order that such Awards may comply with the requirements of Israeli Law, including, if applicable, Section 102.

 

2.2 The Plan and this Sub-Plan are complementary to each other and shall be read and deemed as one. In the event of any contradiction, whether explicit or implied, between the provisions of this Sub-Plan and the Plan, the provisions of this Sub-Plan shall prevail with respect to Awards granted to Israeli Participants.

 

2.3 Awards may be granted under this Sub-Plan in one of the following tax tracks, at the Company’s discretion and subject to applicable restrictions or limitations as provided in applicable law, including without limitation any applicable restrictions and limitations in Section 102 regarding the eligibility of Participant to each of the following tax tracks, based on their capacity and relationship towards the Company:

 

  (i) 102 Trustee Awards — in such tax track as determined in accordance with the Election; or

 

  (ii) 102 Non-Trustee Awards; or

 

  (iii) 3(i) Awards.

For avoidance of doubt, the designation of Awards to any of the above tax tracks shall be subject to the terms and conditions set forth in Ordinance.

 

2.4 Each Participant shall be required to execute, in addition to the Award Agreement, any and all other documents required by the Company or any Affiliated Company, whether before or after the grant of the Awards (including without limitation any customary documents and undertakings towards the Trustee, if applicable, and/or any tax authorities). Notwithstanding anything to the contrary in the Plan or in this Sub-Plan, no Award shall be deemed granted unless all documents required by the Company or any Affiliated Company to be signed by the Participant prior to or upon the grant of such Award, shall have been duly signed and delivered to the Company or such Affiliated Company.

3. Administration

Without derogating from the powers and authorities of the Board detailed in the Plan, the Board shall have the full and final power and, in its discretion, without the need for shareholders’ approval, unless such approval is required to comply with applicable laws, to administer this Sub-Plan and to take all actions related hereto and to such administration, including without limitation the performance, from time to time and at any time, of any and all of the following:

 

3.1 the determination of the specific tax track (as described in Section 2.3 above) in which the Awards are to be issued.

 

3.2 the Election;

 

3.3 the appointment of the Trustee;

 

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3.4 the adoption of forms of Awards Agreements, to be applied with respect to Israeli Participants, incorporating and reflecting, inter alia, relevant provisions regarding the grant of Awards in accordance with this Sub-Plan, and the amendment or modification from time to time of the terms thereof.

4. 102 Trustee Awards

4.1 Grant in the Name of Trustee:

Notwithstanding anything to the contrary in the Plan, 102 Trustee Awards granted hereunder shall be granted to, and if applicable the Common Stock, issued pursuant to the exercise thereof (including bonus shares), issued to, the Trustee, and they shall be registered in the name of the Trustee, who shall hold them in trust until such time as they are released by the transfer or sale thereof by the Trustee, in the case the requirements of Section 102 for 102 Trustee Awards are not met, than the 102 Trustee Awards may be regarded as 102 Non-Trustee Awards, all in accordance with the provisions of Section 102.

Notwithstanding anything to the contrary in the Plan, the Date of Grant of a 102 Trustee Awards shall be the date determined by the Board to be the effective date of the grant of the 102 Trustee Awards to a Participant, or, if the Board has not determined such effective date, the date of the resolution of the Board approving the grant of such Award, which in the case of 102 Trustee Awards shall not be before the lapse of 30 days from the date upon which the Plan is first submitted to the relevant Israeli Tax Authorities.

4.2 Exercise of 102 Trustee Awards :

Unless other procedures shall be determined from time to time by the Board and notified to the Participant, the mechanism of exercising vested 102 Trustee Awards shall be in accordance with the provisions of the Plan, except that any notice of exercise of 102 Trustee Award shall be made in such form and method in compliance with the provisions of Section 102 and shall also be delivered in copy to the authorized representative of the Affiliated Company with which the Participant is employed and/or engaged, if applicable, and to the Trustee.

4.3 Restrictions on Transfer:

 

  (a) 102 Trustee Awards and if applicable the Common Stock issued pursuant to the exercise thereof, and all rights attached thereto (including bonus shares), shall be held by the Trustee for such period of time as required by the provisions of Section 102 applicable to Awards granted through a Trustee in the applicable tax track, as per the Election (the “ Restricted Period ”).

 

  (b)

Subject to the provisions of Section 102 and any rules or regulation or orders or procedures promulgated thereunder, the Israeli Participant shall provide the Company and the Trustee with a written undertaking and confirmation under which the Israeli Participant confirms that he/she is aware of the provisions of Section 102 and the Elected tax track and agrees to the provisions of the Trust Note between the Company and the Trustee, and undertakes not to release, by sale or transfer, the 102 Trustee Award, and the Common Stock issued pursuant to the exercise of Options and/or Restricted Stock or Restricted Stock Units, and all

 

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  rights attached thereto (including bonus shares) prior to the lapse of the Restricted Period. The Israeli Participant shall not be entitled to sell or release from trust the 102 Trustee Award, nor the Common Stock issued pursuant to the exercise thereof, nor any right attached thereto (including bonus shares), nor to request the transfer or sale of any of the same to any third party, before the lapse of the Restricted Period. Notwithstanding the above, if any such sale or transfer occurs during the Restricted Period, the sanctions under Section 102 of the Ordinance and under any rules or regulation or orders or procedures promulgated thereunder shall apply to and shall be borne by such Israeli Participant.

 

  (c) Without derogating and subject to the above, and to all other applicable restrictions in the Plan, this Sub-Plan, the applicable Award Agreement and applicable law, the Trustee shall not release, by sale or transfer, the Common Stock issued pursuant to the exercise of the 102 Trustee Awards, and all rights attached thereto (including bonus shares) to the Israeli Participant or to any third party to whom the Israeli Participant wishes to sell them (unless the contemplated transfer is by will or laws of descent) unless and until the Trustee has either (i) withheld payment of all taxes required to be paid upon the sale or transfer thereof, if any, or (ii) received confirmation either that such payment, if any, was remitted to the tax authorities or of another arrangement regarding such payment, which is satisfactory to the Company and the Trustee. For the removal of doubt, it is clarified that the Trustee may release by sale or transfer to a third party only the Common Stock issued pursuant to the exercise of Options and/or Restricted Stock or Restricted Stock Units (and not Awards).

4.4 Rights as Stockholder:

Without derogating from the provisions of the Plan, it is hereby further clarified that with respect to Common Stock issued pursuant to the exercise of 102 Trustee Awards, as long as they are registered in the name of the Trustee, the Trustee shall be the registered owner of such shares of stock.

4.5 Bonus Shares:

All bonus shares to be issued by the Company, if any, with regard to Common Stock issued pursuant to the exercise of 102 Trustee Awards, while held by the Trustee, shall be registered in the name of the Trustee; and all provisions applying to such Common Stock shall apply to bonus shares issued by virtue thereof, if any, mutatis mutandis. Said bonus shares shall be subject to the Restricted Period of the Common Stock by virtue of winch they were issued.

4.6 Voting:

Without derogating from the provisions of Section S below, with respect to Common Stock of 102 Trustee Awards, such Common Stock shall be voted in accordance with the provisions of Section 102.

 

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4.7 Conditions of Issuance:

Without derogating from the provisions of the Plan, and in addition thereto, the arrangements with the tax authorities referred to therein shall, in the event of 102 Trustee Awards also need to be satisfactory to the Trustee.

5. 102 Non-Trustee Awards

 

5.1 102 Non-Trustee Awards granted hereunder shall be granted to, and the Common Stock issued pursuant to the exercise thereof, issued to, the Israeli Participant.

 

5.2 Without derogating and subject to the above, and to all other applicable restrictions in the Plan, this Sub-Plan, the applicable Award Agreement and applicable law, the Common Stock issued pursuant to the exercise of the 102 Non-Trustee Awards, and all rights attached thereto (including bonus shares) shall not be transferred unless and until the Company has either (a) withheld payment of all taxes required to be paid upon the sale or transfer thereof, if any, or (b) received confirmation either that such payment, if any, was remitted to the tax authorities or of another arrangement regarding such payment, which is satisfactory to the Company.

 

5.3 An Israeli Participant to whom 102 Non-Trustee Awards are granted must provide, upon termination of his/her employment, a surety or guarantee to the satisfaction of the Company, to secure payment of all taxes which may become due upon the future transfer of his/her Common Stock to be issued upon the exercise of his/her outstanding 102 Non-Trustee Awards, all in accordance with the provisions of Section 102.

6. 3(i) Awards

 

6.1 3(i) Awards granted hereunder shall be granted to, and the Common Stock issued pursuant thereto issued to, the Israeli Participant.

 

6.2 Without derogating and subject to the above, and to all other applicable restrictions in the Plan, this Sub-Plan, the applicable Award Agreement and applicable law, the Common Stock issued pursuant to the exercise of the 3(i) Awards, and all rights attached thereto (including bonus shares) shall not be transferred unless and until the Company has either (a) withheld payment of all taxes required to be paid upon the sale or transfer thereof, if any, or (b) received confirmation either that such payment, if any, was remitted to the tax authorities or of another arrangement regarding such payment, which is satisfactory to the Company.

 

6.3 The Company may require, as a condition to the grant of the 3(i) Awards, that an Israeli Participant to whom 3(i) Awards are to be granted, provide a surety or guarantee to the satisfaction of the Company, to secure payment of all taxes which may become due upon the future transfer of his/her Common Stock to be issued upon the exercise of his/her outstanding 3(i) Awards.

7. Tax Consequences

Without derogating from and in addition to any provisions of the Plan, any and all tax and/or other mandatory payment consequences arising from the grant or exercise of Options and/or issuance of Restricted Stock or Restricted Stock Units, the payment for or

 

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the transfer or sale of Common Stock, or from any other event or act in connection therewith (including without limitation, in the event that the Awards do not qualify under the tax classification/tax track in which they were intended) whether of the Company, any Affiliated Company, the Trustee or the Israeli Participant, shall be borne solely by the Israeli Participant. The Company, any applicable Affiliated Company, and the Trustee, may each withhold (including at source), deduct and/or set-off, from any payment made to the Participant, the amount of the taxes and/or other mandatory payments the of which is required with respect to the Awards and/or Common Stock Furthermore, each Israeli Participant shall indemnify the Company, any applicable Affiliated Company and the Trustee, or any one thereof, and to hold them harmless from any and all liability for any such tax and/or other mandatory payments or interest or penalty thereupon, including without limitation liabilities relating to the necessity to withhold, or to have withheld, any such tax and/or other mandatory payments from any payment made to the Israeli Participant.

Without derogating from the aforesaid, each Israeli Participant shall provide the Company and/or any applicable Affiliated Company with any executed documents, certificates and/or forms that may be required from time to time by the Company or such Affiliated Company in order to determine and/or establish the tax liability of such Israeli Participant.

Without derogating from the foregoing, it is hereby clarified that the Israeli Participant shall bear and be liable for all tax and other consequences in the event that his/her 102 Trustee Awards and/or the Common Stocks issued pursuant to the exercise thereof are not held for the entire Restricted Period, all as provided in Section 102.

The Company and or when applicable the Trustee shall not be required to release any share certificate to a Participant until all required payments have been fully made.

8. Currency Exchange Rates

Except as otherwise determined by the Board, all monetary values with respect to Awards granted pursuant to this Sub-Plan, including without limitation the Fair Market Value, the exercise price of any Option and the issue price of any Restricted Stock or Restricted Stock Unit, shall be stated in United States Dollars, hi the event that the exercise price/issued price is in fact to be paid in New Israeli Shekels, at the sole discretion of the Board, the conversion rate shall be the last known representative rate of the United States Dollars to the New Israeli Shekels on the date of payment.

9. Subordination to the Ordinance

 

9.1 It is clarified that the grant of the 102 Trustee Awards hereunder is subject to the approval by the applicable tax authorities of the Plan, this Sub-Plan and the Trustee, in accordance with Section 102.

 

9.2 Any provisions of the Section 102 or Section 3(i) of the Ordinance and/or any of the rules or regulations promulgated thereunder, which is not expressly specified in the Plan or in the applicable Award Agreement, including without limitation any such provision which is necessary in order to receive and/or to keep any tax benefit, shall be deemed incorporated into this Sub-Plan and binding upon the Company, and applicable Affiliated Company and the Israeli Participant.

 

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9.3 With regards to 102 Trustee Award, the provisions of the Plan and/or this Sub-Plan and/or the Award Agreement shall be subject to the provisions of Section 102 and the Tax Assessing Officer’s permit, and the said provisions and permit shall be deemed an integral part of the Plan and of this Sub-Plan and of the Award Agreement.

 

9.4 The Awards, the Plan, this Sub-Plan and any applicable Awards Agreements are subject to the applicable provisions of the Ordinance, which shall be deemed an integral part of each, and which shall prevail over any term that is inconsistent therewith.

 

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EXHIBIT A

OPTION AGREEMENT

Made and entered into in             , as of the             day of             200    ,

By and between:

 

Chiasma, Inc ., a Delaware corporation (the “ Company ”) of the first part

and

 

                        
of                          (the “ Israeli Grantee ”) of the second part

 

WHEREAS the Company has decided to grant an option in favor of the Israeli Grantee to purchase shares of Common Stock of the Company, having a par value of US $0.01 per share (the “ Common Stock ”), under and in accordance with the Company’s 2008 Stock Incentive Plan and the Company’s Sub-Plan for Participants in Israel, both attached hereto as Annex A (hereinafter the “ Plan ”); and
WHEREAS the Israeli Grantee has agreed to such grant, subject to all the terms and conditions as set forth in the Plan and as provided herein;

Now, therefore, in consideration of the premises and mutual covenants and agreements herein contained, the parties agree as follows:

 

1. The Plan . This Option Agreement and the option evidenced hereby, are subject to the provisions of the Plan (as may be amended from time to time), which shall be deemed an integral part hereof. The grant of the option, the exercise thereof and all the other terms in connection therewith shall be in accordance with and pursuant to the terms of the Plan. The Israeli Grantee hereby undertakes to comply with the terms of the Plan. Any interpretation of this Option Agreement will be made in accordance with the Plan, but in the event there is any contradiction between the provisions of this Option Agreement and the Plan, the provisions of this Option Agreement will prevail.

 

2. Grant of Option . After the execution by the Israeli Grantee of this Option Agreement and any other documents required by the Company in connection herewith, the Company shall execute this Option Agreement evidencing the grant of an option to purchase up to             shares (the “ Shares ”) of Common Stock (the “ Option ”) which shall be a:

 

102 Trustee Award - subject to the “[Capital Gain / Ordinary Income] Tax Track” of Section 102 - and shall be granted to the Trustee in favor of the Grantee.
102 Non-Trustee Award
3(i) Award
and which shall be governed by and subject to the terms and conditions set forth in the Plan, applicable to such tax track of Option.

 

3. Vesting and Exercise of Option .

 

3.1 [Without derogating from and subject to the provisions of the Plan, 25% of the Shares subject to the Option shall be vested on the Start Date, 25% of the Shares subject to the Option shall vest on the first anniversary of the Start Date and 2.083% of the Shares subject to the Option shall vest each month thereafter until the Option is fully vested on the third anniversary of the Start Date.] 1

For the purposes hereof, the “ Start Date ” shall mean [the Date of Grant].

 

1  

Modify vesting as per Board of Directors grant as necessary.


For the purposes hereof, the term “ Service ” means an Israeli Grantee’s employment or engagement by the Company or its Affiliated Company. Service shall be deemed terminated upon the effective date of the termination of the employment/engagement relationship. An Israeli Grantee’s Service shall not be deemed terminated or interrupted solely as a result of a change in the capacity in which the Israeli Grantees renders Service to the Company or an Affiliated Company (i.e., as an employee, officer, director, consultant, etc.); nor shall it be deemed terminated or interrupted due solely to a change in the identity of the specific entity (out of the Company and its Affiliated Companies) to which the Israeli Grantee renders such Service, provided that there is no actual interruption or termination of the continuous provision by the Israeli Grantee of such Service to any of the Company or its Affiliated Companies. Furthermore, an Israeli Grantee’s Service with the Company or its Affiliated Company shall not be deemed terminated or interrupted as a result of any military leave, sick leave, or other bona fide leave of absence taken by the Israeli Grantee and approved by the Company or Affiliated Company by which the Israeli Grantee is employed or engaged, as applicable; provided, however, that if any such leave exceeds ninety (90) days, then on the ninety-first (91st) day of such leave the Israeli Grantee’s Service shall be deemed to have terminated unless the Israeli Grantee’s right to return to Service with the Company or its Affiliated Company is secured by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or its Affiliated Company, as the case may be, or required by law, time spent in a leave of absence shall not be treated as time spent providing Service for the purposes of calculating accrued vesting rights under the vesting schedule of the Option. Without derogating from the aforesaid, the Service of an Israeli Grantee to an Affiliated Company shall also be deemed terminated in the event that such Affiliated Company for which the Israeli Grantee performs Service ceases to fall within the definition of an “Affiliated Company” under the Plan, effective as of the date said Affiliated Company ceases to be such. In all other cases .in which any doubt may arise regarding the termination of an Israeli Grantee’s Service or the effective date of such termination, or the implications of absence from Service on vesting, the Company, in its sole discretion, shall determine whether the Israeli Grantee’s Service has terminated and the effective date of such termination and the implications, if any, on vesting.

For the purposes hereof “ Eligible Participant ” shall be an employee or officer of, or consultant or advisor to, the Company or any other entity the employees, officers, directors, consultants, or advisors of which are eligible to receive options grants under the Plan who .has provided continuous Service at all times since the Date of Grant.

The Option shall be exercisable from the date upon which it becomes vested until the Expiration Date (as specified in Section 3.5 below) of such Option (the “ Exercise Period ”).

 

3.2 Except as otherwise provided in this Section 3, the Option may not be exercised unless the Israeli Grantee, at the time he or she exercises the Option, is an Eligible Participant.

 

3.3 Subject to the applicable terms and conditions of the Plan, and during the Exercise Period, the Options which are vested with the Israeli Grantee in accordance with Section 3.1 above, may be exercised by the Israeli Grantee by providing the Company an exercise notice signed by the Israeli Grantee, all in accordance with the applicable provisions of the Plan. The Grantee may purchase less than the number of shares covered thereby, provided that no partial exercise of the Option may be for any fractional share or for fewer than ten whole shares.

 

3.4 Subject to the provisions of Section 102, when applicable, until the IPO (as defined in Section 5.4.1), the Board of Directors of the Company (the “Board” ) shall be entitled to require, as a condition to the exercise of any Option, that the Israeli Grantee (and the Trustee, if the Trustee will be the holder of the Shares issued upon exercise) sign and deliver to such person as may be designated by the Board (the “Nominee” ) an irrevocable proxy with respect to all Shares, in a form to be provided by the Company, appointing the Nominee as the sole person entitled to exercise the voting rights conferred by such Shares. The Nominee shall not exercise the voting rights conferred by the exercised Shares held by him or with respect to which the Nominee has been given an irrevocable proxy as aforesaid, in any way whatsoever, and shall not issue a proxy to any person or entity to vote such shares, unless otherwise instructed by the Board, and in accordance with such instructions.

 

3.5 Subject to the provisions of the Section 102, when applicable, until the IPO, the Company shall be entitled to require, as a condition to the exercise of any Option, that the Israeli Grantee (and the Trustee, if the Trustee will be the holder of the Shares issued upon exercise) shall become a party and be subject to that certain Amended and Restated Right of First Refusal and Co-Sale Agreement dated as of May 12, 2008 by and among the Company and the Stockholders party thereto, as amended from time to time (the “ROFR Agreement” ).

 

2


3.6 The grant of the Option and the issuance of shares of Common Stock upon the exercise of the Option shall be subject to the terms and conditions of the Plan, including, without limitation, compliance with all applicable laws. THE ISRAELI GRANTEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE REQUIRED CONDITIONS ARE SATISFIED. ACCORDINGLY, THE ISRAELI GRANTEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.

 

3.7 Expiration Date . Unless expired earlier pursuant to the Plan, the Option shall expire and terminate and become null and void upon the lapse of ten (10) years from the Date of Grant (the “ Expiration Date ”).

 

3.8 Termination of Relationship with the Company . If the Israeli Grantee ceases to be an Eligible Participant for any reason, then, except as provided in Sections 3.9 and 3.10 below, the right to exercise the Option shall terminate three months after such cessation (but in no event after the Expiration Date), provided that the Option shall be exercisable only to the extent that the Israeli Grantee was entitled to exercise the Option on the date of such cessation. Notwithstanding the foregoing, if the Israeli Grantee, prior to the Expiration Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Israeli Grantee and the Company or any Affiliated Company, the right to exercise the Option shall terminate immediately upon such violation.

 

3.9 Exercise Period Upon Death or Disability . If the Israeli Grantee dies or becomes disabled prior to the Expiration Date while he or she is an Eligible Participant and the Company or any Affiliated Company has not terminated such relationship for “Cause” as specified in Section 3.10 below, the Option shall be exercisable, within the period of one year following the date of death or disability of the Israeli Grantee, by the Israeli Grantee (or in the case of death by an authorized transferee), provided that the Option shall be exercisable only to the extent that it was exercisable by the Israeli Grantee on the date of his or her death or disability, and further provided that the Option shall not be exercisable after the Expiration Date.

 

3.10 Termination for Cause . If the Israeli Grantee’s employment or other relationship with the Company or its Affiliated Company is terminated by the Company or its Affiliated Company for Cause (as defined below), (i) the right to exercise the Option shall terminate immediately upon the effective date of such termination of employment or other relationship and (ii) if such employment or other relationship is terminated prior to the IPO, the Company shall be entitled, at its option, to exercise its Repurchase Option (as defined in Section 5.2). If the Israeli Grantee is given notice by the Company or its Affiliated Company of the termination of his or her employment or other relationship by the Company or its Affiliated Company for Cause, and the effective date of such employment or other termination is subsequent to the date of the delivery of such notice, the right to exercise the Option shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Israeli Grantee’s employment or other relationship shall not be terminated for Cause as provided in such notice or (ii) the effective date of such termination of employment or other relationship (in which case the right to exercise the Option shall, pursuant to the preceding sentence, terminate immediately upon the effective date of such termination of employment or other relationship).

“Cause” shall mean (a) the conviction of the Israeli Grantee for any felony involving moral turpitude or affecting the Company or any Affiliated Company; (b) the embezzlement of funds of the Company or any Affiliated Company; (c) any breach of the Grantee’s fiduciary duties or duties of care towards the Company or any Affiliated Company (including without limitation any disclosure of confidential information of the Company or any Affiliated Company or any breach of a non-competition undertaking); (d) any conduct in bad faith reasonably determined by the Board to be materially detrimental to the Company or, with respect to any Affiliated Company, reasonably determined by the Board of Directors of such Affiliated Company to be materially detrimental to either the Company or such Affiliated Company; or (e) any other event classified under any applicable agreement between the Grantee and the Company or the Affiliated Company, as applicable, as a “Cause” for termination or by other language of similar substance. The Israeli Grantee shall be considered to have been discharged for “Cause” if the Company or its Affiliated Company determines, within 30 days after the Israeli Grantee’s resignation, that discharge for cause was warranted.

 

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4. The Exercise Price . The Exercise Price for each Share to be purchased upon exercise of the Option shall be U.S.            .

 

5. Company Right of First Refusal and Repurchase Option . No Shares acquired upon exercise of the Option shall be transferred except in accordance with this Section 5.

 

5.1 Company Right of First Refusal

 

5.1.1 Notice of Proposed Transfer . If the Israeli Grantee proposes to sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively, “transfer”) any Shares acquired upon exercise of the Option, then the Israeli Grantee shall first give written notice of the proposed transfer (the “Transfer Notice”) to the Company. The Transfer Notice shall name the proposed transferee and state the number of such Shares the Israeli Grantee proposes to transfer (the “Offered Shares”), the price per share and all other material terms and conditions of the transfer.

 

5.1.2 Company Right to Purchase . For 30 days following its receipt of such Transfer Notice, the Company shall have the option to purchase all or part of the Offered Shares at the price and upon the terms set forth in the Transfer Notice. In the event the Company elects to purchase all or part of the Offered Shares, it shall give written notice of such election to the Israeli Grantee within such 30-day period. Within 10 days after his or her receipt of such notice, the Israeli Grantee shall tender to the Company at its principal offices the certificate or certificates representing the Offered Shares to be purchased by the Company, duly endorsed in blank by the Israeli Grantee or with duly endorsed stock powers attached thereto, all in a form suitable for transfer of the Offered Shares to the Company. Promptly following receipt of such certificate or certificates, the Company shall deliver or mail to the Israeli Grantee a check in payment of the purchase price for such Offered Shares; provided that if the terms of payment set forth in the Transfer Notice were other than cash against delivery, the Company may pay for the Offered Shares on the same terms and conditions as were set forth in the Transfer Notice; and provided further that any delay in making such payment shall not invalidate the Company’s exercise of its option to purchase the Offered Shares.

 

5.1.3 Shares Not Purchased By Company . If the Company does not elect to acquire all of the Offered Shares, the Israeli Grantee may, within the 30-day period following the expiration of the option granted to the Company under Section 5.1.2 above and subject to any obligations applicable to the Israeli Grantee under the ROFR Agreement or any other shareholder agreement to which Israeli Grantee is a party, transfer the Offered Shares which the Company has not elected to acquire to the proposed transferee, provided that such transfer shall not be on terms and conditions more favorable to the transferee than those contained in the Transfer Notice. Notwithstanding any of the above, all Offered Shares transferred pursuant to this Section 5.1 shall remain subject to (i) the right of first refusal set forth in this Section 5.1 and (ii) the Repurchase Option set forth in Section 5.2 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 5.1 and Section 5.2, if applicable.

 

5.1.4 Consequences of Non-Delivery . After the time at which the Offered Shares are required to be delivered to the Company for transfer to the Company pursuant to Section 5.1.2 above, the Company shall not pay any dividend to the Israeli Grantee on account of such Offered Shares or permit the Israeli Grantee to exercise any of the privileges or rights of a stockholder with respect to such Offered Shares, but shall, insofar as permitted by law, treat the Company as the owner of such Offered Shares.

 

5.1.5 Exempt Transactions . The following transactions shall be exempt from the provisions of this Section 5.1:

 

  a) any transfer of Shares to or for the benefit of any spouse, child or grandchild of the Israeli Grantee, or to a trust for their benefit;

 

4


  b) any transfer pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended (the “ Securities Act ”); and

 

  c) the sale of all or substantially all of the outstanding shares of capital stock of the Company (including pursuant to a merger or consolidation);

provided , however , that in the case of a transfer pursuant to clause 5.1.5(a) above, such Shares shall remain subject to the right of first refusal set forth in this Section 5.1 and to the Repurchase Option set forth in Section 5.2 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 5.

 

5.2 Repurchase Option . If the Israeli Grantee’s employment or other relationship with the Company or its Affiliated Company is terminated by the Company or its Affiliated Company for Cause (as defined in Section 3.10) prior to the IPO, the Company shall be entitled, at its option, to repurchase from the Israeli Grantee (or his transferee or estate, if applicable) any Shares previously exercised hereunder for a purchase price per share equal to the Exercise Price (the “ Repurchase Price ”) in accordance with the provisions of this Section 5.2 (the “ Repurchase Option ”). The Company may exercise the Repurchase Option by delivering or mailing to the Israeli Grantee (or his transferee or estate, as applicable), within 90 days after the termination of the employment of the Israeli Grantee with the Company, a written notice of exercise of the Repurchase Option. Such notice shall specify the number of Shares to be purchased. If and to the extent the Repurchase Option is not so exercised by the giving of such a notice within such 90-day period, the Repurchase Option shall automatically expire and terminate effective upon the expiration of such 90-day period. Within 10 days after delivery to the Israeli Grantee (or his transferee or estate, as applicable) of the Company’s notice of the exercise of the Repurchase Option pursuant to subsection (a) above, the Israeli Grantee (or his transferee or estate, as applicable) shall tender to the Company at its principal offices the certificate or certificates representing the Shares which the Company has elected to purchase in accordance with the terms of this Agreement, duly endorsed in blank or with duly endorsed stock powers attached thereto, all in form suitable for the transfer of such Shares to the Company. Promptly following its receipt of such certificate or certificates, the Company shall pay to the Israeli Grantee (or his transferee or estate, as applicable) the aggregate Repurchase Price for such Shares (provided that any delay in making such payment shall not invalidate the Company’s exercise of the Repurchase Option with respect to such Shares). After the time at which any Shares are required to be delivered to the Company for transfer to the Company pursuant to the preceding two sentences, the Company shall not pay any dividend to the Israeli Grantee (or his transferee or estate, as applicable) on account of such Shares or permit the Israeli Grantee (or his transferee or estate, as applicable) to exercise any of the privileges or rights of a stockholder with respect to such Shares, but shall, in so far as permitted by law, treat the Company as the owner of such Shares. The Repurchase Price may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of the Israeli Grantee (or his transferee or estate, as applicable) to the Company or in cash (by check) or both. The Company shall not purchase any fraction of a Share upon exercise of the Repurchase Option.

 

5.3 Assignment of Company Right . The Company may assign its right of first refusal and its Repurchase Option in any particular transaction under this Section 5 to one or more persons or entities.

 

5.4 Termination . The provisions of this Section 5 shall terminate upon the earlier of the following events:

 

5.4.1 the closing of the sale of shares of Common Stock in an underwritten public offering pursuant to an effective registration statement filed by the Company under the Securities Act (“ IPO ”); or

 

5.4.2 the sale of all or substantially all of the outstanding shares of capital stock, assets or business of the Company, by merger, consolidation, sale of assets or otherwise (other than a merger or consolidation in which all or substantially all of the individuals and entities who were beneficial owners of the Company’s voting securities immediately prior to such transaction beneficially own, directly or indirectly, more than 75% (determined on an as-converted basis) of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring Company in such transaction).

 

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5.5 No Obligation to Recognize Invalid Transfer . The Company shall not be required (1) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Section 5, or (2) to treat as owner of such Shares or to pay dividends to any transferee to whom any such Shares shall have been so sold or transferred.

 

6. Agreement in Connection with Initial Public Offering . The Israeli Grantee agrees, in connection with the IPO (or any other public offering of Common Stock under any applicable securities laws) and any applicable stock exchange or stock market rules and regulations, (i) not to (a) offer, pledge, announce the intention to sell, 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 Common Stock or any other securities of the Company or (b) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of shares of Common Stock or other securities of the Company, whether any transaction described in clause (a) or (b) is to be settled by delivery of securities, in cash or otherwise, during the period beginning on the date of the filing of such registration statement with the Securities and Exchange Commission and ending 180 days after the date of the final prospectus relating to the offering (plus up to an additional 34 days to the extent requested by the managing underwriters for such offering in order to address Rule 2711(f) of the National Association of Securities Dealers, Inc. or any similar successor provision), and (ii) to execute any agreement reflecting clause (i) above as may be requested by the Company or the managing underwriters at the time of such offering. 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.

 

7. Taxes and Indemnification

 

7.1 The receipt of the Option and the exercise thereof may result in tax and/or other mandatory payment consequences. THE ISRAELI GRANTEE IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO THE TAX AND/OR OTHER MANDATORY PAYMENT CONSEQUENCES OF RECEIVING OR EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

 

7.2 Any and all tax and/or other mandatory payment consequences arising from the grant or exercise of the Option, the payment for or the transfer of the Shares to the Israeli Grantee, or the sale of the Shares by the Israeli Grantee, or from any other event or act in connection therewith (including without limitation, in the event that the Option does not qualify under the tax classification/tax track in which they were intended), shall be borne solely by the Israeli Grantee. Without derogating from the foregoing, it is hereby clarified that the Israeli Grantee shall bear and be liable for all tax and other consequences in the event that his/her 102 Trustee Award and/or Shares are not held for the entire Restricted Period (as defined in the Plan), all as provided in Section 102.

 

7.3 The Company, any Affiliated Company and the Trustee may each withhold (including at source), deduct and/or set-off, from any payment made to the Israeli Grantee, the amount of the tax and/or other mandatory payment the withholding of which is required with respect to the Option and/or the Shares under any applicable law, and/or any amount which the Israeli Grantee owes the Company, any Affiliated Company and/or the Trustee, pursuant to the indemnification below, if any. The Company and/or an Affiliated Company shall have the right to require the Israeli Grantee, through payroll withholding, cash payment or otherwise, to make adequate provision for any such tax and/or other mandatory payment withholding obligations of the Company, Affiliated Company or Trustee arising in connection with the Option or the Shares, or any such indemnification debt. The Company, any Affiliated Company and the Trustee, shall also comply with any and all applicable reporting requirements to relevant authorities, and the Israeli Grantee hereby authorizes the Company, any Affiliated Company and/or the Trustee, to make such reporting, including with respect to information regarding said Israeli Grantee. Without derogating from the aforesaid, each Israeli Grantee shall provide the Company and/or any applicable Affiliated Company with any executed documents, certificates and/or forms that may be required from time to time by the Company or such Affiliated Company in order to determine and/or establish the tax liability of such Israeli Grantee.

 

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7.4 Furthermore, each Israeli Grantee shall indemnify the Company, any applicable Affiliated Company and the Trustee, or any one thereof, and hold them harmless from and against any and all liability in relation with any such tax and/or other mandatory payments or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax and/or other mandatory payments from any payment made to the Israeli Grantee, unless said liability is a result of default by the Company.

 

7.5 Without derogating from the provisions of the Plan, it is further clarified that the Israeli Grantee shall not be entitled to receive any Shares and all rights attached thereto (including bonus shares) unless and until the Company and/or Affiliated Company has either (a) withheld payment of all taxes required to be paid thereupon, if any; or (b) received confirmation from the applicable tax authorities either that such payment, if any, was remitted to the tax authorities or of another arrangement regarding such payment, which is satisfactory to the Company, and if such arrangement requires the approval of the Trustee, is also satisfactory to the Trustee.

 

8. Nontransferability of Option . The Option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Israeli Grantee, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Israeli Grantee, the Option shall be exercisable only by the Israeli Grantee.

 

9. Trustee and/or Broker Fees . Without derogating from and in addition to any other payments which the Company, any Affiliated Company and/or the Trustee, if applicable, shall be entitled to deduct and/or withhold, it is explicitly agreed that the Company, any Affiliated Company and/or the Trustee shall be entitled, and are hereby irrevocably authorized, to deduct and/or withhold at source, from any payment to which the Israeli Grantee may be entitled to receive therefrom, any costs and expenses related to the grant, issuance, exercise and/or sale of the Option and/or Shares, which are to be borne by the Israeli Grantee, such as, by way of example, trustee and/or brokerage fees, etc.

 

10. Bonus Shares subject to this Agreement . Any and all bonus shares to be issued by the Company, if any, by virtue of any Shares, shall be subject to the provisions of this Option Agreement, mutatis mutandis .

 

11. Subordination . The Option, the Plan and this Option Agreement are subject to the applicable provisions of the Ordinance, which shall be deemed an integral part of each, accordingly, and which shall prevail over any term that is inconsistent therewith. Any provisions of the Section 102, and/or any of the rules or regulations promulgated thereunder, if applicable, which is not expressly specified in the Plan or herein, including without limitation any such provision which is necessary in order to receive and/or to keep any tax benefit, shall be deemed incorporated herein and binding upon the Company and the Israeli Grantee, as applicable.

 

12. Legends . The certificate representing Shares shall bear a legend substantially in the following form (in addition to, or in combination with, any legend required by applicable federal and state securities laws and agreements relating to the transfer of the Company securities):

“The shares represented by this certificate are subject to a right of first refusal and a repurchase option in favor of the Company, as provided in a certain stock option agreement with the Company”.

 

13. Miscellaneous; Preamble and Interpretation

 

13.1 The preamble to this Option Agreement and the Annexes attached hereto form integral parts hereof.

 

13.2 The captions of clauses in this Option Agreement are intended solely for convenience and will have no meaning in the interpretation of this Option Agreement.

 

13.3 All the capitalized terms not defined herein shall have the meaning given to them in the Plan, unless the context clearly indicates to the contrary.

 

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13.4 The invalidity or unenforceability of any provision herein shall not affect the validity or enforceability of the balance hereof.

 

13.5 The Plan and this Option Agreement represents the entire undertaking by the Company regarding the subject matter and supersedes all prior undertakings with respect thereto.

 

13.6 No provision hereof may be waived or discharged except by a written document signed by a duly authorized representative of the Company.

 

13.7 The failure of the Company at any time or times to require performance of any provision hereof shall in no manner affect the right of the Company at a later time to enforce the same. No waiver by the Company of the breach of any of the terms or covenants contained in this Option Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any breach, or a waiver of the breach of any of the terms or covenants contained in this Option Agreement.

 

13.8 All notices given by one Party to the other hereunder will be given in writing, and will be deemed to have been delivered to the addressee immediately on its delivery if delivered by hand or upon transmission if sent by facsimile and confirmed by written reply by facsimile immediately thereafter, or within three (3) business days after being sent by registered mail, as per the addresses indicated hereinabove, or such other address or facsimile number as a Party may thereafter give by written notice to the other Party to this Option Agreement.

[Signature Page Follows]

 

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In Witness Whereof, the parties hereto have caused this Option Agreement to be duly executed on the day and year first written above.

 

 

Company

I, the undersigned, hereby acknowledge receipt of a copy of the Plan and am familiar with the terms and provisions thereof and accept the Option subject to all of the terms and provisions thereof. I have reviewed the Plan and this Option Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Option Agreement, and fully understand all provisions of this Option Agreement. I agree to notify the Company upon any change in the residence address indicated above. I hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Board upon any question arising under the Plan or this Option Agreement.

In case of 102 Trustee Award:

I hereby further acknowledge that I am aware that I am being granted an 102 Trustee Award, of the “Capital Gain Tax Track”, and that I am familiar with the provisions of Section 102 and the regulations and rules promulgated thereunder, applicable to such Option in such tax track, including without limitations, the tax implications applicable to such grant, and agree to be bound by said provisions. I accept the provisions of the Trust Note signed between the Company and the Trustee, attached as Annex B hereto, and agree to be bound by its terms, and I undertake not to release, by sale or transfer, the 102 Trustee Award, Shares issued pursuant to the exercise thereto, and all rights attached thereto (including bonus shares) prior to the lapse of the Restricted Period.

If any such sale or release occurs during the Restricted Period, the sanctions under Section 102 of the Ordinance and under any rules or regulation or orders or procedures promulgated thereunder shall apply to and shall be borne by me.

In case of 102 Non-Trustee Award:

I hereby further undertake that if I cease to be employed by the Company or any Affiliated Company, 1 shall provide the Company upon such termination, a surety or guarantee to the satisfaction of the Company, to secure payment of all taxes which may become due upon the future transfer of my Shares to be issued upon the exercise of my outstanding 102 Non-Trustee Award.

 

 

Israeli Grantee

 

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CHIASMA, INC.

ISRAEL SUB-PLAN

NOTICE OF STOCK OPTION EXERCISE

Date:             

Chiasma, Inc.

P.O. Box 395

Georgetown, MA 01833

Attention: CFO

Dear Sir or Madam:

I am the holder of that certain Stock Option (the “Stock Option”) granted to me under the Chiasma, Inc. (the “Company”) 2008 Stock Incentive Plan, evidenced by an Option Agreement made and entered into on              1 (the “Option Agreement”) for the purchase of              2 shares of Common Stock of the Company at a purchase price of $             3 per share.

I hereby exercise my option to purchase              4 shares of Common Stock (the “Shares”), for which I have enclosed              5 in the amount of             . 6

[I am aware, agree and acknowledge that the Common Stock issued pursuant to this exercise notice are subject to the provisions of Section 102 (as such term is defined in the Company’s Sub-Plan for Participants in Israeli) (the “Plan”), and the “Capital Gains Tax Track”, and will be issued in the name of ESOP Management & Trust Services Ltd., as the Trustee under the Plan.] 7

I am further aware and confirm that the provisions of the Plan and my Option Agreement shall continue to apply, as applicable to the Common Stock issued pursuant to the exercise of the Option.

 

 

1   Enter the date of grant.
2   Enter the total number of shares of Common Stock for which the option was granted.
3   Enter the option exercise price per share of Common Stock.
4   Enter the number of shares of Common Stock to be purchased upon exercise of all or part of the option.
5   Enter “cash”, “personal check” or if permitted by the option or Plan, “stock certificates No. XXXX and XXXX”.
6   Enter the dollar amount (price per share of Common Stock times the number of shares of Common Stock to be purchased), or the number of shares tendered. Fair market value of shares tendered, together with cash or check, must cover the purchase price of the shares issued upon exercise.
7   Applicable only to 102 Trustee Awards.


Representations, Warranties and Covenants.

I represent, warrant and covenant as follows:

1. I am purchasing the Shares for my own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 (the “Securities Act”), or any rule or regulation under the Securities Act.

2. I have had such opportunity as I have deemed adequate to obtain from representatives of the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company.

3. I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.

4. I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period.

5. I understand that (i) the Shares have not been registered under the Securities Act and are “restricted securities” within the meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) in any event, the exemption from registration under Rule 144 will not be available for at least one year and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) there is now no registration statement on file with the Securities and Exchange Commission with respect to any stock of the Company and the Company has no obligation or current intention to register the Shares under the Securities Act.

Irrevocable Proxy

The undersigned hereby irrevocably appoints the Chief Executive Officer of the Company or such other designee as determined in the sole discretion of the Board of Directors of the Company (the “Nominee”), as the sole and exclusive attorney and proxy of the undersigned, with full power of substitution and resubstitution, to the full extent of the undersigned’s rights with respect to the Shares, until the closing of an IPO (as such term is defined in the Option Agreement). Upon the execution hereof, all prior proxies given by the undersigned with respect to the Shares are hereby revoked and no subsequent proxies will be given.

This proxy is coupled with an interest and irrevocable and it will also bind my heirs and successors by operation of law, and is granted in consideration of the Company’s grant of the Stock Option and the issuance of the Shares pursuant to the Option Agreement. The Nominee will be empowered at any time prior to the Expiration Date to exercise all voting and other rights (including, without limitation, the power to execute and deliver written consents with respect to the Shares) of the undersigned at every annual, special or adjourned meeting of the stockholders of the Company, and in every written consent in lieu of such a meeting, or otherwise; provided,

 

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however, that the Nominee identified above shall not exercise the voting rights conferred by the Shares held by him or with respect to which he has been given an the aforesaid irrevocable proxy, in any way whatsoever, and shall not issue a proxy to any person or entity to vote such shares, unless otherwise instructed by the Board of Directors of the Company, and in accordance with such instructions.

I acknowledge and agree that if prior to the closing of the Company’s IPO, the right to vote any shares of Common Stock exercised pursuant to the exercise of the Option is held by the Trustee, then the Trustee shall be eligible to provide the right to vote any such shares to the Nominee.

Repurchase Option; Right of First Refusal

The undersigned acknowledges and agrees that, in accordance with Section 5 of the Option Agreement, the Shares are subject to the Company’s Repurchase Option in the event that the undersigned’s employment with the Company (or an Affiliated Company (as defined in the Option Agreement)) is terminated with Cause (as defined in the Option Agreement). The undersigned further acknowledges and agrees that, in accordance with Section 5 of the Option, the Shares are subject to the Company’s right of first refusal in the event the undersigned proposes to transfer the Shares.

 

Very truly yours,

 

(Signature)

 

 

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Exercise Application

To : ESOP Management and Trust Services Ltd.

I am the owner of an Option to purchase             Shares of Chiasma Inc. (the “ Parent Company ”), (respectively: the “ Option ” and the “ Shares ”).

On             I have paid the full exercise price totaling US $            to the Parent Company.

I hereby instruct you to exercise the Option to purchase             Shares of the Parent Company, at an exercise price of US $            per Share, which were granted to me pursuant to the Plan.

The Option is held by ESOP Management and Trust Service LTD., in accordance with the provisions of Section 102 of the Israeli Tax Ordinance, the Agreement and the “Chiasma Inc. The Company’s Sub-Plan for Participants in Israel,” under which the Option was allotted (“ the Plan ”).

 

 

 

 

 

Optionee’s Name Signature Date Optionee’s I.D.

Company’s Acknowledgement

We hereby confirm to you as follows:

The above-named Option Holder,             , is entitled to exercise             Shares under the Option, as specified above, in accordance with the terms of the Plan.

The exercise price due by the Option Holder was paid to us directly by the Option Holder.

With respect to options under Section 102 - Please find the Share Certificate which represents the shares resulting from the exercise described above.

 

 

 

 

Company: Signature Print Name and Title Date

 

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Exhibit 10.5

CHIASMA, INC.

SENIOR EXECUTIVE CASH INCENTIVE BONUS PLAN

 

1. Purpose

This Senior Executive Cash Incentive Bonus Plan (the “ Incentive Plan ”) is intended to provide an incentive for superior work and to motivate eligible executives of Chiasma, Inc. (the “ Company ”) and its subsidiaries toward even higher achievement and business results, to tie their goals and interests to those of the Company and its stockholders and to enable the Company to attract and retain highly qualified executives. The Incentive Plan is for the benefit of Covered Executives (as defined below).

 

2. Covered Executives

From time to time, the Compensation Committee of the Board of Directors of the Company (the “ Compensation Committee ”) may select certain key executives (the “ Covered Executives ”) to be eligible to receive bonuses hereunder. Participation in this Plan does not change the “at will” nature of a Covered Executive’s employment with the Company.

 

3. Administration

The Compensation Committee shall have the sole discretion and authority to administer and interpret the Incentive Plan.

 

4. Bonus Determinations

(a) Corporate Performance Goals . A Covered Executive may receive a bonus payment under the Incentive Plan based upon the attainment of one or more performance objectives that are established by the Compensation Committee and relate to financial and operational metrics with respect to the Company or any of its subsidiaries (the “ Corporate Performance Goals ”), including the following: cash flow (including, but not limited to, operating cash flow and free cash flow); sales or revenue; corporate revenue; earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of the Company’s common stock; economic value-added; development, clinical, regulatory or commercial milestones; acquisitions or strategic transactions, partnerships or joint ventures; operating income (loss); return on capital, assets, equity, or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of the Company’s common stock; sales or market shares; number of customers; operating income and/or other strategic, financial or operational objectives, any of which may be (A) measured in absolute terms or compared to any incremental increase, (B) measured in terms of growth, (C) compared to results of a peer group, (D) measured against the market as a whole and/or as compared to applicable market indices and/or (E) measured on a pre-tax or post-tax basis (if applicable). Further, any Corporate Performance Goals may be used to measure the performance of the Company as a whole or a business unit or other segment of the Company, or one or more product lines or specific markets. The Corporate Performance Goals may differ from Covered Executive to Covered Executive.


(b) Calculation of Corporate Performance Goals . At the beginning of each applicable performance period, the Compensation Committee will determine whether any significant element(s) will be included in or excluded from the calculation of any Corporate Performance Goal with respect to any Covered Executive. In all other respects, Corporate Performance Goals will be calculated in accordance with the Company’s financial statements, generally accepted accounting principles, or under a methodology established by the Compensation Committee at the beginning of the performance period and which is consistently applied with respect to a Corporate Performance Goal in the relevant performance period.

(c) Target; Minimum; Maximum . Each Corporate Performance Goal shall have a “target” (100 percent attainment of the Corporate Performance Goal) and may also have a “minimum” hurdle and/or a “maximum” amount.

(d) Bonus Requirements; Individual Goals . Except as otherwise set forth in this Section 4(d): (i) any bonuses paid to Covered Executives under the Incentive Plan shall be based upon objectively determinable bonus formulas that tie such bonuses to one or more performance targets relating to the Corporate Performance Goals, (ii) bonus formulas for Covered Executives shall be adopted in each performance period by the Compensation Committee and communicated to each Covered Executive at the beginning of each performance period and (iii) no bonuses shall be paid to Covered Executives unless and until the Compensation Committee makes a determination with respect to the attainment of the performance targets relating to the Corporate Performance Goals. Notwithstanding the foregoing, the Compensation Committee may adjust bonuses payable under the Incentive Plan based on achievement of one or more individual performance objectives or pay bonuses (including, without limitation, discretionary bonuses) to Covered Executives under the Incentive Plan based on individual performance goals and/or upon such other terms and conditions as the Compensation Committee may in its discretion determine.

(e) Individual Target Bonuses . The Compensation Committee shall establish a target bonus opportunity for each Covered Executive for each performance period. For each Covered Executive, the Compensation Committee shall have the authority to apportion the target award so that a portion of the target award shall be tied to attainment of Corporate Performance Goals and a portion of the target award shall be tied to attainment of individual performance objectives.

(f) Employment Requirement . If a Covered Executive was not employed for an entire performance period, the Compensation Committee may pro rate the bonus based on the number of days employed during such period.

 

5. Timing of Payment

(a) With respect to Corporate Performance Goals established and measured on a basis more frequently than annually (e.g., quarterly or semi-annually), the Corporate Performance Goals will be measured at the end of each performance period after the Company’s financial reports with respect to such period(s) have been published. If the Corporate Performance Goals and/or individual goals for such period are met, payments will be made as soon as practicable following the end of such period, but not later 74 days after the end of the fiscal year in which such performance period ends.

 

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(b) With respect to Corporate Performance Goals established and measured on an annual or multi-year basis, Corporate Performance Goals will be measured as of the end of each such performance period (e.g., the end of each fiscal year) after the Company’s financial reports with respect to such period(s) have been published. If the Corporate Performance Goals and/or individual goals for any such period are met, bonus payments will be made as soon as practicable, but not later than 74 days after the end of the relevant fiscal year.

(c) For the avoidance of doubt, bonuses earned at any time in a fiscal year must be paid no later than 74 days after the last day of such fiscal year.

 

6. Amendment and Termination

The Company reserves the right to amend or terminate the Incentive Plan at any time in its sole discretion.

 

3

Exhibit 10.6

Chiasma, Inc.

60 Wells Avenue

Newton, MA 02459

May 29, 2015

Mark Leuchtenberger

 

Re: Updated Executive Employment Letter

Dear Mark:

This letter agreement (the “Agreement”) confirms the updated terms and conditions of your employment with Chiasma, Inc. (the “Company”):

1. Position . You will serve as the Company’s President and Chief Executive Officer (the “CEO”) and report to the Company’s Board of Directors (the “Board”). This is a full-time exempt position. It is understood and agreed that, while you render services to the Company, you will not engage in any other employment, consulting or other business activities (whether full-time or part-time), unless you first obtain the Company’s approval. It is understood and agreed that you may continue to serve on the board of NeuroHealing Pharmaceuticals Inc. and, subject to prior approval of the Board, that you may serve on one other board of directors, but in any event, only if such other outside board service does not present a conflict or potential conflict of interest as determined by the Board in good faith. You also may engage in religious, charitable and other community activities so long as such activities do not interfere or conflict with your obligations to the Company. While you are employed as the CEO, you shall serve as a member of the Board. You will be entitled to indemnification for actions taken or omitted to be taken on behalf of the Company in your capacity as an officer and director to the fullest extent permitted under applicable law. Upon the ending of your employment, you shall immediately resign from the Board as well as from any other position(s) to which you were elected or appointed in connection with your position as CEO.

2. Start Date . Your employment with the Company began on March 16, 2015. For purposes of this Agreement, this shall be referred to as the “Start Date”.

3. Salary . The Company will pay you a base salary at a rate equivalent to $435,000 per year, payable in accordance with the Company’s standard payroll schedule and subject to applicable deductions and withholdings. Your base salary will be subject to periodic review and adjustment at the Company’s discretion.

4. Annual Bonus . You will be eligible to receive an annual performance bonus. The Company will target the bonus at up to 50% of your annual salary rate (the “Bonus Target”). The actual bonus percentage is discretionary and will be subject to an assessment of your performance, as well as business conditions at the Company. The bonus also will be subject to your employment for the full period covered by the bonus, approval by and adjustment at the discretion of the Board and the terms of any applicable bonus plan. The Company expects to review your job performance on an annual basis and will discuss with you the criteria which the Company will use to assess your performance for bonus purposes. The Board may also make adjustments in the targeted amount of your annual performance bonus. The Company will pay any bonus no later than 75 days after the end of the period covered by the bonus.


Mark Leuchtenberger

May 29, 2015

Page 2

 

5. Business Travel/Expenses . The Company will reimburse you for travel and other business expenses consistent with the terms and conditions of the Company’s expense reimbursement policies.

6. Benefits/Vacation. You will be eligible to participate in the employee benefits and insurance programs generally made available to the Company’s full-time employees once such plans are adopted by the Company. Details of such benefits programs, including mandatory employee contributions, if any, and waiting periods, if applicable, will be made available to you when such benefit(s) become available. You will be eligible for up to four (4) weeks of vacation per year, which shall accrue on a prorated basis. Other provisions of the Company’s vacation policy are set forth in the policy itself.

7. Stock Options: You will be eligible to participate in the Company’s stock option program, subject to approval by the Board of Directors. In connection with your initial employment with the Company, you have been granted an option for the purchase of a number of shares of common stock of the Company equal to 3.0% of the issued and outstanding shares of capital stock of the Company as of the Start Date, calculated on an as-converted, fully-diluted basis, at the stock’s fair market value on the date of the grant (the “Option”). The Option will vest over four (4) years with 25% of the shares vesting on the one year anniversary of the Start Date and the remaining 75% of the shares vesting in equal monthly installments for the following thirty-six (36) months; provided that you remain employed by the Company on each such vesting date. Your eligibility for stock options will be governed by the Company’s 2008 Stock Incentive Plan and any associated stock option agreement required to be entered into by you and the Company.

8. At-Will Employment . Your employment is “at will,” meaning you or the Company may terminate it at any time for any or no reason.

9. Termination Benefits .

a. In the event of the termination of your employment for any reason, the Company shall pay you your base salary through your last day of employment (the “Date of Termination”) as well as the amount of any documented expenses properly incurred by you on behalf of the Company prior to any such termination and not yet reimbursed (the “Accrued Obligations”).

b. “Cause” means: (i) conduct by you in connection with your service to the Company that is fraudulent, unlawful or grossly negligent; (ii) your material breach of your material responsibilities to the Company or your willful failure to comply with lawful directives of the Board or written policies of the Company; (iii) breach by you of your representations, warranties, covenants and/or obligations under this Agreement (including the Restrictive Covenant Agreement); (iv) material misconduct by you which seriously discredits or damages the Company or any of its affiliates, and/or (v) your failure (non-feasance) to perform your duties or responsibilities to the Company as determined in good faith by the Company after written notice to you and a reasonable opportunity to cure that shall not exceed thirty (30) days.


Mark Leuchtenberger

May 29, 2015

Page 3

 

c. A “Change in Control” means the sale of all or substantially all of the outstanding shares of capital stock, assets or business of the Company, by merger, consolidation, sale of assets or otherwise (other than a merger or consolidation in which all or substantially all of the individuals and entities who were beneficial owners of the Company’s voting securities immediately prior to such transaction beneficial own, directly or indirectly, more than 50% (determined on an as-converted basis) of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction). Notwithstanding the foregoing, where required to avoid extra taxation under Section 409A of the Internal Revenue Code, a Change in Control must also satisfy the requirements of Treas. Reg. Section 1.409A-3(a)(5).

d. “Good Reason” means that you have complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events: (i) a material diminution in your responsibilities, authority or duties; (ii) a material diminution in your Base Salary except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior management employees of the Company; or (iii) change of more than 60 miles in the geographic location at which you provide services to the Company, excluding any change in geographic location approved by you (each a “Good Reason Condition”). Notwithstanding the foregoing, a suspension of your responsibilities, authority and/or duties for the Company during any portion of a bona fide internal investigation or an investigation by regulatory or law enforcement authorities shall not be a Good Reason Condition. Good Reason Process shall mean that (i) you reasonably determine in good faith that a Good Reason Condition has occurred; (ii) you notify the Company in writing of the occurrence of the Good Reason Condition within 30 days of the occurrence of such condition; (iii) you cooperate in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the Good Reason Condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) you terminate employment within 30 days after the end of the Cure Period. If the Company cures the Good Reason Condition during the Cure Period, Good Reason shall be deemed not to have occurred.

e. In the event the Company terminates your employment without Cause or you terminate your employment for Good Reason within 12 months after the occurrence of the first event constituting a Change in Control (a “Change in Control Termination”) and provided you (i) enter into, do not revoke and comply with the terms of a separation agreement in a form provided by the Company which shall include a general release of claims against the Company and related persons and entities (the “Release”) within 60 days after the Date of Termination; (ii) resign from any and all positions, including, without implication of limitation, as a director, trustee or officer, that you then hold with the Company and any affiliate of the Company; and (iii) return all Company property and comply with any instructions related to deleting and purging


Mark Leuchtenberger

May 29, 2015

Page 4

 

duplicates of such Company property, the Company will provide you with the following “Termination Benefits”: (a) continuation of your base salary for the eighteen (18) month period that immediately follows the Date of Termination; (b) payment of your Bonus Target for the year in which the Change in Control occurs ((a) and (b), the “Severance Payments”); (c) all of the unvested shares subject to the Option shall immediately vest and become exercisable as of the Date of Termination; and (d) if elected, continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and you as in effect on the Date of Termination until the earlier of (i) the date that is eighteen (18) months after the Date of Termination; and (ii) the date you become eligible for health benefits through another employer or otherwise become ineligible for COBRA. This Section 9(e) shall terminate and be of no further force or effect beginning 12 months after the occurrence of a Change in Control.

f. In the event the Company terminates your employment without Cause or you terminate your employment for Good Reason, in each case other than a Change in Control Termination and provided you (i) enter into, do not revoke and comply with the terms of a separation agreement in a form provided by the Company which shall include a general release of claims against the Company and related persons and entities (the “Release”) within 60 days after the Date of Termination; (ii) resign from any and all positions, including, without implication of limitation, as a director, trustee or officer, that you then hold with the Company and any affiliate of the Company; and (iii) return all Company property and comply with any instructions related to deleting and purging duplicates of such Company property, the Company will provide you with the following “Termination Benefits”: (a) continuation of your base salary for the twelve (12) month period that immediately follows the Date of Termination; and (b) if elected, continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and you as in effect on the Date of Termination until the earlier of (i) the date that is twelve (12) months after the Date of Termination; and (ii) the date you become eligible for health benefits through another employer or otherwise become ineligible for COBRA.

g. The Severance Payments shall commence within 60 days after the Date of Termination and shall be made on the Company’s regular payroll dates; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the Severance Payments shall begin to be paid in the second calendar year. In the event you miss a regular payroll period between the Date of Termination and first Severance Payment date, the first Severance Payment shall include a “catch up” payment. Solely for purposes of Section 409A of the Internal Revenue Code of 1986, as amended, each Severance Payment is considered a separate payment.


Mark Leuchtenberger

May 29, 2015

Page 5

 

10. Termination of Employment as a Result of Death, Disability, Your Resignation or a Termination by the Company for Cause . In the event your employment is terminated as a result of your (i) death, (ii) disability, (iii) resignation, (iv) termination for Cause by the Company, or (v) any other termination of your employment that is not defined in Section 9(e) or Section 9(f) of this letter, you will be entitled to the Accrued Obligations but you will not be entitled to Termination Benefits.

11. Confidential Information and Restricted Activities . By signing this Agreement, you represent that you have carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed on you pursuant to the Company’s form of non-disclosure, assignment of inventions, non-competition and non-solicitation agreement (the “Restrictive Covenant Agreement”) attached as Exhibit A, the terms of which are incorporated by reference herein. You agree without reservation that these restraints are necessary for the reasonable and proper protection of the Company and its affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. You further agree that, if were you to breach any of the covenants contained in this Agreement or the Restrictive Covenant Agreement, in addition to the Company’s other legal and equitable remedies, the Company may suspend or cease any Termination Benefits to which you might otherwise be entitled. Any such suspension or termination of the Termination Benefits by the Company in the event of a breach by you shall not affect your ongoing obligations to the Company.

12. Taxes; Section 409A; Section 280G; Section 4099 .

a. All forms of compensation referred to in this Agreement are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law. You hereby acknowledge that the Company does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities, and you will not make any claim against the Company or its board of directors related to tax liabilities arising from your compensation.

b. Anything in this Agreement to the contrary notwithstanding, if at the time of your separation from service within the meaning of Section 409A of the Code, the Company determines that you are a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that you becomes entitled to under this Agreement on account of your separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after your separation from service, or (B) your death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule. All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred by you during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one


Mark Leuchtenberger

May 29, 2015

Page 6

 

taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon your termination of employment, then such payments or benefits shall be payable only upon your “separation from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h). The Company and you intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. The Company makes no representation or warranty and shall have no liability to you or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

c. Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Aggregate Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which you become subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in you receiving a higher After Tax Amount (as defined below) than you would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).

(i) For purposes of this Section 12(c), the “After Tax Amount” means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on you as a result of your receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.


Mark Leuchtenberger

May 29, 2015

Page 7

 

(ii) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 12(c) shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and you within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or you. Any determination by the Accounting Firm shall be binding upon the Company and you.

13. Interpretation, Amendment and Enforcement . This Agreement, including the Restrictive Covenant Agreement, constitutes the complete agreement between you and the Company, contains all of the terms of your employment with the Company and supersedes any prior agreements, representations or understandings (whether written, oral or implied) between you and the Company. The terms of this Agreement and the resolution of any disputes as to the meaning, effect, performance or validity of this Agreement or arising out of, related to, or in any way connected with this Agreement, your employment with the Company or any other relationship between you and the Company (the “Disputes”) will be governed by Massachusetts law, excluding laws relating to conflicts or choice of law. You and the Company submit to the exclusive personal jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts in connection with any Dispute or any claim related to any Dispute.

14. Assignment . Neither you nor the Company may make any assignment of this Agreement or any interest in it, by operation of law or otherwise, without the prior written consent of the other; provided, however , that the Company may assign its rights and obligations under this Agreement (including the Restrictive Covenant Agreement) without your consent to any affiliate at any time, or to any person or entity with whom the Company shall hereafter effect a reorganization, consolidate with, or merge into or to whom it transfers all or substantially all of its properties or assets. This Agreement shall inure to the benefit of and be binding upon you and the Company, and each of your and its respective successors, executors, administrators, heirs and permitted assigns.

15. Miscellaneous . This Agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you and a Board member of the Company. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. The words “ include ,” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “without limitation.” This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

16. Other Terms . By signing this Agreement, you represent to the Company that you have no contractual commitments or other legal obligations that would or may prohibit you from performing your duties for the Company.


Mark Leuchtenberger

May 29, 2015

Page 8

 

Please acknowledge, by signing below, that you have accepted this updated Agreement.

 

Very truly yours,
By: /s/ David Stack

David Stack

Chairman, Chiasma, Inc.

 

I have read and accept this letter agreement:
/s/ Mark Leuchtenberger
Mark Leuchtenberger
Dated: May 29, 2015

Exhibit 10.7

Execution Version

Employment Agreement

This EMPLOYMENT AGREEMENT (the “ Agreement ”) is made as of December 16, 2014 (the “ Effective Date ”) by and between Chiasma (Israel) Ltd., a company incorporated in the State of Israel, having its offices at 10 Hartom Street, Jerusalem 91450, Israel (the “ Company ”), and Roni Mamluk (the “ Executive ”).

W I T N E S S E T H:

WHEREAS, the Company recognizes that Executive possesses skills and abilities that are valuable to the Company’s Business (the “ Business ”), the Company desires to continue to employ Executive and Executive desires to be so employed by the Company.

NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound, the parties hereto hereby agree as follows:

 

1. PREAMBLE .

 

1.1. The preamble of this Agreement constitutes an integral part thereof.

 

1.2. The division of the terms of this Agreement into clauses and the headings of the clauses are solely for the sake of convenience and they may not be used for interpretive purposes. The Appendixes to this Agreement constitute an integral part hereof.

 

1.3. References in this Agreement to a particular gender shall be applicable to all genders.

 

2. EMPLOYMENT . The Company hereby continues to employ Executive as the Chief Executive Officer (the “ CEO ”) of the Company in a full time capacity on the terms and conditions contained herein; provided, that, the Company may change Executive’s position to another officer level position with the Company in connection with hiring a new Chief Executive Officer (the “ New CEO ”). Executive hereby agrees to be employed by the Company in such capacity and to discharge and perform faithfully and to the best of her ability such duties and services of an executive, administrative and managerial nature consistent with the position of CEO or her new position, as applicable, as shall be specified and determined from time to time by the Board of Directors of Parent (the “ Board ”) or the New CEO after consultation with Executive.

 

3. DUTIES . During the term of this Agreement, Executive shall devote substantially all of her business time, skill, labor and attention to the affairs of the Company in furtherance of the Business. Executive shall exercise the authority, powers, functions, and duties that attach to her position. Without limiting the foregoing, Executive shall report directly to the Board or the New CEO and shall be subject to the general direction and control of the Board or the New CEO.

 

4. INTENTIONALLY OMITTED .


5. TERM . Executive’s employment under this Agreement will commence on the Effective Date and shall continue until terminated by Executive or by the Company pursuant to the provisions hereof (“ Employment Period ”).

 

6. COMPENSATION AND RELATED MATTERS . During the Employment Period, Executive shall be entitled to the following:

 

6.1. Salary

 

  (a) The Company shall pay Executive a gross monthly salary of $23,750 USD (the “ Salary ”) for her services hereunder.

 

  (b) The Salary shall be reviewed by the Board annually and shall be adjusted for any increases approved by the Board.

 

  (c) As the Executive is employed hereunder in a managerial position involving a fiduciary relationship between the Executive and the Company, the Work and Rest Law (5711-1951), and any other law amending or replacing such law, shall not apply to the Executive or to her employment with the Company, and the Executive shall not be entitled to any compensation in respect of such law. The Executive acknowledges and agrees that the Salary and the compensation set for her hereunder include a proper and just reward for the requirements of her position and status and the obligation to work at irregular hours of the day. Accordingly, the Executive shall not be entitled to any additional bonus or other payment for extra hours of work.

 

  (d) The Salary shall be paid no later than the 9th day of each month, for the preceding month.

 

  (e) All cash amounts payable under this Agreement to Executive shall be paid in Israeli New Shekel (NIS) with an exchange rate to United States dollars that is equal to 3.84 NIS for every 1 USD.

 

  (f) All the amounts specified in this Agreement are gross sums. The Company shall deduct and withhold all required taxes and other statutory payments, including health insurance contributions and social security contributions from the Salary and from all other rights and benefits received by the Executive.

 

  (g) The Executive shall regard and retain as confidential and shall not divulge to any of the Company’s employees and/or any third party, either during or after the Executive’s Employment Period, directly or indirectly, the terms of the Executive’s employment and Salary.

 

  (h) All social benefits and/or other payments due and payable to the Executive (if any) shall be calculated only on the basis of the Salary. It is hereby declared and agreed that all participation in expenses and any other benefits, including, but without derogating from the generality of the foregoing, bonus payments (if payable) and benefits in kind given to the Executive in the terms of this Agreement or deriving therefrom, do not and shall not form part of the Salary.

 

6.2.

Bonus –Executive shall be eligible to participate in an annual bonus program for members of senior management, where she will be eligible for a bonus as determined by the Board (the “ Bonus ”). The performance targets for such Bonus shall be determined by the Board, after consultation with Executive, no later than six months following the beginning of the applicable performance period. Executive’s Bonus

 

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  target shall not be less than 30% of Executive’s Salary for 12 months (the “ Target Bonus ”). If a Bonus is earned and approved by the Board, it will be payable in cash in the calendar year following the calendar year in which the Bonus was earned. The Bonus may be pro-rated based on the number of days that the Executive was employed by the Company in the preceding year. It is hereby made clear that the Bonus or any part thereof (if payable) shall not be deemed a part of the Executive’s Salary for any purpose, including for purposes of calculation of severance pay, if any.

 

6.3. Expenses – The Company shall reimburse Executive for all reasonable and customary travel, business and entertainment expenses incurred in connection with Executive’s performance of her services hereunder, subject to an itemized account of such expenses substantiated by appropriate receipts, all in accordance with the Company’s policy from time to time.

 

6.4. Vacation- The Executive shall be entitled to 20 paid vacation days per year. The Executive is required to make every reasonable effort to exercise her annual vacation during the year it is accrued and shall be obliged to take at least five (5) paid vacation days during each year of the Executive’s employment; provided however, that if the Executive is unable to utilize all the vacation days, she will be entitled to accumulate the unused balance of the vacation days standing to her credit according to the law. Vacation shall be taken in accordance with the Company policy and prior approval. For avoidance of any doubt, it is hereby agreed that the Company shall be entitled to set uniform dates for vacation to all or part of its Executives, as it shall deem fit.

 

6.5. Recreation Pay - The Executive shall be entitled to annual recreation pay (“ Dmey Havra-ah ”) in an amount determined in accordance with the applicable law.

 

6.6. Sick Leave - The Executive shall be entitled to sick leave (“ Yemei Mahala ”) as provided by the Sickness Pay Law, 5736-1976. The Executive shall notify the Company, immediately, of any absence due to sickness and furnish the Company with an applicable medical certificate to approve it. Sick days are not redeemable and may not be converted into cash.

 

6.7. Cellular Phone - The Company shall provide a cellular phone for the Executive for the purpose of performing her duties hereunder. The Company shall bear all expenses of the usage of such cellular phone by the Executive. The Executive shall bear all tax consequences arising out of the possession and use of the cellular phone by her and shall not be entitled to any reimbursement. The cellular phone will be returned to the Company by the Executive upon the termination of the employment relations between the parties, for any reason whatsoever.

 

6.8. Company Car-

 

  (a) The Company shall furnish for the Executive a car (Group 2) (the: “ Car ”) for the purpose of performing her duties hereunder.

 

  (b) The Company shall bear all maintenance and usage expenses of the Car by the Executive. The Company will deduct from the Executive’s Salary the income tax resulting from the value of the monthly use of the Car, in accordance with the income tax regulations applicable thereto and the Social Security Provisions.

 

  (c) The Car will be returned to the Company by the Executive upon the termination of the Executive-employer relations between the parties, for any reason whatsoever.

 

  (d)

The Company will pay any expenses made regarding the Car including, but not limited, insurance and gas, however, the Executive shall bear

 

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  and pay all expenses relating to any violation of law committed in connection with the use of the Car, including any parking or traffic fines, and will bear the sole liability in connection therewith.

 

  (e) The Executive undertakes to maintain the Car in good condition, and undertakes to act in accordance with the Company’s policies regarding company’s cars, as such shall be in effect from time to time.

 

6.9. Pension Insurance-

 

  (a) The Company and the Executive shall obtain and maintain a pension insurance to the Executive, in a Managers Insurance and/or a Pension Fund (the: “ Pension Insurance ”), according to the Executive’s choice.

 

  (b) The contributions to the Pension Insurance shall be as follows:

 

  (i) In the event that the Pension Insurance is Managers Insurance- The Company shall contribute on behalf of the Executive a monthly aggregated amount equal to thirteen and a third percent (13.33%) of the Salary, in the following portions: five percent (5%) of the Salary for pension in Manager Insurance compensation and eight and a third percent (8.33%) of the Salary on the account of severance compensation. The Company shall deduct from the Executive’s Salary an aggregated amount equal to five percent (5%) of the Salary for such fund. In addition, the Company shall pay an amount of up to 2.5% of the Salary towards disability insurance.

 

  (ii) In the event that the Pension Insurance is a Pension Fund - The Company shall contribute on behalf of the Executive a monthly aggregated amount equal to fourteen and a third percent (14.33%) of the Salary, in the following portions: six percent (6%) of the Salary for pension compensation and eight and a third percent (8.33%) of the Salary on the account of severance compensation. The Company shall deduct from the Executive’s Salary an aggregated amount equal to five and a half percent (5.5%) of the Salary for such fund.

 

  (iii) The Executive will be entitled to choose to be insured in both Manager Insurance and the Pension Fund, namely the Executive will be entitled to choose an amount of her Salary to be insured in a Manager Insurance and an amount of her Salary (being the balance of her Salary) that will be insured in a Pension Fund, all subject to the allocation percentages mentioned in Sections (a) and (b) above.

 

  (c) The Company’s allocations to the Pension Insurance on the Executive’s behalf are in accordance with the general approval of the Minister of Labor and Social Welfare regarding payments by employers to a pension fund and insurance fund in lieu of severance pay (hereinafter: the “ General Approval ”), annexed hereto as Appendix A , pursuant to Article 14 of the Severance Payments Law, 5723-1963 (the “Severance Payment Law”), and the Executive hereby acknowledges that the amounts contributed by the Company for severance compensation under the Pension Insurance, shall be deemed to be made instead of the severance payments to which the Executive may be entitled, under the provisions of the Severance Payment Law, and shall constitute a full and complete payment thereof.

 

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Exhibit B

[This Exhibit B Translated from Hebrew]

            ,         

Name: Dr. Roni Mamluk

To: Chiasma (Israel) Ltd. (the “ Company ”)

Acceptance, Release and Confidentiality Form

 

  1. I, the undersigned, Dr. Roni Mamluk, hereby confirm that I have received from the Company all amounts which are due or owing to me as a result of or in connection with my employment at the Company and/or the termination thereof, which has commenced on July 11, 2006 and has terminated on             ,         , including with respect to salary payments, wages, recreation payment, vacation, travel expenses, notice period, severance pay (if applicable), payments and/or contributions to pension funds and/or managers insurance and/or study fund, and any other payment, right and/or benefit which I am entitled to receive from the Company, including without limitation, as a result of or in connection with my employment with the Company and/or the termination of my employment, including the payments listed in the appendix hereto, which shall be payable to me at the beginning of the month of                      , whether under contract, tort, unjust enrichment or otherwise, if any, and I further confirm that the Company has fulfilled all of its commitments, undertakings and promises towards me.

I hereby confirm and undertake that I will not have any claims towards the Company, its office holders and/or shareholders, including without limitation, as a result of or in connection with my employment in the Company and/or the termination of my employment, whether under contract, tort, unjust enrichment or otherwise, if any, and I hereby waive any such claim, action or demand, that existed, currently exists or that may arise in the future.

I confirm further that I have received all approvals required for the release of funds accumulated in my name (for allocations made by me or the Company) in the study funds / managers insurance / pension fund managed on my behalf at Menora Mivtachim.

 

  2. I hereby confirm that the Company has provided me with a breakdown of all monies, according to their different components, which I am entitled to due to or as a result of my employment with the Company and/or the termination of my employment, as set forth in the appendix hereto, and I have been given an opportunity to inquire regarding my rights. I am signing this Acceptance and Release Form following such inquiries.


  3. I hereby confirm that my obligations for confidentiality, non-competition, non-solicitation and intellectual property assignment set forth in Annex B of my Employment Agreement with the Company dated June 1, 2006, as amended (the “ Employment Agreement ”) continues to apply following the termination of my employment with the Company.

 

  4. I hereby undertake that I shall not take any action, including in writing, orally or behaviorally, which may harm or damage the good name of the Company, its affiliates, their employees, managers, office holders or shareholders.

 

  5. In accordance with Section 3 of the Employment Agreement, I am aware and I hereby confirm that the Company may read and monitor the e-mail messages received in my office mailbox which has been provided to me in the framework of my position in the Company (the “ Mailbox ”) for the continued handling of any matters I have been entrusted with, in the framework of my employment. I hereby provide the Company with an irrevocable authorization to appoint a Company representative who shall be responsible for reviewing any e-mail messages received in my Mailbox and referring such messages to the appropriate channels and personnel within the Company for further handling.

I hereby confirm that such review of any e-mail messages for work related matters is appropriate and required and does not constitute any breach of my privacy.

I undertake to immediately notify all of my friends and acquaintances that they should not send any further personal e-mails to my Mailbox so that my personal affairs shall not be made known to the Company. If, notwithstanding such notification, any personal e-mails which are not related to the Company shall be received in my Mailbox, I hereby authorize the Company to collectively transfer these messages to me pursuant to the Company’s discretion and without placing the Company with any duty to transfer such messages.

I hereby confirm the Company to close my Mailbox completely following a transition period which shall be determined by the Company in its discretion and as required.

 

  6. I have been explained the meaning and implications of this Acceptance and Release Form, including the waiver of further claims, actions and demands, whether existing or that may arise, I have understood and signed this Acceptance and Release Form of my own free will, being aware of its meaning and implications.

 

  7. If applicable, this Acceptance and Release Form also constitutes a settlement agreement and notice of final clearance with respect to severance pay in according with Article 29 of the Severance Pay Law, 1963.

In witness whereof, I have signed this Acceptance and Release Form this day              ,          .

 

 

Signature


Details of Rights and Final Settlement Account

Acceptance, Release and Confidentiality Appendix

for Dr. Roni Mamluk from:             ,         

 

  1. Last Salary – N.I.S.

 

  2. Additional Salary Components (overtime, car maintenance, etc.) – N.I.S.

 

  3. Convalescence Pay – N.I.S.

 

  4. Vacation days redemption – N.I.S.

 

  5. A one-time retirement grant – N.I.S.

 

 

 

Employee’s Signature Date

Note: All the expressed amounts are “Gross”, before making the requisite deductions by law or agreement.

Exhibit 10.8

Chiasma, Inc.

831 Beacon Street, Suite 313

Newton Centre, MA 02459

May 8, 2015

Mark. J. Fitzpatrick

 

Re: Executive Employment Letter

Dear Mark:

This letter agreement (the “Agreement”) confirms the terms and conditions of your employment with Chiasma, Inc. (the “Company”):

1. Position . You will serve as the Company’s Chief Financial Officer and report to the Company’s President and Chief Executive Officer. This is a full-time exempt position. It is understood and agreed that, while you render services to the Company, you will not engage in any other employment, consulting or other business activities (whether full-time or part-time), unless you first obtain the Company’s approval. It is understood and agreed that you may serve on one other for profit board but only if such outside board service does not present a conflict or potential conflict of interest as determined by the Chief Executive Officer of the Company (the “CEO”) or its Board of Directors (the “Board”) in good faith. You also may engage in religious, charitable, non-profit board and other community activities so long as (i) you notify the CEO in advance and in writing of your non-profit board activity; and (ii) your charitable, non-profit board and other community activities do not interfere or conflict with your obligations to the Company. Upon the ending of your employment, you shall immediately resign from any other position(s) to which you were elected or appointed in connection with your position.

2. Start Date . Your employment with the Company will begin on June 15, 2015, unless another date is mutually agreed upon by you and the Company. For purposes of this Agreement, the actual first day of your employment with the Company shall be referred to as the “Start Date”.

3. Salary . The Company will pay you a base salary at a rate equivalent to $350,000 per year, payable in accordance with the Company’s standard payroll schedule and subject to applicable deductions and withholdings. Your base salary will be subject to periodic (and no less than annual if practicable) review and adjustment at the Company’s discretion.

4. Annual Bonus . You will be eligible to receive an annual performance bonus. The Company will target the bonus at 35% of your annual salary rate (the “Bonus Target”). The actual bonus percentage is discretionary and will be subject to an assessment of your performance, as well as business conditions at the Company. The bonus also will be subject to your employment for the full period covered by the bonus, approval by and adjustment at the discretion of the Board and the terms of any applicable bonus plan. The Company will review your job performance on an annual basis and the Company’s Chief Executive Officer will


Mark J. Fitzpatrick

May 8, 2015

Page 2

annually determine, after discussion with you, the criteria which the Company will use to assess your performance for bonus purposes. The Board may also make adjustments in the targeted amount of your annual performance bonus after discussion with you. The Company will pay any bonus no later than 75 days after the end of the calendar year to which it applies.

5. Signing Bonus. In addition to the bonus under Section 4 above, you will receive a one-time cash sign-on bonus in the amount of $25,000 (the “Signing Bonus”), which will be paid to you no later than 30 days following the Start Date. You must be employed by Chiasma at the time of payment of the Signing Bonus in order to receive the Signing Bonus. The Signing Bonus shall be subject to deductions and withholdings as required by law. If, prior to the 12-month anniversary of the Start Date, your employment is terminated for any reason other than (i) by the Company without Cause, (ii) death, (iii) Disability (as defined in Section 11 below) or (iv) a Change in Control Termination, then you agree to repay to the Company the net amount of the signing bonus that you received, after deduction of state and federal withholding tax, social security, FICA, and all other employment taxes and authorized payroll deductions, within 30 days of your Date of Termination.

6. Business Travel/Expenses . The Company will reimburse you for travel and other business expenses consistent with the terms and conditions of the Company’s expense reimbursement policies.

7. Benefits/Vacation. You will be eligible to participate in the employee benefits and insurance programs generally made available to the Company’s full-time employees, as well as all benefit programs available to the senior executive employees of the Company, once such plans are adopted by the Company. Details of such benefits programs, including mandatory employee contributions, if any, and waiting periods, if applicable, will be made available to you when such benefit(s) become available. You will be eligible for up to 4 (four) weeks of vacation per year, which shall accrue on a prorated basis. Other provisions of the Company’s vacation policy are set forth in the policy itself.

8. Stock Options: You will be eligible to participate in the Company’s stock option program, subject to approval by the Board. We will recommend to the Board that you be granted an option, which grant date shall be no earlier than the Start Date and as soon as practicable following the Start Date, for the purchase of a number of shares of common stock of the Company equal to 1.25% of the issued and outstanding shares of common stock of the Company as of the Start Date, calculated on an as-converted, fully-diluted basis with regard to all outstanding convertible securities, including, without limitation, preferred stock and warrants, and assuming the exercise of all options outstanding under the Company’s equity incentive plans, at an exercise price per share equal to the stock’s fair market value on the date of the grant (the “Option”). The Option will vest over four (4) years with 25% of the shares vesting on the one year anniversary of your employment start date and the remaining 75% of the shares vesting in equal monthly installments for the following thirty-six (36) months. Your eligibility for stock options will be governed by the Company’s 2008 Stock Incentive Plan (the “Plan”) and any associated stock option agreement required to be entered into by you and the Company. Subject to approval by the Board, you may from time to time be granted additional equity-based


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compensation awards in respect of shares of common stock of the Company, pursuant to the Plan or any subsequently adopted incentive compensation plan.

9. At-Will Employment . Your employment is “at will,” meaning you or the Company may terminate it at any time for any or no reason.

10. Termination Benefits .

a. In the event of the termination of your employment for any reason, the Company shall pay you your base salary through your last day of employment (the “Date of Termination”), the amount of any documented expenses properly incurred by you on behalf of the Company prior to any such termination and not yet reimbursed, and any other wages required to be paid by applicable law (the “Accrued Obligations”).

b. “Cause” means: (i) conduct by you in connection with your service to the Company that is fraudulent, unlawful or grossly negligent; (ii) your material breach of your material responsibilities to the Company or your willful failure to comply with lawful directives of the Board or written policies of the Company; (iii) breach by you of your representations, warranties, covenants and/or obligations under this Agreement (including the Restrictive Covenant Agreement); (iv) material misconduct by you which seriously discredits or damages the Company or any of its affiliates, and/or (v) nonperformance (except where due to Disability, as defined in Section 11 below) or unsatisfactory performance of your duties or responsibilities to the Company as determined in good faith by the Company after written notice to you and a reasonable opportunity to cure that shall not exceed thirty (30) days.

c. A “Change in Control” means the sale of all or substantially all of the outstanding shares of capital stock, assets or business of the Company, by merger, consolidation, sale of assets or otherwise (other than a merger or consolidation in which all or substantially all of the individuals and entities who were beneficial owners of the Company’s voting securities immediately prior to such transaction beneficially own, directly or indirectly, more than 50% (determined on an as-converted basis) of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction). Notwithstanding the foregoing, where required to avoid extra taxation under Section 409A of the Internal Revenue Code, a Change in Control must also satisfy the requirements of Treas. Reg. Section 1.409A-3(a)(5).

d. “Good Reason” means that you have complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events: (i) a material diminution in your responsibilities, authority or duties; (ii) a material diminution in your Base Salary except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior management employees of the Company; or (iii) change of more than 60 miles in the geographic location at which you provide services to the Company (each a “Good Reason Condition”). Notwithstanding the foregoing, a suspension of your responsibilities, authority and/or duties for the Company during any portion of a bona fide internal investigation or an investigation by regulatory or law enforcement


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authorities shall not be a Good Reason Condition. Good Reason Process shall mean that (i) you reasonably determine in good faith that a Good Reason Condition has occurred; (ii) you notify the Company in writing of the occurrence of the Good Reason Condition within 30 days of the occurrence of such condition; (iii) you cooperate in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the Good Reason Condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) you terminate employment within 30 days after the end of the Cure Period. If the Company cures the Good Reason Condition during the Cure Period, Good Reason shall be deemed not to have occurred.

e. In the event the Company terminates your employment without Cause or you terminate your employment for Good Reason within 12 months after the occurrence of the first event constituting a Change in Control (a “Change in Control Termination”) and provided you (i) enter into, do not revoke and comply with the terms of a Release of Claims in the form attached to this Agreement as Exhibit A, which includes a general release of claims against the Company and related persons and entities (the “Release”) within 60 days after the Date of Termination; (ii) resign from any and all positions, including, without implication of limitation, as a director, trustee or officer, that you then hold with the Company and any affiliate of the Company; and (iii) return all Company property and comply with any instructions related to deleting and purging duplicates of such Company property, the Company will provide you with the following “Termination Benefits”: (a) continuation of your base salary for the twelve (12) month period that immediately follows the Date of Termination; (b) payment of your Bonus Target for the year in which the Change in Control occurs ((a) and (b), the “Severance Payments”); (c) all of the unvested shares subject to the Option shall immediately vest and become exercisable as of the Date of Termination; and (d) if elected, continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and you as in effect on the Date of Termination until the earlier of (i) the date that is twelve (12) months after the Date of Termination; and (ii) the date you become eligible for health benefits through another employer or otherwise become ineligible for COBRA. This Section 10(e) shall terminate and be of no further force or effect beginning 12 months after the occurrence of a Change in Control.

f. In the event the Company terminates your employment without Cause other than a Change in Control Termination and provided you (i) enter into, do not revoke and comply with the terms of the Release within 60 days after the Date of Termination; (ii) resign from any and all positions, including, without implication of limitation, as a director, trustee or officer, that you then hold with the Company and any affiliate of the Company; and (iii) return all Company property and comply with any instructions related to deleting and purging duplicates of such Company property, the Company will provide you with the following “Termination Benefits”: (a) continuation of your base salary for the twelve (12) month period that immediately follows the Date of Termination (the “Severance Payments”); and (b) if elected, continuation of group health plan benefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and you as in effect on the Date of Termination


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until the earlier of (i) the date that is twelve (12) months after the Date of Termination; and (ii) the date you become eligible for health benefits through another employer or otherwise become ineligible for COBRA.

g. The Severance Payments shall commence within 60 days after the Date of Termination and shall be made on the Company’s regular payroll dates; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the Severance Payments shall begin to be paid in the second calendar year. In the event you miss a regular payroll period between the Date of Termination and first Severance Payment date, the first Severance Payment shall include a “catch up” payment. Solely for purposes of Section 409A of the Internal Revenue Code of 1986, as amended, each Severance Payment is considered a separate payment.

11. Termination of Employment as a Result of Death, Disability, Your Resignation or a Termination by the Company for Cause . In the event your employment is terminated as a result of your (a) death, (b) Disability, (c) resignation, (d) termination for Cause by the Company, or (e) any other termination of your employment that is not defined in Section 10(e) or Section 10(f) of this letter, you will be entitled to the Accrued Obligations but you will not be entitled to Termination Benefits. “Disability” means a disability as defined by the group long-term disability insurance policy maintained by the Company for the benefit of its employees. In the absence of such a policy, “Disability” means that, as a result of your mental or physical illness, you are unable to perform (with or without reasonable accommodation in accordance with the Americans with Disabilities Act) the duties of your position pursuant to this Agreement for a period of a minimum of ninety (90) consecutive days.

12. Confidential Information and Restricted Activities . By signing this Agreement, you represent that you have carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed on you pursuant to the Company’s form of non-disclosure, assignment of inventions, non-competition and non-solicitation agreement (the “Restrictive Covenant Agreement”) attached as Exhibit B, the terms of which are incorporated by reference herein. You agree without reservation that these restraints are necessary for the reasonable and proper protection of the Company and its affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. You further agree that, if were you to breach any of the covenants contained in this Agreement or the Restrictive Covenant Agreement, in addition to the Company’s other legal and equitable remedies, the Company may suspend or cease any Termination Benefits to which you might otherwise be entitled. Any such suspension or termination of the Termination Benefits by the Company in the event of a breach by you shall not affect your ongoing obligations to the Company.

13. Taxes; Section 409A; Section 280G; Section 4099 .

a. All forms of compensation referred to in this Agreement are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law. You hereby acknowledge that the Company does not have a duty to design its compensation policies


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in a manner that minimizes your tax liabilities, and you will not make any claim against the Company or its board of directors related to tax liabilities arising from your compensation.

b. Anything in this Agreement to the contrary notwithstanding, if at the time of your separation from service within the meaning of Section 409A of the Code, the Company determines that you are a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that you become entitled to under this Agreement on account of your separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after your separation from service, or (B) your death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule. All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred by you during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon your termination of employment, then such payments or benefits shall be payable only upon your “separation from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h). The Company and you intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. The Company makes no representation or warranty and shall have no liability to you or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

c. Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Aggregate Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which


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you become subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in you receiving a higher After Tax Amount (as defined below) than you would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).

(i) For purposes of this Section 13(c), the “After Tax Amount” means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on you as a result of your receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(ii) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 13(c) shall be made, at the Company’s expense, by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and you within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or you. Any determination by the Accounting Firm shall be binding upon the Company and you.

14. Interpretation, Amendment and Enforcement . This Agreement, including the Restrictive Covenant Agreement, constitutes the complete agreement between you and the Company, contains all of the terms of your employment with the Company and supersedes any prior agreements, representations or understandings (whether written, oral or implied) between you and the Company. The terms of this Agreement and the resolution of any disputes as to the meaning, effect, performance or validity of this Agreement or arising out of, related to, or in any way connected with this Agreement, your employment with the Company or any other relationship between you and the Company (the “Disputes”) will be governed by Massachusetts law, excluding laws relating to conflicts or choice of law. You and the Company submit to the exclusive personal jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts in connection with any Dispute or any claim related to any Dispute.


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15. Assignment . Neither you nor the Company may make any assignment of this Agreement or any interest in it, by operation of law or otherwise, without the prior written consent of the other; provided, however , that the Company may assign its rights and obligations under this Agreement (including the Restrictive Covenant Agreement) without your consent to any affiliate at any time, or to any person or entity with whom the Company shall hereafter effect a reorganization, consolidate with, or merge into or to whom it transfers all or substantially all of its properties or assets. This Agreement shall inure to the benefit of and be binding upon you and the Company, and each of your and its respective successors, executors, administrators, heirs and permitted assigns.

16. Miscellaneous . This Agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you and a Board member of the Company. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. The words “ include ,” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “without limitation.” This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

17. Obligations to Former Employers. You agree that you shall not disclose any confidential information of Aegerion Pharmaceuticals, Inc. (“Aegerion”) at any time or solicit Aegerion employees or customers within the “Restricted Period” of the Employee Confidentiality, Assignment and Noncompetition Agreement between you and Aegerion dated May 9, 2011. By signing this Agreement, you represent to the Company that you have no other contractual commitments or other legal obligations that would or may prohibit you from performing your duties for the Company.

18. Other Terms . This offer is subject to background and reference checks that are satisfactory to the Company. As with any employee, you must submit satisfactory proof of your identity and your legal authorization to work in the United States.


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Please acknowledge, by signing below, that you have accepted this Agreement. I look forward to having you join Chiasma.

 

Very truly yours,
By: /s/ Mark Leuchtenberger

Mark Leuchtenberger

President & CEO, Chiasma, Inc.

I have read and accept this employment offer:

 

/s/ Mark J. Fitzpatrick

Mark J. Fitzpatrick

 

Dated: May 8, 2015                                                            

 

 

Enclosures: Exhibit A: Release
     Exhibit B: Restrictive Covenant Agreement


RELEASE OF CLAIMS

This Release of Claims (the “Release”) is entered into by and between Mark J. Fitzpatrick (the “Executive”) and Chiasma, Inc. (with all affiliates, the “Company”) in connection with the “Offer Letter” between the Executive and the Company dated May 8, 2015. Terms with initial capitalization that are not otherwise defined in this Release have the meanings set forth in the Offer Letter. The consideration for the Executive’s agreement to this Release consists of the Termination Benefits, the receipt of which is conditioned on the Executive’s timely execution and nonrevocation of this Release pursuant to the Offer Letter.

1. Tender of Release . This Release is automatically tendered to the Executive upon the date of the termination of the Executive’s employment if the Executive is eligible for the Termination Benefits.

2. Release of Claims . Except as provided below, the Executive voluntarily releases and forever discharges the Company, its affiliated and related entities, its and their respective predecessors, successors and assigns, its and their respective employee benefit plans and fiduciaries of such plans, and the current and former members, partners, directors, officers, shareholders, employees, attorneys, accountants and agents of each of the foregoing in their official and personal capacities (collectively referred to as the “Releasees”) generally from all claims, demands, debts, damages and liabilities of every name and nature, known or unknown (collectively, “Claims”) that, as of the date when the Executive signs this Release, he has, ever had, now claims to have or ever claimed to have had against any or all of the Releasees. This general release of Claims includes, without implication of limitation, the release of all Claims:

 

    relating to the Executive’s employment by and termination from employment with the Company or any related entity;
    of wrongful discharge or violation of public policy;
    of breach of contract;
    of discrimination or retaliation under federal, state or local law (including, without limitation, Claims of age discrimination or retaliation under the Age Discrimination in Employment Act, Claims of disability discrimination or retaliation under the Americans with Disabilities Act, and Claims of discrimination or retaliation under Title VII of the Civil Rights Act of 1964;
    under any other federal or state statute or constitution or local ordinance;
    of defamation or other torts;
    for wages, bonuses, incentive compensation, stock, stock options, vacation pay or any other compensation or benefits, whether under the Massachusetts Wage Act or otherwise; and
    for damages or other remedies of any sort, including, without limitation, compensatory damages, punitive damages, injunctive relief and attorney’s fees.

Notwithstanding anything to the contrary contained in this Release, Section 2 of this Release does not include and will not preclude: (a) Executive’s rights or claims under the Offer Letter to receive Termination Benefits; (b) claims for worker’s compensation benefits under applicable


law; (c) any claims arising solely after the execution of this Release; (d) any claims or rights Executive may have to any vested benefits or vested rights under any employee benefit, welfare, retirement and/or pension plans (the “Plans”), subject to the terms of the, including, but not limited to, the Company’s 2008 Stock Incentive Plan, or any subsequently adopted incentive compensation plan, and applicable equity Award agreements; (e) any rights and/or claims Executive may have under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”); (f) claims for unemployment compensation benefits under state law; (g) claims for reimbursement of business expenses approved by the Company and incurred by the Executive prior to the Date of Termination; or (h) rights, if any, to defense and indemnification from the Company or its insurers for actions taken by Executive in the course and scope of Executive’s employment with the Company;

3. Ongoing Obligations of the Executive . The Executive hereby reaffirms his ongoing obligations to the Company under the Restrictive Covenant Agreement and otherwise under the Offer Letter (the “Ongoing Obligations”), which Obligations are incorporated herein by reference.

4. Nondisparagement . Executive agrees not to make any disparaging, critical or otherwise detrimental statements to any person or entity concerning any Releasee or the products or services of any Releasee. This nondisparagement obligation shall not in any way affect the Executive’s obligation to testify truthfully in any legal proceeding.

5. No Assignment . The Executive represents that he has not assigned to any other person or entity any Claims against any Releasee.

6. Right to Consider and Revoke Release . The Executive acknowledges that he has been given the opportunity to consider this Release for a period of at least 21 days (the “Consideration Period”). In the event the Executive executed this Release before the end of the Consideration Period, he acknowledges that such decision was entirely voluntary and that he had the opportunity to consider this Release until the end of the Consideration Period. To accept this Release, the Executive shall deliver a signed Release to the Company’s CEO within sixty (60) days after the Date of Termination. For a period of seven (7) days from the date when the Executive executes this Release (the “Revocation Period”), he shall retain the right to revoke this Release by written notice that is received by HR on or before the last day of the Revocation Period. This Release shall take effect only if it is executed within the sixty (60) day period as set forth above and if it is not revoked pursuant to the preceding sentence. This Release shall become effective and enforceable on the date immediately following the last day of the Revocation Period (the “Effective Date”).

7. Other Terms .

a. Legal Representation; Review of Release . The Executive acknowledges that he has been advised by the Company to discuss all aspects of this Release with his attorney, that he has carefully read and fully understands all of the provisions of this Release and that he is voluntarily entering into this Release.

 

2


b. Binding Nature of Release . This Release shall be binding upon the Executive and upon his heirs, administrators, representatives and executors.

c. Modification of Release; Waiver . This Release may be amended, only upon a written agreement executed by the Executive and the Company.

d. Severability . In the event that at any future time it is determined by a court of competent jurisdiction that any covenant, clause, provision or term of this Release is illegal, invalid or unenforceable, the remaining provisions and terms of this Release shall not be affected thereby and the illegal, invalid or unenforceable term or provision shall be severed from the remainder of this Release. In the event of such severance, the remaining covenants shall be binding and enforceable; provided, however, and for the avoidance of doubt, in no event shall the Company be required to provide Termination Benefits if all or part of Section 2 of this Release is held to be invalid or unenforceable.

e. Governing Law and Interpretation . This Release shall be deemed to be made and entered into in the Commonwealth of Massachusetts, and shall in all respects be interpreted, enforced and governed under the laws of the Commonwealth of Massachusetts, without giving effect to its conflict of laws provisions. The language of all parts of this Release shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against either of the parties.

f. Entire Agreement; Absence of Reliance . This Release constitutes the entire agreement between the Executive and the Company and supersedes any previous agreements or understandings between the Executive and the Company, except the Company’s 2008 Stock Incentive Plan, or any subsequently adopted incentive compensation plan, and applicable Award agreements, any other documents governing the Executive’s equity, options, Restricted Stock Units or other stock based awards as applicable, the Ongoing Obligations and any other obligations specifically preserved in this Release. The Executive acknowledges that he is not relying on any promises or representations by the Company or the agents, representatives or attorneys of any of the entities within the definition of Company regarding any subject matter addressed in this Release.

IN WITNESS WHEREOF, the parties have executed this Release effective on the date and year first above written.

 

CHIASMA, INC.
By:  

Mark Leuchtenberger

President & CEO

 

Date

 

Mark J. Fitzpatrick

 

Date

 

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Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement

In consideration and as a condition of my employment by Chiasma, Inc. (together with any affiliates, the “Company”), and for other good and valuable consideration, I agree as follows:

1. Proprietary Information . I agree that all information, whether or not in writing, concerning the Company’s business, technology, business relationships or financial affairs which the Company has not released to the general public (collectively, “Proprietary Information”) is and will be the exclusive property of the Company. By way of illustration only, Proprietary Information may include without limitation information or material which has not been made generally available to the public, such as: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations or litigation; (b) marketing information, including strategies, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data and price lists; and (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, methods, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) personnel information, including personnel lists, reporting or organizational structure, resumes, personnel data, compensation structure, performance evaluations and termination arrangements or documents. Proprietary Information also includes information received in confidence by the Company from its customers or suppliers or other third parties.

2. Recognition of Company’s Rights . I will not, at any time, without the Company’s prior written permission, either during or after my employment, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company. I will cooperate with the Company and use my best efforts to prevent the unauthorized disclosure of all Proprietary Information. I will deliver to the Company all copies of Proprietary Information in my possession or control upon the earlier of a request by the Company or termination of my employment.

3. Rights of Others . I understand that the Company is now and may hereafter be subject to non-disclosure or confidentiality agreements with third persons which require the Company to protect or refrain from use of such third party’s proprietary information. I agree to be bound by the terms of such agreements in the event I have access to such proprietary information.

4. Commitment to Company; Avoidance of Conflict of Interest . While an employee of the Company, I will devote my full-time efforts to the Company’s business and I will not engage in any other business activity that conflicts with my duties to the Company. I will advise the president of the Company or his or her nominee at such time as any activity of either the Company or another business presents me with a conflict of interest or the appearance of a conflict of interest as an employee of the Company. I will take whatever action is requested of me by the Company to resolve any conflict or appearance of conflict which it finds to exist.

5. Developments . I will make full and prompt disclosure to the Company of all inventions, discoveries, designs, developments, methods, modifications, improvements, processes, algorithms, databases, computer programs, formulae, techniques, trade secrets, graphics or images, audio or visual works, and other works of authorship (collectively “Developments”), whether or not patentable or copyrightable, that are created, made, conceived or reduced to practice by me (alone or jointly with others) or under my direction during the period of my employment. I acknowledge that all work performed by me is on a “work for hire” basis, and I hereby do assign and transfer and, to the extent any such assignment cannot be made at present, will assign and transfer, to the Company and its successors and assigns all my right, title and interest in all Developments that (a) relate to the business of the Company or any customer of or supplier to the Company or any of the products or services being researched, developed, manufactured or sold by the Company or which may be used with such products or services; or (b) result from tasks assigned to me by the Company; or (c) result from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company (“Company-Related Developments”), and all related patents, patent applications, trademarks and trademark applications, copyrights and copyright applications, and other intellectual property rights in all countries and territories worldwide and under any international conventions (“Intellectual Property Rights”).


To preclude any possible uncertainty, I have set forth on Exhibit A attached hereto a complete list of Developments that I have, alone or jointly with others, conceived, developed or reduced to practice prior to the commencement of my employment with the Company that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (“Prior Inventions”). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit A but am only to disclose a cursory name for each such invention, a listing of the party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. I have also listed on Exhibit A all patents and patent applications in which I am named as an inventor, other than those which have been assigned to the Company (“Other Patent Rights”). If no such disclosure is attached, I represent that there are no Prior Inventions or Other Patent Rights. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine or other work done for the Company, I hereby grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable, worldwide license (with the full right to sublicense) to make, have made, modify, use, sell, offer for sale and import such Prior Invention. Notwithstanding the foregoing, I will not incorporate, or permit to be incorporated, Prior Inventions in any Company-Related Development without the Company’s prior written consent.

This Agreement does not obligate me to assign to the Company any Development which, in the sole judgment of the Company, reasonably exercised, is developed entirely on my own time and does not relate to the business efforts or research and development efforts in which, during the period of my employment, the Company actually is engaged or reasonably would be engaged, and does not result from the use of premises or equipment owned or leased by the Company. However, I will also promptly disclose to the Company any such Developments for the purpose of determining whether they qualify for such exclusion. I understand that to the extent this Agreement is required to be construed in accordance with the laws of any state which precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this paragraph 5 will be interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes. I also hereby waive all claims to any moral rights or other special rights which I may have or accrue in any Company-Related Developments.

6. Documents and Other Materials . I will keep and maintain adequate and current records of all Proprietary Information and Company-Related Developments developed by me during my employment, which records will be available to and remain the sole property of the Company at all times.

All files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, whether created by me or others, which come into my custody or possession, are the exclusive property of the Company to be used by me only in the performance of my duties for the Company. Any property situated on the Company’s premises and owned by the Company, including without limitation computers, disks and other storage media, filing cabinets or other work areas, is subject to inspection by the Company at any time with or without notice. In the event of the termination of my employment for any reason, I will deliver to the Company all files, letters, notes, memoranda, reports, records, data, sketches, drawings, notebooks, layouts, charts, quotations and proposals, specification sheets, program listings, blueprints, models, prototypes, or other written, photographic or other tangible material containing Proprietary Information, and other materials of any nature pertaining to the Proprietary Information of the Company and to my work, and will not take or keep in my possession any of the foregoing or any copies.

7. Enforcement of Intellectual Property Rights . I will cooperate fully with the Company, both during and after my employment with the Company, with respect to the procurement, maintenance and enforcement of Intellectual Property Rights in Company-Related Developments. I will sign, both during and after the term of this Agreement, all papers, including without limitation copyright applications, patent applications, declarations, oaths, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development. If the Company is unable, after reasonable effort, to secure my signature on any such papers, I hereby irrevocably designate and appoint

 

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each officer of the Company as my agent and attorney-in-fact to execute any such papers on my behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Company-Related Development.

8. Non-Competition and Non-Solicitation . In order to protect the Company’s Proprietary Information and good will, during my employment with the Company and for a period of twelve (12) months following the termination of my employment for any reason (the “Restricted Period”), I will not directly or indirectly, whether as owner, partner, shareholder, director, manager, consultant, agent, employee, co-venturer or otherwise, engage, participate or invest in any business activity anywhere in the world that develops, manufactures or markets any products, or performs any services, that are competitive with the products or services of the Company, or products or services that the Company has under development or that are the subject of active planning at any time during my employment, provided that this shall not prohibit any possible investment in publicly traded stock of a company representing less than one percent of the stock of such company. In addition, during the Restricted Period, I will not, directly or indirectly, in any manner, other than for the benefit of the Company, (a) call upon, solicit, divert, take away, accept or conduct any business from or with any of the customers or prospective customers of the Company or any of its suppliers, and/or (b) solicit, entice, attempt to persuade any other employee or consultant of the Company to leave the Company for any reason or otherwise participate in or facilitate the hire, directly or through another entity, of any person who is employed or engaged by the Company or who was employed or engaged by the Company within twelve months of any attempt to hire such person. I acknowledge and agree that if I violate any of the provisions of this paragraph 8, the running of the Restricted Period will be extended by the time during which I engage in such violation(s).

9. Government Contracts . I acknowledge that the Company may have from time to time agreements with other persons or with the United States Government or its agencies which impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. I agree to comply with any such obligations or restrictions upon the direction of the Company. In addition to the rights assigned under paragraph 5, I also assign to the Company (or any of its nominees) all rights which I have or acquired in any Developments, full title to which is required to be in the United States under any contract between the Company and the United States or any of its agencies.

10. Prior Agreements . I hereby represent that, except as I have fully disclosed previously in writing to the Company, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my employment with the Company, to refrain from competing, directly or indirectly, with the business of such previous employer or any other party, or to refrain from soliciting any previous employer’s or other party’s employees or customers. I further represent that my performance of all the terms of this Agreement as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company. I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

11. Remedies Upon Breach . I understand that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and I consider them to be reasonable for such purpose. Any breach of this Agreement is likely to cause the Company substantial and irrevocable damage and therefore, in the event of such breach, the Company, in addition to such other remedies which may be available, will be entitled to specific performance and other injunctive relief, without the posting of a bond. If I violate this Agreement, in addition to all other remedies available to the Company at law, in equity, and under contract, I agree that I am obligated to pay all the Company’s costs of enforcement of this Agreement, including attorneys’ fees and expenses.

12. No Employment Obligation . I understand that this Agreement does not create an obligation on the Company or any other person to continue my employment. I acknowledge that, unless otherwise agreed in a formal written employment agreement signed on behalf of the Company by an authorized officer, my employment with the Company is at will and therefore may be terminated by the Company or me at any time and for any reason, with or without cause.

 

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13. Publications and Public Statements . I will obtain the Company’s written approval before publishing or submitting for publication any material that relates to my work at the Company and/or incorporates any Proprietary Information. To ensure that the Company delivers a consistent message about its products, services and operations to the public, and further in recognition that even positive statements may have a detrimental effect on the Company in certain securities transactions and other contexts, any statement about the Company which I create, publish or post during my period of employment and for six (6) months thereafter, on any media accessible by the public, including but not limited to social media and networking services and sites, electronic bulletin boards and Internet-based chat rooms, must first be reviewed and approved by an officer of the Company before it is released in the public domain.

14. Survival and Assignment by the Company . I understand that my obligations under this Agreement will continue in accordance with its express terms regardless of any changes in my title, position, duties, salary, compensation or benefits or other terms and conditions of employment. I further understand that my obligations under this Agreement will continue following the termination of my employment regardless of the manner of such termination and will be binding upon my heirs, executors and administrators. The Company will have the right to assign this Agreement to its affiliates, successors and assigns. I expressly consent to be bound by the provisions of this Agreement for the benefit of the Company or any parent, subsidiary or affiliate to whose employ I may be transferred without the necessity that this Agreement be resigned at the time of such transfer.

15. Exit Interview . If and when I depart from the Company, I may be required to attend an exit interview and sign an “Employee Exit Acknowledgement” to reaffirm my acceptance and acknowledgement of the obligations set forth in this Agreement. For twelve (12) months following termination of my employment, I will notify the Company of any change in my address and of each subsequent employment or business activity, including the name and address of my employer or other post-Company employment plans and the nature of my activities.

16. Disclosure to Future Employers . I will provide a copy of this Agreement to any prospective employer, partner or coventurer prior to entering into an employment, partnership or other business relationship with such person or entity.

17. Severability . In case any provisions (or portions thereof) contained in this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

18. Interpretation . This Agreement will be deemed to be made and entered into in the Commonwealth of Massachusetts, and will in all respects be interpreted, enforced and governed under the laws of the Commonwealth of Massachusetts. I hereby agree to consent to personal jurisdiction of the state and federal courts in the Commonwealth of Massachusetts for purposes of enforcing this Agreement, and waive any objection that I might have to personal jurisdiction or venue in those courts.

19. Other Agreements and Obligations . This Agreement shall supplement, and shall not limit or be limited by, any other agreement I have with, or obligation I have to, the Company regarding noncompetition, nonsolicitation, confidentiality, assignment of inventions, and related covenants.

[End of text. Remainder of page intentionally left blank.]

 

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I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. BY SIGNING BELOW, I CERTIFY THAT I HAVE READ IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.

IN WITNESS WHEREOF, the undersigned has executed this agreement as a sealed instrument as of the date set forth below.

Signed: __________________________________________________

(Employee’s full name)

Type or print name: ________________________________________

Date: __________________________


EXHIBIT A

 

To: Chiasma, Inc. and any affiliates

 

From: ________________________
     (Employee’s full name)

Date: _______________________

SUBJECT:         Prior Inventions

The following is a complete list of all inventions or improvements relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:

No inventions or improvements

See below:

____________________________________________________

____________________________________________________

____________________________________________________

Additional sheets attached

The following is a list of all patents and patent applications in which I have been named as an inventor:

None

See below:

____________________________________________________

____________________________________________________

____________________________________________________

Exhibit 10.9

EMPLOYMENT AGREEMENT

made and entered into as of June 22, 2010

by and between

 

Chiasma (Israel) Ltd.

A company registered under the laws of the State of Israel

10 Hartom St. Har Hotzvim PO Box 45182, Jerusalem, 91450 Israel (hereinafter: the “ Company ”)

of the first part;

and

Chaime Orlev

(hereinafter: the “ Employee ”)

of the second part ;

 

WHEREAS, the Company wishes to employ the Employee and the Employee desires to be employed by the Company, pursuant to and in accordance with the terms and conditions set forth herein;

NOW, THEREFORE , the Parties hereby agree, declare and covenant as follows:

 

1. Position

 

1.1 The Employee shall be employed by the Company in the position of Director of Finance.

 

1.2 The Employee’s responsibilities, duties, tasks and authorities shall be determined, delegated and assigned to him/her, from time to time, by the CEO of the Company, and/or such other person(s) as determined by the Company from time to time.

 

1.3 The Company shall be entitled to alter or to add to the scope of duties of the Employee and/or to the rights and responsibilities of the Employee’s position, to change the identity or position of the person(s) to whom the Employee reports, all as shall be determined from time to time by the Company.

 

2. Compensation and Benefits

In consideration of the performance of the services to be performed by the Employee and the fulfillment of all his/her undertakings hereunder, the Employee shall be entitled, during the period of his/her employment, to receive the salary, rights and benefits, as detailed in and in accordance with the terms set forth in Annex A attached hereto.

 

3. Obligations and Undertakings

The Employee undertakes towards the Company as follows:

 

3.1 To devote all his/her working time, attention, energies, talents, skills, knowledge and experience to the faithful, responsible, competent, diligent, and conscientious performance of his/her duties and responsibilities hereunder, all in accordance with the terms and conditions hereof and the standards, rules, policies and procedures as may be established or maintained by the Company from time to time.

 

3.2 The demands of the Employee’s position may require him/her to work extra and unusual hours, as well as on days of rest and holidays, and may include occasional travel abroad. The Employee undertakes to work overtime hours and to travel, at the request of the Company.

 

3.3 During the period of his/her employment hereunder, s/he will not, without the prior written consent of the Company, engage in any other professional or business activity or occupation.

 

3.4 Not to receive, directly or indirectly, any compensation or benefit of any kind in connection with his/her work for the Company, from any source except as set forth in this Agreement.

 

3.5 To notify the Company immediately regarding any matter in which s/he has a personal interest and which may potentially create a conflict of interest between the Employee and his/her work in the Company.


3.6 To promptly deliver to the Company any and all knowledge and/or information involving the Company and/or that may be of value and/or damage the Company, and not disclose any such information to any third party.

 

3.7 To assist the Company, at its request, in any action in which the Company is involved, and, unless required by law, not to assist any action brought against the Company; all during the term of his/her employment and thereafter: and all except for any actions of the Employee against the Company.

 

3.8 To take all necessary steps and actions, in the framework of his/her position, to protect and prevent damage to the Company’s property, rights, interests, standing and reputation, including without limitation, to the extent required in the framework of his/her position, by representing the Company in a reputable and worthy manner.

 

3.9 To act with respect to any and all computers, electronic telecommunications devices and other equipment of the Company, if and to the extent placed at his/her disposal and/or for his/her use, in accordance with and subject to the Company’s policies, as shall be in effect from time to time. Without derogating from the above, it is explicitly clarified that the Employee is prohibited from downloading, uploading or otherwise installing in any manner whatsoever, any software and/or hardware, on to the Company’s equipment, without the Company’s prior written approval. The Employee is aware that the Company, may, from time to time, with or without prior notice, monitor its employees’ activities in the framework of their work, including without limitation by means of monitoring, either constantly or sporadically, the activity at the Company and/or the Company’s incoming and outgoing telecommunications (including without limitation, the Company’s telephones, cellular phones, computers (e-mail), etc.) and the Employee hereby agrees to such activity and declares and confirms that said activity (and the results thereof) shall not constitute a breach of his/her privacy. The Employee further declares that any information and/data which shall be on the Company’s computers and/or data systems shall be the Company’s property.

 

   The Employee further confirms, for the sake of good order, that s/he is aware that since the Company is part of the Chiasma multi-national group (the “ Group ”), personal information about the Employee, including without limitation, personal derails, evaluations, etc.) may be transferred by the Company to other companies within the Group, in Israel and abroad, and will be in databases of these companies and/or the Group.

 

3.10 To maintain confidentiality, to assign intellectual property rights, to refrain from competing with and/or soliciting from, the Company, inter alia , according to the undertaking attached hereto as Annex B . Without derogating from the generality of die foregoing, the Employee is aware that the terms of this Agreement are personal and specific to the Employee, and that the maintenance of their confidentiality is of importance to the Company, and the Employee undertakes to maintain the confidentiality of the terms of his/her employment hereunder, and not disclose them to other(s). The Employee declares and agrees that the Company employs him/her based on his/her said undertakings in Annex B and that breach of the terms of said Annex shall, inter alia , be deemed a fundamental breach of this Agreement.

 

3.11 The Employee confirms that s/he will read the Company’s Policy for Prevention of Sexual Harassment at the Workplace, which is attached hereto as Annex C , and appears on the Company’s Notice Board, and undertakes to act in accordance with said Policy. The individual designated by the Company to be responsible for the implementation of the Prevention of Sexual Harassment Law is Sarah Craimer, who one can approach in connection with said matter, at the following telephone number: 054-8825913.

 

4. Term

 

4.1 The term of this Employment Agreement and the employment of the Employee hereunder, shall commence on July 20, 2010.

 

4.2 It is agreed that the first 3 (three) months of the period of employment shall be deemed a trial period (the “ Trial Period ”), during which period it will be examined whether the Employee is suitable for the position and meets the standards and the requirements of the Company.

 

4.3 The term of the Employee’s employment hereunder shall be for an unlimited period of time, beginning from the date of commencement of the employment as set forth in section 4.1 above. Each of the parties shall be entitled to bring the Employee’s employment to an end for any reason or for no reason by providing written prior notice of 60 days, after successful completion of the Trial Period. During the Trial Period notice shall be as required by law.

 

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4.4 In any event of termination of employment by prior notice, the Company shall be entitled to terminate the Employee’s employment, immediately or at any time during the prior notice period, and in such event, if and to the extent required by applicable law, the Company shall pay the Employee the applicable prior notice redemption.

 

4.5 Notwithstanding the above, the Company shall be entitled to terminate the Employee’s employment immediately, without prior notice redemption, in the event that the Employee commits any of the following: (a)  embezzlement: (b)  theft; (c)  criminal offence; (d)  act involving moral turpitude; (e)  breach of confidentiality and/or non-competition undertakings or other fundamental breach of her employment agreement; (f)  severe disciplinary breach; (g)  breach of fiduciary duties; (h)  lack of cooperation on the part of the Employee during the prior notice period or any part thereof; or (i)  any other act/or omission which under applicable law enable(s) entire and/or partial denial of severance payments or prior notice redemption (each of the above (a) through (i) shall be referred to herein as “ Termination for Cause ”)

 

4.6 The Employee undertakes that in the event s/he ceases to work for the Company, for any reason whatsoever, s/he will transfer his/her position and all information and documents held and/or prepared by him/her in the framework of his/her employment hereunder or that are in his/her possession or under his/her control at such time, and all Company projects in which s/he is or has been involved, to whomever the Company shall determine, in accordance with the instructions and procedures set by the Company and in an organized and appropriate manner which will enable the successor designated by the Company to responsibly perform the duties to be assumed from the Employee, and such that no damage will be caused to the Company.

 

4.7 The Employee undertakes to return to the Company, immediately upon the termination of his/her employment hereunder, any and all assets and/or property of the Company that may be in his/her possession, including without limitation, if and to the extent placed at his/her disposal, a car, telephone, computer, employee identification card, keys, etc. It is hereby clarified that if and the extent any asset and/or property of the Company is placed at the disposal of the Employee, the Employee shall not have any right of lien with respect thereto and the Employee hereby waives any such right.

 

4.8 Upon the termination of the employment hereunder, if and to the extent required by applicable law, the Company shall pay the Employee severance payments according to applicable law. Notwithstanding, the Company shall not pay severance payments in any case of “Termination for Cause”.

 

5. Representations

The Employee hereby represents, confirms, agrees and undertakes as follows:

 

5.1 The Employee has the knowledge, abilities and skills required to perform the duties of his/her position.

 

5.2 The execution and delivery of this Agreement and the performance of the terms hereof: (a)  shall not constitute a default under or breach of any agreement or other instrument to which the Employee is a party or by which he/she is bound, including without limitation any confidentiality or non-competition agreement; (b)  are not prohibited under any law, regulation or court order; and (c)  do not require the consent of any other person or entity.

 

5.3 Employee shall not during his/her employment with the Company, use any confidential or proprietary information of any third party whatsoever, including without limitation that of any previous employer.

 

5.4

This Agreement is personal and special and exclusively delineates the entire relationship between the Parties, and contains all compensation and/or benefits and/or other conditions of any kind to which the Employee is entitled from the Company, and supersedes all prior agreements, understandings, negotiations, promises, consents, undertakings, representations, warranties, oral or written, exchanged or signed between the parties with respect to the subject matter hereof. The Employee shall not be entitled to any other remuneration and/or benefit from the Company, unless explicitly provided hereunder, and no practice

 

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  and/or custom existing between the Company and other employees, if any, shall apply to the relationship between the Employee and the Company, except if and to the extent explicitly incorporated into this Agreement. If the Company grants the Employee, on any occasion, any benefit of any kind, not specified in this Agreement, each such grant shall be deemed a nonrecurring event, and shall neither give rise to any new right of the Employee, nor constitute a practice and/or custom and/or precedent between the parties. The failure of any party at any time(s) to require the strict performance of any provision hereof and/or the waiver by either party of a breach(s) by the other party of any of the terms hereof shall not affect its right to enforce the same at any later time nor shall be deemed to be, or construed as, a further or continuing waiver of any of the terms hereof.

 

5.5 No general and/or special collective agreements apply to the Employee’s employment hereunder. For the removal of any doubt, without derogating from the above, in the event that with respect to any of the matters addressed herein, provisions of law, collective agreements and/or extension orders shall, notwithstanding the above, apply to the Employee, the provisions of this Agreement shall be deemed as coming in their stead, or at least, as being on account of said applicable provisions.

 

5.6 The Employee has signed this Agreement of his/her own accord, after having reviewed this Agreement thoroughly and received all clarifications requested by him/her with respect to its provisions, and having had ample opportunity to receive legal or other advice, and the Employee fully appreciates the contents and meaning hereof.

 

5.7 The Employee is aware that if it were not for his/her representations and undertakings in this Section 5, the Company would not enter this Agreement with him/her.

 

6. Miscellaneous

 

6.1 The preamble to this Employment Agreement, and the annexes thereto, constitute integral parts hereof.

 

6.2 The section headings are intended for purposes of convenience only and shall not be used for the interpretation of this Agreement.

 

6.3 The addresses of the Parties for the purposes of this Agreement will be as set forth above, or as either party may advise the other in writing, and any notice which is sent via registered mail by one Party to the other at such address, will be deemed received by the addressee 72 hours after it was sent for delivery at a post office in Israel, and if delivered by hand, at the time at which it was delivered.

 

6.4 Any modification of or addition to this Agreement shall be valid only if in writing and signed by both parties.

IN WITNESS WHEREOF , the Company has caused this Agreement to be executed by its duly authorized officer and the Employee has executed this Agreement as of the day and year first above written.

 

/s/ Martin Burg

/s/ Chaime Orlev

            Chaime Orlev

Name:

Martin Burg

Title:

VP Operations

 

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ANNEX A to

Employment Agreement between Chaime Orlev (the “Employee”) and Chiasma (Israel) Ltd.

(the “Company”), dated June 22, 2010

COMPENSATION PACKAGE (Section 14)

 

1. Salary

 

1.1 In consideration for services to be performed by the Employee during the term hereof, the Company shall pay the Employee a gross monthly salary in the amount of NIS 28,800 (the “ Base Salary ”), which shall be paid to the Employee by the ninth day of the month following the month for which it is due.

Additionally, the Employee shall be paid NIS 3.200 per month as global compensation for over-time hours (the “ Global Compensation ”). It is hereby agreed - ex gratia - that the Global compensation be taken into account for the calculation of the social benefits to which the Employee is entitled.

The Global Compensation together with the Base Salary shall hereinafter be referred to as the “ Salary

 

1.2 It is hereby explicitly represented and clarified that the Employee’s position under this Agreement is a position that requires a special level of fiduciary duty to the Company and/or the terms and circumstances of his/her employment are such that the Company cannot exercise full control over or supervision of his/her work and rest hours; accordingly, the Work and Rest Hours Law of 1951 shall not apply to the Employee. Without derogating from the above, the Global Compensation stated above, which the parties hereby confirm, constitutes a real and reasonable estimation of the over-time hours the Employee will be required to work, includes full compensation for any hours which the Employee will work in excess of the hours provided in the Work and Rest Hours Law of 1951, and the Employee shall not be entitled to any extra remuneration regarding the same.

 

1.3 Car

During the term hereof, the Company shall place a car at the Employee’s disposal, subject to and in accordance and against the Employee’s execution of the terms set forth in the Terms of Use of Car Annex attached hereto as Annex D .

 

2. Vacation, Recreation Pay, Sick Leave, and Reserve Duty

The Employee shall be entitled to a total of 20 paid vacation days per each full 12 month period of consecutive employment, the accumulation, redemption and procedures of utilization thereof shall be the same as prescribed in applicable law with respect to the vacation days granted pursuant to the Annual vacation Law, 1951.

The Employee shall be entitled to recreation pay (“Dmei Havra’a”), sick days and payment during reserve duty, in accordance with the provisions of applicable laws.

 

4. Expenses Reimbursement

The Company will reimburse the Employee for all expenses and disbursements incurred by him/her in carrying out his/her duties under this Agreement, in accordance with the regular practices of the Company regarding the reimbursement of such expenses and against the submission of the receipts therefore.

 

5. Manager’s Insurance / Pension Fund

The Company and the Employee will additionally pay, on a monthly basis, as premiums on a manager’s insurance policy (the ‘‘ Policy ”) the following: (i) an amount equal to 8.33% of the Salary towards severance pay, (ii) an amount equal to 5% of the Salary towards a fund for life insurance and pension, (iii) an amount which will ensure 75% of the Salary or 2.5% of the Salary, according to the lower of the two amounts, towards disability insurance, in addition, the Employee shall contribute, out of his/her Salary, an amount equal to 5% of the Salary towards a fund for life insurance and pension. The amount contributed by the Employee shall be deducted by the Company from his/her Salary, at source, and the Company will remit such amount to the policy on behalf of the Employee.

 

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The Employee hereunder irrevocably authorizes and instructs the Company to deduct from the Salary, at source, each month, the aforementioned amount equal to 5% of the Salary (which includes, ex gratia , the Global Compensation).

It is clarified that the Employee shall bear any and all taxes, which may apply with respect to any contribution, which exceeds the recognized tax ceilings.

Notwithstanding the above, you are hereby advised that you are entitled to instruct the Company in writing to distribute the payments and contributions described above among different and various policies and saving plans, including without limitation pension funds, at your discretion, so long as the Company’s total cost and liability will not increase; subject to any applicable law and/or instructions and/or guidelines of the Ministry of Finance and/or all the bylaws and regulations of any fund and the general approval attached as Annex A as referenced below.

Upon termination of the Employee’s employment, for any reason whatsoever, the Company shall release to the Employee all rights accrued in the Policy, on account of both the Company’s and the Employee’s contributions, and waives any right it may have to receive the funds in the policy. Notwithstanding the above, in the event in which the Employee’s right to severance payment has been negated, in a decision of a competent court, pursuant to section 16 or 17 of the Severance Pay Law, 5723-1963, and to the extent so negated, or in the event in which the Employee shall have withdrawn funds from the Policy, not in light of an ‘entitling event’ (for this matter, an entitling event, is death, invalidity, or retirement at the age of 60 and above)-the Company shall be entitled to receive from the Policy the Company’s contributions to the Policy and any profits derived thereon.

It is hereby expressly agreed that the Company’s contribution for severance pay (8.33%) together with any linkage, interest or other profit derivative thereof shall be instead of the Employee’s severance compensation, should the Employee be entitled thereto, such that upon release of the Policy to the Employee, no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the Employee.

The parties hereby agree to comply with the conditions of the “General Approval Regarding the Payment by Employers to Pension Funds and Insurance Funds, in Lieu of Severance Payments pursuant to the Severance Pay Law, 5723-1963”, the provisions of which (including amendments thereto) are attached hereto, in the original Hebrew, as Annex A-l , and the parties hereby adopt the provisions thereof.

In the event that the Employee maintains a Manager’s Insurance Policy and the Employee desires that the Company insure him/her in the framework of such existing policy, the Employee shall instruct the Company of said desire in writing and the provisions of this section 5 of this Annex A shall apply accordingly. It being clarified for the removal of any doubt, that the Company shall not be obliged and shall not be liable in any manner whatsoever for any payments and/or contributions to any existing policy, which occurred and/or were supposed to have occurred prior to the commencement date of this Agreement.

 

6. Study Fund

The Company shall pay on a monthly basis and contribute towards a study fund (“Keren Hishtalmut”) chosen by the Employee an additional 7.5% of the Salary (which includes, ex gratia , the Global Compensation), and the Employee shall contribute 2.5% of the Salary (which includes, ex gratia , the Global Compensation) towards such a fund, all up to amounts which do not exceed the recognized amounts exempted from Israeli tax. The sums contributed by the Employee shall be deducted from his/her Salary at source, and the Employee hereby irrevocably instructs and authorizes the Company to make such deductions and transfers to the study fund.

It is clarified that the Employee shall bear any and all taxes, which may apply with respect to any contribution, which exceeds the recognized tax ceilings.

Upon the termination of the employment with the Company for any reason whatsoever, the Company shall release to the Employee all the funds accumulated in the Study Fund, from the contributions of both the Company and the Employee, provided however that, subject to any applicable law the Company shall not release the funds accumulated on account of the Company’s contributions to the Study Fund and said funds shall be returned to the Company and the Employee shall not have any right therein, in any event of termination of the employment hereunder as a result of Termination for Cause, as defined in this Agreement.

 

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7. Annual Bonus

The Employee shall be entitled to receive a conditional annual bonus, subject to the Company’s achievement of certain goals, which shall be set by the Board of Directors of the Company, from time to time. Notwithstanding anything to the contrary, in light of the unique nature of such bonus, such bonus or any part thereof shall not be deemed part of Employee’s Salary for purposes of calculating any other benefits hereunder, including, without limitation, any severance payments.

 

8. The Company shall recommend to the Board of Directors of the Company’s parent company, Chiasma Inc. (the “ Parent Company” ) and the Compensation Committee thereof, at its next upcoming meetings, to grant the Employee an option to purchase Common Stock of the Parent Company, of US$0.01 par value (the “ Options ”), as shall be appropriate for an Employee in his/her position (taking into consideration the scope of his employment and his achievements and performance). It is clarified that the terms of the Options, if granted, shall be subject to the provisions of the Stock Option Plan of the Parent Company (“ Stock Option Plan ”), including, without limitation, the provisions as to exercise price, vesting schedule, and expiration of options upon termination of employment and all other terms regarding the Options, as shall be determined in such Stock Option Plan and/or at the sole discretion of the Parent Company’s Board of Directors. It is further clarified that such options shall only be granted to the Employee subject to the following: a. the specific resolution and approval of the Board of Directors of the Parent Company and the Compensation Committee thereof, with respect to such grant; and b. the execution by the Employee of all documentation required from him for this purpose.

 

9. Taxes

All taxes applicable to any and all remuneration to be paid to the Employee or benefits granted to him/her under this Agreement shall be borne by the Employee. The Company shall deduct and withhold income tax, health insurance and national insurance from the Employee’s gross income, and any other deductions or withholdings that may be required from time to time, pursuant to applicable law.

 

10. The Employee confirms that the compensation in this Agreement also includes and incorporates special consideration for his/her non-competition undertaking as provided in section 3.10 above, with respect to which negotiations were conducted and said special consideration constitutes full and appropriate compensation for said non-competition undertaking.

 

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ANNEX A-1

[THIS ANNEX A-1 TRANSLATED FROM HEBREW]

GENERAL APPROVAL REGARDING PAYMENTS BY EMPLOYERS

TO A PENSION FUND AND INSURANCE FUND IN LIEU OF SEVERANCE PAY

ACCORDING TO SEVERANCE PAY LAW, 5723-1963

By virtue of my power under section 14 of the Severance Pay Law, 5723-1963 (hereinafter: the “ Law ”), I certify that payments made by an employer commencing from the date of the publication of this approval for his Employee to a comprehensive pension benefit fund that is not an insurance fund within the meaning thereof in the Income Tax (Rules for the Approval and Conduct of Benefit Funds) Regulations, 5724-1964 (hereinafter: the “ Pension Fund ”) or to managers insurance including the possibility to receive annuity payment or combination of payment to a pension plan and non-pension plan under an insurance fund as aforesaid (hereinafter: the “ Insurance Fund ”), including payments made by a combination of payments to a Pension Fund and an Insurance Fund, whether there is a pension plan in the Insurance Fund or not (hereinafter: the “ Employer’s Payments ”), shall be made in lieu of the severance pay due to the said Employee in respect of the salary from which the said payments were made and for the period they were paid (hereinafter: the “ Exempt Salary ”), provided that all the following conditions are fulfilled:

 

(1) The Employer’s Payments -

 

  (a) to the Pension Fund are not less than 14  1 3 % of the Exempt Salary or 12% of the Exempt Salary if the employer pays, his Employee’s benefit in addition thereto payments to supplement severance pay to a benefit fund for severance pay or to an Insurance Fund in the Employee’s name in an amount of 2  1 3 % of the Exempt Salary. In the event the employer has not paid the above 2  1 3 % in addition to the said 12%, his payments shall be only in lieu of 72% of the Employee’s severance pay;

 

  (b) to the Insurance Fund are not less than one of the following:

 

  (1) 13  1 3 % of the Exempt Salary, if the employer pays for his Employee in addition thereto also payments to secure monthly income in the event of disability, in a plan approved by the Commissioner of the Capital Market, Insurance and Savings Department of the Ministry of Finance, in an amount required to secure at least 75% of the Exempt Salary or in an amount of 2  1 2 % of the Exempt Salary, the lower of the two (hereinafter: “ Disability Insurance ”);

 

  (2) 11% of the Exempt Salary, if the employer paid, in addition, a payment to the Disability Insurance, and in such case the Employer’s Payments shall be only in lieu of 72% of the Employee’s severance pay;

In the event the employer has made payments in addition to the foregoing payments to supplement severance pay to a benefit fund for severance pay or to an Insurance Fund in the Employee’s name in an amount of 2  1 3 % of the Exempt Salary, the Employer’s Payments shall replace 100% of the Employee’s severance pay.

 

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(2) No later than three months from the commencement of the Employer’s Payments, a written agreement was executed between the employer and the Employee which included:

 

  (a) the Employee’s consent to an arrangement pursuant to this approval in a text specifying the Employer’s Payments, the Pension Fund and Insurance Fund, as the case may be; the said agreement shall also include the text of this approval;

 

  (b) an advance waiver by the employer of any right which he may have to a refund of monies from its payments, except in cases in which the Employee’s right to severance pay was denied by a final judgement pursuant to sections 16 or 17 to the Law and/or in cases in which if such severance pay was denied the Employee has withdrawn monies from the Pension Fund or Insurance Fund other than by reason of an entitling event; for these purposes “Entitling Event” means death, disability or retirement at or after the age of 60.

 

(3) This approval is not such as to derogate from the Employee’s right to severance pay pursuant to law, collective agreement, extension order or employment agreement, in respect of salary over and above the Exempt Salary.

 

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Annex B to

Employment Agreement between Chaime Orlev (the “Employee*) and Chiasma (Israel) Ltd, (the

“Company”), dated June 22, 2010

CONFIDENTIALITY, NON-COMPETITION, NON-SOLICITATION, INTELLECTUAL

PROPERTY ASSIGNMENT

In addition to my undertaking under Section 3.10 of my Employment Agreement, I, Chaime Orlev, hereby acknowledge, confirm and undertake towards the Company as follows:

 

1. Confidentiality, Non-Competition and Non-Solicitation

 

1.1 I am aware that in the framework and/or as a result of my employment with the Company, I may (or may have) receive(d), learn(ed), be(en) exposed to, obtain(ed), or have (had) access to information relating to the Company, its business and activities, including without limitation commercial, financial, business, professional, technical, technological information, information regarding the Company’s products, inventions, developments, processes, specifications, know-how and trade secrets, marketing, operations, plans, activities, policies and procedures, customers, suppliers, business partners, etc., information of third parties, all whether or not marked confidential (the “ Confidential Information ”), which is highly confidential and of great value to the Company and constitutes professional and commercial secrets, and its unauthorized disclosure or use will cause severe damage and losses.

 

1.2 I am aware that in the framework of my employment I may also receive and/or be exposed to confidential information of third parties with respect to which I am also obliged hereunder, and with respect to which the Company may have a duty of confidentiality and non-use, and any unauthorized disclosure or use thereof could result in the Company’s breach of its contractual obligations.

 

1.3 I undertake (a)  to maintain the Confidential Information, and any part thereof, in strict confidence and not to, directly or indirectly, communicate, publish, reveal, describe, allow access to or otherwise disclose or expose the Confidential Information in whole or in part, in writing or otherwise; and (b)  not to use the Confidential Information for any purpose other than for the performance of my employment; all during the period of my employment and thereafter, without any limitation of lime, Notwithstanding, said undertakings shall not apply to information that I can prove to be generally available to the public not as a result, of my fault.

 

1.4 Without derogating from and in addition to the provisions of law and/or agreement, I undertake that upon the earlier of the Company’s request or the termination of my employment, I shall return to the Company any and all documents and tangible materials containing Confidential Information and shall erase or destroy any computer or data files in my possession containing Confidential Information,

 

1.5 I undertake that, absent the prior written consent of the Company, for so long as I am employed by the Company and for a period of 12 (twelve) months following the termination of the employee-employer relationship between the Company and myself, for any reason whatsoever, I shall not, directly or indirectly: (a)  be involved in any activity which is in any way competitive with the Company or its business, including without limitation in the field of drug development , or be employed or engaged, by any entity which is in any way competitive with the Company or its business; (b)  employ, offer to employ or otherwise engage or solicit for employment or engagement any person who is or was, during the 6 (six) month period prior to the termination of my employment with the Company, an employee or exclusive consultant, exclusive supplier or exclusive contractor of the Company nor conduct any business activity of the kind and/or in the field that the Company conducts with any person or entity that at the time of the termination of the employee-employer relationship between myself and the Company, or during the period of six months prior thereto, was in business contacts with the Company, including without limitation, customers, suppliers, consultants, advisors, service providers, employees, etc. (hereinafter: a “ Third Party ”), nor take any action which could intervene in the relationship of the Company with such Third Party. I expressly acknowledge that the Company’s business and operating market is world-wide, and the obligations prescribed herein shall apply on a World-wide basis. For the purpose of this section “directly or indirectly” includes doing business as an owner, independent contractor, shareholder, director, partner, manager, agent, employee, advisor, etc., but does not include holding of up to 3% of free market shares of publicly traded companies.

 

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1.6 I confirm that the compensation in my Employment Agreement, with respect to which negotiations were conducted, includes and incorporates special consideration for the non-competition undertaking, and constitutes full and appropriate compensation therefor.

 

1.7 The term “ Company ” as used in this section 1, shall include the Company and any and all current or future parent, subsidiary or affiliated company thereof.

 

2. Intellectual Property Rights

 

2.1 I confirm that all Confidential Information made available to, received by, or generated by me remains the Company’s property, and no license or other rights are granted. All files, records, documents, drawings, specifications, equipment, notebooks, notes, memoranda, diagrams, blueprints, bulletins, formula, reports, analyses, computer programs, and other data of any kind relating to the Company, whether prepared by me or otherwise coming to my possession, and whether classified as Confidential Information or not, remain the Company’s exclusive properly.

 

2.2 Without derogating from the Company’s rights under law and/or agreement, I agree that all discoveries, ideas, developments, inventions, improvements, mask works, trade secrets, copyrights, modifications, concepts, techniques, methods, technologies, know-how, designs, data, processes, proprietary information, whether or not patentable or otherwise protectable, and all intellectual property rights associated therewith. which I may (or have) invent(ed), make(de), develop(ed), discover(ed), conceive(d) or create(d), in whole or in part, independently or jointly with others, as a result of or within the framework of my employment and/or with the use of any Company’s equipment, supplies, facilities, or proprietary information, are and shall be the sole and exclusive property of the Company (all of the above: the “ IP Rights ”). I shall have no rights, claims or interest whatsoever in or with respect to the IP Rights, and for the removal of doubt I hereby irrevocably and unconditionally assign to the Company any and all rights and interests therein.

 

2.3 If and to the extent any additional action is required from me in order to perfect, enforce, or defend said IP Rights, as described above, and effectuate the Company’s title and interest therein, including to effect the formal transfer thereof to the Company, I shall lake all necessary measures and fully cooperate, during and after my employment, and perform any such action immediately upon the Company’s request. I undertake to promptly disclose to the Company and transfer immediately upon their creation any and all information, documentation and details with respect to the IP Rights and to keep accurate records relating to the conception and reduction to practice of all IP Rights, and to provide any and all assistance, including the preparation or execution, as applicable, of documents, declarations, assignments, drawings and other data.

 

2.4 For the removal of any doubt, I shall not be entitled to any additional compensation whatsoever with respect to the IP Rights or for fulfilling the duties hereunder, and all information, documentation, and assistance shall be provided at no additional expense to the Company, except for out-of-pocket expenses, which are incurred by me at the Company’s request.

General

 

3. In the event that the scope or duration of any obligation herein exceeds or extends the duration allowed by law, such obligation shall be deemed to be the maximum extent or duration allowed by law.

 

4. I hereby give my permission to notify any other party, including without limitation a future and/or potential employer, regarding the existence and content of this undertaking.

 

5. I am aware that the breach of the undertakings herein or any part thereof could cause the Company, its customers and the companies and/or entities related thereto, severe and irreversible damage, to which monetary damages would not constitute sufficient remedy. Without derogating from any other remedies to which the Company may be entitled, including without limitation, pursuant to the Israeli Commercial Wrongs Law, 1999, I undertake that in the event of any breach hereof. I shall not object to a competent court issuing injunctive order(s) and/or other equitable relief to remedy or forestall any such breach or default or threatened breach.

 

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6. For the removal of any doubt, my obligations and undertakings hereunder shall survive the termination of my employment for any reason whatsoever,

In witness whereof, I hereby affix my name and signature, Chaime Orlev, on this 22 nd of June, 2010.

 

/s/ Chaime Orlev

 

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Exhibit 10.11

[This Exhibit 10.10 translated from Hebrew]

Lease Agreement

Made and entered into in Jerusalem on September 5, 2008

 

By: RMPA Assets Ltd.
     (By Mr. Yair Hadar
     Who is authorized to sign on the company’s behalf)
     (who for the sake of convenience will hereinafter be known as:
     the “ Lessor ”)

Of the first part;

 

And between: Chiasma (Israel) Ltd.
     (By Ms. Roni Mamluk
     And Mr. Martin Burg
     Who are authorized to sign on the company’s behalf)
     (who for the sake of convenience will hereinafter be known as:
     the “ Lessee ”)

Of the second part;

 

Whereas

the Lessor holds the right to be registered with the Israel Land Administration as the owner of a long term lease on a lot located on Parcel 100 of Block 30243 on Hartum Street in Har Hotzvim, Jerusalem, as well as on the building built on the Parcel known as Beit Hadar Nechasim (hereinafter known as: the “ Building ”); and

 

Whereas

the Lessor represents that it is the sole party eligible to be registered as the long term lessee with respect to the Building and the sole holder thereof, with the exception of the other lessees in the Building, and that it has the right to lease the Leased Property (as defined below) in accordance with the terms of this Agreement; and

 

Whereas

the Lessee inspected the land and the validity of the Lessor’s rights and found them to meet its needs and objectives, and the Lessee further performed all preliminary inspections it deemed necessary and appropriate and examined the particulars that would have an effect on its decision to enter into this Agreement; and

 

Whereas

the Lessee desires to lease from the Lessor a certain area of the Building (including a pro rata share of the Building reserved for common use) marked on the plan of the leased property attached to this Agreement as Appendix A (hereinafter: the “ Leased Property ”), and the Lessor desires to lease the Leased Property to the Lessee by means of an unprotected lease (hereinafter: the “ Lease ”) for a certain period, consideration and purpose, all subject to the terms and conditions set forth below in this Agreement.


Now therefore, it is hereby stipulated, conditioned and warranted

between the parties as follows :

 

1. Preamble, Appendices and Headings

 

  1.1. The preamble to this Agreement constitutes an integral part thereof.

 

  1.2. The appendices attached to this Agreement constitute and integral part thereof.

 

  1.3. The section headings in this Agreement are provided for convenience only. They do not constitute part of this Agreement and shall not be used in its interpretation.

Appendix A – Leased Property Plan.

Appendix B – Technical Specifications for the Offices (hereinafter: the “ Specifications ”) + plans.

Appendix C – Electricity Supply Rules.

Appendix D – Management Agreement Terms.

Appendix E – Removed.

Appendix F – Parent Company Guarantee.

Appendix G – Bank Guarantee.

Appendix H – Form Insurance Authorizations.

Appendix I – Removed.

Appendix J – Collection of Special Terms.

Appendix K – Confirmation of Lessee Authorized Signatories.

Appendix L – Amounts Form.

 

2. Definitions

The following terms shall have the meanings set forth beside them in this Agreement below:

 

Area of the Leased Property

As defined in section 5 of the Agreement, as described in Appendix A to this Agreement and as described in Appendix J to this Agreement.


Bank

Bank Leumi L’Israel.

 

Base Index

As defined in Appendix J to this Agreement.

 

Building

The 7 story building built on the Land (a number of the stories are underground).

 

Commencement Date of the Customization Works

The date determined by the parties, as set forth in Appendix J to this Agreement.

 

External Public Areas

All areas outside the Area of the Building intended for use by the Building’s tenants and visitors, including roads, access ways, sidewalks, gardens, signs, pathways, etc., with the exception of areas used and/or designated for use as parking areas.

 

Gallery

Any horizontal partition that creates a mezzanine (insofar as one may be built in the structure and/or the Leased Property) in the Leased Property that separates the floor and ceiling of the Leased Property.

 

Index

The consumer price index (the general index) that includes fruits and vegetables and is published by the Israeli Central Bureau of Statistics. In the event that the Central Bureau of Statistics ceases to publish such index, it shall be replaced by an identical or materially similar index published by another governmental bureau or authority, or by any other authorized entity.

 

Internal Public Areas

All areas inside the Building, including all structures, additions or improvements added from time to time, and including roofs, corridors, entrances and exits, service rooms and areas, service corridors, restrooms, technical areas such as electrical rooms, air conditioning rooms and systems, loading and unloading areas, elevators, escalators, stairwells and any other area within the Building intended for and/or actually used by the tenants, including secured areas, all with the exception of areas to be leased out and/or actually leased out by the Lessor.

 

Land

A registered, 4,489 square meter, plot of land located in the Har Hotzvim Industrial Zone in Jerusalem, also known as Parcel 100 of Block 30243, and all structures thereon, including the Building.

 

Lease Agreement

This Lease Agreement with all its appendices, including the appendix setting forth the Management Agreement Terms.

 

Leased Property

As defined in Appendix J to this Agreement and marked in [the color]             on Appendix A to this Agreement. The Leased Property includes parking spaces, storage rooms, customizations, etc. and any other area leased to the Lessee for its use.


Lessee’s Payments

All payments that the Lessee must make in accordance with the provisions of this Agreement and the Management Agreement Terms appendix.

 

Lessor

Including the Lessor’s engineer and anyone validly appointed by the Lessor from time to time to be its agent or representative in general or for a particular purpose.

 

Linked, Linkage Differentials, Linked Values and any similar term

The product of the relevant amount multiplied by the relative increase in the Index known at the time of the calculation and/or the applicable payment from the Base Index, or by the relative increase in any other index, if so explicitly stated, provided that in any event such ratio shall not be less than 1.

 

Management Company

The Lessor or another company appointed by the Lessor from time to time for the purpose of managing and maintaining the Building, as set forth in section 17 of this Agreement.

 

Management Fees

All payments that the Lessee must pay the Management Company in accordance with the provisions of this Agreement and the Management Agreement Terms appendix.

 

Public Areas

Unless specified otherwise, including both the Internal Public Areas and the External Public Areas.

 

Quarter

January through March, April through June, July through September and October through December of every calendar year.

 

Rental Fees

The rental fees as defined in section 9 of this Agreement according to the amounts set forth in Appendix J to this Agreement.

 

Term of the Lease

As defined in section 8 of this Agreement and Appendix J attached hereto, and unless expressly stated otherwise – including both the Initial Term and the Additional Terms (insofar as they are exercised).

 

Transfer Date

The date on which the Lessee receives possession of the Leased Property in accordance with the provisions of section 14 of this Agreement.

 

3. The Transaction

The Lessor hereby undertakes to lease the Leased Property to the Lessee, and the Lessee hereby undertakes to lease the Leased Property from the Lessor, all as set forth in the provisions of this Lease Agreement.


4. Representations of the Parties

Representations and Undertakings of the Lessee:

 

  4.1. That, subject to the Lessor’s representations set forth in sections 4.8, 4.9, 4.10, 4.11 and 4.12, the Lessee viewed and inspected the Land and its surroundings, the Building and the Leased Property, including the legal and design status, accessibility and surroundings thereof, the zoning plans to which they are subject, the nature of the Lessor’s rights to them, the location of the Leased Property within the Building, and every other aspect the Lessee saw fit to inspect, and it found all of the above to be suitable for its purposes and, subject to the Lessor’s representations and the performance of the customization works as of the date of the signing of this Agreement, the Lessee hereby waives any argument or claim with respect to unsuitability, damage, defect and any other claim concerning the Building and/or the Leased Property and/or in connection with the possibility of using the Leased Property for the Lessee’s purposes, with the exception of any claim relating to any hidden damage or defect.

 

  4.2. That all of the signatories signing this Agreement on behalf of the Lessee are legally authorized to sign in its name and accept undertakings in its name and on its behalf for the purpose of this Lease Agreement, and that the Lessee’s authorized organs approved its entry into this Lease Agreement.

The Lessee’s confirmation of authorized signatories is attached as Appendix K to this Agreement.

 

  4.3. That the Lessee read the Management Agreement Terms, understood the content and meaning thereof and found them to meet its requirements. Furthermore, the Lessee will sign the Management Agreement Terms appendix on the date of the signing of this Agreement.

 

  4.4. The Lessee declares that the Lessor’s consent to the purpose of the Lease does not constitute a permit and/or license for the purpose of the Lease, that the Lessee must procure on its own and at its own expense all permits and authorizations necessary for the performance of its business in the Leased Property in accordance with the purpose of the Lease, and that the receipt or non-receipt of such permits and authorizations does not constitute a condition for the performance of its undertakings under this Agreement.

 

  4.5. That the Lessee is aware that, subject to applicable law, the Lessor may perform any change and/or addition to the Building from time to time, including the performance of any additional construction up, down or across, the performance of all works and changes, the construction of additional levels, the enlargement and/or change of the areas of the leased properties (with the exception of the Leased Property in this Agreement) and/or the increase or reduction of the size of the Public Areas. The Lessee hereby waives in advance any argument or claim or demand in connection with the foregoing, provided that the Lessee’s rights to use the Leased Property in accordance with this Agreement are not prejudiced.

 

  4.6. That the Lessee is aware that the entirety of the Building is intended for lease and/or sale to third parties and that nothing in the lease of the Leased Property in accordance with this Agreement shall limit and/or prevent the Lessor in any way from selling and/or leasing and/or attaching areas within the Building to any party to whom it may see fit, or for the benefit thereof, provided that such areas are not part of the Leased Property or were not designated solely for the purposes of the Leased Property or together with other leased properties under this Agreement, all provided that the Lessor’s transactions with third parties do not conflict with this Agreement and/or prejudice and/or derogate from and/or change the Leased Property and the Lessee’s rights or obligations under this Agreement and provided that the Lessee’s right to make reasonable use of the Leased Property is not prejudiced.


  4.7. Subject to the Lessor’s representations set forth in sections 4.8, 4.9, 4.10, 4.11 and 4.12, and subject to the Lessor’s warranty that the Leased Property’s and Building’s systems shall be properly functioning and in working order on the Date of Transfer of Physical Possession, the Lessee represents that on the basis of its inspections it has elected to lease the Leased Property in its current state, AS IS. Subject to the Lessor’s representations set forth in sections 4.8, 4.9, 4.10, 4.11 and 4.12, as of the date of the signing of this Agreement the Lessee hereby waives any and all claims in connection with the Leased Property, its condition and suitability for use, with the exception of any hidden damage or defect, all subject to the performance of the customization works in accordance with the Specifications and the plans set forth in Appendix J.

Representations and Undertakings of the Lessor :

 

  4.8. That the Lessor is eligible to be registered as the owner of the rights to a long term lease on the Land and that it has the right to lease the Leased Property to the Lessee in accordance with the terms of this Agreement.

 

  4.9. That the Leased Property is free of any third party rights and that there is no impediment whatsoever to the Lessor’s entry into this Agreement with the Lessee, subject to all of the terms, arrangements and provisions set forth herein and to the fulfillment of the Lessor’s undertakings hereunder.

 

  4.10. That the Lessor is not aware of any impairment, defect, failure and/or damage in or to the Leased Property as of the date of the signing of this Agreement and the Date of Transfer of Physical Possession of the Leased Property, and that the Leased Property’s systems shall be properly functioning and in working order as of the date of the completion of the customization works and the Date of Transfer of Physical Possession.

 

  4.11. That the Lessor has not received any warning and/or demolition orders in connection with the Building and the Leased Property and that to the Lessor’s best knowledge the Building contains no construction deviations whatsoever.

 

  4.12. That the Building has received a certificate of completion and that there is no impediment under law for the occupation of the Building and the Leased Property.


5. Area of the Leased Property

The boundaries of the Leased Property are as marked in Appendix A. For the purposes of calculating the Lessee’s payments in accordance with this Agreement, the Leased Property shall include an additional 20% of the net Area of the Leased Property for the Lessee’s participation in the common use of the Public Areas, as set forth in Appendix J.

The Area of the Leased Property will be determined by measurements conducted by the parties on the Date of Transfer of Physical Possession. When measuring the Area of the Leased Property, the parties will consider the net area of the floor of the Leased Property, including pillars, internal walls, external walls (with respect to walls common to the Leased Property and other leased properties in the Building, only half of the area of the wall will be counted), storage rooms and restrooms, a Gallery or second level in the Leased Property, if any, along with terrace areas, if any. This area will then be increased by 20% in respect of the Lessee’s participation in the common use of the Public Areas. The measured area along with the 20% increase shall together constitute the total Area of the Leased Property for purposes of the Lessee’s obligation to pay the Rental Fees, Management Fees and all other payments that the Lessee must make under this Agreement, the Management Agreement and applicable law.

 

6. Purpose of the Lease

 

  6.1. The Lessee hereby leases the Leased Property for a certain purpose in accordance with the zoning plan that covers the Land, as set forth in Appendix J attached to this Agreement, and not for any other purpose whatsoever (hereinafter: the “ Purpose of the Lease ”).

 

  6.2. The Lessee hereby undertakes to conduct its business in the Leased Property solely within the scope of the Purpose of the Lease, without deviating from the Purpose of the Lease. Any change or expansion of the Purpose of the Lease is subject to the advance written consent of the Lessor, and the Lessor may object to any such change or expansion for any reason whatsoever, at its sole and absolute discretion.

 

  6.3. Without derogating from the generality of the aforesaid, the Lessee hereby confirms that it is aware that any operation of the Leased Property not in accordance with the Purpose of the Lease constitutes a material breach of this Agreement and may result in the breach of other lease agreements between the Lessor and other lessees in the Building. Therefore, the Lessor shall have the right, without prejudice to its right to receive any other relief or remedy in the event of the operation of the business in the Leased Property in non-conformance with, or deviation from, the Purpose of the Lease, to request and receive an injunction or other relief against such operation.

 

  6.4. The Lessee hereby represents and undertakes that it has the knowledge, experience and abilities to operate its business in accordance with the Purpose of the Lease.

 

  6.5. The Lessee further declares that it was not granted or promised any exceptionality and/or exclusivity in connection with the Leased Property and the business to be conducted therein, and that the Lessor may lease out areas in the Building for the purpose of operating similar businesses that are parallel or even identical to that of the Lessee, and the Lessee hereby waives any claim and/or demand in respect thereof.


7. No Protected Tenant Rights

 

  7.1. The Lessee hereby represents, undertakes and confirms that it is aware that the Leased Property is located in a new building whose construction was completed after August 20, 1968, that on August 20, 1968 there was no tenant who had rights to the Leased Property and that the Lease under this Agreement is not subject to sections 9 and 14 of the Tenant Protection Law [Consolidated Version], 5732-1972, which removes the Lease from the application of the tenant protections laws.

 

  7.2. The Lessee hereby declares that it was not asked to pay, and that it has not paid, any key money or other payment that may be construed as key money, that all of the works, changes, improvements and enhancements that the Lessee may make in or to the Leased Property, if any, are not and shall not be of a material nature and the costs incurred as a result thereof shall not be considered key money, and that upon vacating the Leased Property the Lessee shall not be entitled to receive any payment whatsoever, whether as key money or otherwise.

 

  7.3. The Lease, Lessee and Lessor are not protected under the provisions of the Tenant Protection Law [Consolidated Version], 5732-1972 or under the provisions of any other law that protects a lessee or a tenant in any manner whatsoever, and such laws and the regulations and rules promulgated thereunder do not apply and will not apply to the Lease, the Lessee, the Lessor or this Agreement.

 

8. Term of the Lease

 

  8.1. The Lessor hereby leases the Leased Property to the Lessee, and the Lessee hereby leases the Leased Property from the Lessor, in an unprotected lease, for the term set forth in Appendix J to this Agreement, which shall commence as of the date of the signing of this Agreement (hereinafter: the “ Initial Term ”). The Leased Property shall be vacant of all tenants at such time. The Lessor undertakes that as of the Date of Transfer of Physical Possession, as defined in Appendix J, the Leased Property shall be fit for occupation by the Lessee, after completion of the customization works, vacant of all people and objects, with all systems in the Leased Property functioning properly and in working order and with the Leased Property clean of all construction debris.

 

  8.2. The Lessee shall have the option to extend the Term of the Lease for an additional period (or periods, one period at a time), as set forth and defined in Appendix J to this Agreement, which, subject to the prior fulfillment of the provisions of sections 8.3 and 8.4 below, shall begin immediately following the culmination of the Initial Term (hereinafter: the “ Additional Terms ”).

 

  8.3. Each option for extension of the Term of the Lease as set forth in this section 8 and in Appendix J is contingent on the Lessee’s complete fulfillment for the duration of the Term of the Lease prior to the relevant extension of all of its undertakings toward the Lessor and/or anyone acting on its behalf and/or the Management Company under this Agreement in a full and timely manner, including, without derogating from the generality of the aforesaid, the Lessee having made all of the payments that it is obligated to make under this Agreement in full and the Lessee not having committed a material breach of this Agreement, as well as there not being any pending legal proceedings and/or other arbitration proceedings between the parties with respect to any of the Lessee’s obligations under this Agreement and/or one of its appendices.


Moreover, each option for extension is subject to the Lessee, prior to the end of the relevant Term of the Lease, extending the validity of all of the security interests provided by the Lessee to the Lessor under this Agreement so that such interests remain fully valid for the duration of the Additional Term.

 

  8.4. Subject to the terms set forth in section 8.3 above and as set forth in Appendix J, each option for the extension of the Term of the Lease shall exercise automatically, unless the Lessee notifies the Lessor in writing by registered mail of the Lessee’s intention not to exercise an option for an Additional Term and such notice is received by the Lessor at least 180 days prior to the end of the relevant Term of the Lease.

 

  8.5. The Lessee shall not have the right to terminate the Lease and/or vacate the Leased Property. However, nothing in the foregoing shall derogate from the Lessor’s right under this Agreement and/or under applicable law to instruct the Lessee to vacate the Leased Property. In the event that despite the aforesaid the Lessee vacates the Leased Property prior to the end of the Term of the Lease, or ceases to conduct its business in the Leased Property, such action shall not relieve the Lessee of its obligations under this Agreement, in whole or in part, and the Lessee shall be obligated to make all of the payments applicable to it under this Agreement until the end of the Term of the Lease, provided that the Lessor took reasonable measures to minimize any damages.

(b) Notwithstanding the foregoing in sub-section (a) above, in the event that the Lessee is not in a position to fulfill its undertakings set forth in this Agreement as a result of it experiencing financial difficulties, it shall have the right to terminate the Lease under this Agreement prior to the end of the Term of the Lease, provided that it produces a replacement lessee for the Leased Property (the “ Replacement Lessee ”), that the Replacement Lessee takes upon itself all of the Lessee’s rights and obligations under this Agreement, signs a lease agreement similar in form to this Agreement with respect to the remainder of the Term of the Lease, with such agreement containing terms no less favorable to the Lessor than those set forth in this Agreement, and provided further that the Replacement Lessee provides the Lessor with security interests no less valuable than those provided hereunder and is approved by the Lessor as a replacement lessee, with such approval not to be unreasonably withheld.

The date of the beginning of the Replacement Lessee’s lease of the Leased Property shall be considered the date on which the Lessee’s Lease terminates under this Agreement, provided that the Replacement Lessee has fulfilled the obligations set forth in this section 8.5(b) above and provided further that the Lessee has vacated the Leased Property prior to such date in accordance with this Agreement.


(c) It is hereby clarified and agreed that in the event that the Replacement Lessee replaces the Lessee, and subject to the provisions of this sub-section (c) below, the Lessee shall be obligated to refund the Lessor’s investment pursuant to the calculation set forth in section 8 of Appendix J.

Notwithstanding the aforesaid in this sub-section (c) above, it is hereby clarified and agreed that in the event that the Replacement Lessee accepts upon itself the repayment of the Lessor’s investment (as set forth in Appendix J), subject to the arrangement set forth in section 8 of Appendix J, until the end of the Term of the Lease and the five Additional Terms, the Lessee shall be exempt from repaying the Lessor’s investment as set forth in this sub-section (c) above.

(d) Following the signing by the Replacement Lessee of a lease agreement as set forth above, the Lessor shall refund to the Lessee all payments made in advance by the Lessee to the Lessor by the later of 14 days of the signing of the aforementioned agreement and the Lessor’s receipt of the first installment of rental fees from the Replacement Lessee. Subject to the provisions of this Agreement, including section 26 hereunder and the dates set forth thereunder for the return of the security interests provided under this Agreement, the Lessor shall also release the Lessee of all of its undertakings under this Agreement, including with respect to the security interests provided hereunder.

 

  8.6. The terms of this Agreement shall apply in full during all of the Terms of the Lease, subject to special provisions set forth in this Agreement solely with respect to certain Terms of the Lease.

 

9. Rental Fees

In consideration of the Lease, the Lessee undertakes to pay the Lessor monthly or Quarterly or annual Rental Fees, as set forth in Appendix J to this Agreement. The Rental Fees shall be paid on the first day of each aforementioned period (hereinafter: the “ Rental Fees ”).

 

  9.1. In consideration of the Initial Term, the Lessee shall pay Rental Fees, with added VAT as required by law, against its receipt of a valid tax invoice and receipt within 14 days of remitting payment to the Lessor. Such payment shall be made in consideration of each month of the Term of the Lease and/or each year of the Lease in the amount set forth in Appendix J to this Agreement, with such amount Linked to the Base Index.

 

  9.2. In the event of the exercise of the option to extend the Lease, in consideration of the Additional Term the Lessee shall pay Rental Fees, with added VAT as required by law, against its receipt of a valid tax invoice and receipt within 14 days of remitting payment to the Lessor. Such payment shall be made in consideration of each month of the Term of the Lease and/or each year of the Lease in the amount set forth in Appendix J to this Agreement, with such amount Linked to the Base Index.


  9.3. The Linkage Differentials will be considered part of the Rental Fees for all intents and purposes.

 

  9.4. For the sake of the convenience of collection of the Rental Fees and any other payment owed by the Lessee to the Lessor under this Agreement, the Lessee undertakes to provide the Lessor, within 7 days of the Lessee’s receipt of constructive possession (as defined in section 14), with an authorization to debit its account in the form generally employed by the Lessor, unless the parties determined in Appendix J that payment would be made by means of bank transfer or by any other method. The Lessor undertakes not to withdraw any amounts under such authorization beyond those amounts it is authorized to withdraw in accordance with this Agreement.

 

  9.5. For the removal of doubt, it is hereby declared that in no event shall the creation of the standing debit order and/or any demand in respect thereof be considered payment, except upon the full and timely payment of all of the payments.

 

  9.6. In the event of a failure to remit to the Lessor two or more consecutive installments and/or six non-consecutive installments of the Rental Fees within 14 days of the relevant payment date as set forth in this Agreement, including a failure by the Bank to remit full payment of the Rental Fees to the Lessor pursuant to the standing debit order provided by the Lessee, the balance of the unpaid Rental Fees for the Term of the Lease or for the Additional Terms, as applicable, shall become fully due and payable, all without prejudice to the Lessor’s right to any other relief or remedy for the Lessee’s material breach of this Agreement, but all subject to the Lessor’s obligation to minimize i damages.

 

  9.7. The Lessee undertakes to pay the Rental Fees to the Lessor and the Management Fees to the Lessor or to the Management Company as set forth in section 17 below for the duration of the Term of the Lease, regardless of whether or not the Lessee actually made use of the Leased Property.

 

10. Value Added Tax

 

  10.1. For every payment of the Rental Fees, and for every other payment that the Lessee must make in accordance with this Agreement, that is subject to Value Added Tax, the Lessee shall pay the Value Added Tax in addition to such payment according to the legal tax rate in effect from time to time, and/or any other tax or levy that may come in its stead and/or any other tax that applies under law to any of the payments that the Lessee must make in accordance with the provisions of this Agreement, all against the Lessee’s receipt of a valid tax invoice and receipt within 14 days of making the relevant payment (hereinabove and below: “ VAT ” or “ Value Added Tax ”).

 

  10.2. For the removal of doubt, with respect to the Lessee’s obligation to make payments in accordance with this Agreement, Value Added Tax, or any other tax that may apply as aforesaid, shall be considered the same as the Rental Fees in respect of which it is paid. The Lessee shall receive a valid tax invoice from the Lessor immediately following completion of the payment and the relevant tax amount and in any event no later than 14 days following completion of the payment.


11. Other Payments

 

  11.1. For the duration of the Term of the Lease, in addition to the Rental Fees the Lessee shall pay all of the amounts that it owes under this section 11, as well as all of the taxes, fees, rates and obligatory payments of any kind, whether municipal and/or governmental and/or otherwise, including all fees, licensing fees and licenses of any kind that apply under law or custom to a property holder/lessee (with the exception of a long term lessee) and that relate to the Leased Property and/or its operation and/or maintenance and/or use, including the cost of insuring the Leased Property as set forth in this Agreement, provided that such payments apply to the Term of the Lease or to the Additional Terms, in the event of the Lessee’s exercise and realization thereof. Taxes and/or levies and/or fees and/or participation fees that relate to the Leased Property or to its operation, maintenance, the business conducted therein or in connection with the Rental Fees that will be applied in the future to owners under law, but do not exist as of the signing of this Agreement, shall apply to the Lessor only if levied during the Initial Term. Taxes and/or levies and/or fees and/or participation fees as set forth above that are levied under law in the future on owners, lessees or holders, shall apply to the Lessee if levied during the Additional Terms, insofar as the options in respect thereof are exercised. In the event that such a payment is levied in respect of an entire year, of which only part falls during the Term of the Lease or the Additional Term, the Lessee shall pay a proportional amount of such payment.

 

  11.2. All obligatory payments in respect of the Leased Property and/or the Building and/or the operation thereof that apply under law or custom to a property owner and/or a long term lessee (and not to a holder) shall apply to, and be paid by, the Lessor. For the removal of doubt, it is hereby agreed that the Lessee shall not be liable for payment of property tax, if applicable, or for payment of development levies, sewage levies, betterment tax and betterment levies in connection with the Building and/or Leased Property and/or Land.

 

  11.3. The Lessee undertakes, for the duration of the Term of the Lease, to pay all of the payments and expenses in connection with electricity supply, water, telephone, sewage, property rates and any other utility provided to the Leased Property that applies under law or custom or this Agreement to the land holder, including with respect to its pro rata share (based on floor area or any other reasonable calculation method to be determined by the Lessor) of the electricity costs incurred in connection with the supply of air conditioning to the Leased Property.

 

  11.4.

The Lessee undertakes that prior to the date of its occupation of the Leased Property it shall install, at its own expense, a separate water meter and electricity meter that will link the Leased Property directly to the relevant providers, the Israel Electric Company and the Gihon company, and the Lessee shall enter into contracts for the supply of electricity and water. Or, alternatively, should the Lessor decide that separate directly linked meters should not be installed, the separate water meters shall be linked to meters to be installed in central


  locations in the Building by means of sub-meters in accordance with the Lessor’s instructions. In such latter case, the Lessee shall pay the Lessor and/or in accordance with its instruction for the Lessee’s pro rata share in the aforementioned utilities, pursuant to the meter readings. The Lessee hereby agrees to the location of the meter and to the relevant charges to be determined pursuant to the meter readings, as well as to any change in the location of the meter that may be made at the Lessor’s discretion.

 

  11.5. It is hereby clarified that use of the air conditioning systems in the Leased Property is limited to the relative size of the Leased Property in the Building. In the event that the Lessee shall require additional air conditioning in the Leased Property, the Lessee must make such arrangements privately and at its own expense, although always in coordination with the Lessor.

 

  11.6. All of the taxes and payments owed to the municipality and/or government and/or other entity in connection with the conduct of the Lessee’s business in the Leased Property, including business tax, signage tax, fees and licenses, shall be the sole responsibility of, and borne by, the Lessee.

 

  11.7. For the duration of the Term of the Lease, the Lessee shall pay any tax and/or levy and/or royalty that may apply and/or be applied in the future to the use of the Leased Property and to any activity carried out in the Leased Property, including any tax and/or levy that may be applied for the sounding of music and including any royalty that may be owed to ACUM – the Association of Composers and Music Publishers.

 

  11.8. The Lessee undertakes to notify the local authority and other relevant entities in writing of its lease of the Leased Property. Immediately following the beginning of the Term of the Lease, the Lessee undertakes to transfer to its own name all water bills and/or telephone bills and/or electricity bills and/or municipal bills and/or any other bill relating to any payment and/or tax to which the Lessee is subject in respect of the Leased Property. Upon the termination of the Term of the Lease, the parties will cooperate as necessary to transfer such bills back to the Lessor’s name or to the name of an alternative lessee set to take possession of the Leased Property at such time.

 

  11.9. The Lessor shall have the right, but not the obligation, to make any payment owed by the Lessee under this Agreement, after providing the Lessee with a written notice demanding the performance of such payment and the Lessee failing to comply with such written notice within 14 days. In such a case, the Lessee shall be obligated to repay the Lessor any such amount paid by the Lessor immediately upon its first demand, with added interest and Linkage Differentials, or, at the Lessor’s discretion, with added arrears interest calculated in the manner set forth in section 24.6.3 below. The Lessor shall provide receipts or proofs of payment in respect of such payment, save for with respect to its payment of Management Fees and parking fees.


  11.10. For the duration of the Term of the Lease, the Lessee shall bear its pro rata share of the ongoing maintenance and Management Fees in respect of the Leased Property and the Building, as well as of any expenses incurred in connection with the regular maintenance, operation, management and inspection of the common areas in the Building, including with respect to the payment of payments and/or taxes and/or levies that apply and/or may apply to the Public Areas in the Building, in addition to its payment of the Management Fees, as set forth in the Management Agreement Terms appendix and the provisions of section 17 below, in the amount of 15% of the total amount owed by the Lessee in accordance with the foregoing in this section (viz. the actual cost will be COST + 15%) and in addition to payment for parking spaces as set forth in Appendix J and for use of the parking garages in accordance with the provisions of sections 18 and 19 below.

For the purposes of this section 11.10, sections 17 and 21.7 and the Management Agreement Terms, “ pro rata share ” shall mean the ratio of the Area of the Leased Property (including the area of the parking spaces allotted to the Lessee) to the area of the areas in the Building designated for lease or sale, including the area of all of the parking spaces.

Telephone lines, if installed by the Lessee, shall be the Lessee’s property and it may transfer them from the Leased Property, at its own expense, upon the termination of the Term of the Lease.

 

12. Customization Works in the Leased Property

 

  12.1. The Lessor shall provide the Lessee with the Leased Property in its current state as of the date determined by the parties, with the systems listed in Appendix B to this Agreement in functioning and working order, and the Lessor shall grant the Lessee possession of the Leased Property in such state on the date determined for such purpose in Appendix J (hereinafter: the “ Transfer Date ”).

 

  12.2. The Lessee, on its own or through others acting on its behalf, shall perform (if necessary) customization and finishing works for the purpose of preparing its business in anticipation of its opening (hereinafter: the “ Customization Works ”). The Lessee’s status in the Leased Property and in the Building during this period shall be of lessee for all intents and purposes, including with regard to payment of the Rental Fees and any other payment for which the Lessee is responsible under this Agreement.

 

  12.3.

The Lessee shall be responsible, at its own expense, for performing the Customization Works, as well as any other work and/or assembly and/or any other installation of any kind necessary for the opening of the Lessee’s business in the Leased Property, and it shall be responsible for all equipment and materials it, or anyone acting on its behalf, brings in for the purpose of performing the Customization Works, for as long as such equipment or materials are present in the Building. The Lessee shall not place any equipment or material outside the Leased Property without prior coordination with the Lessor and having first received its written consent. It is hereby clarified that despite the fact that the Lessee is solely responsible for the Customization Works, their cost, etc. (unless otherwise agreed hereunder in writing), the Lessor shall have the right to supervise the quality and duration of the works and their effect on the remainder of the structure and, in particular (but not only), with regard to


  connections to the Building’s systems and/or common systems or to the use of utilities belonging to the structure, such as plumbing, electricity boards, air conditioning, etc. Furthermore, the Lessor shall have the right to demand consultation with the Building’s consultants (structural engineers, air conditioning specialists, electrical engineers, etc.) during the process, as necessary, to ensure that no immediate or future damage is caused to the structure or to other lessees or to other systems and that the improvements to the Leased Property do not negatively deviate in standard and quality from what is customary in similar buildings.

 

  12.4. Prior to performing the Customization Works, the Lessee shall submit detailed plans of its anticipated works for the Lessor’s approval, including, without derogating from the generality of the aforesaid, air conditioning and electrical plans and any other and/or additional plan that involves changes to the Leased Property’s systems or façade or structure, as well as the relevant specifications. The Lessor shall evaluate such plans and approve them or provide its comments within 10 days of its receipt of such plans. The Lessee shall amend the plans in accordance with the Lessor’s comments. Without derogating from the aforesaid, the Lessee may not perform Customization Works in the Leased Property that affect the structure and/or systems and/or façade of the Building, or works that require building permits for their performance.

 

  12.5. The Lessee undertakes that the contractors who are to perform the Customization Works be contractors who are agreed to and approved in advance by the Lessor, and the Lessor may reasonably reject or approve such contractors at its own discretion.

In any event, the proposed contractors shall be appropriately registered for the performance of works of the nature of the Customization Works and shall have performed similar projects in Har Hotzvim or in the Technology Park or in another hi tech park in Tel Aviv or Kiryat Atidim and shall be experienced in projects of the nature of the Customization Works.

 

  12.6. The Lessee shall perform the Customization Works in such a way as to cause minimum disturbance to the activities of the other lessees in the Building and without hindering any other works being performed in parallel in the Building by the Lessor or anyone acting on its behalf or by other lessees.

 

  12.7. The Lessee alone shall be responsible toward the Lessor and any third party for any damage caused to the Leased Property and/or the Building and/or other leased properties in the Building and/or the Lessor and/or any third party in connection with the performance of the Customization Works.

The Lessee shall insure such liability and, inter alia , the provisions of section 21 below, including all of its sub-sections, shall apply. The Lessee is responsible and undertakes that for the duration of the performance of the Customization Works it shall maintain appropriate contractors’ building insurance for the performance of the Customization Works, with the Lessor being named as an additional insured party. The Lessee shall also cause the contractors who perform the Customization Works to insure their activities with insurance that appropriately covers the relevant risk factors, and such insurance coverage shall in any event not be lower than the amount set forth in the sub-sections of section 21 of this Agreement.


  12.8. The Lessee shall notify the Lessor of the Commencement Date of the Customization Works and of the Lessee’s planned date for their completion.

 

  12.9. For the removal of doubt the Lessee alone shall be responsible for procuring all of the permits and/or licenses required and/or that may be required under applicable law for the performance of the Customization Works prior to the commencement of such works. The Lessee shall also be responsible for the opening and management of its business in the Leased Property and shall bear all of the expenses in connection therewith. The Lessee undertakes to fulfill all of the conditions necessary for procuring such permits, to manage its business in accordance with the terms of such permits, to maintain their validity for the duration of the Term of the Lease and not to perform any unusual activities in the Leased Property or to operate therein any business that is currently or will be considered unlawful under applicable law.

 

  12.10. Upon the termination of the Term of the Lease or of this Agreement, all of the systems in the Leased Property and all of the improvements, changes and additions thereto made by the Lessee during the Term of the Lease shall belong to the Lessor and the Lessee hereby waives any claim and/or demand in respect thereof.

 

13. Changes or Additions by the Lessor

 

  13.1. Subject to applicable law, the Lessor shall have the right at any time, of its own accord and at its discretion, to implement changes to the Building and initiate changes to the city zoning plan that governs the Building, and to request leniencies and a permit for alternative or deviating use with respect to any part of the Building, including, but without derogating from the generality of the aforesaid, in connection with the construction and use of the terraces and/or roofs in and of the Building, all provided that any such change shall not include a change to the Leased Property itself and shall not prevent the Lessee from using the Leased Property in the manner set forth in this Agreement. Subject to the foregoing, the Lessee undertakes not to object to any such change or request.

 

  13.2. Subject to applicable law, the Lessor shall have the right at all times, at its sole discretion and without the need for Lessee consent, to perform any change or addition or renovation in the Building and/or in any part thereof and/or in any of the leased properties therein, both before the beginning of the Term of the Lease and thereafter, including, but not limited to, performing any enhancement or reduction to any areas of any kind, attaching and building additional levels, areas or wings in the Building, both under and over the Building and/or the Leased Property, turning closed or open Public Areas into areas designated for the exclusive use of various users, making changes to entrances and corridors, performing various building additions as well as any other change to the Building’s structure and/or plans and/or to the use of the various areas in the Building, all provided that if such a change is made inside the Leased Property it shall be made in such a way as to reasonably limit and mitigate, to the greatest extent possible, any inconvenience suffered by the Lessee and without prejudicing the Lessee’s right to use the Leased Property in accordance with the Purpose of the Lease and this Agreement.


  13.3. The Lessor shall have the right, without requiring Lessee consent, to pass through the Building and the Leased Property and install, on its own, by means of anyone acting on its behalf or by means of any authority, institution or other entity, any kind of piping and infrastructure, including air conditioning ducts, water and gas pipes, electrical cables and wiring, television and/or telephone and/or other communication cables, whether or not such infrastructure services the Lessee and/or the Leased Property and/or the Building, and the Lessee undertakes to permit the Lessor or anyone acting on its behalf to enter the Leased Property in order to perform such installations and everything entailed thereby. During the Term of the Lease, the Lessor shall notify the Lessee of the Lessor’s intention to perform such works reasonably in advance of their performance, in accordance with the relevant circumstances. The Lessor undertakes that such works and/or repairs shall be performed in a manner that will reasonably and to the greatest extent possible minimize and limit the disruption of the Lessee’s reasonable use of the Leased Property, and that following the completion of such works all resulting damage will be repaired and the Leased Property will be restored to its previous state at the Lessor’s expense. It is hereby clarified that in the event that such works must be performed in order to service other lessees and the Lessee is aware of such works on the date of the signing of this Agreement, the Lessor shall make best efforts to perform such works immediately following the signing of this Agreement.

 

  13.4. For the removal of doubt, it is hereby clarified that nothing in this section 13 shall grant the Lessor the right to change the Leased Property and/or its description as it appears in this Agreement and in its appendices and/or to damage the Leased Property.

 

14. Transfer of Possession and Transfer Protocol

The transfer of constructive possession (legal and theoretical) of the Leased Property to the Lessee solely for tax purposes as set forth in Appendix J, as opposed to the actual transfer of physical possession of the Leased Property, shall be effected on the date set forth in Appendix J. Physical possession of the Leased Property shall be transferred to the Lessee following the completion of the Customization Works on the date set forth in such respect in Appendix J.

 

  14.1. The Lessee shall receive possession of the Leased Property on the date of the transfer of constructive possession, with the Leased Property being in the same state as on the date of the signing of the Agreement – AS IS.

 

  14.2. On the date of the transfer of physical possession, as set forth in Appendix J, a transfer protocol shall be drawn up between representatives of both parties that will set forth the state of the Leased Property and any discrepancy between it and the description set forth in Appendix B, in the Specifications and in the plans, and it shall list all of the repairs and defects in the Leased Property that fall under the Lessor’s responsibility and that the Lessor is obligated to remedy. The Lessee shall then confirm in the protocol its receipt of the Leased Property in accordance with this Agreement. The Lessor undertakes to perform the necessary repairs in accordance with the transfer protocol within a reasonable time frame, with the exception of urgent repairs that require the Lessor’s immediate attention and performance.


On the date of the completion of the Customization Works, physical possession of the Leased Property shall be transferred to the Lessee in accordance with Appendix J, with the Leased Property being empty and clear of any person and/or object and free of all construction related debris, with the Customization Works having been performed in accordance with the Specifications and the plans and with all of the Leased Property’s systems functioning and in working order, as set forth in Appendix J.

 

  14.3. The Lessee undertakes to receive physical possession on the date of the completion of the Customization Works, as set forth in Appendix J, and confirms that in the event that it does not come to take possession on such date it shall be considered to have taken possession of the Leased Property without reservation as to its state and the Lessee shall henceforth be obligated to pay all Rental Fees as of their relevant due dates in the manner set forth in this Agreement and in Appendix J. It is hereby clarified that the Lessee shall not have the right to refuse to take possession of the Leased Property unless it is not suitable for reasonable use in accordance with the Purpose of the Lease.

 

  14.4. Within 7 days of the date of the transfer of constructive possession, the Lessee undertakes to provide the Lessor with the insurance authorizations as set forth in section 21, with the bank guarantee as set forth in section 26 and with the authorization for the standing debit order as set forth in section 9.4 of this Agreement, in the event that any of these documents is not provided to the Lessor on the date determined for such purpose in this Agreement hereinabove and below. Notwithstanding the above, the parent company guarantee as set forth in section 26 shall be provided to the Lessor within 21 days of the date of the transfer of constructive possession.

 

  14.5. Subject to the fulfillment of the terms of section 14.2 above, the Lessee’s receipt of physical possession of the Leased Property shall constitute the Lessee’s confirmation that it received the Leased Property in full conformance with the provisions of this Agreement and to its full satisfaction, save for in respect of any hidden defect or damage, and that the Lessee has no, and shall have no, claim with respect to the Leased Property and to this Agreement, subject to the Lessor’s fulfillment of its undertakings under this Agreement and as set forth in the transfer protocol.

 

15. Possession of the Leased Property During the Term of the Lease

 

  15.1.

The Lessee undertakes to maintain the Leased Property and its systems, including plumbing, electrical, lighting and air conditioning (with the exception of the central air conditioning system on the roof of the Building, which shall be maintained by the Management Company) systems in good and working order and to perform all relevant maintenance work, not to cause disruption to the other lessees in the Building, to maintain the cleanliness of the Leased


  Property and its surroundings, to refrain from causing any damage or defect to the Leased Property or to any of its parts, save for regular and reasonable wear and tear to the Leased Property and with the exception of malfunctions and/or defects in the Building and/or structure of the Building, and to be responsible and immediately repair at its own expense any such damage or malfunction or defect caused to the Leased Property and its systems by the Lessee and/or its visitors and/or clients and/or employees and/or anyone who enters the Leased Property on behalf of the Lessee. In the event that the Lessee does not perform such repair within 14 days of the creation of the damage and/or malfunction and following 7 days’ written notice to the Lessee to such effect, the Lessor and/or the Management Company shall have the right to enter the Leased Property and perform the relevant repair in lieu of the Lessee, and the provisions of section 27 of this Agreement shall apply. Notwithstanding and subject to the following, it is hereby agreed that the Lessor shall be responsible for malfunctions in the Leased Property that result from regular and reasonable use by the Lessee and/or malfunctions or defects of any type whatsoever in the structure of the Leased Property and/or the Building and/or in the central air conditioning system and its fitness for use. The Lessor undertakes to repair such malfunction/defect within 14 days, and in the event that urgent repairs are necessary, such repairs shall be carried out immediately. In the event that neither party performs such repairs, the injured party may perform the repairs at its own expense and the breaching party undertakes to refund any expended amount to the paying party immediately upon first demand, together with interest in the amount determined below in this Agreement that will accrue as of the date of the expenditure until its actual repayment to the paying party.

 

  15.2. The Lessee undertakes to manage its business in the Leased Property in accordance with applicable law and without causing any disturbance whatsoever under applicable law, including, but not limited to, as a result of noise, smells and pollution, as well as not to cause any distraction or nuisance to the holders and/or the users of the remainder of the Building and its surroundings. In the event that the Lessee makes use of any fumes in the Leased Property, it shall do so in accordance with applicable law.

The Lessee undertakes not to perform any internal and/or external changes to the Leased Property and not to add or destroy any part thereof and/or device therein without first receiving the Lessor’s prior written consent; the Lessor shall be entitled to prevent the performance of any of the aforementioned actions and to remove any change or addition made in contradiction to the provisions of this section. The Lessor shall not unreasonably refuse the Lessee’s request for making an internal change. A breach of this section by the Lessee shall grant the Lessor, in addition to any other remedy available to it under law, the right to terminate this Agreement, and in such event the Lessor shall have the right, if it so chooses, to appropriate for itself at no cost all of the additions, repairs and changes made in breach of this Agreement. For the removal of any doubt, nothing in the foregoing shall limit the Lessee in any way in its installation of furniture and/or equipment and/or other additions that are not permanently fixed to the Leased Property and that do not cause the Leased Property any damage upon their removal, or in its moving of transferable property within the Leased Property and in its painting of the walls of the Leased Property.


  15.3. In the event that the Lessor agrees in writing to the Lessee’s request to make changes to the Leased Property, the Lessee, upon the termination of the Term of the Lease, shall be obligated to return the Leased Property to its previous state, as it was on the date of the completion of the Customization Works, subject to reasonable wear and tear, unless the Lessor notifies the Lessee of the Lessor’s desire that the changes, or any number of them, remain in place without the Lessee having the right to demand and/or receive any consideration or compensation in respect thereof.

 

  15.4. The installation and operation of electrical equipment, telephones and other communications systems in the Leased Property, which cause induction and/or transmission, and the laying of electrical cables for the operation of such equipment, is subject to the Lessor’s prior written consent as well as to any instructions provided by the Lessor, and, if relevant, to receipt of a permit from the Ministry of Communications and/or Bezeq for the equipment and its installation.

 

  15.5. For the removal of doubt it is hereby clarified that the Lessee shall not be entitled to install any equipment outside of the Leased Property, unless such equipment appears on the plans. Notwithstanding the foregoing, with regard to equipment or systems necessary for the Lessee’s use of the Leased Property but not currently on the plans, the Lessee shall be entitled to approach the Lessor with a request to permit their installation at the Lessee’s expense. Such request shall include a full description of the components of the system and the Lessor shall have the right to authorize or refuse the installation and placement of such equipment and systems, as applicable and pursuant to what is customary, as well as to determine the payment it is to receive in exchange for providing the space for the installation of such equipment.

 

  15.6. It is hereby agreed that the Lessor shall have the right to instruct the Lessee to change the location within the Building of any such system to an alternative location in the Building and/or on the plot if and when the system creates a disturbance of some kind to any of the other tenants of the Building. In the event that such instruction stems from the Lessor’s desire to build or use the space on which such system is placed for its own purposes, then the relocation of the system shall be effected by the Lessor at its own expense, upon 5 days’ advance notice and coordination of the method and date of relocation with the Lessee, and the Lessee shall have no claim in such regard. The Lessee shall not use flammable gas, open flames or other methods that cause the dissemination of cooking odors in any part of the Leased Property, including in the kitchenette, if one is located in the Leased Property. Notwithstanding the foregoing, the Lessee shall be entitled to use flammable or other gas (but not cooking gas) in, and for the purposes of, the laboratory (if one exists in the Leased Property), in accordance with relevant regulation and subject to receiving the Lessor’s prior written consent with regard to the use of the particular type of gas, the quantity held in the structure and its storage method and location, with such consent not to be unreasonably withheld.

 

  15.7.

The Lessor and/or its representative s and/or the Management Company shall be entitled to enter the Leased Property at any reasonable time and upon prior coordination with the Lessee


in order to assess the state of the Leased Property, to ensure fulfillment of the provisions of the Lease Agreement and to perform work and repairs for the benefit of other parts of the Building. The Lessor shall coordinate its entry into the Leased Property with the Lessee, save for in urgent cases. Nothing in the aforesaid shall impose any obligation whatsoever on the Lessor to perform any of the aforementioned activities.

In performing such activities, the Lessor shall make best efforts to ensure that any damage caused the Lessee, if at all, shall be kept to a minimum and that the duration of the activities shall be as short as possible, and upon completion of the work the Lessor shall return the Leased Property to its prior state.

 

  15.8. The Lessee undertakes not to maintain any substances, tools, equipment, inventory or other effects (hereinafter: the “ Effects ”) in the entrance or outside the Leased Property, including in the floor lobby or in common corridors, to ensure the cleanliness of the Leased Property’s surroundings and to maintain its business solely within the confines of the Leased Property. In the event that any of the Lessee’s Effects are found outside of the Leased Property, the Lessor or the Management Company shall have the right to immediately remove them at the Lessee’s expense after providing 48 hours’ notice to the Lessee and, if following such notice such Effects were not removed, they shall be removed without the Lessor or the Management Company being responsible for the state of such Effects or for any damage caused to the Lessee in such regard, if any. In the event that Effects found outside of the Leased Property constitute a material disturbance, the Lessee shall receive 12 hours’ notice before the removal of such Effects by the Lessor as set forth above, and in the event that Effects found outside the Leased Property constitute a danger and/or safety hazard, such Effects shall be removed by the Lessor within a reasonable amount of time, as necessary.

 

  15.9. The Lessee shall not be entitled to post any signs or advertisements on the façade of the Leased Property or in the lobby of the Building or in the common areas, including in the floor lobby or on any external wall of the Leased Property or on any other external or other area of the Building, or to install mail boxes, without receiving the Lessor’s prior consent. The Lessee shall pay a pro rata share of the signage and general mail box costs (if any) and of the cost of installing signage in the floor lobby on the floor on which the Leased Property is located. The Lessee shall own a pro rata share of any signage installed by the Lessor in the Building reflective of the Lessee’s share in the Building or of the relevant floor. The Lessee shall request the Lessor’s approval for the installation and placement in the Leased Property of equipment and furniture whose weight and/or size may exceed the permitted measurements. The Lessor shall have the right to obligate the Lessee to receive approval from the Building’s architect or from any other engineer, at the Lessor’s discretion.

 

  15.10. The Lessee undertakes to fulfill and perform any directive under law, regulation, order or bylaw in connection with the possession or use of the Leased Property and the operation of its business therein, and not to perform any act, and not to permit the performance of any act, in the Leased Property or in connection therewith that may constitute a hazard or nuisance or that may cause damage to the Lessor or the Building or to other lessees or other users or visitors in the Building.


  15.11. The Lessee shall operate its business in the Leased Property while adhering to all of the directives and instructions issued by the Management Company, and the Lessee undertakes that all parties with whom it does business, including suppliers, shall adhere to the instructions issued by the Management Company.

 

  15.12. The Lessee undertakes to compensate and indemnify the Lessor for any damage or expense caused it as a result of any claim filed against it, whether of a criminal or civil nature, and of the need to defend itself from such claim, insofar as such claim results from the Lessee’s non-fulfillment or breach of any of its undertakings hereunder. The Lessor shall notify the Lessee as soon as possible and within a reasonable amount of time with regard to any such claim filed against the Lessor and shall permit the Lessee to manage the defense of such claim at its own expense.

Since the Lessee is leasing the Leased Property so that it may be used by the Lessee for its business, it is hereby agreed that without derogating from anything else set forth in this Agreement, if anything, the Lessee shall be responsible and undertakes to procure all permits and licenses required by any authority in connection with the Lessee’s business, including with respect to the storage and use of hazardous materials, removal of waste and sewage and anything else in connection with its business.

When necessary, the Lessor undertakes to sign any requests and documents in order to allow the Lessee to procure the licenses and permits necessary for the operation of its business in the Leased Property.

 

16. Additions and Changes

The Lessee shall not have the right to make any changes or additions whatsoever to the Leased Property, whether internal or external, without receiving the Lessor’s prior written consent, which is not to be unreasonably withheld (hereinafter: “ Changes and Additions ”).

Without derogating from the aforesaid, if and when the Lessee makes and/or performs any Changes and Additions to the Leased Property, with the exception of the Customization Works, the Lessor shall have the right and choice to demand that upon return of the possession of the Leased Property to the Lessor, for whatever reason, the Lessee, at its own expense, shall remove such Changes and Additions. In the event that the Lessor does not demand the removal of the Changes and Additions, they shall become the property of the Lessor and the Lessee shall have no claim and/or demand against the Lessor in respect of the Changes and Additions and/or in respect of its investment therein.

For the removal of doubt, it is hereby clarified that the Customization Works in the Leased Property and/or on its systems shall also become the property of the Lessor upon the termination of the Lessee’s Lease on the Leased Property, for whatever reason, although at such time the Lessee shall be responsible for removing its equipment from the Leased Property, such as computers, furniture, closets, goods and other Effects.


17. Management of the Building

 

  17.1. The Lessee declares that it is aware that the Lessor intends to manage the Building or any part thereof on its own or through a Management Company or by any other means, all at the Lessor’s sole and absolute discretion (hereinafter: the “ Management Company ”). The Management Company shall from time to time institute arrangements and rules in connection with the management and maintenance of the Building for all of the lessees and users of the Building and shall follow up on their performance. The Lessee undertakes to sign the Management Agreement Terms appendix, which is attached hereto as Appendix D, together with the Management Company. The Lessee undertakes to adhere to the provisions of the terms appendix and to the rules, including any changes made thereto from time to time, provided that such rules do not negatively affect the Lessee’s rights and impose on it any obligations, including of financial nature, beyond those set forth in the Management Agreement Terms appendix and in this Agreement.

 

  17.2. The Management Company shall perform services in the Building (hereinafter: the “ Services ”), either on its own or by means of sub-contractors, with sufficient regularity and at a level appropriate for this type of building and other similar buildings owned by the Lessor in Har Hotzvim, and will ensure that the Building and its systems shall be operated properly and in an ongoing manner, and shall be in good working order, clean and fit for use.

 

  17.3. The Management Company shall have access to the Leased Property during reasonable hours and subject to advance coordination with the Lessee, unless it is necessary to perform urgent repairs essential for the performance of any work or maintenance in the Leased Property that is necessary for the provision of the Services, or any part thereof, to the Leased Property and/or the other leased properties and/or the Building, and provided that the work is performed in such a way so as not to cause the Lessee any material harm to its operation of the Leased Property beyond what is necessary and that upon completion of the work the Leased Property is restored to its prior state.

 

  17.4. The Management Company shall employ employees, sub-contractors, suppliers, consultants, accountants, lawyers, etc. (hereinafter: “ Service Providers ”) as it sees fit for the performance of its tasks. The Management Fees shall include all reasonable expenses incurred by the Management Company relative to the quality of the service received from the Service Providers in respect of all of the above, as well as reasonable general expenses relative to the quality of the service.

 

  17.5. The Lessee shall contribute its pro rata share of all of the Management Company’s reasonable expenses (relative to the quality of the service, as set forth in section 17.4) incurred as a result of the performance of the Services on the basis of their cost, including the cost of foreign currency or Index Linked financing, all at the Management Company’s discretion. VAT shall be added to all payments as required by law. It is hereby clarified that any use of the term Management Fees in this Agreement shall include both Management Fees and the expenses incurred by the Management Company.


  17.6. The Lessee shall pay Management Fees calculated according to the pro rata size of the Area of the Leased Property and in accordance with the schedule, rates and index defined in the Management Agreement Terms appendix.

 

  17.7. The Lessee’s refusal and/or unwillingness and/or reluctance to receive any Service and/or its desire to cease to receive any or all of the Services shall not release the Lessee from its obligations under this section 17 and under the Management Agreement Terms appendix.

 

  17.8. The Lessee’s signing of this Agreement constitutes its direct undertaking toward the Management Company and toward the Lessor to fulfill all of the Lessee’s undertakings toward the Management Company, whether set forth in this Agreement or in the Management Agreement Terms appendix, and any breach of the Management Agreement Terms appendix shall constitute a breach of this Agreement.

 

  17.9. At the Lessor’s request, the Lessee shall sign the Management Agreement Terms appendix together with the Management Company in the form attached hereto to this Agreement. The Lessee confirms that it is aware of the possibility that certain changes may be made to the Management Agreement Terms appendix and in such event it shall sign the Management Agreement in the form prepared and approved by the Lessor and the Management Company, provided that such Management Agreement does not derogate from any of the Lessee’s rights and does not impose on the Lessee any obligations, including any financial obligations, beyond those obligations and undertakings imposed upon the Lessee under the Management Agreement Terms appendix and this Agreement.

It is hereby clarified that the Services set forth in the Management Agreement Terms appendix, which is attached to this Agreement as in integral part thereof and marked as Appendix D , are provided and performed in consideration of the payment of the aforementioned amount.

Subject to the Management Agreement Terms appendix and this Agreement, the Lessee undertakes to cooperate with the Management Company and to adhere to its instructions and those of anyone acting on its behalf.

 

18. Parking Garage

 

  18.1. The Lessee represents that it is aware that the Building houses a parking garage for private and commercial vehicles up to 3 tons and a maximum height of 2.2 meters that is designated for the use of the Building’s tenants and the public. However, the public garage shall not be included in the Building’s Public Areas (in order to calculate the Lessee’s pro rata share for Management Fee purposes – see section 11.10 above). The Lessee shall have the right to lease parking spaces in the parking garage from the Lessor in consideration of parking rental fees to be paid on a per parking space basis, as set forth in Appendix J to this Agreement.

For the removal of doubt, it is hereby clarified that parking rights shall be allocated to a particular vehicle in a specific and defined parking space (to be determined by the Lessor and/or the Management Company). In addition to any other payment it is obligated to make under this Agreement, the Lessee undertakes to deposit a certain amount with the Lessor in connection with the remote controls to be provided to the Lessee for its use of the parking garage, as set forth in Appendix J.


  18.2. The Lessor shall have the right, at its absolute discretion and subject to applicable law, to elect from time to time to operate the parking garage as a lot for hire, whether independently or through others, including be means of the Management Company, or to lease the parking garage to a subcontractor for its operation as a lot for hire. However, it is hereby clarified that the Lessee shall pay the parking rates as set forth in Appendix J. Moreover, the Lessor shall be entitled to determine terms of use and entry and exit operations for the parking garages, and to amend these terms and operational instructions from time to time, and the Lessee undertakes to use the parking spaces in accordance with such terms.

 

  18.3. Subject to applicable law, the Lessee shall be solely responsible for its use of the parking garage. The Lessor and/or the Management Company and/or anyone acting on their behalf shall have no liability whatsoever for any loss or damage to vehicles entering the parking garage or to the effects found therein.

 

19. Parking Rates

The Lessor shall manage the parking garage at its discretion, but subject to applicable law and the following provisions:

 

  19.1. The Lessor is entitled to collect payment for parking in the parking garage from the Building’s clientele and visitors and the Lessee shall have no claim in such respect.

 

  19.2. In the event that the Lessor chooses an external management company for the operation of the parking garage, the Lessor shall be entitled to all of the income generated from the parking garage, and the income and expenses in connection with the operation and maintenance of the parking garage shall not constitute part of the income and expenses of the Management Company.

 

  19.3. It is hereby clarified that payment for parking is not and shall not, under any circumstances, constitute a part of the Rental Fees, as they are defined in this Agreement, or of the Management Fees.

 

20. Lessee Liability

 

  20.1. The Lessee undertakes to maintain the Leased Property during the Term of the Lease in good and working order, to refrain from causing damage or harm to the Building or the Leased Property or to any of its systems, unless such damage or harm resulted from wear and tear stemming from normal and reasonable use of the Leased Property, and further undertakes to immediately repair, at its own expense, any such damage caused to the Leased Property as a result of use by the Lessee and/or anyone acting on its behalf, including its employees, visitors and clients, save for damage stemming from normal and reasonable wear and tear.


For the duration of the Term of the Lease, the Lessor and/or Management Company shall be responsible for, and shall repair at its own expense: (a) all damage to the shell of the Building or to its systems that results from quality of construction and/or the construction materials and equipment, (b) any damage and/or malfunction in the Leased Property and/or Building stemming from normal and reasonable wear and tear, and (c) any damage and/or malfunction in the Public Areas that is not a direct result of the actions or omissions of the Lessee or of anyone acting on its behalf.

 

  20.2. The Lessee shall be responsible for all damage of any kind caused to the Leased Property and/or Building and/or Lessor and/or any third party present in the Leased Property and/or in the Building that results from the actions or omissions of the Lessee, including those of its employees, invitees, clients and others acting on its behalf and/or from the operation of its business in the Leased Property, with the exception of damage and/or malfunction that results from regular and reasonable use or from normal wear and tear and/or from an act or omission of the Lessor and/or Management Company and/or other lessees in the Building and/or anyone acting on their behalf.

 

  20.3. The Lessor shall have no liability or obligation whatsoever for any personal damage and/or loss and/or property damage of any kind caused the Lessee and/or its employees and/or clients and/or visitors and/or any other person acting on its behalf present in the Leased Property or on its way to or from the Leased Property, and the Lessee accepts upon itself full liability for any such damage and undertakes to compensate and indemnify the Lessor for any damage or loss it may sustain and for any expense it may expend in connection with such event, unless such damage or loss resulted from an act or omission of the Lessor and/or Management Company and/or other lessees in the Building and/or anyone acting on their behalf.

 

21. Insurance

 

  21.1. Without derogating from the Lessee’s responsibilities as set forth in section 12 above, the Lessee undertakes, at its own expense, to insure the contents of the Leased Property, its business and the additions and improvements that have been made, or that will be made, to the structure and systems of the Leased Property, as well as its activities in the Leased Property, at their full reinstatement value, with the insurance amounts to be updated from time to time as necessary and to account for all possible, known, customary and accepted risks. The insurance shall be purchased from an authorized and reputable insurance company. Without derogating from the generality of the aforesaid, the Lessee hereby undertakes to insure the contents of the Leased Property for their reinstatement value against the risk of fire, break-in, theft, forced entry, standard loss, broken glass, flood, mechanical breakdown and water damage of any kind.

 

  21.2. The Lessee further undertakes, at its own expense, to insure its activities in the Leased Property with the following insurance:


  21.2.1. Liability insurance in respect of the Leased Property, the business operated therein and the Lessee’s activities. Such insurance shall cover any liability of the Lessor, the Management Company and the Lessee toward any person for personal injury or property or pecuniary damage caused in connection with the Leased Property and/or the activities performed therein or in the Building in connection with the Lessee’s business. The limitations of liability in the third party insurance policies shall not be lower than the following:

$500,000 per claim per event for personal injury and $2,000,000 for multiple claims in respect of a single event.

$2,000,000 for property damage per event and period.

$5,000,000 for employer liability insurance.

 

  21.2.2. Coverage for loss of profits and any other consequential damages resulting from damage caused the Leased Property or its contents.

 

  21.3. The Lessee hereby undertakes to add the name of the Lessor (and of the Management Company) as additional insured parties to the policies listed in sections 21.1 and 21.2 above. The Lessee undertakes, within 7 days of the transfer of constructive possession, to provide the Lessor with an insurer’s confirmation of coverage, signed by the insurers, in the form attached to this Agreement as Appendix H1 and H2 .

 

  21.4. The Lessee undertakes to fulfill all of the terms of the policies listed above in this section, to pay the insurance premiums in timely fashion and to ensure that the policies are renewed and remain fully valid for the duration of the Term of the Lease.

 

  21.5. It is hereby expressly agreed and declared that the Lessor and Management Company shall not bear any liability of any kind toward the Lessee for any damage caused to the Leased Property or its contents by a third party for whatever reason, regardless of whether or not the cause of the damage or malfunction was known beforehand, and the Lessee shall cause the insurance policies to contain an explicit provision stating that the insurer expressly waives any right of subrogation or other right under law to return to the Lessor and/or Management Company with a claim of subrogation or demand for refund or indemnity in respect of direct or indirect damage caused on account of the Lessor, if any.

 

  21.6. The Lessor’s right to inspect and view the policies and to demand any update, addition or amendment thereto, or its abstention from exercising such right, shall not impose upon it any liability whatsoever in respect of the policies or their nature or validity, or the lack thereof.

 

  21.7.

The Lessor, on its own or through the Management Company, shall insure the Leased Property and the other areas of the Building under its possession, including common areas in the Building, with comprehensive insurance (the insurance shall only cover the structure and not the Customization Works or any other works or changes, if any) and third party insurance for property damage and/or personal injury, subject to the terms and limitations


  determined by the Lessor from time to time. The Lessee shall pay the Lessor and/or the Management Company, as applicable, a pro rata portion of the insurance costs, calculated based on the size of the Area of the Leased Property and the parking spaces relative to the entire insured area.

For the removal of doubt, it is hereby expressly agreed that the purchase of such insurance shall not detract or derogate from the Lessee’s responsibility to maintain the integrity of the Leased Property and from Lessee’s obligation to return the Leased Property to the Lessor upon the termination of the Term of the Lease free of damage or defect, with the exception of regular wear and tear resulting from reasonable use. The Lessee undertakes to pay any amount necessary for the repair of the structure of the Leased Property that for whatever reason is not paid by the insurers.

 

  21.8. The Lessee hereby undertakes not to perform, or to permit others to perform, any act or omission that may potentially increase the Lessor’s insurance costs in respect of the Building. In the event that the Lessor or the Management Company are obligated to pay additional insurance costs beyond what is customary as a direct result of an act or omission of the Lessee and/or the nature of its activities in the Leased Property, the Lessee shall pay the relevant increase to the Lessor or the Management Company, as applicable, immediately upon first demand by the Lessor or the Management Company. With regard to the laboratory animals (solely insofar as express written permission is received from the Lessor and subject to its terms), the structure insurance does not include coverage for damage sustained in respect of lab animals and the Lessee shall be fully responsible in such respect.

 

22. Permits

 

  22.1. For the duration of the Term of the Lease, the Lessee alone shall be responsible for taking steps in order to procure at all times all of the permits required under applicable law for the operation of its business in the Leased Property, as well as for the renewal and maintenance thereof. In the event that the operation of the Lessee’s business in the Leased Property requires procurement of a business license and/or any other permit, the Lessee shall be responsible for procuring such permit and undertakes to take the relevant steps to procure such necessary permit/s at its own expense. The Lessee represents that it is knowledgeable and familiar with the business that it intends to conduct in the Leased Property, as well as with the licensing issues and the necessary permits for the conduct of such business. It is hereby clarified that the receipt or non-receipt of such authorizations and/or permits shall not constitute a condition for the Lessee’s fulfillment of its undertakings in accordance with this Agreement, including with respect to the payment of the Rental Fees and any other payments to which the Lessee is subject in accordance herewith. The sole responsibility for receiving such permits shall rest with the Lessee. The Lessor shall cooperate with the Lessee in this matter inasmuch as is necessary.

Without derogating from the aforesaid, the Lessee undertakes and shall be responsible for acting to receive any permit required in connection with its activities in the Leased Property from the Ministry of the Environment, the Ministry of Health, the Jerusalem Municipality


and any additional and/or other entity whose approval is required for the Lessee’s activities in the Leased Property. The Lessee further undertakes to comply with any such requirement or directive, including with respect to sewage removal, waste removal and disposal, water pollution, maintenance and storage of flammable, chemical and other materials, etc.

 

  22.2. At the Lessee’s request, the Lessor shall sign any document and/or application reasonably necessary for receiving a business license and/or other permit required for the operation of the business under law for the Purpose of the Lease, subject to the provisions of this Agreement and applicable law, and provided that the Lessor shall not become subject to any obligation or liability as a result thereof and provided further that the Lessor shall not incur any expenses as a result thereof. For the removal of doubt, it is hereby clarified that nothing in this undertaking by the Lessor shall derogate from the Lessee’s undertaking and obligation to act to receive any such license or permit.

 

  22.3. Without derogating from the aforesaid, the Lessee undertakes to operate its business and fulfill all requirements under the Licensing of Businesses Law, 5728-1968 (hereinafter: the “ Law ”), to act to receive all licenses and permits required by the Law for the operation of its business in the Leased Property in accordance with the Purpose of the Lease and to act in order to renew such license from time to time as required by law.

The Lessee alone shall be responsible for any transgression and/or violation of the Law in the Leased Property insofar as it and/or anyone acting on its behalf and/or any of its invitees and/or employees and/or clients performed such transgression and/or violation, and such transgression and/or violation does not result from any violation of the Law by the Lessor, Management Company and/or anyone acting on their behalf.

 

  22.4. The Lessee shall be solely responsible for any fine or penalty imposed in respect of the operation of the business and/or use of the Leased Property by the Lessee and/or its employees and/or agents and/or clients without a permit or in deviation from such permit, regardless of whether such fine or penalty was imposed upon the Lessor, the Management Company or the Lessee.

 

  22.5. Nothing in the aforesaid shall constitute authorization by the Lessor for the Lessee to use the Leased Property and/or conduct its business therein without receiving a permit and/or in deviation from such permit.

 

  22.6. It is hereby agreed that non-receipt of any permit required by the Lessee for the performance of its business in the Leased Property shall not release the Lessee from the performance of any of its obligations under this Agreement and shall not constitute justification or cause for termination of this Agreement by the Lessee.

 

  22.7. The Lessee hereby represents that prior to its signing of this Agreement it received the opportunity to ascertain, and that it in fact ascertained, the suitability of the Leased Property for the Purpose of the Lease and the possibility of receiving a license for the operation of the Leased Property for the Purpose of the Lease.


23. Transfer of Rights

 

  23.1. The Lessee shall not have the right to transfer and/or assign its rights under this Agreement, in whole or in part, to another or others in any way whatsoever, directly or indirectly, without the Lessor’s prior express written consent and pursuant to the terms determined by the Lessor at its sole discretion.

 

  23.2. The Lessee shall not sub-lease the Leased Property or any part thereof, transfer the Leased Property or any part thereof to another, transfer possession of the Leased Property or any part thereof to another or permit any other to use the Leased Property or any part thereof, for consideration or no consideration, and shall not create a charge or mortgage against any of its rights under this Agreement.

It is hereby clarified that the addition of a parent/subsidiary company as an additional lessee together with the Lessee shall not constitute a breach of this Agreement or a prohibited transfer and/or assignment and/or lease and/or sub-lease of the Leased Property; however, such transfer shall require prior notice to, and the consent of, the Lessor, which the Lessor shall not unreasonably withhold, and provided that the parent or subsidiary company, as applicable, shall join and sign the current Lease Agreement as an additional lessee of the Leased Property together with the Lessee and that the terms and security interests in this Agreement shall not be amended or reduced in any way.

Furthermore, use of the Leased Property by the Lessee’s affiliate companies shall require the consent of the Lessor.

 

  23.3. The Lessee undertakes that for the duration of the Term of the Lease it shall update the Lessor with regard to changes to its controlling shareholders.

For the purposes of this section, “ control ” shall mean ownership of 51% of any type of shares or rights in the corporation, including the right to appoint at least 51% of the directors and the right to appoint the CEO.

 

  23.4. The Lessor shall be entitled to charge and/or mortgage and/or assign all or part of its rights and/or obligations under this Agreement, in whole or in part, but all provided that the Lessee’s rights under this Agreement are not prejudiced in any way. The Lessee undertakes to cooperate and sign any document requested by the Lessor, if any, for the authorization and/or performance of this section.

 

  23.5. The Lessee confirms that it is aware that the rights in the Land on which the Building is built are mortgaged and charged to the Bank and that the Lessor may mortgage and/or charge them again and/or anew, provided that such financing or refinancing does not prejudice the rights of the Lessee and/or increase its obligations under this Agreement.

 

  23.6. The Lessor shall be entitled to irrevocably instruct the Lessee to transfer all of the funds and payments that the Lessee must pay the Lessor under this Agreement to the Bank account indicated by the Lessor to the Lessee, and to it alone, and the Lessee hereby irrevocably undertakes to adhere to such instruction.


24. Reliefs and Remedies

 

  24.1. In the event of the breach of any of the provisions of this Agreement by either of the parties, the injured party shall have the right to receive all of the reliefs set forth in the Contracts (Remedies for Breach of Contract) Law, 5731-1970 and in the Lease and Loan Law, 5731-1971, unless such reliefs were explicitly made conditional in this Agreement. Such reliefs shall be granted even if this Agreement affords specific relief or remedy for such a breach and nothing in this Agreement shall be interpreted as derogating from such right of the injured party and all without derogating from the provisions of this Agreement or applicable law.

 

  24.2. Without derogating from the Lessor’s right to receive higher compensation or any other relief, in the event of a material breach of this Agreement by the Lessee, the Lessor, after providing the Lessee with written notice in such regard and provided that such breach was not remedied within 14 days of the Lessee’s receipt of such notice, shall have the right to receive fixed and pre-determined compensation in the amount set forth in Appendix J to this Agreement, with such amount to be Linked to the Base Index through the Index known on the date of actual repayment, regardless of whether the Lessor elected to maintain or terminate the Agreement. The parties represent that they consider such amount to be agreed and appropriate compensation for the damage that the parties consider to be a likely result of a material breach of this Lease Agreement by the Lessee.

 

  24.3. The breach of any of the following provisions of this Agreement shall be considered to be a material breach thereof:

 

  24.3.1. The breach of any of the provisions of sections 4, 8, 9, 12, 14, 15, 17, 20, 21, 22, 23, 24, 25 and 26 of this Agreement, including any of the sub-sections thereof and subject to any amendments, supplements and changes made to such sections in Appendix J.

 

  24.3.2. A delay of more than 7 days in making any payment for which the Lessee is responsible hereunder and/or the failure to make timely payment of 2 consecutive payments and/or failure to make timely payment of any 3 payments for which the Lessee is responsible hereunder during the entire Term of the Lease.

 

  24.3.3. 3 or more breaches of any of the provisions of section 17, including the sub-sections thereof, during one year of the Lease, and in the event of an ongoing breach, the existence of such breach during 3 or more consecutive days.

 

  24.3.4. Nothing in this section shall derogate from the provisions of section 25 below.

 

  24.4. In any event in which the Lessee ceases to operate its business in the Leased Property or terminates the Lease Agreement for any reason whatsoever, subject to the terms of this Agreement and provided that the Lessor makes reasonable efforts to minimize its damages as required by law, the Lessee shall be obligated to pay all payment to which it is subject by virtue of the provisions of this Agreement for the duration of the Term of the Lease.


  24.5. Notwithstanding any provision of this Agreement in respect of the Term of the Lease, the Lessor shall have the right to terminate this Agreement and demand that the Lessee immediately vacate the Leased Property upon 7 days’ advance notice (hereinafter: the “ Termination Notice ”) and return possession thereof to the Lessor as set forth in section 25 of this Agreement upon the occurrence of any of the following:

 

  24.5.1. The Lessee materially breached this Agreement or any of its material provisions and did not remedy such breach after receiving a demand in writing to do so.

 

  24.5.2. The Lessee breached this Agreement in non-material fashion and did not remedy such breach within 15 days of it being demanded to do so in writing.

 

  24.5.3. The Lessee passed away and/or the Lessee or the parent company guaranteeing this Agreement became the subject of a request filed with the court for its liquidation, declaration as bankrupt, becoming subject to the appointment of an executor, liquidator, temporary liquidator, pre-liquidator, receiver for a material portion of its assets and/or for the creation of a lien on a material part of its assets and a court order was issued in accordance with such request or such request was not cancelled or denied within 45 days of its filing with the court and/or in the event that the Lessee or the parent company guaranteeing this Agreement submitted a request for the liquidation of the Lessee or for the declaration of its bankruptcy and/or for the declaration of its bankruptcy and/or for an arrangement with its creditors and/or for a stay of proceedings.

Notwithstanding the aforesaid, in the event of the occurrence of any of the aforementioned events in respect of any of the guarantors of this Agreement, the Lessee shall be entitled to produce an alternative guarantor who shall be approved by the Lessor within 15 days of the occurrence of such event.

 

  24.5.4. The other guarantees and/or security interests provided for the full or partial performance of this Agreement expired or were cancelled or were declared by the competent court to be cancelled or invalid for any reason whatsoever, or were foreclosed on by the Lessor and/or the Management Company without the Lessee substituting for them and re-providing them in timely fashion.

 

  24.6. In the event that a Termination Notice was provided by the Lessor for the reasons set forth above, the provisions of section 25 below shall apply in addition to the following provisions:

 

  24.6.1.

The Lessor and the Management Company shall have a right of lien over all of the Lessee’s equipment and inventory in the Leased Property, as well as any effects belonging to additional sub-lessees, if any, and/or to any other user then in the Leased Property by consent and/or not by consent and/or of any subsidiary and/or parent company and/or a company of any kind otherwise affiliated with the Lessee and/or in the Building as a security interest for the payment of all of the compensation and funds owed


  the Lessor and/or the Management Company by the Lessee in such a case. The Lessor and/or the Management Company shall have the right to appropriate all of the equipment and inventory and/or collect from them by selling them or by any other means in order to repay the Lessee’s debts owed them, in the event that such debts are not paid within 15 days of the Lessee’s receipt of a first written demand in such regard. For the removal of doubt, it is hereby clarified that the Lessor and/or the Management Company shall not be subject to any bailee liability, whether as a bailee for reward or a gratuitous bailee.

 

  24.6.2. The Lessee shall be responsible for repaying all of the expenses, damages and reasonable losses incurred by the Lessor and the Management Company as a result of the Lessee’s breach of the Agreement immediately upon first written demand, subject to the submission of relevant receipts and documentation.

 

  24.6.3. The Lessee shall have no right to object in any way and/or to attempt to delay or prevent any engagement between the Lessor and an alternative lessee and/or to attempt to prevent or delay the lease of the Leased Property to any alternative lessee. All of the above shall apply to the relationship between the Lessor and the Lessee and to the relationship between the Lessee and a sub-lessee and shall inter alia be considered contractual provisions for the benefit of a third party.

 

  24.7. In the event that the Lessee is more than 7 days late in making any payment owed the Lessor under this Agreement, the Lessee shall pay the Lessor on account of such late amount Linkage Differentials from the Index as well as interest at a rate equaling the higher of the then current market interest rate at the time of the breach or the rate employed by Bank Leumi L’Israel Ltd. at the time of actual payment for Index Linked loans plus 10% per year, calculate as of the date on which the Lessee was to pay the amount in arrears until the date on which it actually paid such amount, or, at the Lessor’s discretion, the Lessee shall pay the Lessor interest on account of the amount in arrears at the maximum rate employed by Bank Leumi L’Israel Ltd. for overdrawn lines of credit in general current loan accounts, compounded monthly (hereinafter: “ Arrears Interest ”), including associated fees charged by the Bank. The Arrears Interest shall be calculated for the period from the date on which the Lessee was to have paid the Lessor the amount in arrears until the date that the Lessee actually paid such amount, all without derogating from the right of the Lessor and/or Management Company to receive a higher level of compensation or to pursue any other remedy.

Written confirmation by one of the Bank’s branch managers regarding the interest rate shall constitute final and sufficient proof with regard to the level of such rate.

 

25. Evacuation of the Leased Property

 

  25.1. The Lessee undertakes to vacate the Leased Property upon the earlier of the end of the Term of the Lease or its abbreviation as a result of the termination or expiration of the Lease Agreement for any reason whatsoever, as applicable, and to return sole possession of the Leased Property to the Lessor with the Leased Property in the same state as it was upon the completion of the Customization Works in the Leased Property as set forth in this Agreement (if such works were actually performed), all subject to reasonable wear and tear, with the Leased Property being in good working order and painted in white or cream.


The Lessee must return the Leased Property clear of any object or person, including equipment as set forth in section 16 above, at the sole expense of the Lessee.

 

  25.2. The disassembly or fixed objects and/or systems in the Leased Property that are owned by the Lessee shall be performed in accordance with the instructions of an engineer, and in any event without damaging the structure of the Building and/or the systems installed therein used by the Building and/or other lessees in the Building and/or the ongoing activity of the Building and/or of other lessees in the Building and shall include the restoration of all systems and/or other elements of the Leased Property (ceilings, walls, piping, etc.) to their previous state and/or to working order, all subject to normal and reasonable wear and tear.

 

  25.3. Upon the evacuation of the Leased Property for any reason whatsoever, or at the latest up to 60 days thereafter, the Lessee shall provide the Lessor, if possible under the circumstances, with confirmation from every municipal and/or governmental and/or other authority and/or any other entity that the Lessee undertook in this Agreement to pay directly, that the Lessee in fact made all payments in respect of the Term of the Lease and has no pending obligation or debt to any such authority.

For the removal of doubt, in the event that the Lessee does not provide such confirmations in a timely fashion and does not extend the validity of the security interests, including the bank guarantee, until the receipt of such confirmations, the Lessee, for the purposes of this Agreement, shall be considered not to have made such payments at all and the Lessor shall be entitled to assert all relevant rights in such respect, including the right to realize the security interests provided to guarantee the Lessee’s obligations, or any part thereof, and provided that the Lessor gave the Lessee 7 days’ advance written notice stating the Lessor’s intention to realize such rights.

 

  25.4. For each day that the Lessee does not vacate the Leased Property, the Lessee shall pay the Lessor a fixed and agreed upon amount equaling three times the Rental Fees that would have been paid under this Agreement, if it had been extended upon the same terms, for the period between the date on which the Leased Property was to have been vacated and the date on which it was actually vacated (including Linkage Differentials), all subject to the provisions concerning Linkage set forth in this Agreement. Notwithstanding the above in this Agreement, it is hereby agreed that late payments of less than 7 days shall not afford the Lessor any compensation, with the exception of Rental Fees and Management Fees for such period of delay.

The parties represent that the aforementioned amount constitutes agreed and appropriate compensation for the damage considered by the parties to be a likely result of such delay in vacating the Leased Property, all, however, without derogating from the Lessor’s right to seek any other remedy and/or higher compensation, including compensation that the Lessor may be liable to pay any alternative lessee, if at all.


  25.5. Without derogating from the Lessor’s right to receive any other remedy in the event of the Lessee’s failure to vacate the Leased Property in a timely manner, the Lessor shall be entitled to do the following:

 

  25.5.1. After providing 7 days’ advance notice of its intention to do so, the Lessor may immediately cease providing the Lessee and/or the Leased Property and/or to instruct the Management Company, which shall be obligated to comply with such instruction, to cease providing the Lessee and/or the Leased Property with electricity, water, air conditioning or other utilities at the Lessor’s discretion and the Lessee shall have no claim or demand in such regard.

 

  25.5.2. To enter the Leased Property on its own or by means of others, including by breaking the locks, and to use reasonable force for such purpose, to vacate the Leased Property of all objects and Effects present therein and to change the locks or prevent access by the Lessee or anyone acting on its behalf to the Leased Property in any way it sees fit.

 

  25.6. The Lessor shall be entitled to vacate the premises at any time of its choosing, without the need to provide prior notice to such effect. The Lessor shall have the right to treat the property and equipment found in the Leased Property as its sees fit. The Lessor shall have the right to move the property and equipment outside the Building and shall be entitled, but not obligated, to store the property and equipment in a location of its choosing and in such event the Lessee shall be obligated to pay for such removal and storage, for all expenses incurred by the Lessor and any Rental Fees determined by the Lessor at its sole and absolute discretion, and the Lessee hereby waives in advance any claim with regard to the amount determined by the Lessor.

 

  25.7. The Lessee hereby provides the Lessor with its consent and permission for the performance of the actions described above in this section.

 

  25.8. For the removal of doubt and without derogating from all of the aforesaid, the Lessee shall be obligated to pay all of the Lessee’s Payments for the period of delay in the evacuation of the Leased Property, including and particularly the payments in respect of which the Lessee is obligated to provide confirmations as set forth in section 25 above.

 

26. Security Interests

As security for the fulfillment of all of its obligations under this Lease Agreement and under the Management Agreement, the Lessee shall provide the Lessor on the dates set forth below with the security interests set forth below:

 

  26.1.

No later than 21 days from the date of the transfer of constructive possession, the Lessee shall provide the Lessor with a parent company guarantee (as set forth in section 14.3) in the form attached to this Agreement as Appendix F, signed by the authorized signatories of the parent company and confirming that the parent company jointly and severally guarantees all of the Lessee’s undertakings hereunder.


  26.2. No later than 7 days from the date of the transfer of constructive possession, the Lessee shall provide the Lessor with an autonomous bank guarantee that is unconditional, non-assignable, drawn up in favor of the Lessor and the Management Company as joint and several beneficiaries, exercisable in parts and validly stamped (if necessary) at the Lessee’s expense, in the form attached to this Agreement as Appendix G. The bank guarantee shall remain valid for the duration of the Term of the Lease and until 90 days following the termination thereof and shall be for an amount equal to the Rental Fees, Management Fees, parking rental fees and the Addition to the Rental Fees (as defined in Appendix J) for six months of the Lease, with added VAT as required by law, with the amount of the guarantee to be Linked to the Base Index. For the removal of doubt, in the event of any increase in the Rental Fees, the Lessee shall be obligated to increase the amount of the guarantee accordingly. In the event of the foreclosure on all or part of the guarantee, for any reason whatsoever, the Lessee shall be obligated to provide a new guarantee for the full amount within 2 days of the foreclosure on the guarantee, without the need for any demand in such regard from the Lessor and/or the Management Company. In the event that this Agreement affords the Lessee the right to extend the Term of the Lease and the Lessee exercised such right, the Lessee shall provide the Lessor, together with the relevant notice regarding the extension of the Lease and as a precondition to the validity thereof, with a bank guarantee in the manner set forth above that is valid for 90 days after the end of the Term of the Lease, including the extension of the Term of the Lease as requested in the notice. The Lessee shall bear all of the costs associated with the bank guarantee, including the cost of the stamps (if any), renewal costs and the fees of the guaranteeing bank. For the removal of doubt, this guarantee is also intended to guarantee the return of the Lessor’s investment in accordance with the repayment mechanism set forth in section 8 of Appendix J.

 

  26.3. The parent company and bank guarantees (hereinafter: the “ Security Interests ”) shall be returned to the Lessee 90 days after the earlier of the date of the termination of the Term of the Lease and/or the date of the Lessee’s actual evacuation of the Leased Property, after it has been proven to the Lessor’s complete satisfaction that the Lessee fulfilled its obligations in accordance with this Agreement and the Management Agreement Terms, including by providing payment confirmation of all payments owed by the Lessee in the manner set forth above in section 25.3. In the event that the Lessee provides such confirmation prior to the expiration of such 90 day period from the termination of the Term of the Lease and/or from the date of the actual evacuation of the Leased Property, as applicable, and the Lessor has been completely satisfied that the Lessee fulfilled all of its obligations set forth in this Agreement and the Management Agreement Terms appendix, the Security Interests shall be returned to the Lessee.

 

  26.4.

The Lessor shall have the right to use the Security Interests, in whole or in part, and to demand their exercise and the repayment of the amounts secured by such interests, in whole or in part, in the event that the Lessee is in material breach of one or more of the provisions of this Agreement, including its default on any of the payments owed the Lessor hereunder,


  one the following dates: (1) the Lessor shall be entitled to exercise the Lessee’s bank guarantee after providing the Lessee advance written notice of 7 days to such effect and provided that the Lessee did not remedy such material breach during such 7 day period; (2) the Lessor shall be entitled to exercise the parent company guarantee after providing the Lessee advance written notice of 14 days to such effect and provided that the Lessee did not remedy such material breach during such 14 day period; (3) notwithstanding the foregoing, it is hereby clarified that the Lessor shall not be required to provide such advance notice in the event that the Lessee ceased to conduct its business and/or of failure to contact the Lessee following reasonable efforts made to such effect.

For the removal of doubt, nothing in the provision of such Security Interests or any part thereof and/or in the exercise thereof by the Lessor and/or the Management Company shall derogate from the right of the Lessor and/or the Management Company to collect what is owed them by the Lessee by any other means, or to release the Lessee from any of its obligations under this Agreement or the Management Agreement Terms, or to limit the compensation and/or damages amount that the Lessor and/or Management Company may collect from the Lessor.

 

27. Allocation of Payments and No Right of Offset

 

  27.1. In the event that the Lessee has several outstanding monetary obligations toward the Lessor, the Lessor, at its discretion, shall have the right to determine at the time of any payment to which debt to attribute the amount paid by the Lessee. Insofar as the Lessor does not otherwise notify the Lessee, any amount owed the Lessor by the Lessee shall be allocated in the following manner: first for interest, then for Linkage Differentials. Thereafter, for repayment of ongoing expenses (water, electricity, Management Fees, etc.), and only then, for payment of Rental Fees and finally for payment of parking fees and for the remaining expenses by their order.

 

  27.2. The Lessee shall not be entitled to offset from payments it owes in accordance with this Agreement, including the Rental Fees, any amounts owed it by the Lessor, if any, whether by virtue of this Agreement or as a result of other transactions.

 

  27.3. For the removal of doubt, the Lessee shall not have the right to offset from its payments any amount owed it by the Management Company, if any.

 

28. Performing Obligations In Lieu of Another Party

In any event that the Lessee is obligated to perform a certain action or task, or make any payment, under this Agreement, and the Lessee does not perform such action or task or make such payment by the appropriate date, as determined in this Agreement or under applicable law – and if no such date has been determined then by the relevant date set forth in the written demand notice received by the Lessee from the Lessor in respect of such action, task or payment – the Lessor and/or the Management Company shall be entitled, but not obligated, to perform the action or task or make the payment in lieu, and at the expense, of the Lessee, whether by themselves or through other parties. In


such event the Lessee shall be obligated to pay the Lessor immediately following its first demand, against provision by the Lessor to the Lessee of receipts and/or proofs of payment in respect of such expenses, all amounts or expenses or damages that the Lessor or the Management Company paid or incurred in connection with the performance of such action or task or payment, with an added 15% of such amounts for general expenses and with added Index Linkage Differentials and interest as of the date on which the Lessor and/or Management Company bore the expense until the date of the Lessee’s full actual repayment of such amount.

 

29. Jurisdiction

The competent courts in the city of Jerusalem, Israel shall have full and exclusive jurisdiction over any dispute and/or disagreement between the parties arising from their entry into and/or the validity and/or breach and/or performance and/or interpretation of this Agreement and its appendices.

 

30. Miscellaneous

 

  30.1. All equipment installed on the roof of the Building, if any, following receipt of the appropriate permit in writing from the Lessor, must be accompanied by the installation of reasonably sized shock absorbers appropriate for such equipment based on its type and customary industry standards.

 

  30.2. This Agreement, together with its appendices, is the sole and exclusive representation and formalization of the relationship of rights and obligations between the parties.

 

  30.3. Upon the signing of this Agreement, which constitutes the full and binding agreement between the parties, all other contracts and/or letters of intent and/or agreements and/or declarations made between the parties and/or any prospect and/or promise and/or advertisement, if any, made by the Lessor or its representatives or anyone acting on its behalf, are all hereby rendered null and void and shall not obligate the parties in any respect whatsoever.

 

  30.4. The parties hereby represent that they entered into this Agreement following the completion of appropriate investigations and inspections and that neither party based any decision on any information besides that which is explicitly set forth in this Agreement.

 

  30.5. None of the provisions or terms of this Agreement and its appendices shall derogate from any of the other provisions or terms or this Agreement, but rather to complement them, unless otherwise set forth explicitly in this Agreement or required by the context of the relevant term.

 

  30.6. No amendment and/or waiver and/or deviation of or from the provisions of this Agreement shall be valid unless made in writing and signed by both parties hereto.

 

  30.7. The consent of either party hereunder to deviate from the provisions of this Agreement in a particular case shall not be instructive or constitute a precedent with respect to any other case. A party’s failure to exercise any of its rights hereunder in a particular case shall not constitute a waiver of such right in respect of the occurrence of any parallel and/or similar and/or other case and it shall not be indicative of such party’s waiver of any right afforded it under this Agreement. No inference may be made from a party’s waiver of its rights in one case with regard to such party’s rights in any other case.


  30.8. Nothing in this Agreement shall create any partnership and/or agency between the parties and nothing herein shall grant any rights to any third parties not mentioned in this Agreement. Furthermore, nothing in this Agreement shall prejudice or derogate from any third party obligation or undertaking whatsoever.

 

  30.9. For the removal of doubt, it is hereby clarified that the rights afforded the Lessee under this Agreement, if any, are afforded the Lessee only with respect to the Leased Property and the Lessee does not and shall not have any right in connection with existing and/or additional building rights and/or existing and/or additional building areas that will be approved and built by the Lessor or by any third party whatsoever, and/or in connection with the use of any part of the Building that is not part of the Leased Property, whether or not currently existing, including roofs, corridors, etc. the Lessee hereby grants its consent in advance for any such activity and/or use and it shall not have the right to object in any way to such activity and/or use.

 

  30.10. It is further clarified for the removal of doubt that the Lessee shall not have the right, at any time, to register a caveat by virtue of its rights under this Agreement or in connection therewith. In the event that despite the terms of this section the Lessee registers a caveat or other registration with the Land Registration Offices, such registration shall be considered a material breach of this Agreement that affords the Lessor with all applicable remedies under law.

 

  30.11. The parties’ addresses and contact information for the purposes of this Agreement shall be as set forth in the preamble to this Agreement and any notice sent by one party to the other pursuant to such contact information, or pursuant to any other contact information provided by one party to the other in accordance with the provisions of this Agreement, shall be considered received: (a) if sent by registered mail – 3 business days from dispatch, (b) if sent by fax or email, and a failure to send notice was not received by the sender – after 1 business day from dispatch, and (c) if delivered by hand – upon delivery.

Notwithstanding the foregoing in this section, it is hereby clarified that as of the Date of Transfer of Physical Possession, the Lessee’s address shall be at the Leased Property and not as set forth in the preamble to this Agreement.

It is hereby further clarified that notices sent to the parent company shall be sent to the Lessee’s address and such notices shall be considered validly served for all intents and purposes.

Now therefore, the parties hereby affix their signatures on September 5, 2008 in the place and on the date set forth above.

 

 

 

Lessor

Lessee
                                         By: /s/ Yair Hadar                                          By: /s/ Roni Mamluk
                                         Yair Hadar                                          Roni Mamluk, CEO
                                         By: /s/ Martin Burg
                                         Martin Burg, VP Operations


Appendix A

 

LOGO


APPENDIX B

BEIT HADAR PROPERTIES – TECHNICAL

SPECIFICATION FOR OFFICES

 

1. Mineral acoustic ceiling (dimensions approx. 60X60).

 

2. A.     Helicopter smooth concrete floor.

B.     Carpet at the Lessor’s choice (basic price $12 per sq.m.)

 

3. Internal division (by plaster walls) including wooden doors with veneered or impressed plywood lintels at the decision of the Lessor’s advisors.

 

4. Aluminum windows with anodized or colored profile in accordance with the building plan at the decision of the Lessor’s advisors.

 

     Preparations for connection to electricity, sub-meters to the building’s main board, possible size of the connection for each floor 250X3.

 

5. A complete public electricity system including —

 

  A. 3 appliances sockets every 14 sq.m. of the leased property, 1 computers socket (with pull cord).

 

  B. Lighting in offices at an average initial lighting strength of 500 lux per sq.m.

 

  C. Lighting in the corridors the public areas t an average initial lighting strength of 200 lux.

 

6. Air conditioning — in accordance with the size of the leased property and according to the determination off the Lessor’s advisors.

 

     The system shall include central network connections (water cooling). The system shall include the supply of fresh air and suction from the bathrooms and kitchenette. Internal summer temperature 24 0 C, when the temperature is up to 37 0 C outside, internal winter temperature 20 0 C, when the temperature is up to 5 0 C outside.

 

7. PREPARATION FOR TELEPHONES ACCORDING TO “BEZEK’S” REQUIREMENTS

 

     Preparation including push cords from the point up to the switchboard for 1 telephone points (extension) every 14 sq.m. of the leased property (the lines will be ordered and paid for by the Lessee).


8. Bathrooms and kitchenette on the floor of the leased property and a kitchenette for the Lessee’s service.

 

     Kitchenette — including lower and upper closets, marble working surface and double sink with hot and cold water faucet.

 

     The porcelain tiles will be manufactured by Negev Ceramics and/or Aloni and/or other equivalent manufacture.

 

     The sanitary fixtures will be made of Class A earthenware.


APPENDIX C

RULES FOR THE SUPPLY OF ELECTRICITY SERVICES

 

1. PREAMBLE

 

     This appendix sets out in detail the mutual undertakings of the parties to the agreement, in all matters pertaining to the supply of electricity services to the leased property.

 

2. DEFINITIONS

 

     The following terms shall be given the interpretation stated alongside them, as follows:

 

     The Agreement ” — the lease agreement signed between the Lessor and the Lessee, including the management agreement and the appendix thereto.

 

     The Lessor ” — the Lessor pursuant to the Agreement, including the management company and/or anyone on their behalf.

 

     The Lessee ” — the Lessee pursuant to the Agreement.

 

     The Engineer ” — an electrical engineer or qualified electrician or representative on behalf of the Lessor who will be responsible from time to time for the electricity system in the building.

 

     The Electricity Services ” — the supply of electricity, the maintenance of electrical facilities to be installed in the building and the leased property by the Lessor, insurance for the aforesaid electrical facilities, operation and maintenance of the electricity control systems in the building and its facilities, but excluding the electrical facilities to be installed in the leased property by the Lessee.

 

3. GENERAL

 

  A. All the Electricity Services to the leased property shall be supplied by the Lessor.

 

  B. The Lessee’s charge for the supply of the Electricity Services shall be made on the basis of the electricity meter reading that shall measure the supply of electricity to the leased property, plus charges for the use of the electrical installations, maintenance of the electrical installations etc., all as set out in detail below in this appendix.

 

  C. The Lessee again hereby undertakes to use solely and exclusively the electricity supply services to be supplied by the Lessor, and not to apply to the Electric Corporation with a request to install a separate meter and/or separate and/or direct supply of electricity and/or payment directly to the Electric Corporation and the Lessee shall be responsible for all the Lessor’s damages in such event. The aforesaid does not derogate from the Israel Electric Corporation Ltd.‘s right to connect the Lessee directly to the electricity network for the supply of electricity provided on behalf of the Electric Corporation, at its sole discretion in conjunction with the Lessor.


       The Lessee shall have no claim on any ground whatsoever against the Electric Corporation in respect of the non-supply of electricity current and/or interruptions in the supply thereof, including with regard to electronic or other equipment to be installed by the Lessee, if installed, in the leased property, and the Lessee also undertakes to indemnify the Electric Corporation in respect of any expense and damage that it may incur as a result of a claim in respect of the aforesaid matters of any guest and/or licensee on behalf of the Lessee.

 

  D. The Lessor shall provide the Lessee with Electricity Services to the leased property, when the method of use of the electricity in the leased property itself shall be subject to the Lessee’s discretion, subject to any law and/or condition and/or rules concerning electricity and the use thereof, and subject to the other provisions in this appendix.

 

4. INSPECTION OF ELECTRICAL FACILITIES IN THE LEASED PROPERTY

 

  A. The Lessor shall be entitled to visit the leased property at any reasonable time, without the necessity of advance notice, and inspect all kinds of electrical facilities, to examine its safety and conformance to the prevailing safety standards.

 

  B. If the Engineer is of the opinion that any electrical facility whatsoever that has been installed in the leased property is liable to cause damage to the building’s electricity supply network and/or it constitutes a safety hazard and risk and/or does not comply with the prevalent safety standards and/or the load it imposes on the Electricity Services supply system is liable to interfere with the system – the Engineer shall be entitled to demand a repair and/or replacement and/or change in the facility, and the Lessee undertakes to take all the measures required to comply with the Engineer’s demand within 14 days.

 

  C. The Lessee shall be liable for any damage that may be caused to the equipment and/or the electrical facilities in the leased property as a result of the operation of the faulty electrical facility, as set out in detail above.

 

5. CHANGES AND ADDITIONS TO THE ELECTRICITY SYSTEM

 

     The Lessee may not perform any extensions and/or changes and/or additions to the electricity supply facilities to be provided to the leased property, and the Lessor shall be entitled to immediately disconnect and/or remove any extension, change, addition etc. that was made without the Lessor’s permission, and at the Lessee’s expense, without derogating from the Lessee’s liability for any damage that may be caused to the electricity supply facilities as a result of work as aforesaid. Any change, extension and/or addition in the electricity supply facilities that may be demanded by the Lessee beyond what is stated in the agreement and that are approved by the Lessor shall be subject to a charge.


6. ACCESS TO AND TREATMENT OF THE ELECTRICITY FACILITIES

 

  A. The Lessee shall allow access to every competent employee on behalf of the Lessor at an reasonable hour, to every electrical facility in the leased property, for the purpose of inspection, control, installation, repair, replacement of faulty parts, removal, dismantling, assembly etc. works that may be required in the Lessor’s opinion in the electrical facilities supplying the electricity services to the leased property.

 

  B. For the purpose of performing the works as aforesaid, the Lessor shall be entitled to temporarily disconnect, for the period of time required, the supply of electricity to the leased property, provided that the period of time when the supply of electricity to the leased property is disconnected is reasonable, taking into account the type of work in the leased property.

 

  C. The Lessee shall arrange to vacate and/or move any fixture that might interfere with the access to and performance of the works as set out in detail above.

 

7. OWNERSHIP RIGHTS

 

     Any instrument, appliance and other equipment that are connected to the electricity supply services installed by the Lessor are the sole property of the Lessor, and it makes no difference whether the Lessee contributed to the purchase and/or connection etc. expenses of the aforesaid equipment.

 

8. LIABILITY FOR THE LESSOR’S PROPERTY

 

  A. The Lessee shall be forbidden from performing any work of any kind whatsoever in the appliances, tools and other equipment belonging to the ole supply services system to the leased property, unless it has obtained permission from the Lessor in writing and in advance for performance of the works as aforesaid otherwise than by the Lessor.

 

  B. The Lessee shall be responsible for preserving all the equipment described above in good working order throughout the entire term of the lease and/or the use of the leased property, and it shall be liable vis-à-vis the Lessor for any damage that may be caused to the equipment that is not such as arises from reasonable and normal wear and tear.

 

9. DELIVERY OF ELECTRICITY

 

     The Lessee may not supply and/or sell electricity and/or provide any electricity services whatsoever that have been supplied to it by the Lessor, for or without consideration and in any other manner whatsoever, unless it is a matter of the supply of electricity inside the confines of the leased property, for licensees and other occupiers, put the agreement.


10. LIMITATION OF THE LESSOR’S LIABILITY IN THE EVENT OF INTERRUPTION OF ELECTRICITY

 

  A. The Lessor shall be entitled to terminate or restrict the supply of the Electricity Services to the leased property and other places in the building, in the cases set out in detail below:

 

  1. In any event of the termination or restriction of the supply of the Electricity Services to the leased property originating in an internal and/or external fault to the central Electricity Services supply system in the building, such as national or regional power outages originating in the Electric Corporation’s network, or in the building’s internal electricity distribution network.

 

  2. In any event where there is danger to person or property.

 

  3. In any other event, where the Engineer has ordered the necessity of an outage as aforesaid.

 

  B. In any event where it is possible to notify the Lessee of the expected interruption to the supply of the Electricity Services, notice thereof shall be given in advance from the Lessor, and in the manner determined by the Lessor.

 

  C. The Lessor shall not be liable and shall not pay for any damage that the Lessee may incur in respect of the power outages, in the cases set out in details above and/or in any other case over which the Lessor has no control.

 

11. UNANTICIPATED CHANGES

 

     If and as a result of any law, regulation, order or act of a government authority or other competent authority, it becomes necessary, at the Lessor’s discretion, to perform any changes whatsoever in the system for the supply of the Electricity Services to the leased property, the Lessor shall make the aforesaid changes, without the Lessee raising any contention and/or claim whatsoever in respect of making the change as aforesaid and the Lessee shall pay the expenses entailed by the works as aforesaid.

 

12. DETERMINATION OF THE ELECTRICITY POWER CONSUMED BY THE LEASED PROPERTY

 

  A. The quantity of electricity power consumed at the leased property is part of the elements in respect of which the Lessee pays use fees, in consideration for the supply of the Electricity Services.

 

  B. The quantity of electricity power (in kilowatts per hour) that the Lessee consumes in the leased property shall be measured via a separate meter to be installed together with all the meters in the building and/or in a place in the building determined by the Lessor.


  C. The meter shall be read by competent employees on behalf of the Lessor or via computerized electronic means, and this shall serve as absolute testimony in relation to the quantity of electricity consumed.

 

  D. In the event that the meter has not operated properly for a particular period of time, or for any other reason whatsoever, or in the event that the Lessee has consumed electricity in the leased property otherwise than via the meter or in a way that has not been agreed upon according to the rate of consumption during previous periods, and if this is not possible, an estimate shall be made by way of comparison to consumption by similar businesses in the building.

 

  E. In the even that the Lessee disputes the Lessor’s estimates as set out in detail above, the Engineer shall decide in the matter, and his ruling shall be final and binding.

 

  F. In any other event where the Lessee disputes the calculation of the amount of electricity consumption in the leased property, its contention shall be examined by the competent employees on behalf of the Lessor, and if this examination shows that the calculation was not exact, for a reason that is not dependent upon the Lessee, the calculation shall be corrected, and the Lessee shall be credited and/or charged, as the case may be, in the following account, by the amount entailed by the correction of the error.

 

  G. In any event of an examination conducted at the Lessee’s request as aforesaid, where it is found that the Lessee’s arguments are unfounded, and that all the equipment installed by the Lessor is working properly, the Lessee shall be charged the expenses of the examination, by the sum determined by the Lessor from time to time.

 

13. TERMINATION OF THE ELECTRICITY SERVICES DURING THE TERM OF THE LEASE

 

  A. In the event of a fundamental breach of the agreement, including and in particular where the Lessee has not paid the rent it owes, the Lessor may disconnect the supply of electricity to the Lessee after giving advance notice.

 

  B. In the event of termination of the electricity supply as aforesaid, all the costs, damages and losses in respect of such termination such be the Lessee’s sole liability.

 

14. TERMINATION OF THE SUPPLY OF ELECTRICITY SERVICES AT THE END OF THE TERM OF THE LEASE

 

     When possession in the leased property is seized by the Lessor following vacation of the leased property by the Lessee at the end of the term of the lease, or following any other event where the Lessee vacates the leased property and ceases to use them, either pursuant to the agreement or following the breach thereof, the meter connected to the leased property shall be read and its reading recorded. This reading shall be used in the final reckoning between the parties in all matters pertaining to the calculation of the payment that the Lessee owes the Lessor in respect of the supply of the Electricity Services.


15. PAYMENT FOR THE SUPPLY OF THE ELECTRICITY SERVICES

 

  A. The payment to be paid by the Lessee to the Lessor in respect of the supply of the Electricity Services shall be in accordance with the costs of the electricity supply by the Israel Electric Corporation Ltd.

 

  B. The Lessee shall be obliged to pay the Lessor the price of the cost of the use of the Electricity Services as set out in detail above, according to an account to be presented to the Lessee once a month.

 

  C. Payment in respect of the electricity supply shall be charged together with the rent and/or the management fees and in the same way as the management fees and/or the rent are collected, or by a payment made directly to the Lessor’s and/or the management company’s bank account as may be notified from time to time on the payment accounts, on such date as is notified by the Lessor, all in accordance with the instructions given by the Lessor at its discretion.

 

  D. The bank bond deposited by the Lessee with the Lessor and/or the Management Company upon the occasion of the signature of this Agreement shall serve as surety for the payment of the sum the Lessee owes the Lessor, in respect of the supply of Electricity Services throughout the term of the ongoing charge, and as surety for the Lessee’s liability to look after the electricity equipment provided by the Lessor, and the Lessor shall be entitled, at its choice, to use the bond and/or part thereof to cover any sum the Lessee owes it in respect of the use of the Electricity Services. If the Lessor has used the bond, all or part thereof, the Lessee shall be obliged, immediately it has been required to do so, to renew and/or supplement the defective bond. Provision of the bond as aforesaid shall not derogate from any other right of the Lessor in accordance with any law and pursuant to this Agreement and this appendix.

 

16. All the fixtures, equipment, systems etc. that are connected to the supply of the Electricity Services to the building in general and the property leased to the Lessee in particular shall be planned according to the best discretion of the professionals proficient in this field on the Lessor’s behalf and the nature, quality, quantity, size, type etc. thereof as the professionals may determine.


APPENDIX D

PRINCIPLES OF THE MANAGEMENT AGREEMENT

 

1. DEFINITIONS

 

     The Management Company ” —

 

     The Lessor and/or a company on its behalf and/or in its name.

 

     Management and Maintenance Charges ” —

 

     All the sums that the Lessee owes to the Management Company (hereinafter – “ the Management Agreement ”).

 

     The Public Areas ” —

 

     Means all the areas within the confines of the land as defined in the lease agreement, including, and without derogating from the generality of the aforesaid, all the buildings, additions or improvements that may be added from time to time, the parking lots – external and/or underground, gardens, roofs, passages, stairwells, entrances and exits, basements, internal streets, sidewalks, service rooms, bathrooms, air conditioning and systems, loading and unloading bays, elevators, stairs, stairwells, escalators and any other area within the confines of the plot upon which the project is built that are available to the general public and/or that may be made available to it and/or such areas serving and/or that may serve all or the majority of the lessees in the project, such as transformator rooms, refuse compressors, unloading and/or loading and/or storage basements, the management company’s offices as well as the shelters, all excluding such parts in the building and the plot that have been designated for sale and/or rental.

THE MANAGEMENT COMPANY’S UNDERTAKINGS

 

  A. The Management Company undertakes to manage, maintain and operate the building, in a reasonable and proficient manner as is customary in buildings in Har HaHotzvim that are owned by the Lessor.

 

       The Lessee undertakes not to perform by itself and/or via another on its behalf the services and other acts entrusted to the Management Company pursuant to the Management Agreement, and agrees that these services and acts shall be performed exclusively by the Management Company.

 

  B. Without derogating from the generality of the aforesaid, the Management Company shall be entitled to arrange, inter alia , the following matters included within the framework of the management, maintenance and operation of the building and the plot:


  1) Cleaning, lighting and reception clerk at the lobby 24 hours a day in the Public Areas.

 

  2) Air conditioning in Public Areas where air conditioning is available and appropriate.

 

  3) Gardening of the gardens and vegetation in Public Areas.

 

  4) The installation of equipment and property to be used by and that will serve the visitors to the plot.

 

  5) Maintenance, inspection and upkeep of Public Areas and of the equipment and property serving the building and/or the lessees and/or the holders of rights in the building, all or any of them, insofar as this concerns equipment that is not owned by and/or under the liability of any of the lessees and inter alia : generators, gas and gasoline containers, the sewage, plumbing, electricity, and drainage systems, the lighting, elevators and escalators in the Public Areas in the building.

THE MANAGEMENT COMPANY’S POWERS

 

  A. For the purpose of performing its undertakings pursuant to the Management Agreement it may, inter alia , at its sole and absolute discretion, and on such conditions as it thinks fit:

 

       To maintain offices in the building and/or in any other place and to employ managers, clerks, accountants, bookkeepers, attorneys, workers, craftsmen, professionals, advisors, engineers, architects, contractors, sub-contractors and other employees, and all in accordance with what it regards necessary at its discretion. The above-mentioned employment shall be effected solely and exclusively paying attention to the requirements of the occupiers and owners of the areas in the building.

 

  B. To acquire building insurance for the project against loss or damage following risks of fire, lightning, explosion, earthquake, rioting, terror damages, strikes and malicious damage, flooding and water damages, electricity and other natural damages as well as against any other risk that may be required in the Management Company’s opinion, in sums or without any restriction on sum, as the Management Company may determine as prevalent in similar buildings owned by the Lessor at Har HaHotzvim. The insurance as aforesaid shall include a clause regarding waiver of the right of substitution vis-à-vis the lessees in respect of damage they unintentionally cause to the structure of the building.

 


  C. To acquire third party liability insurance insuring the duty of the Lessor, the Management Company and the Lessee vis-à-vis any third party whatsoever, in sums or without any restriction on sum at the discretion of the Management Company from time to time as prevalent in similar buildings owned by the Lessor at Har HaHotzvim, within the confines of the Public Areas that do not constitute part of the Leased Areas.

 

       The policy shall contain a “cross-liability” clause.

 

  D. To acquire employer’s liability insurance insuring the duty of the Management Company and the Lessor vis-à-vis their employees pursuant to the Civil Wrongs Ordinance (New Version) and/or pursuant to any other statue in respect of death and/or any personal injury (including psychiatric or mental damage) to any employee as a result of accident or illness during the course of and consequent upon his employment.

 

  E. To acquire insurance against loss of rent and/or management fees and/or consequential loss and loss of profits for the Lessor and/or the Management Company as a result of loss or damage to the project and/or the leased property, and any other insurance necessary in the opinion of the Management company and concerning destruction and/or damage and/or loss and/or obligation in connection with the project and the management and operation thereof.

 

  F. To arrange for payment for water, electricity and energy in respect of the Public Areas, payment of the municipal and government taxes levied on the Public Areas, payment of all the other payments of any kind and nature whatsoever that are not levied on specific areas, and also payment of all the remaining other payments in respect of services and maintenance of the building, and in respect of the operation of the Management Company as stated in this agreement.

PERFORMANCE OF WORKS BY THE MANAGEMENT COMPANY

The Management Company may at any time enter the leased property after prior arrangement with the Lessee (excluding in urgent cases) and perform therein any act that in its opinion is required for the purpose of exercising its powers pursuant to this agreement. Without derogating from the generality of the aforesaid the Management Company shall be entitled, inter alia , to open walls, floors, ceilings and other parts in the leased property, and replace and repair piping and plumbing and connect to them, and also to perform any electricity works whatsoever.

The Management Company undertakes to make its best endeavors in order to arrange that the interference to the Lessee shall be as minimal as possible and to restore the property to its former condition as quickly as possible.


The Lessee undertakes to do everything required in order to assist the Management Company in the performance of the works it performs in the leased property, and to permit the Management company to cause as minimal interference as possible to the operation of the leased property.

MANAGEMENT AND MAINTENANCE FEES

In consideration for the management and maintenance services to be provided by the Management Company as stated in the Management Agreement, the Lessee undertakes to pay the Management Company management and maintenance fees as follows:

 

1. The Lessee’s proportionate part (as defined in Section 11.10 of the Lease Agreement) of the payment of the expenses involved in the operation, management and maintenance of the building and the Public Areas by the Management Company and in the performance of the Management Company’s undertakings as set out in detail in the Principles of the Management Agreement Appendix (including financing expenses and expenses in respect of depreciation of equipment at the rate prescribed in by law that shall be paid to the Lessor in respect of the installation and/or replacement of equipment for the service of the public and/or the lessees in the building or part thereof) (hereinafter – “ Operation and Maintenance Expenses ”).

 

2. Payment of all the expenses or the Lessee’s proportionate part (as defined in Section 11.10 of the Lease Agreement) of the expenses that are not included in the operation and maintenance expenses as defined above, that at the Management Company’s sole discretion should be levied on the Lessee and/or on the Lessee together with a further particular number of lessees since the expense arises from the management of the particular business of the Lessee and/or the business of several lessees in the building.

 

3. Expenses that may be incurred by particular lessees shall be levied on such lessees (like for example electricity for the air conditioning).

 

4. In addition to the payments in respect of the Operation And Maintenance Expenses and the expenses as aforesaid, the Lessee shall pay the Management Company management fees at the rate of 15% (fifteen percent) of the payment the Lessee is charged under the aforesaid (namely – the actual payment shall be 15% + COST) plus statutory V.A.T. against the receipt of a statutory tax invoice and receipt within 14 days from the date the payments are made in the sum of all the payments.

 

5. The Lessee may peruse the books of the management expenses at any reasonable time after prior arrangement with the manager of the Management company and at the Company’s offices.


THE TERM OF THE PRINCIPLES OF MANAGEMENT

After the expiration of the term of the lease or the term of the opinion if applicable, whichever of the two is the later or upon revocation of the Lease Agreement according to what is prescribed in the Lease Agreement, the Principles of the Management Agreement Appendix shall cease to be valid and a final reckoning shall be conducted between the Lessee and the Management Company with regard to their rights and obligations according to the contents of the Principles of the Management Agreement Appendix, and all subject to the fulfillment of all the conditions for making the reckoning in the Lease Agreement.

USE OF THE UPPER ROOF AND/OR BALCONY

It is hereby agreed that the Lessee shall not be given the right of use on the upper roof above the leased property or any other external roof, excluding by express written consent from the Lessor.

PARKING LOT

It is hereby agreed that the management of the parking lot shall be entrusted to the Lessor or anyone on its behalf and the Lessee undertakes to act according to their instructions.


APPENDIX “F”

Parent Company Guarantee

 

Date: September 5, 2008

Chiasma, Inc.

To: R.M.P.A. Properties Ltd.

We, the undersigned, Chiasma, Inc. (hereinafter: the “ Company ”), the owner on the date hereof of 100% of the issued and outstanding shares of the tenant. Chiasma Israel Ltd. (hereinafter: the “ Tenant ”), hereby guarantee irrevocably, absolutely, fully and for an unlimited amount all of the undertakings of the Tenant, pursuant to the lease agreement entered into on or about the date of this guarantee (including the exhibits thereto) between the Tenant and R.M.P.A. Properties, Ltd. (hereinafter: the “ Landlord ”) and the Management Company (as defined in the Lease Agreement) (hereinafter: the “ Lease Agreement ”).

This guarantee will also apply to any amendment, supplement, exhibit, understanding and waiver to any of the undertakings of the Tenant, including transfer of obligations and rights, which will be agreed upon between the Tenant and the Landlord and/or the Management Company, without either of them having an obligation to inform us thereof in advance or to obtain our consent therefor.

We hereby waive the requirements of any demand to the Tenant prior to demanding payment from us under this guarantee. Any demand made to the Tenant will, ipso facto, be considered a demand to us and we undertake to indemnify the Landlord and/or the Management Company with respect to all of the undertakings of the Tenant, specified in the Lease Agreement, including payment of damages as if we are directly responsible to the Landlord.

For the removal of doubt this guarantee shall remain in full force and effect until 90 (ninety) days after the expiry of the lease period under the Lease Agreement and any extension thereof with respect to all of the undertakings of the Tenant pursuant to the Lease Agreement.

We are aware that providing this guarantee is a condition precedent to the agreement of the Landlord to enter into the Lease Agreement.

It is hereby agreed that we may rely on any right, claim, limitation of liability, etc. which the Tenant may have.

For the removal of doubt, by signing this guarantee we hereby subject ourselves to the jurisdiction and choice of law provided for in the Lease Agreement.

In Witness Whereof, we have affixed our signature on this 5th day of September 2008.

 

Chiasma, Inc.
/s/ Martin Berg
Martin Berg
/s/ Roni Mamluk
Roni Mamluk


APPENDIX “G”

BANK BOND FORMAT

R.M.P.A. Properties Ltd.

Whose address is 12 Hartoum Street Har HaHotzvim Jerusalem

Dear Sir or Madam,

RE: BANK BOND

As surety for the fulfillment of all the Lessee’s undertakings pursuant to the Lease Agreement and according to the Management Agreement, at the request of Chiasma (Israel) Ltd. (hereinafter: “ the Lessee ”) we hereby undertake and hereby stand guarantee vis-à-vis yourselves for the Lessee for the payment of any sum up to the sum of NIS                                      (in words:                                  new shekels), when this sum is linked to the Consumer Price Index I (including fruits and vegetables) published by the Central Bureau for Statistics, when the base index is the Index for May 2008 (hereinafter: “ the Bond Sum ”) and all in connection with ensuring the Lease Agreement and the Management Agreement between the Lessee and yourselves dated September 5, 2008, in the building constructed on Parcel 100 in Block 30243 at 10 Hartoum Street in Har HaHotzvim in Jerusalem that is known as “Beit Hadar Properties” (that shall hereinafter be called: “ the Building ”).

We hereby undertake to pay you any sum that you may demand within the limits of the Bond Sum immediately at your first written demand, and no later than two working days from the date of the demand, and without your being required to found or prove your demand.

You shall be entitled to demand from us payment of the Bond Sum in full or to demand from us from time to time sums on account of the Bond Sum, and in such instance after every payment the bond shall remain valid with regard to the balance of the Bond Sums, provided that the total of your entire demand does not exceed the Bond Sum.

This our undertaking is irrevocable and shall remain valid until                             .

This bond shall be valid in full until                                                   at 12:00 inclusive, and any demand thereunder must be sent to us no later than the above-mentioned date.

This bond may not be endorsed, transferred or assigned.

Bank                             

Branch                         

 


APPENDIX “H-1”

CONFIRMATION OF MAKING CONSTRUCTION WORKS INSURANCE

 

R.M.P.A. Properties Ltd. Date:                                                      

12 Hartoum Street Har HaHotzvim Jerusalem

Dear Sir or Madam,

RE: Our Insured:                                                   (hereinafter: “the Lessee”)

Confirmation of taking out insurance in connection with the

Lease Agreement dated                                                  

Made between the Lessor and the Lessee (hereinafter: “the Agreement”)

We hereby confirm that with effect from                                                   and until                                                   our company at the Lessee’s request has issued an all risks contractor works insurance policy (hereinafter: “ the Policy ”) in respect of the works performed by it at the site of the leased property.

The Policy contains the following insurance heads:

HEAD A

Insurance for the works themselves including materials and any property and/or equipment and/or fixtures used for the performance of the works, for their full value. This head includes waiver of the right of substitution vis-à-vis the Lessor and/or the Management Company and/or anyone on their behalf as well as vis-à-vis the other lessees and/or tenants in the building where the property insurances of the other lessees and/or tenants in the building includes a parallel clause regarding waiver of the right of substitution vis-à-vis the Lessee, provided that waiver of the right of substitution as aforesaid shall not apply in favor of anyone who has caused damage with malicious intent.

HEAD B

Third Party Liability Insurance to cover the insureds’ liability by law in respect of injury and/or damage that are liable to be incurred to the person and/or property of any person and/or body whatsoever, with liability limits of $500,000 for one claimant for one event and $2,000,000 for several claimants for one event and in the accumulative for an annual insurance term. The insurance does not include any limitation regarding liability arising from fire, explosion, panic, lifting equipment, unlading and loading, defective sanitary fixtures, poisoning, rioting, strikes, damage with malicious intent, liability in respect of and vis-à-vis contractors, sub-contractors and their employees as well as claims for substitution on the part of the National insurance Institute. The insurance is extended to cover the liability of the Lessor and/or the Management Company for the acts and/or omissions of the Lessee and/or anyone on its behalf and also their liability as owners and/or managers of the leased property, subject to a cross-liability clause.


The Lessor’s property for the purpose of the insurance under this head (expressly including the leased property structure) shall be deemed to be third party property.

HEAD C

Employers Liability Insurance to cover the Lessee’s liability pursuant to the Civil Wrongs Ordinance (New Version) and/or the Liability for Defective Products Law, 5740 – 1980 vis-à-vis all those retained in the performance of the works, with liability limits of $5,000,000 for one claimant for one event and in the accumulative for an annual insurance term. This head does not contain any restriction regarding contractors, sub-contractors and their employees, works at high and low altitude, baits and toxins, youth employment and working hours.

The insurance under this head is extended to indemnify the Lessor and the Management Company as additional insureds.

GENERAL —

 

1. The name of the insured in the Policy (all heads thereof) is extended to include also contractors and/or sub-contractors. Likewise, and in all matters pertaining to Heads B and C the name of the insured is extended to include also the Lessor and the Management Company.

 

2. The Policy includes a waiver of the right of substitution vis-à-vis the Lessor and/or the Management Company.

 

3. A breach of the conditions of the Policy by the Lessee shall not derogate from the rights of the Lessor and/or the Management Company thereunder.

 

4. The insurance takes precedence over any insurance made by the Lessor and/or the Management Company, and we waive any contention and/or demand regarding joining the insurances of the Lessor and/or the Management Company.

 

5. We hereby confirm that the Lessee alone is liable for the payment of the premiums and excess sums in respect of the above insurance.

 

6. We hereby undertake that the above-mentioned Policy shall not be reduced and shall not be cancelled throughout the insurance term, otherwise than by 60 days advance notice to the Lessor and the Management Company, in writing, by registered mail.

This our confirmation is subject to the conditions and reservations of the original insurance policy, insofar as it has not been changed in accordance with the contents of this confirmation.

 

 

 

 

 

(Insurer’s stamp) (Insurer’s signature) (Signatory’s name) (Signatory’s position)


APPENDIX “H-2”

CONFIRMATION OF MAKING THE LESSEE’S INSURANCES

 

R.M.P.A. Properties Ltd. Date:                                                      

12 Hartoum Street Har HaHotzvim Jerusalem

Dear Sir or Madam,

RE: Our Insured:                                                   (hereinafter: “the Lessee”)

Confirmation of taking out insurance in connection with the

Lease Agreement dated                                                  

Made between the Lessor and the Lessee (hereinafter: “the Agreement”)

We hereby confirm that with effect from                                                   and until                                                   we have issued the insurances set out in detail below in respect of the Lessee’s activity, including as defined in the Agreement:

 

A. Insurance covering in full the restitution value of the contents of the leased property and its business including any property and/or equipment serving the leased property under the ownership and/or liability of the Lessee and that is situated outside the leased property as well as any change and/or addition to the leased property made and/or that may be made by the Lessee and/or for it, for their full value on the basis of “restitution as new” with contents insurance for the lased property including, fire, lightning, smoke, explosion, storm, hurricane, flooding, all kinds of water damages, break-in, robbery, forced entry or normal destruction, broken glass, rioting, strikes, and malicious damage all at restitution values.

 

     The insurance includes waiver of the right of substitution vis-à-vis the Lessor and/or the Management Company and/or anyone on their behalf as well as vis-à-vis the other lessees and/or tenants in the building where the property insurances of the other lessees and/or tenants in the building includes a parallel clause regarding waiver of the right of substitution vis-à-vis the Lessee, provided that waiver of the right of substitution as aforesaid shall not apply in favor of anyone who has caused damage with malicious intent.

 

B.

Third Party Liability Insurance to cover the Lessee’s liability by law in respect of injury and/or damage that are liable to be incurred to the person and/or property of any person and/or body whatsoever, with liability limits of $500,000 for one claimant for one event and $2,000,000 for several claimants for one event and in the accumulative for an annual insurance term. The insurance does not include any limitation regarding liability arising from fire, explosion, panic, lifting equipment, unlading and loading, defective sanitary fixtures, poisoning, rioting, strikes, damage with malicious intent,


  liability in respect of and vis-à-vis contractors, sub-contractors and their employees as well as claims for substitution on the part of the National insurance Institute. The insurance is extended to cover the liability of the Lessor and/or the Management Company for the acts and/or omissions of the Lessee and/or anyone on its behalf and also their liability as owners and/or managers of the leased property, subject to a cross-liability clause.

 

C. Employers Liability Insurance to cover the Lessee’s liability pursuant to the Civil Wrongs Ordinance (New Version) vis-à-vis its employees in respect of physical injury and/or illness that they are liable to incur during the course of and consequent upon their employment, with liability limits of $5,000,000 for one claimant for one event and in the accumulative for an annual insurance term.

 

     The insurance does not contain any restriction regarding the Lessee vis-à-vis the contractors, sub-contractors and their employees as well as regarding works at high and low altitude, baits and toxins, working hours and youth employment. The insurance is extended to indemnify the Lessor and/or the Management Company if they are deemed to be the employers of any of the Lessee’s employees.

 

D. The Lessee undertakes that it shall not address the Lessor or anyone on its behalf or any of its insurers with any contention and/or demand consequent loss of profits.

 

E. The insurance includes waiver of the right of substitution vis-à-vis the Lessor and/or the Management Company and/or anyone on their behalf as well as vis-à-vis the other lessees and/or tenants in the building where in the consequential loss insurances of the other lessees and/or tenants in the building includes a parallel clause regarding waiver of the right of substitution vis-à-vis the Lessee, provided that waiver of the right of substitution as aforesaid shall not apply in favor of anyone who has caused damage with malicious intent.

 

F. The name of the insured in the policies in all matters pertaining to Sections B and C is extended to include also the Lessor and the Management Company in addition to the Lessee.

 

G.

 

 

 

 

 

(Insurer’s stamp) (Insurer’s signature) (Signatory’s name) (Signatory’s position)

 


APPENDIX J — SPECIAL TERMS

The language beside the sections listed below in this Appendix is intended to complete and supplement the language in those sections, but not to derogate therefrom, unless otherwise stated explicitly or if necessary from the specific context. Nevertheless, in the event of a contradiction between the sections added and/or amended and/or redacted in this Appendix and those in the Agreement or in the Management Agreement, the provisions of this Appendix shall prevail, despite anything set forth in the Agreement, while the remaining provisions of the Agreement shall remain valid and in full force.

Section 2 — Definitions

 

2.1 Leased Property — the units on the fourth story of the Building marked on the plan attached as Appendix A.

 

2.2 Area of the Leased Property — the net Area of the Leased Property for the purposes of this Agreement is approximately 800-900 square meters, plus an additional 20% for the Lessee’s participation in the use of the Public Areas as set forth in section 5 of the Agreement, for a gross total of                  square meters.

 

     A final and binding measurement of the Area of the Leased Property will be performed by the Parties following the actual division of the Leased Property.

 

2.3 Base Index — the index published on the fifteenth day with respect to the month of May of the year 2008 (                   points, base of                  ).

 

2.4 Date of Transfer of Constructive Possession — this date shall be on the date of the signing of the Agreement. This will be the transfer date with regard to legal and theoretical possession of the Leased Property, for taxation purposes only, as opposed to physical possession of the Leased Property. On this date the Lessee will begin paying any amounts, taxes and fees in respect of the Leased Property that are owed by a property holder or lessee (as opposed to a long term lessee) in accordance with applicable law or custom, as set forth in section 11 of the Agreement. It is hereby clarified that nothing herein shall derogate from the Lessee’s right to request an exemption from payment of property taxes as a result of the performance of renovations to the Leased Property (as opposed to an exemption for an empty property, which is a right that belongs to the owner and therefore not available to the Lessee).

 

2.5 Date of Transfer of Physical Possession — the Date of Transfer of Physical Possession will be the Date of the Transfer of the Customization Works or the Deferred Date of the Transfer of the Customization Works, as applicable and as these terms are defined in section 12.8 of this Appendix.

 

2.6 Date of Submission of the Plans by the Lessee — the date of the signing of the Agreement.

 

2.7 Commencement Date of the Customization Works — the later of the date on which the Lessee’s representatives give the order to commence the Customization Works or the date on which all of the plans are submitted by the Lessee’s representatives in the manner set forth in section 12 of this Appendix.


Section 6 — Purpose of the Lease

 

6.1 The Purpose of the Lease is the management of a bio-tech company, which shall only include offices and biology, chemistry and pharmaceutical labs, all in accordance with the zoning plan that governs the Land.

 

6.2 The Lessor is aware that the Lessee’s labs will contain rooms housing small animals for the purpose of experimentation on animals such as rats.

Section 8 — Term of the Lease

 

8.1 Initial Term — a term of 5 years beginning as of September 5, 2008 and ending on September 4, 2013 (hereinafter: the “ Initial Term ”).

 

8.2 Additional Term — subject to the fulfillment of all of the preconditions set forth in sections 8.3-8.4 of the Agreement and subject to the Lessee exercising its option to extend the Lease by 1 year each time, 5 consecutive Additional Terms, each of 12 months, shall commence immediately following the termination of the Initial Term (hereinafter: the “ Additional Terms ”). The first Additional Term shall terminate on September 4, 2014 (hereinafter: the “ First Additional Term ”).

 

8.3 It is hereby clarified that following the Initial Term or upon the termination of each Additional Term, as applicable, the Lease shall automatically renew for an additional 12 months, subject to the terms to be determined between the Parties prior to such renewal, unless the Lessee provides written notice 180 days prior to the termination of the Initial Term or the Additional Term, as applicable, concerning its desire not to renew the Lease.

 

8.4 It is hereby clarified and agreed that in the event that the Lessee requests the termination of the Lease before the end of the Initial Term and the Lessor approves such request, as well as in the event that the Lessee vacates the Leased Property before the end of the Term of the Lease for any reason whatsoever, the Lessee, subject to the following, shall be obligated to repay the amounts invested by the Lessor in the performance of the Customization Works in the Leased Property (as defined in section 12.12 below) (hereinafter: the “ Repayment of the Lessor Investment Amounts ”) according to the following calculation:

 

  8.4.1 In the event that the Lease is terminated after 24 months, but before 36 months, the Lessee shall pay 70% of the Lessor’s investment;

 

  8.4.2 In the event that the Lease is terminated after 36 months, but before 48 months, the Lessee shall pay 60% of the Lessor’s investment;

 

  8.4.3 In the event that the Lease is terminated after 48 months, but before 60 months, the Lessee shall pay 50% of the Lessor’s investment.


  8.4.4 In the event that the Lessee elects not to extend the Initial Term and not to exercise the Additional Terms, the Lessee shall be obligated to repay 50% of the Lessor’s investment upon the termination of the Initial Term. It is hereby agreed that in the event that the Lessee exercises the Additional Terms, each such Additional Term, at the end of such 12 month period, shall reduce the amount owed on account of the Repayment of the Lessor Investment Amounts as set forth in this section (50%) by 8% per each 12 month Additional Term renewed by the Lessee.

 

       For the removal of doubt, the Lessee shall not owe any amounts in respect of the Repayment of the Lessor Investment Amounts and/or in respect of any other payment in connection with the Lessor’s investment, in the event that the Lessee leased the Leased Property for a period not shorter than 10 years.

 

8.5 It is hereby clarified that in the event of the termination of the Term of the Lease as set forth in section 8.5 of the Agreement and the introduction of a Replacement Lessee, the arrangement set forth in section 8.5 shall apply.

 

8.6 It is hereby clarified that for the purposes of the Repayment of the Lessor Investment Amounts, the calculation of the Lessor’s Investment Amounts shall account for Linkage Differentials between the Base Index and the Index known on the date of actual repayment.

 

8.7 It is further clarified that in the event that the Lease is terminated as set forth in this section, the Lessor’s Investment Amounts shall become immediately due and payable and for any delay in payment on account of the Repayment of the Lessor Investment Amounts the Lessee shall be charged with Arrears Interest in the manner set forth in this Agreement. For the removal of doubt, non-payment of the Repayment of the Lessor Investment Amounts shall be tantamount to non-payment by the Lessee of the Rental Fees and/or Management Fees and such non-payment shall thus trigger all reliefs and remedies available to the Lessor under this Agreement.

Section 9 — Rental Fees

 

9.1 Rental Fees ” — the Rental Fees on account of the Leased Property as set forth in this section 9 of the Special Terms.

 

9.2 Rental Fees for the Initial Term :

 

     In consideration of the first year of the Term of the Lease, the Lessee shall pay the Lessor Rental Fees as follows :

 

     For the office space in the Leased Property — a total of NIS 47 per square meter per month, with added VAT as required by law, against provision by the Lessor of a valid tax receipt, with added Linkage Differentials as set forth in the Definitions section of the Agreement.


     For the laboratories and Public Areas — a total of NIS 40 per square meter per month, with added VAT as required by law, against provision by the Lessor of a valid tax receipt, with added Linkage Differentials as set forth in the Definitions section of the Agreement.

 

     In consideration of every subsequent year of the Term of the Lease (from year 2 onward), the Lessee shall pay the Lessor Rental Fees as follows :

 

     For the office space in the Leased Property — a total of NIS 50 per square meter per month, with added VAT as required by law, against provision by the Lessor of a valid tax receipt, with added Linkage Differentials as set forth in the Definitions section of the Agreement.

 

     For the laboratories and Public Areas — a total of NIS 43 per gross square meter per month, with added VAT as required by law, against provision by the Lessor of a valid tax receipt, with added Linkage Differentials as set forth in the Definitions section of the Agreement.

 

9.3 It is hereby clarified and agreed that the Lessee shall pay the Rental Fees for the Term of the Lease beginning as of 75 days from the Date of Transfer of Constructive Possession, provided that such date shall not be later than September 24, 2008 (hereinafter: the “ Date of the First Payment of Rental Fees ”), i.e., notwithstanding the fact that the Term of the Lease shall commence as of the date of the signing of this Agreement, payment shall only commence on the aforementioned date.

 

     Notwithstanding the foregoing, it is hereby clarified that on the Date of Transfer of Constructive Possession the Lessee shall make an immediately redeemable payment equaling three months of Rental Fees to the Lessor on account of the first three months of Rental Fees owed by the Lessee as of the Date of the First Payment of Rental Fees.

 

     Thereafter, during the six month period between 3 months after the Date of the First Payment of Rental Fees and 9 months after the Date of the First Payment of Rental Fees, the Rental Fees shall be paid in advance on a monthly basis, on the first day of every month.

 

     Thereafter, after the lapse of 9 months from the Date of the First Payment of Rental Fees, the Lessee shall pay the Rental Fees to the Lessor in advance on a Quarterly basis, on the first day of every Quarter.

 

9.4 Notwithstanding the terms set forth in section 9.5 of the Agreement, it is hereby agreed between the parties that payment of the Rental Fees shall be made by the Lessee by means of a standing debit order. All of the payments shall be made with added VAT as required by law and the Lessor shall provide the Lessee with a valid tax invoice within 14 days of the redemption of the relevant payment.


Section 11 — Other Payments

 

11.1 It is hereby agreed between the parties that on the Date of Transfer of Constructive Possession, as such term is defined in this appendix, the Lessee shall begin paying all amounts, taxes and fees in respect of the Leased Property that are owed by a property holder or lessee (as opposed to a long term lessee) in accordance with applicable law or custom, as set forth in section 11 of the Agreement and without derogating from the provisions of section 2.4.

 

11.2 Notwithstanding the provisions of section 11.4 of the Agreement, the Leased Property shall be connected to the electrical grid by means of a sub-meter to be installed in the Building by the Lessor as part of the Customization Works.

Electricity Charges for Air Conditioning Use

The Lessee’s use in the Leased Property of the Building’s air conditioning systems shall be in accordance with the Lessee’s changing needs and the Lessor undertakes to ensure that at all times, beginning as of the Date of Transfer of Physical Possession and throughout the duration of the Term of the Lease, the Lessee shall have the technical capability to utilize up to 60 tons (inclusive) of cooling. On account of its use of the Building’s air conditioning systems, the Lessee shall pay for its pro rata share of the actual electrical usage by the Building’s air conditioning system.

Any use exceeding 60 tons of cooling shall be charged in accordance with section 11.5 of the Agreement.

Charges for Construction of Corridors and Enlarged Cooling Package

Since the Lessor will be required to build additional widened corridors in the Building as part of the Customization Works, and since the cooling allowance provided by the Lessor to the Lessee is to be greater than what is standard in the Building, viz. 60 tons of cooling, it is agreed between the parties that the Lessee shall pay an additional amount, in addition to the Rental Fees, amounting to NIS 565 per month. This amount shall be Linked to the increase in the most recent Index known on the date of actual payment in relation to the Base Index, as set forth in the Definitions section of the Agreement, and shall be considered Rental Fees for all intents and purposes. Non-payment or late payment of such additional amount shall trigger all the reliefs and remedies available under this Agreement, including the exercise of the security interests.

Section 12 — Customization Works in the Leased Property

Sections 12.1 through 12.8 of the Agreement shall be replaced by the following sections:

 

12.1 Constructive Possession of the Leased Property shall be transferred to the Lessee on the date of the signing of this Agreement, with the Leased Property in its then current state, AS IS. Electricity, water and other meter readings (insofar as any such meters exist) shall be performed on the Date of Transfer of Constructive Possession.

 

12.2 The parties hereby agree that the Lessor shall be responsible for performing the Customization Works in the Leased Property at its own expense in accordance with the Specifications and the plan and under the supervision of the Lessee, all subject to the provisions of this section below.


12.3 The Lessor shall be responsible for performing the Customization Works in the Leased Property at its own expense on behalf of the Lessee. Such works shall include the division of the Leased Property into offices and laboratories and other internal work, all in accordance with the Specifications and the plans and based on the amounts and materials set forth for such purpose in the Technical Specifications for the Offices set forth in Appendix B to the Lease Agreement and pursuant to the costs set forth in the Amounts Form attached hereto as Appendix L to this Agreement.

 

12.4 The Lessee shall contribute to the cost of the Customization Works to be performed by the Lessor, as follows:

 

12.4.1 For the performance of the Customization Works in the office spaces in accordance with, and pursuant to, the Technical Specifications for the Offices, the Lessee shall contribute to the cost of the works in the amount of NIS 13 per square meter per month during the Initial Term and the Additional Terms (in the event that the Lessee exercises its option to extend the Term of the Lease). For the removal of doubt, the Rental Fee rates set forth above in section 9.2 of this Special Terms appendix, which determine the amount to be paid by the Lessee for the office spaces, already include the Lessee’s contribution to the cost of the performance of the Customization Works in the office spaces.

 

     12.4.2 For the performance of the Customization Works in the laboratory spaces , the Lessee shall contribute to the cost of the works in the amount of NIS 12 per every NIS 1,000 of the Lessor Investment Amounts (as defined below in section 12.12) during the Initial Term and the Additional Terms. This amount is in addition to the Rental Fee rates set forth above in section 9.2 of this Special Terms appendix, which determine the amount to be paid by the Lessee for the laboratory spaces (hereinafter: the “ Addition to the Rental Fees ”).

 

     It is hereby clarified that in the event that the Lessee requests that the Lessor provide an addition and/or improvement and/or change to the Technical Specifications for the Offices attached to this Agreement, in such a way that such addition and/or improvement and/or change requested by the Lessee causes an increase in the overall cost of the Customization Works to the office spaces relative to their cost as set forth in the Specifications, the Lessee shall pay the Lessor in advance to cover the difference in cost resulting in such change/improvement/addition prior to its performance of any work in such respect.

 

12.5 The Lessee undertakes to provide the Lessor, on the date of the signing of this Agreement, with electrical, plumbing, safety, air conditioning, laboratory, internal walls and other similar plans (hereinafter: the “ Plans ”).

 

12.6 It is hereby clarified that the Lessee shall be responsible, at its own expense, for the procurement of any permit required by the Lessee in respect of its needs pursuant to the Plans.


12.7 It is hereby clarified and agreed that the Lessor shall be responsible for purchasing the appropriate equipment and materials for the performance of the Customization Works in accordance with the Specifications and the Plans, and it shall also be responsible for the actual performance of the Customization Works and shall bear the cost of the service providers and performers of the Customization Works.

 

12.8 The Lessor, on its own or by means of a representative, shall perform the Customization Works in the Leased Property in accordance with the Specifications and the Plans and the following schedule:

 

     The Lessor shall fully complete the Customization Works within a period not to exceed 120 days beginning as of the Commencement Date of the Customization Works as set forth in section 2.7 above. Without derogating from the aforesaid, it is hereby agreed that the Lessor shall make best efforts to complete the Customization Works in the areas of the Leased Property designated for office space, pursuant to the Specifications and the Plans, within 60 days of its receipt of an order to begin work, and with regard to the remainder of the areas of the Leased Property, the Lessor shall make best efforts to complete the Customization Works therein pursuant to the Plans and the Specifications within 90 days of its receipt of an order to begin work, subject to the Customization Works in such areas not requiring an order or delivery of special equipment requested by the Lessee whose delivery is outside of the Lessor’s control (hereinafter: the “ Date of the Transfer of the Customization Works ”).

 

     Notwithstanding the foregoing in this Agreement, it is hereby agreed that any delay in the performance of the Customization Works caused by the actions of the Lessee, including any delay caused by the failure to submit the Plans on the date determined for such submission in this Agreement and/or the failure to submit complete Plans to the Lessor and/or requests by the Lessee to perform additions/improvements/changes in or to the Specifications or the Plans, insofar as such actions actually caused a delay, then such delay shall result in the postponement of the Date of the Transfer of the Customization Works for a period equaling the length of the delay (hereinafter: the “ Deferred Date of the Transfer of the Customization Works ”).

 

12.9 In the event that the Lessee requests the performance of additions/improvements/changes that are not included in the Plans and/or the Specifications and/or the Amounts Form (hereinafter: the “ Changes ”), such Changes shall be performed subject to the following:

 

     (1) That the request for the Changes was submitted by the Lessee prior to the performance of the work regarding which the Changes were requested.

 

     (2) That the Changes and the agreed delay for the performance of the Changes, which would cause the postponement of the Date of the Transfer of the Customization Works as set forth above in section 12.8 of this appendix, insofar as such Changes do in fact cause a delay, were approved in writing by the Lessee’s Representatives, as these are defined below in this appendix.

 

    

(3) The cost of the Changes will be determined based on the prices set forth in the Amounts Form. In the event that the Amounts Form does not list prices for the


relevant items, the cost of the Changes will be determined based on rates to be agreed upon between representatives of the Lessor and the Lessee. In the event that the parties cannot reach such an agreement, but the Lessor nonetheless agrees to perform the Changes, the cost of the Changes will be determined in accordance with the Dekel Renovation Contractors Pricelist.

 

12.10 Subject to the aforesaid in sections 12.8 and 12.9 of this appendix, in the event that the Lessor is delayed and does not complete the Customization Works by the Date of Transfer of Physical Possession, then, notwithstanding anything to the contrary in this Lease Agreement and its appendices, the Lessee shall be exempt from payment of the Rental Fees, Management Fees and parking rental fees, provided that the Lessee has not made use of the parking spaces, all as of the Date of Transfer of Physical Possession until the actual Date of Transfer of Physical Possession.

 

12.11 The Lessor’s investments and expenses in connection with the Customization Works in the Leased Property performed in accordance with the Plans and the Specifications shall be subject to the prior perusal and approval of the representatives of the Lessee: Martin Burg or Moshe Tzabari or a supervisor acting on behalf of the Lessee (hereinafter: the “ Supervisor ”) (in this appendix, the aforementioned persons shall collectively be known as the “ Lessee’s Representatives ”). The Lessor shall be entitled to rely on the approval or directive of any one of the Lessee’s Representatives for all intents and purposes.

 

12.12 It is hereby clarified that upon the completion of the Customization Works in the laboratories there will be a final accounting of the actual costs expended by the Lessor in its performance of the Customization Works in the laboratories alone, in accordance with the Plans as updated by the parties from time to time, and the Lessee’s Representatives shall be entitled to challenge such costs. After the parties agree on the extent of the cost to the Lessor for performing the Customization Works on the laboratories alone, such amounts, and only such amounts, shall be considered the Lessor’s investment in respect of the Customization Works in the laboratories alone (hereinafter: the “ Lessor Investment Amounts ”) and shall be subject to the provisions of section 8 of this Appendix J with respect to the manner in which the Lessee is to contribute to the Lessor Investment Amounts in the event of the termination of the Term of the Lease.

 

     For the removal of doubt, it is hereby clarified that the Lessor’s expenses in respect of the Customization Works in the offices and the Public Spaces shall not be considered part of the Lessor’s investment in the performance of the Customization Works in the laboratories and thus shall not constitute part of the Lessor Investment Amounts.

 

12.13 It is hereby agreed that the total cost to the Lessor in its performance of the Customization Works in the laboratories shall not exceed NIS 1,400,000.

 

12.14 The prior approval of the Lessee’s Representatives is a pre-condition to the commencement of the Customization Works by the Lessor and the counting from the Commencement Date of the Customization Works pursuant to the dates set forth above shall begin upon the issuance of a written order to begin work from the Lessee’s Representatives with regard to the Customization Works and the Amounts Form. The Lessee’s Representative shall oversee proper execution in accordance with the Specifications and the Plans for the Customization Works.


12.15 The Lessee’s Representatives shall be the sole authority on behalf of the Lessee for approval of changes and/or additions to the Plans and/or Specifications, and the advance written consent of any one of them shall constitute irrevocable authorization on behalf of the Lessee for the additions and/or changes and for the cost associated with such additions and/or changes.

 

     It is hereby clarified and agreed that the Lessee shall pay the Supervisor’s salary.

 

12.16 The Lessor undertakes that the contractors who are to perform the Customization Works will be experienced and appropriately registered for the performance of works such as the Customization Works.

 

12.17 The Lessor undertakes to perform the Customization Works and to transfer the Leased Property to the Lessee in a completed state in accordance with the Specifications and the Plans and connected to the electrical grid, water system, telephone system (with infrastructure in place, not an active Bezeq connection) and plumbing system, all as set forth in section 14 of the Agreement.

 

12.18 All of the systems, improvements, changes and additions in or to the Leased Property made by the Lessor during the Term of the Lease shall, upon the termination of the Term of the Lease, be the property of the Lessor and the Lessee hereby waives any claim and/or demand with respect thereto.

 

12.19 Notwithstanding the provisions of section 12.17 of the Lease Agreement, the Lessor undertakes, at its own expense, to purchase and maintain, as of the signing date of the Lease Agreement and through the actual transfer of the Customization Works, all insurance in connection with the performance of the Customization Works, as set forth in section 12.17 of the Agreement. The Lessee shall be made an additional insured party under such insurance and the Lessee is hereby released from any undertaking or obligation with respect to the purchase of the insurance for the performance of the Customization Works, including the insurance set forth in section 12.7 of the Lease Agreement. Moreover, the Lessor undertakes to ensure that the contractors who actually perform the Customization Works also purchase insurance coverage appropriate for their activities and the relevant risk factors. The level of coverage shall in any event not be lower than that which is set forth in the sub-sections of section 21 of the Lease Agreement.

Section 18 — Parking Lot

 

18.1 20 parking spaces will be made available for the sole use of the Lessee in consideration of a monthly payment of NIS 250 per parking space. In the event that the Lessee shall require additional parking spaces during the initial 2 years of the Term of the Lease, the Lessor shall endeavor, solely on a “first come first serve” basis, to make another 10 parking spots available to the Lessee at the same rate. In the event that the Lessee shall require additional parking spaces following the end of the initial 2 years of the Term of the Lease, the Lessor shall endeavor, solely on a “first come first serve” basis, to make additional parking spots available to the Lessee at a rate to be determined by the Lessor and/or the Management Company at such time.


18.2 It is hereby clarified and agreed that the Lessee’s visitors and anyone acting on its behalf shall be entitled to park in the parking lot subject to their payment of the rates to be collected by the parking lot operator, if any.

 

18.3 The Lessee shall deposit with the Lessor the amount of NIS 180, with added VAT as required by law, per remote control.

Section 21 — Insurance

Section 21.5 — The provisions of section 21.5 of the Agreement shall not apply to a case in which damages result from the negligence or harmful intent of the Lessor and/or Management Company and/or any acting on their behalf.

Section 21.7 and Management Agreement Terms appendix — The Lessor shall ensure the addition of the Lessee as an additional insured party and as a holder of subrogation rights to the insurance policies set forth in section 21.7 and in the Management Agreement Terms appendix under the heading “ Authority of the Management Company .”

It is hereby agreed between the parties that the Lessor shall cancel any cross liability (subrogation) clause in the building insurance in respect of the Lessee, in accordance with the insurance companies’ current practice, at no additional cost. In the event that such a request shall cause a future increase in the cost of the Lessor’s insurance policy, the Lessee shall bear such additional cost.

It is hereby agreed between the parties that the Lessor shall add the name of the Lessee to the contractual works insurance that the Lessor shall purchase for the works to be performed in the Leased Property.

Section 24 — Fixed Compensation

Fixed compensation as set forth in section 24.2 of the Lease Agreement shall be in the amount of $10,000.

Section 25 — Painting the Leased Property

Notwithstanding the provisions of section 25.1 of the Agreement, it is hereby agreed that in the event that the Lessee vacates the Leased Property for any reason whatsoever upon the termination of the Initial Term or thereafter, the Lessee shall not be obligated to paint the Leased Property. However, in the event that the Lessee vacates the Leased Property for any reason whatsoever prior to the termination of the Initial Term, the Lessee shall be obligated to paint the Leased Property in accordance with the provisions of section 25.1 of the Agreement.


APPENDIX L

04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

QUANTITY SHEET

   AGREEMENT
4.9.2008
 

#

  

DESCRIPTION

  

SIZE

  

SIZE
UNIT

  

CONTRACT
QUANTITY

  

UNIT
NO.

  

TOTAL

 

1.00

   CONSTRUCTION               

1.10

   PLASTER WORKS                  150,600   

1.11

   Supply and installation of 10 cms thick plaster walls    10cms    sq.m    520    160      83,200   

1.12

   Addition for perpendiculars every 40 cms       sq.m    520    10      5,200   

1.13

   Supply and installation of fire resistant bichrome pink plaster walls    13 cms    sq.m    40    210      8,400   

1.14

   Supply and installation of standard acoustic ceiling including profile L + Z Georgian       sq.m    320    165      52,800   

1.15

   Supply and installation of aprons       m    5    200      1,000   

1.20

   PAINT WORKS                  26,000   

1.21

   Painting new walls of the laboratories and offices with Tambour Supercryl paint or equivalent including preparation including corners and scraping.       sq.m    845    25      21,125   

1.22

   Painting existing walls with Tambour Supercryl paint or equivalent including repairs       sq.m    195    25      4,875   

1.30

   ALUMINUM WORKS                  144,350   

1.31

   Supply and installation of lintel and double wing door from Klil 2000 profile color natural anodyze safety glass    210 x (80 + 40)    Unit    5    5,500      27,500   

1.32

   Supply and installation of lintel and single wing door from Klil 2000 profile color natural anodyze    210 x 100    Unit    14    4,000      56,000   

1.33

   Supply and installation of oil seals for doors — Yale or Ryobi       Unit    19    350      6,650   

1.34

   Addition for electric mechanism for door opening — electric lock and preparation for connection to entry system       Unit    2    850      1,700   

1.35

   Supply and installation of aluminum window from Klil 4500 profile color natural anodyze       Unit    2    2,000      4,000   

1.36

   Supply and installation of glass door 80/205 without hydraulic seal and without accessories       Unit    1    8,500      8,500   

1.37

   Supply and installation of glass walls — without curtain wall but only tempered glass       sq.m    40    1,000      40,000   

1.40

   ADDITIONAL DOORS                  9,400   

1.41

   Supply and installation of Pladelet door    205 x 90    Unit    2    3.000      6,000   

1.42

   Supply and installation of door seal       Unit    2    500      1,000   

1.43

   Supply and installation of panic mechanism       Unit    2    1,200      2,400   

1.50

   TREATMENT OF FLOOR                  62,160   

1.51

   Supply and installation of carpet in offices       sq.m            0   

1.52

   Supply and affixing of PVC as in the example of the anchor in selected color including scraping and polishing    Basic price

NIS50 per
sq.m

   sq.m    340    150      51,000   

1.53

   Supply and assembly of anchor panels for the above-mentioned in selected catalog color       m    330    12      3,960   

1.54

   Ceramic flooring in shower including walls    Basic price

NIS50 per
sq.m

   sq.m    30    240      7,200   


04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

QUANTITY SHEET

   AGREEMENT
4.9.2008
 

#

  

DESCRIPTION

  

SIZE

  

SIZE
UNIT

  

CONTRACT
QUANTITY

  

UNIT
NO.

  

TOTAL

 

1.90

   ADDITIONAL                  6,000   

1.91

   Supply and installation of bathroom cabinets including cabinet, marble, sink and mirror       comp.    2    3,000      6,000   
   TOTAL CONSTRUCTION WORKS                  398,510   

8.00

   ELECTRICITY                  42,240   

8.10

   LIGHTING ELEMENTS               

8.11

   Supply and assembly of parabolic lighting element for offices 4 x 18 manufactured by “Gaash” or equivalent including wiring, bulb and switches. Including socket    4 x 18    Unit    47    450      21,150   

#REF!

   Supply and assembly of lighting element for laboratory including perspex lower cover    120 x 60    Unit    28    580      16,240   

#REF!

   Addition of emergency converters for elements    60 mins    Unit    5    380      1,900   

#REF!

   Supply and assembly of emergency exit sign such as “Litech” LED lighting at planner’s choice       Unit    3    650      1,950   

#REF!

   Supply and assembly of main light switch next to entrance door including connector, connection to board and signage       Unit    1    1,000      1,000   

8.20

   CANALS                  11,000   

8.21

   Supply and assembly of communications network canals including supports    10 x 10    m    50    54      2,700   

8.22

   Supply and assembly of electricity network canals including supports    10 x 20    m    60    65      3,900   

8.23

   Supply and assembly of PVC electricity canals    12 x 6    m    50    60      3,000   

8.24

   Supply and installation of preparation pipe for communications, computers, AC thermostat    16mm    m    70    20      1,400   

8.30

   ELECTRICITY POINTS                  43,025   

8.31

   Supply and assembly of “ADA” complete including four electricity points, telephone point and computer point    Adplast    Point    10    908      9,000   

8.32

   Supply and assembly of triple sockets point for electricity canals combined with adaptor on canals       Point    35    215      7,525   

8.33

   Supply and assembly of water protected socket point under the plaster including accessory and wiring       Point    5    250      1,250   

8.34

   Supply and assembly of three phase point    3 x 32A    Point    6    550      3,300   

8.35

   Supply and assembly of three phase point for air conditioner including fax switch    3 x 20A    Point    9    550      4,950   

8.36

   Supply and assembly of single phase point for air conditioner    10A    Point    2    350      700   

8.37

   Supply and assembly of main electricity board according to the boards plan combined with sealed doors in the front of the board including wiring operation and inspection, all complete according to 61.4% of the cost of the board       comp.    1    15,350      15,350   

8.38

   Supply and assembly of main air conditioners switch next to entrance door       Unit    1    950      950   


04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

QUANTITY SHEET

   AGREEMENT
4.9.2008

#

  

DESCRIPTION

  

SIZE

  

SIZE
UNIT

  

CONTRACT
QUANTITY

  

UNIT
NO.

  

TOTAL

8.40

   EARTHS                450

8.41

   Supply and installation of earth cable for electricity canals    16mm    m    50    14    700

8.42

   Supply and assembly of ceiling earths       Unit    20    15    300

8.43

   Supply and assembly of earths for plaster walls       Unit    10    15    150

8.50

   LOW VOLTAGE                3,080

8.51

   Installation of temperature control for air conditioner including wiring       Unit    11    280    3,080

8.90

   ADDITIONAL                4,935

8.91

   Inspection of electricity network by qualified inspector according to 61.4%       comp.    1    1,535    1,535

8.92

   Excavation for electricity in room centers       Unit    1    1,000    1,000

8.93

   Supply and installation of local time switch for lighting       Unit    3    550    1,650

8.94

   Supply and installation of dimmer for lighting       Unit    3    250    750
   TOTAL ELECTRICITY                105,080


04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

QUANTITY SHEET

   AGREEMENT
4.9.2008
 

#

  

DESCRIPTION

  

SIZE

 

SIZE
UNIT

    

CONTRACT
QUANTITY

  

UNIT
NO.

  

TOTAL

 

4.00

   PLUMBING              

4.10

   MAIN DRAINAGE AND WATER PIPING                 67,000   

4.11

   Supply and assembly of main hot/cold water pipe Pexgol including main battery for all consumers    25mm     m       100    50      6,000   

4.11A

   Supply and assembly of main hot/cold water pipe Pexgol including main battery for all consumers    16mm     m       100    40      4,000   

4.12

   Supply and installation of main water pipe for fire extinguishing point    2"     m       50    200      10,000   

4.13

   Supply and installation of main gas pipe — to be performed by others     1 2 "     m       0    0      0   

4.13

   Connection to existing main line — water pipes        comp.       2    1,200      2,400   

4.14

   Supply and assembly of drainage line for AC — PVC    Up to 50mm     m       150    110      16,500   

4.15

   P siphons for odor prevention in joins to main line        Unit       5    250      1,400   

4.16

   Supply and assembly of drainage line for drainage water welded H.D.P.E.    40-50 mm     m       50    130      6,550   

4.17

   Supply and assembly of main drainage line for drainage water welded H.D.P.E.    4"     m       50    180      9,000   

4.18

   KBG Goplate control box 110mm diameter made of H.D.P.E. (extending sleeve with cover) including framework and cover made of brass liver model painted with vitreous enamel the same color as the floor        comp.       7    350      2,450   

4.19

   4"/4" men’s siphons        Unit       7    500      3,500   

4.20

   Join to main sewage line including section of the main line and installation of welding joint    4"     comp.       10    2,000      20,000   

4.21

   Join to main sewage line by drilling and installation of AC drainage gasket    2"     comp.       5    650      3,250   

4.20

   POINTS                 39,070   

4.21

   Supply and assembly of main hot/cold water point including piping from the main battery to the point, connection panel and Neil faucet, piping. Payment separately according to meter        point       30    400      12,000   

4.22

   Supply and assembly of compressed air point including piping from the main battery to the point, connection panel and Neil faucet, piping. Payment separately        Point       4    470      1,880   

4.23

   Supply and installation of treated water point including plastic piping, connection panel        Point       14    470      6,580   

4.24

   Supply and installation of gas point for procedure — to be performed by others        Point       0    0      0   

4.24

   Supply and installation of drainage points to sink and machines    2"     Point       23    470      10.810   

4.25

   Supply and installation of drainage points to air conditioners including siphon        point       15    520      7,800   

4.30

   ACCESSORIES                 15,500   

4.31

   Supply and installation of water battery including Neil faucets        comp.       10    750      7,500   

4.32

   Supply and installation of fire extinguishing cabinet including accessories        comp.       1    2,300      2,300   
4.33    Supply and installation of emergency shower — eye rinser — to be supplied and installed by others        comp.       0    0      0   


04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

QUANTITY SHEET

   AGREEMENT
4.9.2008

#

  

DESCRIPTION

  

SIZE

  

SIZE
UNIT

  

CONTRACT
QUANTITY

  

UNIT
NO.

  

TOTAL

4.34

   Supply and assembly of 60 liter hot water boiler       Unit    2    2,000    2,000

4.35

   Supply and installation of Monobloc toilets       Unit    10    2,000    4,000

4.40

   ADDITIONAL                8,000

4.41

   Performance of diamond drilling on concrete floor for passage of drains via the lower floor       comp.    10    800    8,000
   TOTAL PLUMBING                149,870


04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

QUANTITY SHEET

   AGREEMENT
4.9.2008
 

#

  

DESCRIPTION

  

SIZE

 

SIZE
UNIT

  

CONTRACT
QUANTITY

  

UNIT
NO.

  

TOTAL

 

12.00

   AIR CONDITIONING                 98,900   

12.10

   ELECTRA AIR CONDITIONING UNITS              

12.101

   Supply and installation of air conditioning unit the price includes hanging the unit connection to water, and connection to drainage, Electra    400 –600 CFM   comp.    2    4,700      9,400   

12.102

   Supply and installation of air conditioning unit with proportional 3-way faucet, 6 line deep battery, two degrees heating. The price includes hanging the unit connection to water, and connection to drainage    1000 –1200 CFM      2    8,000      16,000   

12.103

   Supply and installation of air conditioning unit with proportional 3-way faucet, 6 line deep battery, two degrees heating. The price includes hanging the unit connection to water, and connection to drainage    1400 – 1600
CFM
  comp.    5    9,200      46,000   

12.104

   Supply and installation of air conditioning unit with proportional 3-way faucet, 6 line deep battery, two degrees heating. The price includes hanging the unit connection to water, and connection to drainage    1800 – 2000
CFM
  comp.    2    7,000      14,000   

12.105

   Supply and installation of perfect air suction pump according to the technical specification    800 cfm   comp.    1    4,500      4,500   

12.106

   Supply and installation of DX mini central air conditioner    27,000 BTU   comp.    1    9,000      9,000   

12.20

   CANALS                 103,300   

12.201

   Anterior AC unit switchboard made of galvanized steel with 1" thick acoustic/thermal insulation      Unit    11    800      8,800   

12.202

   Posterior AC unit switchboard made of galvanized steel with 1" thick acoustic/thermal insulation      Unit    1    650      650   

12.203

   Supply and installation of transitional collar from canal to flexible pipe according to technical specification and plans    10"   Unit    20    220      4,400   

12.204

   Aluminum ceiling diffuser + quantities regulator white aluminum supplier    60 x 60   Unit    33    800      26,400   

12.205

   Ceiling A.H. grill including filter    60 x 60   Unit    15    750      11,250   

12.206

   Supply and installation of standard insulated concatenation canal (pink)    8"   m    10    150      1,500   

12.207

   Supply and installation of standard insulated concatenation canal (pink)    10"   m    50    170      8,500   

12.208

   Supply and installation of unclean galvanized steel low pressure canals with Shibelist joins      Sq.m    75    160      12,000   

12.209

   Supply and installation of PVC suction canals    4"   m    20    250      5,000   

12.210

   Supply and installation of PVC suction canals including parts    6"   m    20    300      6,000   

12.211

   Supply and installation of PVC suction canals including parts    8"   m    40    350      14,000   

12.212

   Manual air regulating damper up to 0.25 sq.m      Unit    10    480      4,800   
   Supply and installation of flexibles for connection from canals to AC units**   Unit    2      


04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

QUANTITY SHEET

   AGREEMENT
4.9.2008

#

  

DESCRIPTION

  

SIZE

  

SIZE
UNIT

  

CONTRACT
QUANTITY

  

UNIT
NO.

  

TOTAL

12.30

   PIPING                60,560

12.301

   Supply and installation of Macdowell water piping 40 black including supports and reinforcements               

12.302

   Supply and installation of Macdowell water piping 40 black including supports and reinforcements               

12.303

   Supply and installation of Macdowell water piping 40 black including supports and reinforcements               

12.304

   Supply and installation of Macdowell water piping 40 black including supports and reinforcements               

12.305

   Supply and installation of Macdowell water piping 40 black including supports and reinforcements               

12.306

   Supply and installation of Macdowell 40 piping part               

12.307

   Supply and installation of Macdowell 40 piping part               

12.308

   Supply and installation of Macdowell 40 piping part               

12.309

   Supply and installation of ball point               

12.310

   Supply and installation of ball point               

12.311

   Supply and installation of ball point               

12.312

   Supply and installation of ball point               

12.313

   Insulation of water piping with 25 mm Ermoplex insulation               

12.314

   Insulation of water piping with 25 mm Ermoplex insulation               

12.315

   Insulation of water piping with 25 mm Ermoplex insulation               

12.316

   Insulation of water piping with 25 mm Ermoplex insulation               

12.317

   Insulation of water piping with 19 mm Ermoplex insulation               

12.318

   Insulation of piping part               

12.319

   Insulation of piping part               

12.320

   Ball point insulation               

12.321

   Ball point insulation               

12.322

   Ball point insulation               

12.323

   Supply and installation of gas and electricity piping for DX units               

12.324

   Supply and installation of air releasers               

12.325

   Connection to existing line               
   ELECTRA ADDITIONS:               
   Galvanized steel canals up to 0.8 mm thick       sq.m    1    170   
   1” thick acoustic insulation for air canals       sq.m    1    90   
   1” thick thermal insulation for air canals       sq.m    1    100   
   TOTAL AIR CONDITIONING                262,760


04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

QUANTITY SHEET

  

 

   AGREEMENT
4.9.2008

#

  

DESCRIPTION

  

SIZE

  

SIZE
UNIT

  

CONTRACT
QUANTITY

  

UNIT
NO.

  

TOTAL

9.00

   SAFETY               

9.10

   FIRE DETECTOR                37,440

9.11

   Supply and assembly of analog control board including display in Hebrew, the control board will carry UL standard and Israeli standard for detection and extinguishing. Including 12 ampere 24 volt battery       comp.    1    10,000    10,000

9.12

   Supply and assembly of red piping for coiling fire detection wiring       Point    61    140    8,540

9.13

   Supply and assembly of written detectors       Unit    40    275    11,000

9.14

   Supply and assembly of marking lamp       Unit    15    80    1,200

9.15

   Supply and assembly of internal fire detection flashing alarm       Unit    5    300    1,500

9.16

   Supply and assembly of controlled exit inscription for operation of extinguishers       Unit    6    325    1,950

9.17

   Supply and assembly of automatic speaker dialer       Unit    1    600    600

9.18

   Supply and assembly of extinguishing system operation button       Unit    5    210    1,050

9.19

   Connection to the building’s detection system       Unit    1    1,600    1,600

9.20

   FIRE EXTINGUISHING                58,100

9.21

   Extinguishing container for electricity boards at weight of up to 7 kg gas FM 200 including installation of gas conductor piping. Every extinguishing system shall carry UL/FM standard including perfect computer run       Unit    1    9,500    9,500

9.22

   Supply and assembly of gas extinguishing system for archive and computerization room including container, control and sprinklers. Ham 7 kg       comp.    2    9,500    19,000

9.23

   Supply and assembly of sprinklers system for site until perfect finish including certificate from the Standards Institute at end of work       sq. m    320    80    25,600

9.24

   Addition for sprinklers for electricity canals       m    50    80    4,000

9.90

   ADDITIONAL                5,800

9.91

   Standards Institute inspection for fire detection system       comp.       2,800    2,800

9.92

   Supply and assembly of loudspeakers as continuation for the building’s PA system       Unit       600    3,000
   TOTAL SAFETY                101,340


04/09/2008

ATAR

MANAGEMENT AND CONSTRUCTION OF ENGINEERING PROJECTS

 

Project Summary

 

#

  

Section

  

Budget

1

   Construction    398,510

2

   Electricity    105,080

3

   Plumbing    149,870

4

   Air-conditioning    264,810

5

   Safety    101,340
      1,019,610
   Price per square meter $ 910   


Dear Sir:

We are interested in renting four additional parking spaces in the same area, as of February.

 

Sincerely,
/s/ Martin Burg

Martin Burg

Chiasma (Israel) Ltd.

I hereby approve four additional parking spaces as of February 1, 2009, at the contractual rate.

 

/s/ Yair Hadar
January 29, 2009

 

LOGO


Amendment to Lease Agreement Dated as of September 5, 2008

Made and entered into in Jerusalem on March 24, 2010

 

By:

RMPA Assets Ltd.

(By Mr. Yair Hadar

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;
And between:        

Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas        

on September 5, 2008 the parties signed a Lease Agreement and appendices in respect of the Leased Property, as defined in the Lease Agreement (hereinafter: the “ Lease Agreement ”); and

Whereas

the Lessee desires to lease from the Lessor an additional area in the Building (including the pro rata portion of the areas in the Building available for public use) marked on the plan attached to this Agreement as Appendix A (hereinafter: the “ Additional Leased Property ”), and the Lessor desires to lease the Additional Leased Property to the Lessee by means of an unprotected lease (hereinafter: the “ Lease ”) for a certain period, consideration and purpose, all subject to the terms and conditions set forth in the Lease Agreement, and the parties desire to formalize a rule with regard to the installation of a fresh air unit on the roof of the Building, as set forth below in this Agreement;

Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows:

Section 1 — Term of the Lease and List of Appendices

 

1.1 It is hereby clarified that save for the amendments set forth explicitly in this Amendment there shall be no change to the Lease Agreement or the provisions thereof and they shall remain valid and in full force.


1.2 It is hereby clarified that the Management Fees, the amount of the bank guarantee and any payment directly derived from the Area of the Leased Property (with the exception of the Rental Fees that are subject to the provisions of section 9.2 below) shall increase proportionally as of the date of the signing of this Amendment in respect of the area of the Additional Leased Property.

 

1.3 The Lessee undertakes to insure the Additional Leased Property and provide appropriate authorizations in the form set forth in the Lease Agreement with respect to the Additional Leased Property as well.

 

     Appendix A — Plan of the Additional Leased Property.

 

     Appendix B — Technical Specifications of the Offices to be Built in the Additional Leased Property (hereinafter: the “ Specifications ”) + Plans.

Section 2 — Definitions

 

2.1 Additional Leased Property — the area on the fourth story of the Building marked on the plan attached to this Amendment as Appendix A.

 

2.2 Area of the Additional Leased Property — for the purposes of this Agreement, the net area of the Additional Leased Property is approximately 110 square meters, with an additional 20% for the Lessee’s participation in the use of the Public Areas as set forth in section 5 of the Agreement, for a gross total of 132 square meters.

 

2.3 Base Index — the Index published on May 15, 2008.

 

2.4 Date of Transfer of Constructive Possession — this date shall be on the date of the signing of this Amendment.

 

2.5 Date of Transfer of Physical Possession — the date of actual occupation, but not later than 75 days after the signing of this Amendment.

Section 8 — Term of the Lease (and the Additional Term of the Lease, as applicable) shall mirror the terms of the Lease Agreement.

Section 9 — Rental Fees

 

9.1 Rental Fees — the rental fees in respect of the Additional Leased Property, as set forth below.

 

9.2 Rental Fees for the Initial Term :

 

     In consideration of the first year of the Term of the Lease, the Lessee shall pay the Lessor Rental Fees as follows :

 

     A total of NIS 43 per gross square meter per month, with added VAT as required by law, against provision by the Lessor of a valid tax receipt, with added Linkage Differentials as set forth in the Definitions section of the Agreement.


9.3 It is hereby clarified and agreed that the Lessee shall pay the Rental Fees and the Management Fees for the Term of the Lease beginning as of the Date of Transfer of Physical Possession (hereinafter: the “ Date of the First Payment of Rental Fees ”), i.e. notwithstanding the fact that the Term of the Lease shall commence as of the date of the signing of this Agreement, payment shall only commence on the aforementioned date.

 

     The Rental Fees, along with all the other amounts owed the Lessor by the Lessee in respect of the Additional Leased Property, shall be paid simultaneously with, and pursuant to, the terms of payment governing the Rental Fees set forth in the Lease Agreement.

Section 11 — Other Payments

The Lessee, at its own expense, shall connect the Additional Leased Property to the Leased Property’s electrical board.

Electricity Charges for Air Conditioning Use

With respect to its use of the Building’s air conditioning systems, the Lessee shall pay for the actual use of electricity by the Additional Leased Property’s air conditioning system, pursuant to meter readings. The Lessee undertakes to connect the Additional Leased Property, at its own expense, to the existing meter in the Leased Property, no later than the Date of Transfer of Physical Possession of the Additional Leased Property.

Section 12 — Customization Works in the Additional Leased Property

 

12.1 Constructive Possession of the Additional Leased Property shall be transferred to the Lessee on the date of the signing of this Agreement, with the Additional Leased Property in its then current state, AS IS.

 

12.2 The parties hereby agree that the Lessee shall be responsible for performing the Customization Works in the Leased Property at its own expense in accordance with the Specifications and the plans approved in writing by the Lessor and subject to the provisions of section 12 of the Lease Agreement.

 

12.3 It is hereby clarified that the Lessee shall be responsible, at its own expense, for the procurement of any permit required by the Lessee in respect of its needs pursuant to the plans.

 

12.4 It is hereby clarified and agreed that the Lessee shall be responsible for purchasing the appropriate equipment and materials for the performance of the Customization Works in accordance with the Specifications and the plans, and it shall also be responsible for the actual performance of the Customization Works and shall bear the cost of the service providers and performers of the Customization Works.

 

12.5 The Lessee undertakes that the contractors who are to perform the Customization Works will be experienced and appropriately registered for the performance of works such as the Customization Works.


12.6 All of the systems, improvements, changes and additions in or to the Leased Property made by the Lessee during the Term of the Lease shall, upon the termination of the Term of the Lease, be the property of the Lessor and the Lessee hereby waives any claim and/or demand with respect thereto.

Section 25 — Painting the Leased Property

Notwithstanding the provisions of section 25.1 of the Agreement, it is hereby agreed that in the event that the Lessee vacates the Additional Leased Property for any reason whatsoever upon the termination of the Initial Term or thereafter, the Lessee shall not be obligated to paint the Additional Leased Property. However, in the event that the Lessee vacates the Additional Leased Property for any reason whatsoever (with the exception of a reason stemming from the Lessor) prior to the termination of the Initial Term, the Lessee shall be obligated to paint the Additional Leased Property in accordance with the provisions of section 25.1 of the Agreement.

Installation of a Fresh Air Unit on the Roof of the Building

The Lessor hereby grants its approval for the Lessee, at its own expense, to install a fresh air unit on the roof of the Building (hereinafter: the “ Air Unit ”), in order to allow for an increase in the amount of air in the Leased Property. The Lessor, at its own expense, undertakes to be responsible for providing an energy meter for the Air Unit. Notwithstanding the foregoing, it is hereby agreed that in the event that the Lessee vacates the Leased Property for any reason whatsoever (with the exception of a reason stemming from the Lessor) prior to the termination of the Initial Term and the Additional Terms, as these terms are defined in the Agreement, the Lessee shall return to the Lessor a full and final amount equaling NIS 15,000 for the installation of such energy meter.

Now therefore, the parties hereby affix their signatures on March 24, 2010.

In the place and on the date set forth above:

 

       
Lessor Lessee
By: /s/ Yair Hadar By: /s/ Roni Mamluk

Yair Hadar

Roni Mamluk, CEO
By: /s/ Sarah Kramer
Sarah Kramer, VP Operations


Amendment to Lease Agreement

That was entered into by the parties on September 5, 2008

Made and entered into in Jerusalem on June 22, 2010

 

By:

RMPA Assets Ltd.

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;
And between:        

Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas

on September 5, 2008 the parties signed a Lease Agreement (hereinafter: the “ Lease Agreement ”), pursuant to which the Lessee leased certain areas located on Level A (+1) of the building built on the Parcel known as Beit Hadar Nechasim (hereinafter known as: the “ Building ”) as well as certain parking spaces, all as set forth in the Lease Agreement; and

Whereas

the Lessee desires to lease additional parking spaces in the Building’s parking garage; and

Whereas

the Lessor agreed to lease to the Lessee additional parking spaces on Parking Level 2 (P2) of the Building (the “ Additional Parking Spaces ”) and

Whereas        

the parties agreed that the provisions, terms and limitations set forth in the Lease Agreement shall also apply in full to the Additional Parking Spaces set forth in this Amendment;

Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows :

 

1. The Lessor shall lease to the Lessee 11 additional parking spaces on Parking Level P2 of the Building, in addition to the leased areas and parking spaces set forth in the Lease Agreement.


2. For the removal of doubt, it is hereby clarified that the 11 Additional Parking Spaces shall be in addition to the 24 parking spaces already held by the Lessee, so that the total number of parking spaces leased by the Lessee from the Lessor, as of the date of the signing of this Amendment, will be 35.

 

3. The term of the lease of the Additional Parking Spaces shall commence as of the date of the signing of this Amendment and continue for the duration of the term of the Lease Agreement, including any extensions thereof, and shall overlap with it.

 

4. Upon the parties signing of this Appendix the Leased Property, as this term is defined in the Lease Agreement, shall be considered to include the Additional Parking Spaces as if they had been incorporated into the Lease Agreement from the outset.

 

5. For the removal of doubt it is hereby clarified that the rental fees set forth in the Agreement with respect to each parking space shall apply, as of the date of the signing of this Agreement, to all 35 parking spaces.

 

6. A plan is appended to this Appendix marking all 35 parking spaces , viz. the 24 parking spaces that were in the Lessee’s possession before the signing of this Appendix as well as the 11 parking spaces that are to be added as of the signing of this Appendix. As of the date of the signing of this Appendix, the parties shall make reference only to the provisions hereof and to the parking spaces marked on the plan attached hereto, and this plan alone shall obligate the parties with regard to the exact location of the parking spaces.

 

7. The rental fees, their linkage, the management fees and the remainder of the provisions of the Lease Agreement shall apply in full to this Appendix and nothing in this Appendix shall derogate from and/or amend the provisions of the Lease Agreement, save for in respect of the Leased Property, the addition of the Additional Parking Spaces and the location of all of the parking spaces leased by the Lessee from the Lessor.

 

 

/s/ Roni Mamluk

Lessor Lessee


 

 

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Amendment to Lease Agreement Dated as of September 5, 2008

Made and entered into on November 27, 2011

 

By:

RMPA Assets Ltd.

(By Mr. Yair Hadar

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;

And between:        

Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas        

on September 5, 2008 the parties signed a lease agreement and on January 29, 2009, March 24, 2010 and June 22, 2010 they entered into amendments to such lease agreement (the lease agreement and the amendments thereto shall collectively be known as: the “ Lease Agreement ”), according to which the Lessee leased the Leased Property, as such term is defined in the Lease Agreement, in the building known as Beit Hadar Nechasim (hereinafter: the “ Building ”) [the definition of the term Leased Property also includes parking spaces], all as set forth in the Lease Agreement; and

Whereas

the Lessee desires to lease an additional area in the Building; and

Whereas

the Lessor agreed to lease to the Lessee an additional area of a storage room on Level P3 of the Building (the “ Additional Area ”); and

Whereas

the parties agreed that the provisions, terms and limitations of the Lease Agreement shall also apply in full with respect to the Additional Area set forth in this Amendment;

Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows:

 

1. The Lessor shall lease to the Lessee, and the Lessee shall lease from the Lessor, in addition to the Leased Property, as such term is defined in the Lease Agreement, an additional area, which, for the purposes of this Agreement, shall consist of 10 gross square meters on Level P3 of the Building. A plan is attached to this Amendment as Appendix A marking the Additional Area.


2. The term of the lease of the Additional Area shall commence as of November 23, 2011 and continue for the duration of the term of the Lease Agreement and shall overlap with it.

 

3. Upon the parties signing of this Appendix the Leased Property, as such term is defined in the Lease Agreement, shall be considered to include the Additional Area as if it had been incorporated into the Lease Agreement from the outset.

 

4. In consideration of each month of the lease and use by the Lessee during the term of the lease, the Lessee shall pay the Lessor monthly rental and usage fees equaling NIS 500 with added VAT as required by law, against provision by the Lessor of a valid tax receipt within no more than 7 business days.

 

5. In any event, the Lessee shall only pay the Lessor monthly rental fees and/or management fees and/or any other amount owed by the Lessee in accordance with the Lease Agreement with respect to the 10 square meters it requires. Since the total area of the storage room is approximately 20 square meters, the Lessor, at its own expense and full responsibility, reserves the right to divide the storage room and to use the remainder of the area of the storage room for itself or to lease it to another lessee. However, such division must be performed in such a way that the requested Additional Area of 10 square meters remains available to the Lessee. In the event that the Lessor creates such a division, it undertakes to make a full barrier between the Additional Area and the remaining area of the storage room, so that the Lessee has separate access and a private entrance to the Additional Area.

 

6. The rental fees, their linkage, the management fees and the remainder of the provisions of the Lease Agreement shall apply in full to this Appendix and nothing in this Appendix shall derogate from and/or amend the provisions of the Lease Agreement, save for in respect of the Leased Property and the addition of the storage room.

 

/s/ Yair Hadar

/s/ Roni Mamluk

Lessor Lessee


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Amendment to Lease Agreement

That was entered into by the parties on September 5, 2008

Made and entered into in Jerusalem on July 19, 2012

 

By:

By: RMPA Assets Ltd.

(By Mr. Yair Hadar

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;
And between:        

And between: Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas

on September 5, 2008 the parties signed a lease agreement and on January 29, 2009, March 24, 2010, June 22, 2010 and November 22, 2011 they entered into amendments to such lease agreement (the lease agreement and the amendments thereto shall hereinafter collectively be known as: the “ Lease Agreement ”), according to which the Lessee leased certain areas located on Level A (+1) of the building built on Parcel 100 of Block 30243 at 10 Hartum Street in Jerusalem known as Beit Hadar Nechasim (hereinafter known as: the “ Building ”) along with certain parking spaces, all as set forth in the Lease Agreement; and

Whereas

the Lessee desires to lease additional parking spaces in the Building’s parking garage; and

Whereas

the Lessor agreed to lease to the Lessee 5 additional parking spaces on Parking Level 3 (P3) of the Building (the “ Additional Parking Spaces ”); and

Whereas        

the parties agreed that the provisions, terms and limitations set forth in the Lease Agreement shall also apply in full to the Additional Parking Spaces set forth in this Amendment;

Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows :


1. The Lessor shall lease to the Lessee, and the Lessee shall lease from the Lessor, in addition to the leased areas and the parking spaces set forth in the Lease Agreement, 5 additional parking spaces on Level P3 of the Building. The lease of the Additional Parking Spaces shall commence as of August 1, 2012 (hereinafter: the “ Date of the Beginning of the Lease of the Additional Parking Spaces ”).

 

2. For the removal of doubt, it is hereby clarified that the 5 Additional Parking Spaces shall be in addition to the 35 parking spaces already held by the Lessee, so that the total number of parking spaces leased by the Lessee from the Lessor, as of the Date of the Beginning of the Lease of the Additional Parking Spaces, will be 40.

 

3. The term of the lease of the Additional Parking Spaces shall commence as of the Date of the Beginning of the Lease of the Additional Parking Spaces and continue for the duration of the term of the Lease Agreement, including any extensions thereof, and shall overlap with it.

 

4. As of the Date of the Beginning of the Lease of the Additional Parking Spaces, the Leased Property, as this term is defined in the Lease Agreement, shall be considered to include the Additional Parking Spaces.

 

5. It is hereby agreed that the rental fees for the Additional Parking Spaces shall be in the amount of NIS 300 per month per each Additional Parking Space, with added VAT as required by law and linked to the Consumer Price Index published on July 15, 2012 of 105.00 points.

 

6. Attached to this Amendment as Appendix A is a plan is marking all 40 parking spaces , viz. the 35 parking spaces that were in the Lessee’s possession before the signing of this Appendix as well as the 5 parking spaces that are to be added as of the Date of the Beginning of the Lease of the Additional Parking Spaces. As of such date, the parties shall make reference only to the parking spaces marked on the plan attached hereto, and this plan alone shall obligate the parties with regard to the exact location of the parking spaces.

 

7. The rental fees, their linkage, the management fees and the remainder of the provisions of the Lease Agreement shall apply in full to this Appendix and nothing in this Appendix shall derogate from and/or amend the provisions of the Lease Agreement, save for in respect of the Additional Parking Spaces.

 

 

/s/ Roni Mamluk

Lessor Lessee


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Amendment to Lease Agreement

That was entered into by the parties on September 5, 2008

Made and entered into in Jerusalem on August 13, 2012

 

By:

RMPA Assets Ltd.

(By Mr. Yair Hadar

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;
And between:        

Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas on September 5, 2008 the parties signed a lease agreement and on January 29, 2009, March 24, 2010, June 22, 2010, November 22, 2011 and July 19, 2012 they entered into amendments to such lease agreement (the lease agreement and the amendments thereto shall hereinafter collectively be known as: the “ Lease Agreement ”), according to which the Lessee leased a Leased Property, as such term is defined in the Lease Agreement, in the building known as Beit Hadar Nechasim at 10 Hartum Street, Jerusalem; and
Whereas the Lessor declares that it is the owner/has the right to be registered as owner of a building located at 12 Hartum Street in Har Hotzvim. Jerusalem, known as Beit RMPA (hereinafter: “ Beit RMPA ”), pursuant to a confirmation of rights dated as of October 10, 2011, which is attached hereto as Appendix A , and that it is entitled under law and/or agreement to lease to the Lessee the additional leased property in Beit RMPA, as such term is defined below in this Amendment; and
Whereas the Lessor represents that the claim in respect of which all of the caveats were registered in the rights confirmation (Appendix A) (with the exception of the caveats registered in respect of mortgages) has been stricken; and
Whereas         the Lessee desires that the Lessor grant it an option to lease from the Lessor a certain additional area in Beit RMPA (including a pro rata share of the areas of the building open to use by the public) marked on the plan attached to this Agreement as Appendix A (hereinafter: the “ Additional Leased Property in Beit RMPA ”) and the Lessor desires to grant the Lessee the option to lease the Additional Leased Property in Beit RMPA by means of an unprotected lease (hereinafter: the “ Lease ”) for the purpose, and subject to the terms and conditions, set forth in the Lease Agreement and in this Appendix;


Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows:

Option

 

1. The Lessor hereby grants the Lessee the option to lease the area of the Additional Leased Property in Beit RMPA, subject to the terms set forth in this Agreement below (hereinafter: the “ Option ”).

 

2. The Lessee shall be entitled to notify the Lessor, by written notice delivered to the Lessor no later than October 30, 2012, regarding the Lessee’s decision whether to exercise the Option. In the event that the Lessee does not provide notice of its exercise of the Option by such date, this Amendment shall become null and void and the Lessor shall have the right to do as it pleases with the Additional Leased Property in Beit RMPA, including to lease it to another party. In the event that the Lessee exercises the Option in accordance with the provisions of this Amendment, the lease subject to the terms set forth in this Amendment shall become valid.

 

3. On the date of the signing of this Amendment, the Lessee shall pay the Lessor a total of NIS 9,460, with added VAT as required by law, as full and final payment, not be refunded to the Lessee under any circumstances whatsoever, in consideration of the Option granted to the Lessee under this Amendment (hereinafter: the “ Option Payment ”), all without derogating from the provisions of section 10 below.

Definitions

 

4. Additional Leased Property in Beit RMPA — the area marked on the plan attached hereto as Appendix B on Level 1 of Beit RMPA at 12 Hartum Street, Jerusalem.

 

5. Area of the Additional Leased Property in Beit RMPA — for the purposes of the calculations pursuant to this Agreement, the gross area has been fixed at 220 square meters.

 

6. Base Index — the index published on the fifteenth day with respect to the month of May of the year 2008.

 

7. Date of Transfer of Possession — November 1, 2012.

 

8. Beginning of the Additional Leased Property Term of Lease — November 1, 2012.

Terms that shall apply in the event of the exercise of the Option:

Rental Fees


9. Rental Fees — the rental fees in respect of the Additional Leased Property shall be in accordance with section 9.2 of the Amendment to the Lease Agreement dated as of March 24, 2010.

 

10. The Rental Fees, along with all the other payments owed by the Lessee to the Lessor in respect of the Additional Leased Property in Beit RMPA, shall be paid as of the Beginning of the Additional Leased Property Term of Lease, pursuant to the dates and terms of payment set forth in the Lease Agreement and together therewith. Notwithstanding the aforesaid in this section, the amount of NIS 9,460 plus VAT will be offset from the first payment on account of the Rental Fees as the Lessor’s one time contribution to the works performed by the Lessee.

 

11. The Lessor shall transfer possession of the Additional Leased Property in Beit RMPA to the Lessee on the Date of Transfer of Possession. As of such date, the Lessee shall be responsible for all of the payments owed on account of the Additional Leased Property in Beit RMPA (rent, management fees, property rates, water, electricity, etc.).

 

12. The Lessor undertakes to provide the Lessee with possession of the Additional Leased Property in Beit RMPA in its then current state, AS IS, with it including, inter alia , the air conditioning units installed therein.

 

13. The parties hereby agree that the Lessee, at its own expense, shall be responsible for the performance of all of the customization works it requires for its purposes in the Additional Leased Property, with such works to be performed in accordance with the specifications and plans to be approved by the Lessor in advance and in writing. Attached to this Amendment as Appendix C is a list of tasks approved by the Lessor to be performed in the Additional Leased Property in Beit RMPA. Moreover, the Lessee is aware that it is required to install a separate electrical board in the Additional Leased Property in Beit RMPA and to connect it to the master circuit breaker in the master electrical board in the structure at its own expense (the Lessor undertakes, at its own expense , to install a sub-meter on the master circuit breaker for the purpose of measuring the Lessee’s electricity usage within 7 days of the date on which the electrical board is connected to the master circuit breaker). Furthermore, the Lessee is also aware that it is required to install connections to the communications infrastructure in accordance with its needs and that it is responsible, at its own expense, for disconnecting the temporary connections currently installed for the use of another lessee.

 

14. All of the electricity, water and municipal tax bills will be paid directly to the relevant authorities pursuant to sub-meter readings. Until the installation of a sub-meter as set forth in section 13 above, the Lessee shall pay for electricity based on its pro rata share.

 

15. It is hereby clarified that aside from the amendments set forth explicitly in this Amendment, there shall be no change to the Lease Agreement or its terms and these shall remain fully valid. In any case where anything is not properly clarified, it shall be read and/or interpreted in accordance with the terms of the Lease Agreement.

 

16. It is hereby clarified that the management fees, the amount of the bank guarantee and any payment directly derived from the area of the property (with the exception of the Rental Fees, which shall be subject to the provisions of section 9 above) shall increase proportionally as of the date of the Beginning of the Additional Leased Property Term of Lease.


17. The Lessee undertakes to insure the Additional Leased Property in Beit RMPA and provide authorizations in the form attached for such purpose to the Lease Agreement in respect of the Additional Leased Property in Beit RMPA as well.

 

18. The term of the lease of the Additional Leased Property in Beit RMPA (and the additional terms of the lease, as applicable) shall mirror the provisions of the Lease Agreement.

 

19. Upon the termination of the lease of the Additional Leased Property in Beit RMPA, the Lessee shall return the Additional Leased Property in Beit RMPA to the Lessor in its then current state, including the customization works described in section 14 above that are permanently affixed to the Additional Leased Property in Beit RMPA, for no additional consideration and subject to reasonable wear and tear.

 

20. The Rental Fees (as set forth in section 9), their linkage, the management fees and the remainder of the provisions of the Lease Agreement shall apply in full to this Amendment and nothing in this Amendment shall derogate from and/or amend the provisions of the Lease Agreement, save for in respect of the provisions of this Amendment.

 

/s/ Yair Hadar

/s/ Roni Mamluk

Lessor Lessee


Logo — Israel Lands

Administration

Appendix A

To:

RMPA Assets Ltd.

PO Box 45010

Jerusalem 31050

RE: CONFIRMATION OF REGISTRATION OF RIGHTS IN AN ASSET

Block: 30243          Parcel: 99             Sub-Parcel:

Plan: 3760A                             Lot: 1

Address of the Asset: Har Hotzvim, Jerusalem

Area: 4,239.0                             Approximate square meters:

 

1. We hereby confirm that the rights in the asset are registered with us in the name of —

 

     Name                                              

 

     RMPA Assets Ltd.                         

 

2. The rights holders have a capitalized lease on the relevant asset that is valid until May 16, 2043.

 

3. As of the date of this confirmation – the registrations, caveats and actions (undertakings to register a mortgage, lien, injunction, agreement for placement of a charge on rights, etc.) in respect of the relevant asset, as these have been updated in the asset file maintained by the Administration (not including charges registered other than with the Administration or of which the Administration has no knowledge) are as follows:

 

     There is a legal impediment resulting from a directive issued by the Attorney General

 

     There is a first mortgage to Israel Union Bank, with no limitation as to amount

 

     There is a first mortgage to Bank Leumi L’Israel Ltd., with no limitation as to amount

 

     Irregular use

 

     There is a request to file a claim in respect of irregular use in the asset.

 

     The asset may be registered with the Land Registry. No action will be taken prior to registration.

 

4. As of the date of this confirmation (October 10, 2011; 17:31) no request has been filed with the Administration for the transfer of rights in the relevant asset.

 

5. Nothing in this document shall amend any obligations or rights under law, as reflected in the Administration file, and nothing herein shall constitute consent to any deviation from/breach of the agreement mentioned above.

 

     The remaining details (terms of long term lease, financial terms, building rights) are as set forth in the long term lease agreement, including all special terms, if any.

 


Logo — Israel Lands

Administration

 

6. The information set forth in this document does not make reference to registrations not maintained by the Administration, including those maintained by the company as set forth above, with the Land Registry Office, the Registrar of Pledges, Registrar of Associations or the Registrar of Companies.

 

     Since the relevant asset is eligible for registration with the Land Registry, there may be no transfer of any rights and undertakings to register a mortgage in the Administration’s books.

 

7. Registration with the Land Registry supersedes any registration with the Administration and in the event of a contradiction between the two registrations — the registration with the Land Registry shall prevail.

 

Sincerely,
[signature + stamp]
(Name) (Position) (Signature)*

 

* Note: the details pertaining to the asset (address, block, parcel, plan) are as listed in the Administration file.

Please note — the legal status of property rights is maintained by the Land Registry Office as set forth in the Lands Law, 5729-1969, after the update of the registration with respect to such rights. The Land Registry defines an asset in accordance with its final (and updated) block and parcel (and sub-parcel). The rights to this property have yet to be registered with the Land Registry and therefore the block and parcel designations in this form are not necessarily final.


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Appendix C

DESCRIPTION OF EXPENSES SECTION

Renovation of Building , including, inter alia, handling of the following issues: carpets, kitchen, restrooms, entrance door, construction and removal of drywalls, painting, replacement of faulty light fixtures, replacement of improper ceiling tiles, supplying a new electrical panel and connecting it as required, adding power points, communications and computers.

Furniture for the employee rooms

Table and chairs for the conference room

Fire detection system

Intrusion detection system

Attendance system and entrance control

Computer Communication Network / Telephony

Telephony network VOIP

Switchboard.

 


Amendment to Lease Agreement dated as of September 5, 2008

Made and entered into in Jerusalem on November 1, 2012

 

By:

RMPA Assets Ltd.

(By Mr. Yair Hadar

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;
And between:        

Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas

on August 13, 2012 the parties signed an amendment to a lease agreement (the “ Lease Agreement ”), according to which the Lessee leased certain areas located on Level A (+1) of the building at 12 Hartum Street in Jerusalem known as Beit RMPA (hereinafter known as: the “ Building ”), all as set forth in the Lease Agreement; and

Whereas

the Lessee desires to lease parking spaces in the Building’s parking garage; and

Whereas

the Lessor agreed to lease to the Lessee 5 parking spaces on the Parking Level (-2) of the Building; and

Whereas        

the parties agreed that the provisions, terms and limitations set forth in the Lease Agreement shall also apply in full to the additional parking spaces set forth in this Amendment;

Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows :

 

1. The Lessor shall lease to the Lessee, and the Lessee shall lease from the Lessor, in addition to the leased areas set forth in the Lease Agreement, the 5 parking spaces on Level (-2) of the Building marked on the plan attached hereto as Appendix A to this Amendment (the “ Parking Spaces ”). The plan (Appendix A) shall obligate the parties with respect to the exact location of the Parking Spaces.


2. The term of the lease of the Parking Spaces shall commence as of November 15, 2012 and continue for the duration of the term of the Lease Agreement, including any extensions thereof, and shall overlap with it.

 

3. As of the parties’ signing of this Appendix, the areas leased under the Lease Agreement shall be considered to include the Parking Spaces as if they had been incorporated into the Lease Agreement from the outset.

 

4. In consideration of each Parking Space, the Lessee shall pay a total of NIS 400 plus VAT.

 

5. The rental fees, their linkage, the management fees and the remainder of the provisions of the Lease Agreement shall apply in full to this Appendix and nothing in this Appendix shall derogate from and/or amend the provisions of the Lease Agreement, save for in respect of the Additional Parking Spaces.

 

/s/ Yair Hadar

/s/ Roni Mamluk

Lessor Lessee


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Amendment to Lease Agreement Dated as of September 5, 2008

Made and entered into on November 1, 2012

 

By:

RMPA Assets Ltd.

(By Mr. Yair Hadar

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;

And between:        

Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas

on September 5, 2008 the parties signed a lease agreement and on January 29, 2009, March 24, 2010, June 22, 2010 and November 27, 2011 they entered into amendments to such lease agreement (the lease agreement and the amendments thereto shall hereinafter collectively be known as: the “ Lease Agreement ”), according to which the Lessee leased certain areas in a building located at 10 Hartum Street in Jerusalem known as Beit Hadar Nechasim (hereinafter: the “ Building ”), all as set forth in the Lease Agreement; and

Whereas

the Lessee desires to lease the remainder of the area of the storage room on Level P3 of the Building (the “ Additional Area ”); and

Whereas

the Lessor agreed to lease the Additional Area in a storage room on Level P3 of the Building to the Lessee; and

Whereas        

the parties agreed that the provisions, terms and limitations of the Lease Agreement shall also apply in full with respect to the Additional Area set forth in this Amendment;

Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows:

 

1. The Lessor shall lease to the Lessee, and the Lessee shall lease from the Lessor, in addition to the leased areas described in the Lease Agreement, an additional area, which, for the purposes of this Agreement, shall consist of the remaining 10 gross square meters in the storage room leased by the Lessee in accordance with the Amendment to the Lease Agreement dated as of November 27, 2011, on Level P3 of the Building. A plan is attached to this Amendment as Appendix A marking the Additional Area.


2. The term of the lease of the Additional Area shall commence as of November 1, 2012 and continue for the duration of the term of the Lease Agreement and shall overlap with it (hereinafter: the “ Term of the Lease ”).

 

3. Upon the parties signing of this Appendix, the properties leased by the Lessee in accordance with this Agreement shall be considered to include the Additional Area as if it had been incorporated into the Lease Agreement from the outset.

 

4. In consideration of each month of the lease and use by the Lessee during the Term of the Lease, the Lessee shall pay the Lessor monthly rental and usage fees equaling NIS 400 with added VAT as required by law, against provision by the Lessor of a valid tax receipt within no more than 7 business days.

 

5. For the removal of doubt, the size of the entire storage room is 20 square meters and the total consideration in respect thereof is NIS 900 + VAT per month.

 

6. The rental fees, their linkage, the management fees and the remainder of the provisions of the Lease Agreement shall apply in full to this Appendix and nothing in this Appendix shall derogate from and/or amend the provisions of the Lease Agreement, save for in respect of the provisions of this Amendment. .

 

/s/ Yair Hadar

/s/ Roni Mamluk

Lessor Lessee


Amendment to Lease Agreement Dated as of September 5, 2008

Made and entered into on July 1, 2014

 

By:

RMPA Assets Ltd.

(By Mr. Yair Hadar

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;

And between:        

Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas

on September 5, 2008 the parties signed a lease agreement (the “ Lease Agreement ”), in accordance to which the Lessee leased certain areas on Level A (+1) of the building known as Beit Hadar Nechasim (hereinafter: the “ Building ”) along with a number of parking spaces, all as set forth in the Lease Agreement; and

Whereas

the Lessee desires to return to the Lessor the area of the Additional Leased Property, as defined in the Appendix dated as of March 24, 2010, amounting to a gross area of 132 square meters on the second level of Beit Hadar Nechasim; and

Whereas

notwithstanding the provisions of the Agreement, including any extensions thereof, the Lessee desires to extend the Lease Agreement over the remaining area, which amounts to a gross area of 960 square meters, 15 parking spaces and the storage room, for an additional term; and

Whereas        

the Lessor is willing to permit the Lessee to return the area of the Additional Leased Property and to extend the Lease Agreement, including all terms and appendices thereof ;

Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows:

 

1. As of August 15, 2014, the Lessor shall take possession of the Additional Leased Property, which amounts to a gross area of 132 square meters.


2. In respect of the remaining area of 960 square meters, parking spaces and storage room, the Agreement will be extended so that the additional term of the lease shall be from September 5, 2014 through February 28, 2014.

 

3. The rental fees and management fees shall be reduced to account for the additional returned area, for which rental fees were NIS 43 per gross square meter plus VAT and management fees were NIS 10 per square meter plus VAT. All of the reduced amounts are linked to the May 2008 Consumer Price Index.

 

4. As of July 1, 2014, the Lessee shall retain only 15 parking spaces, for which consideration is paid on a per parking space basis as agreed between the parties.

 

5. With regard to the remainder of the payment terms set forth in the Agreement concerning rental fees, management fees, parking spaces and storage room there shall be no additional change.

 

6. It is hereby clarified that the provisions of the Agreement, as well as those of its appendices and amendments, shall apply in full to this Amendment, save for terms that were explicitly changed hereunder, and nothing in this Amendment shall be seen to derogate from and/or to amend the provisions of the Lease Agreement, save for as explicitly set forth above.

 

/s/ Yair Hadar

/s/ Roni Mamluk

Lessor Lessee


Amendment to Lease Agreement Dated as of September 5, 2008

Made and entered into on January 1, 2015

 

By:

RMPA Assets Ltd.

(By Mr. Yair Hadar

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessor ”)

Of the first part;
And between:        

Chiasma (Israel) Ltd.

(By Ms. Roni Mamluk

Who is authorized to sign on the company’s behalf)

(who for the sake of convenience will hereinafter be known as: the “ Lessee ”)

Of the second part;

 

Whereas

on September 5, 2008 the parties signed a lease agreement (the “ Lease Agreement ”), in accordance to which the Lessee leased certain areas on Level A (+1) of the building known as Beit Hadar Nechasim (hereinafter: the “ Building ”) along with a number of parking spaces, all as set forth in the Lease Agreement; and

Whereas

on August 15, 2014 the Lessee returned, and the Lessor took possession of, the area of the Additional Leased Property, which amounts to a gross area of 132 square meters, in accordance with the Amendment to the Lease Agreement dated as of July 1, 2014; and

Whereas

notwithstanding the provisions of the Amendment to the Lease Agreement dated as of July 1, 2014, in which it was agreed that the term of the lease in respect of the remaining area of 960 square meters, parking spaces and storage room was to be extended through February 28, 2015, on November 25, 2014 the Lessee returned to the Lessor a laboratory area of 263 square meters in the Building from the total leased area (hereinafter: the “ Returned Area ”), and the Lessor took possession of the Returned Area and leased it to another lessee; and

Whereas        

the Lessee desires to extend the Lease Agreement with respect to the area remaining in its possession, which amounts to a gross area of 697 square meters (hereinafter: the “ Remaining Area of the Leased Property ”) divided into approximately 366 square meters of office space (hereinafter: the “ Remaining Office Space ”) and 331 square meters of laboratory space (hereinafter: the “ Remaining Laboratory Space ”), 15 parking spaces and the storage room, for an additional term, and the Lessor is willing to extend the Lease Agreement, including all terms and appendices thereto, with respect to such areas;


Now therefore, it is hereby stipulated, conditioned and warranted between the parties as follows:

 

1. With respect to the remaining area of 697 square meters, 15 parking spaces and the storage room, the Lease Agreement shall be extended so that the second additional term of the lease shall extend through September 4, 2015.

 

2. As of November 25, 2014, the rental fees and management fees shall be calculated in accordance with the terms of the original agreement in respect of the remaining areas.

 

3. With regard to the remainder of the terms set forth in the Agreement concerning rental fees, management fees, parking spaces and storage room there shall be no additional change.

 

4. It is hereby clarified that the provisions of the Agreement, as well as those of its appendices and amendments, shall apply in full to this Amendment, save for terms that were explicitly changed hereunder, and nothing in this Amendment shall be seen to derogate from and/or to amend the provisions of the Lease Agreement, save for as explicitly set forth above.

 

/s/ Yair Hadar

/s/ Roni Mamluk

Lessor Lessee

Exhibit 10.12

SUBLEASE

Cyber-Ark Software, Inc., a Delaware corporation, having an address at 60 Wells Avenue, Newton, Massachusetts 02459 (“ Sublessor ”), and Chiasma, Inc., a Delaware corporation, having an address at 60 Wells Avenue, Newton, Massachusetts 02459 (“ Sublessee ”), enter into this Sublease effective as of May 12, 2015.

Preliminary Statement

Sublessor is the tenant under that certain Lease dated October 28, 2013, as amended by First Amendment of Lease dated October 23, 2014 (the “ Lease ”) with Wells 60 Realty LLC (“ Landlord ”) pursuant to which Sublessor has leased from Landlord certain premises consisting of approximately 21,644 rentable square feet of space, known as Suites 102 and 103 (the “ Premises ”) in the building (“ Building ”) located at and commonly known as 60 Wells Avenue, Newton, Massachusetts 02459 (the “ Property ”), all as more particularly described in the Lease. A true and accurate copy of the Lease is attached hereto as Exhibit A .

Sublessor desires to sublet to Sublessee, and Sublessee desires to accept from Sublessor, a portion of the Premises containing approximately 6,546 square feet, known as Suite 102, generally as shown on Exhibit B (the “ Subleased Premises ”) on the terms and conditions set forth in this Sublease.

Capitalized terms used but not defined in this Sublease shall have the meanings ascribed to such terms in the Lease.

Agreement

In consideration of the mutual covenants of this Sublease and other valuable consideration, the receipt and sufficiency of which Sublessee and Sublessor hereby acknowledge, Sublessor and Sublessee agree as follows:

1. Subleased Premises . Sublessor hereby subleases to Sublessee, and Sublessee hereby subleases from Sublessor, the Subleased Premises, subject to the terms and conditions of this Sublease and the Lease. Sublessee accepts the Subleased Premises in its “AS-IS, WHERE IS” condition. Sublessee acknowledges that it has examined and inspected the Subleased Premises and is familiar with the physical condition thereof. Neither Landlord nor Sublessor shall have any obligation to make any changes, additions or improvements to the Subleased Premises.

2. Term . The term of this Sublease (“ Sublease Term ”) shall commence on May 12, 2015 (“ Commencement Date ”), subject to Landlord’s Consent as required per Section 22 below, and shall terminate at 5:00 p.m. on March 31, 2016, or such sooner date upon which the Sublease Term may expire or terminate under this Sublease or pursuant to law.

3. Use . Sublessee shall use and occupy the Subleased Premises only for professional office use (“ Permitted Use ”) and otherwise in accordance with the Lease. Except a Certificate of Occupancy, all licenses and permits required by local, state and any other

 

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authorities necessary for Sublessee to conduct Sublessee’s business at the Subleased Premises shall be Sublessee’s responsibility to obtain. Sublessee shall have use of existing furniture, fixtures and equipment currently located in the Subleased Premises and listed on Exhibit C attached hereto (“ FF&E ”) for duration of the Sublease. Sublessee shall return the Subleased Premises and FF&E at the expiration of the Sublease Term, in is the same condition as they were in on the Commencement Date, reasonable wear and insured casualty only excepted.

4. Yearly Fixed Rent . Commencing on May 12, 2015 (subject to Landlord’s Consent as required per Section 22 below), Sublessee shall pay to Sublessor rent at an annual rate of $229,110.00 (“ Fixed Rent ”), in equal monthly installments of $19,092.50, in advance, on the first day of each calendar month during the Sublease Term. The first monthly installment shall be delivered to Sublessor by Sublessee upon execution of this Sublease. If the Sublease Term includes a partial calendar month at its beginning or end, the monthly installment of Fixed Rent for such partial month shall be prorated at the rate of 1/30 of the monthly installment for each day in such partial month within the Sublease Term and shall be payable in advance on the first day of such partial month occurring within the Sublease Term. The Fixed Rent shall be paid to Sublessor at its offices located at the address set forth in the opening paragraph hereof, or such other place as Sublessor may designate in writing, in lawful money of the United States of America, without demand, deduction, offset or abatement; provided , however , at Sublessor’s election, Sublessee shall pay installments of Fixed Rent directly to Landlord at Landlord’s address set forth in the Lease, and Sublessee shall, simultaneously with the payment of Fixed Rent to Landlord, send to Sublessor a copy showing each installment payment of Fixed Rent.

5. Additional Rent and Utilities . Sublessee shall pay the following as Additional Rent in lieu of payment of any Operating Costs, Property Real Estate Taxes or Electricity/Utilities under Sections 5 and 6 of the Lease: (a) the cost of electricity and other utilities consumed within the Subleased Premises at the rate of $2.00 per square foot, payable in monthly installments of $1,091.00 per month in advance on the first day of each month during the Sublease Term; and (b) all costs incurred by Sublessor or Landlord to repair items at the Subleased Premises damaged by Sublessee’s use. All electric consumption exceeding customary office usage, including, without limitation, to power Sublessee’s specialty equipment/fixtures and for afterhours HVAC usage charges, shall be proportionally allocated by Landlord and billed by Sublessor to Sublessee, and the same shall be due within ten (10) days after the date Sublessee receives invoices for same. The term “ Rent ” as used in this Sublease shall include Fixed Rent, Additional Rent and all other sums and charges payable by Sublessee hereunder.

6. Security Deposit . Sublessee shall pay to Sublessor the sum of $38,185.00 (“ Security Deposit ”) as security for the full and timely payment and performance of Sublessee’s obligations under this Sublease. Sublessee shall deliver the Security Deposit to Sublessor upon the execution hereof. Sublessor shall have no obligation to segregate the Security Deposit from Sublessor’s other funds. The Security Deposit shall be refunded to Sublessee, without interest, within thirty (30) days after the termination of this Sublease subject to Sublessee’s satisfactory compliance with the conditions of this Sublease and subject to deduction for payment of Sublessee’s obligations not then fulfilled by Sublessee. If Sublessee fails to pay or perform in a full and timely manner any of its obligations under this Sublease, Sublessor may apply all or any portion of the Security Deposit toward curing any such default under this Sublease (beyond any applicable notice and cure periods) and compensating Sublessor for any loss, damage or

 

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expenses arising from such default. If Sublessor so applies any portion of the Security Deposit, Sublessee shall pay to Sublessor the amount necessary to restore the Security Deposit to its original amount within five (5) days after written demand and failure to do so within five (5) days after written demand shall be deemed an automatic Event of Default hereunder. Sublessee may not use the Security Deposit to pay any of Sublessee’s payment obligations, and Sublessee shall not have the right to mortgage, transfer, assign or encumber the Security Deposit. Sublessee acknowledges that Sublessee has no interest in the Security Deposit paid by Sublessor to Landlord under the Lease (“ Original Security Deposit ”), which Original Security Deposit shall continue to be held by Landlord subject to the terms of the Lease.

7. Subordination to Lease . Except to the extent contradictory with the terms of this Sublease, this Sublease shall be subject to and on all of the terms and conditions as are contained in the Lease and the provisions of the Lease are hereby incorporated into this Sublease as if Sublessor were the lessor thereunder and Sublessee the lessee thereunder. Where appropriate, references to “Landlord” in the Lease shall be deemed to mean “Sublessor” hereunder and references to “Tenant” in the Lease shall be deemed to mean “Sublessee” hereunder, it being understood and agreed that Sublessor will not be acting as, or assuming any of the responsibilities of, Landlord, and all references in the Lease to Landlord-provided services or Landlord insurance requirements, and any other references which by their nature relate to the owner or operator of the Building, rather than to a tenant of the Building subleasing space to a subtenant, shall continue to be references to Landlord and not to Sublessor. This Sublease is in all respects subject and subordinate to the provisions of the Lease and shall automatically terminate upon termination of the Lease for any reason whatsoever. Sublessee covenants and agrees that during the term of this Sublease and for such further time as Sublessee may occupy the Subleased Premises, Sublessee will perform and observe all of the obligations of Sublessor under the Lease (other than payment of Rent which shall be as set forth in this Sublease), to the extent relating to the Subleased Premises, arising and/or occurring from and after the Commencement Date hereof, as fully and as effectually as though Sublessee had been originally named therein as Tenant, and will indemnify and save Sublessor harmless from any loss, cost, liability, damage, or expense, including, without limitation, reasonable attorneys’ fees, that Sublessor may suffer or incur by reason of the failure of Sublessee so to do.

Notwithstanding any contrary provision of the Lease or this Sublease, the following definitions in the Lease: Execution Date, Premises Rentable Area, Term Commencement Date, Rent Commencement Date, Expiration Date, Early Access Period, Yearly Fixed Rent and Monthly Payment, Extension Term Yearly Fixed Rent, Pro Rata Share, Security Deposit, Extension Term and Brokers; Sections 12.B , 22 , 23 , 25 , 32(L) , 33 and 35 ; and Exhibits A , A-1 , B and D of the Lease are not incorporated as provisions of this Sublease. In addition, Section 24 of the Lease is incorporated by reference, except that Sublessee’s recourse as against Sublessor shall not be limited to Sublessor’s interest in the Property.

8. Assignments and Subleases . Notwithstanding any provision of the Lease to the contrary, Sublessee shall not assign this Sublease or sublet all or any portion of the Subleased Premises or allow any other person or entity to occupy all or any portion of the Subleased Premises, without the prior written consent of Sublessor and Landlord, which Sublessor and Landlord may grant, withhold or condition in its or their sole discretion. If Sublessor and Landlord consent to any such assignment or sublease, such assignment or sublease shall comply

 

3


with the requirements of the Lease including, without limitation, Section 12 thereof. Any attempt by Sublessee to assign this Sublease or sublet or allow the use of all or any portion of the Subleased Premises without the prior written consent of both Sublessor and Landlord shall be void.

9. Insurance . During the Sublease Term, Sublessee shall maintain insurance of such types, in such policies, with such endorsements and coverages, and in such amounts as are required to be maintained by the Tenant under the Lease. All insurance policies shall name Landlord, Landlord’s lender, Landlord’s management company and Sublessor as additional insureds and loss payees, as the case may be, and shall contain an endorsement that such policies may not be canceled without 30 days prior written notice to Landlord and Sublessor. Sublessee shall promptly pay all insurance premiums and shall provide Sublessor with policies or certificates evidencing such insurance upon execution and delivery of this Sublease by Sublessee, and not later than thirty (30) days prior to each expiration date of such policies.

10. Alterations . Notwithstanding any provisions of the Lease to the contrary, Sublessee shall not make any alterations, additions, improvements or installations in or to the Subleased Premises without in each instance obtaining the prior written consent of both Landlord and Sublessor, which Landlord and Sublessor may grant, withhold or condition in their sole discretion. If Sublessor and Landlord consent to any such alterations, additions, improvements or installations, Sublessee shall perform and complete such alterations, additions, improvements and installations at its expense, in compliance with applicable laws and in compliance with Section 11 and any other applicable provisions of the Lease. If Sublessee performs any alterations, additions, improvements or installations without obtaining the prior written consent of both Landlord and Sublessor, Sublessor and/or Landlord may remove such alterations, additions, improvements or installations, restore the Subleased premises and repair any damage arising from such removal or restoration, and Sublessee shall be liable to Sublessor for all costs and expenses incurred by Sublessor in the performance of such removal, repairs or restoration.

11. Parking . Sublessee shall be entitled to use, in common with Landlord and Sublessor, and other subtenants at the Property and their employees, customers and/or clients, up to twenty three (23) parking spaces at the Property for the transient, not overnight, parking of vehicles.

12. Indemnification/Default by Sublessee . In the event:

(a) Sublessee defaults in the payment of any installment of Yearly Fixed Rent, Additional Rent or other sums payable by Sublessee under this Sublease, and that default continues for five (5) days after written notice (but Sublessee shall not be entitled to written notice of payment defaults nor have the right to cure payment defaults more than twice in any consecutive twelve (12) month period); or

(b) Sublessee defaults in the observance or performance of any other of Sublessee’s covenants, agreements, or obligations in this Sublease and such default shall not be corrected within ten (10) days after written notice ( provided, however , there shall be no notice or grace period required or entitled for defaults which are willful by Sublessee or for the same default which occurs more than once in a consecutive twelve (12) month period); or

 

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(c) Sublessee or any guarantor of this Sublease is declared bankrupt or insolvent according to law, or, if any assignment shall be made of Sublessee’s or guarantor’s property for the benefit of creditors;

then, Sublessor shall have the right to re-enter and take complete possession of the Premises and declare the Term ended and remove Sublessee’s effects, in all cases without prejudice to any other remedies Sublessor may thereafter assert to enforce its rights hereunder. Sublessee shall indemnify Sublessor against all loss of rent and other payments which Sublessor may incur by reason of such termination during the remainder of the Sublease Term. If Sublessee shall default in the observance or performance of any conditions or covenants on Sublessee’s part to be observed or performed under this Sublease and such default continues beyond any applicable grace period set forth above, Sublessor, without being under any obligation to do so and without thereby waiving the default, may remedy such default for the account and at the expense of Sublessee. If Sublessor makes any expenditure or incurs any obligation for the payment of money in connection with this Sublease, including, but not limited to, reasonable attorneys’ fees in instituting, prosecuting or defending any action or proceeding applicable to Sublessee’s use of the Premises or applicable to this Sublease, such sums paid or incurred, with interest at the rate of one and one-half percent (1.5%) per month, shall be paid to Sublessor by Sublessee as Additional Rent. Sublessee shall pay all Sublessor’s costs, including reasonable attorneys’ fees, in enforcing, defending and/or interpreting Sublessor’s rights hereunder. In addition, in the event of a default by Sublessee resulting in Sublessor’s termination of this Sublease, Sublessor shall have the remedies set forth in Section 18 of the Lease as if Sublessor were “Landlord” and Sublessee were “Tenant” thereunder.

13. Notices . All notices and demands under this Sublease shall be in writing and shall be effective (except for notices to Landlord which shall be given in accordance with Section 19 of the Lease) upon the earlier of (i) receipt at the address set forth below by the party being served, or (ii) two days after being sent to address set forth below by United States certified mail, return receipt requested, postage prepaid, or (iii) one day after being sent to address set forth below by a nationally recognized overnight delivery service that provides tracking and proof of receipt.

 

If to Landlord: As required under the Lease.
If to Sublessor: At the address set forth in the opening paragraph of this Sublease,
        Attention: Suzy Peled-Spigelman
If to Sublessee: At the address set forth in the opening paragraph of this Sublease,
        Attention: Mark Leuchtenberger

Either party may change its address for notices and demands under this Lease by notice to the other party in accordance with the foregoing.

14. Sublessor’s Representation and Warranties . Sublessor represents and warrants that:

(a) the copy of the Lease attached to this Sublease as Exhibit A is a complete and accurate copy of the Lease, as amended, as set forth in Exhibit A ;

 

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(b) to the best of Sublessor’s knowledge, Landlord is not in material default under the Lease, nor has any event occurred which, after any applicable notice and/or the expiration of any grace period, shall constitute a material default by Landlord under the Lease; and

(c) to the best of Sublessor’s knowledge, Sublessor is not in default under the Lease, nor has any event occurred which, after any applicable notice and/or the expiration of any grace period, shall constitute a material default by Sublessor under the Lease.

15. Sublessor Liability and Default . Sublessor shall not be liable to Sublessee or any other party for so long as Sublessor acts in good faith and diligently commences and seeks to obtain performance of the requirements of Sublessor under this Sublease. Recourse against Sublessor under or on account of this Sublease shall be limited to the assets of the Sublessor’s entity; in no event may Sublessee or any other party seek or obtain recourse to or from the assets of any manager, trustee, beneficiary or partner of Sublessor or any employee, officer, director or shareholder of Sublessor, or Sublessor’s manager, managing agent or their respective successors and assigns.

Sublessor shall not be deemed in default hereunder nor shall Sublessee have any cause of action against Sublessor hereunder unless and until Sublessor receives written notice from Sublessee detailing the asserted Sublessor breach and that breach continues without cure for fifteen (15) days or such additional time as is required to effect cure provided Sublessor has then commenced and thereafter reasonably diligently pursues cure. Notwithstanding anything to the contrary contained in this Sublease, Sublessor’s and Sublessee’s obligations under this Sublease are independent of each other, and the obligations of Sublessee hereunder shall not be conditioned on performance by Sublessor of its obligations hereunder.

16. Sublessor Covenants . Sublessor covenants and agrees that, so long as Sublessee is not in default beyond any applicable period of notice and/or cure hereunder, Sublessor:

(a) shall cause all rent to be paid under the Lease as and when due and payable under the Lease;

(b) shall observe and perform the other terms, provisions, covenants, and conditions of the Lease to be observed and performed by Sublessor, except to the extent that such terms, provisions, covenants, and conditions are assumed by Sublessee hereunder;

(c) shall not voluntarily terminate the Lease except pursuant to a right of termination arising out of casualty or condemnation expressly set forth in the Lease and shall not amend the Lease in a manner adverse to Sublessee in any material respect; and

(d) shall not take any action or fail to perform any act that results in a breach or default under the Lease to the extent any such action or any such failure to perform any such act adversely affects (i) the rights of Sublessee under this Sublease, including, without limitation, the right of Sublessee to receive all services, utilities, repairs and restorations to be provided by Landlord under the Lease with respect to the Subleased Premises as provided in Section 17 hereof, (ii) the ability of Sublessee to seek or obtain the approval or consent of Landlord to matters that require the approval or consent of Landlord or (iii) the right of Sublessee to use and occupy the Subleased Premises for the purposes and as provided under this Sublease.

 

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17. Services Under Lease . Sublessor agrees that Sublessee shall be entitled to receive all services, utilities, repairs and restorations to be provided by Landlord to Sublessor under the Lease with respect to the Subleased Premises. Sublessor agrees upon Sublessee’s request, to use reasonable efforts (excluding litigation), at Sublessee’s expense and to the extent relating to the Subleased Premises to, (a) to cause Landlord to provide the services or utilities described in Section 10(B) of the Lease or to make the repairs or restorations to the extent required to be performed by Landlord as specifically described in the Lease, or (b) to obtain Landlord’s consent or approval whenever required by the Lease (unless, in such instance, Sublessor shall be entitled to withhold its consent or approval even if Landlord shall have granted its consent or approval).

18. Holdover . If Sublessee fails to fully surrender the Subleased Premises to Sublessor at the end of the Sublease Term or earlier termination of this Sublease in the same condition as they were in on the Commencement Date (reasonable wear and damage by insured casualty only excepted) having first removed all of Sublessee’s personal property, then such failure shall be deemed a holdover by Sublessee and the provisions of Section 27 of the Lease shall be applicable during such period of holdover except that the fee for use and occupancy during such period of holdover shall increase to 200% of the Fixed Rent payable hereunder plus all Additional Rent payable hereunder.

19. Entire Agreement . This Sublease contains all of the agreements, conditions, warranties and representations relating to the sublease of the Subleased Premises and may be amended or modified only by written instruments executed by both Sublessor and Sublessee.

20. Authority . Sublessee represents that Sublessee is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and in good standing as a foreign corporation in the Commonwealth of Massachusetts. Sublessor represents that Sublessor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and in good standing as a foreign corporation in the Commonwealth of Massachusetts. Sublessor and Sublessee each represent and warrant to the other that the individual(s) executing and delivering this Sublease on its behalf is/are duly authorized to do so and that this Sublease is binding on Sublessee and Sublessor in accordance with its terms. Simultaneously with the execution of this Sublease, and, unless this Sublease is executed by Sublessee’s President/Vice President and Treasurer/Assistant Treasurer, upon request by Sublessor, Sublessee shall deliver evidence of such authority to Sublessor in a form reasonably satisfactory to Sublessor.

21. Not an Offer . The submission of an unsigned copy of this Sublease to Sublessee for Sublessee’s consideration does not constitute an offer to sublease the Subleased Premises. Subject to Section 22 below, this Sublease shall become effective and binding only upon the execution and delivery of this Sublease by Sublessor and Sublessee.

22. Condition Precedent . This Sublease, and the rights and obligations of Sublessor and Sublessee under this Sublease, are subject to the condition that Landlord consents to this Sublease, and this Sublease shall be effective only upon the receipt by Sublessor and Sublessee of such consent (“ Landlord Consent ”).

 

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23. Brokerage . Sublessor and Sublessee each represent and warrant to the other that Sublessee was not shown the Subleased Premises nor has Sublessee entered into this Sublease on account of the efforts of any party who may be entitled to claim a commission or payment therefor other than Evan Gallagher, of NAI Hunneman and Eric Solem, of Landmark RE Advisors (collectively, “ Brokers ”). Sublessor shall be responsible for the commission payable to the Brokers in accordance with a separate agreement between Sublessor and the Brokers.

[End of text - Signature page follows]

 

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IN WITNESS WHEREOF , Sublessor and Sublessee execute this Sublease as a sealed instrument as of the date first written above.

 

SUBLESSEE: SUBLESSOR:
CHIASMA, INC. CYBER-ARK SOFTWARE, INC.
By:

/s/ Mark Leuchtenberger

By:

/s/ Suzy Peled-Spigelman

Name: Mark Leuchtenberger Name: Suzy Peled-Spigelman
Title: President and Chief Executive Officer Title: VP Finance, Americas and Treasurer
duly authorized duly authorized
By:

/s/ Chaime Orlev

Name: Chaime Orlev
Title: Treasurer
duly authorized

 

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EXHIBIT A

“Lease”


LEASE

REFERENCE DATA PAGES

In this Lease the following terms shall have the meanings set forth below:

 

EXECUTION DATE:

October 28, 2013

 

LANDLORD:

Wells 60 Realty LLC

 

LANDLORD’S INITIAL ADDRESS
FOR PAYMENT:

Intrum Corp., Manager

Wells 60 Realty LLC

60 Wells Avenue, Suite 100

Newton, MA 02459

 

TENANT:

Cyber-Ark Software, Inc.

 

TENANT’S PRESENT ADDRESS:

57 Wells Avenue, Suite 20A

Newton, MA 02459

 

PROPERTY:

The land with the on-site parking, Building and improvements now and hereafter situated thereon owned by Landlord located at and numbered as 60 Wells Avenue, Newton, Massachusetts.

 

BUILDING:

The Building is the one story office building now and as from time to time located at the Property.

 

PREMISES:

The portion of the first floor of the Building depicted as Suite No. 103 on Exhibit A hereto annexed.

 

PREMISES RENTABLE AREA:

Approximately 15,098 rentable square feet within the Premises.

 

PERMITTED USE:

For professional office use only as permitted by local zoning.

 

TERM COMMENCEMENT DATE:

The later of February 1, 2014, or five (5) days following Landlord’s written notice to Tenant that Landlord’s Work (as described on Exhibit B attached hereto) has been substantially completed as determined by Landlord’s architect. In the event Landlord’s Work is not substantially complete by June 1, 2014, Tenant shall receive a rent abatement, beginning on the Rent Commencement Date, in an amount equal to fifty percent (50%) of the Yearly Fixed Rent on a per diem basis, for each day after

 

Landlord Initial       RG    

Tenant Initial       EM    

 

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June 1, 2014 that the Landlord’s Work is not substantially complete. Further, in the event the Landlord’s Work is not substantially complete on or before August 1, 2014, Tenant shall have the right to terminate the Lease by giving written notice to Landlord (“ Termination Notice ”) on or after August 1, 2014, of Tenant’s election to terminate, in which event the Lease shall terminate without recourse to the parties, unless the Landlord’s Work has been substantially completed prior to Landlord’s receipt of the Termination Notice.

 

RENT COMMENCEMENT DATE:

That date which is one hundred and fifty (150) days following the Term Commencement Date.

 

EXPIRATION DATE:

That date which is eight-four (84) months following the Rent Commencement Date (plus a portion of a month, if the term commences other than on the first day of a calendar month so that the term ends on the last day of a calendar month), the “ Initial Term ,” provided , however , if the Initial Term is extended as hereafter set forth, the Expiration Date shall be at 5:00 p.m. on the last day of the Extension Term then in effect.

 

EARLY ACCESS PERIOD:

Tenant shall have access to the Premises thirty (30) days prior to the Term Commencement Date for the purpose of installing wiring for its voice/data equipment provided such access does not interfere with Landlord’s completion of Landlord’s Work. Access during the Early Access Period shall otherwise be in accordance with the terms and conditions of this Lease, except that no Yearly Fixed Rent or Additional Rent shall be due or payable during the Early Access Period.

YEARLY FIXED RENT AND

MONTHLY PAYMENT:

PERIOD

  

YEARLY FIXED
RENT

    

MONTHLY
PAYMENT

 
First Lease Year    $ 352,498.56       $ 29,374.88   
Second Lease Year    $ 407,646.00       $ 33,970.50   
Third Lease Year    $ 415,194.96       $ 34,599.58   
Fourth Lease Year    $ 422,744.04       $ 35,228.67   
Fifth Lease Year    $ 430,293.00       $ 35,857.75   
Sixth Lease Year    $ 437,841.96       $ 36,486.83   
Seventh Lease Year    $ 445,391.04       $ 37,115.92   

 

        

Landlord Initial               

Tenant Initial               

 

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  Yearly Fixed Rent shall be payable monthly in advance in equal monthly installments (“ Monthly Payment ”) as set forth above, or the first day of each month beginning on the Rent Commencement Date. As used in this Lease, the term “ Lease Year ” shall mean the following: the First Lease Year shall commence on the Ren Commencement Date and shall end on the last day of the month that is twelve (12) months after the Rent Commencement Date; the Second Lease Year shall commence on the day after the end of the First Lease Year and continue for a consecutive twelve month period; and each Lease Year thereafter shall be a sequential consecutive twelve (12) month period.

 

EXTENSION TERM

YEARLY FIXED RENT: Yearly Fixed Rent during the Extension Term shall be at “ Market Rent ” as set forth in Exhibit D entitled Extension Term Yearly Fixed Rent attached hereto.

 

PRO RATA SHARE:

The percentage that the Premises Rentable Area bears to the rentable area at the Property held for rental by Landlord. The Pro Rata share shall be determined by a fraction, the numerator of which shall be the Premises Rentable Area and the denominator of which shall be the total rentable area of the Building (the “ Building Rentable Area ”) which Landlord’s architect has determined to be 32,463 square feet. Accordingly, Tenant’s Pro Rata Share shall be 46.51%.

 

SECURITY DEPOSIT:

$29,375.00.

 

EXTENSION TERM:

Provided Landlord has received written notice of Tenant’s intent to extend no later than nine (9) months prior to the end of the then current Term, Tenant may extend the Lease for two (2), successive periods of five (5) years each (herein collectively or individually called the “ Extension Term ”) with the first Extension Term (“ First Extension Term ”) commencing immediately after the Initial Term, and the second Extension Term (“ Second Extension Term ”) commencing immediately after the First Extension Term. Tenant’s right to extend shall be subject to the provisions set forth in Section 23 of this Lease.

 

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BROKERS:

Landmark Real Estate Advisors, LLC and Boston Realty Advisors

 

EXHIBITS:
        Rider: Included                  Not included                 
        Exhibit A: The Premises
        Exhibit A-1: Tenant’s Layout Plan
        Exhibit A-2: Parking Plan
        Exhibit B: Landlord’s Work
        Exhibit C: Not Applicable
        Exhibit D: Extension Term Yearly Fixed Rent
        Guaranty: Included                  Not included                 

 

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LEASE TEXT

1. The Premises and Common Areas and Facilities . Landlord hereby leases the Premises to Tenant for the Term. To the extent applicable, Landlord excepts and reserves from the Premises for the benefit of Landlord and its other tenants the shaftways and other common elements serving other parts of the Building or the Property, as well as the right to maintain, use, repair and replace pipes, ducts, wires, meters and any other equipment, machinery, apparatus and fixtures located in or at the Premises and serving other parts of the Building or the Property. Unless subsequently altered by written notice to Tenant caused by a change in the Building Rentable Area, the Premises Rentable Area shall be as indicated on the Reference Data Pages. To the extent the Premises is benefited by interior common areas in the Building, the Premises Rentable Area may include an allocation of Building common area. Premises Rentable Area data is included only for the purpose of determining Pro Rata Share and not Yearly Fixed Rent. Landlord reserves the right to renovate and redecorate the Building exterior, lobby and common areas and to build upon the Property additional common areas and expand the Building provided Landlord takes reasonable action to reduce the impact thereof during construction and, upon completion, any such action does not curtail in any material adverse manner Tenant’s ability to conduct its business at the Premises. Tenant shall be entitled to use, in common with Landlord and other tenants at the Property and their employees and patrons, fifty-five (55) spaces within the parking areas at the Property for the transient, not overnight, parking of automobiles; and ten (10) of the foregoing spaces, in the locations as shown on Exhibit A-2 , shall be designated for Tenant’s exclusive use. Landlord reserves the right to designate and locate separate tenant, patron, visitor and handicapped parking at the Property.

2. Term . Unless sooner terminated as provided herein, the term of this Lease shall commence on the Term Commencement Date and terminate on the Expiration Date (the “ Term ” and/or “ Lease Term ”). If an Extension Term is set forth in the Reference Data Pages, the Term shall include the Extension Term if the Term is extended.

3. Payment of Rent . Tenant shall pay the Yearly Fixed Rent as set forth in the Reference Data Pages by Monthly Payments in advance, without setoff, offset or deduction, commencing on the Rent Commencement Date, and thereafter continuing on the first day of each month thereafter, and shall pay Additional Rent in the manner set forth herein. All rent and other payments shall be made to Landlord at Landlord’s Initial Address for Payment or at such other location and to such person as Landlord shall designate from time to time in writing. If the Rent Commencement Date and/or Term Commencement Date occurs on a day other than the first day of a month, the first Monthly Payment and Additional Rent, as applicable, shall be appropriately pro-rated for that month and added as Rent for the First Lease Year. If Tenant shall fail to pay any installment of Yearly Fixed Rent or Additional Rent within ten (10) days after the date due, Landlord shall be entitled to collect a charge equal to five (5%) percent of the amount due to cover Landlord’s administrative expense in handling late payments; provided , that with respect to the first such late payment in any consecutive 12-month period, no late payment shall be due if Tenant makes payment within one (1) business day after notice (which may be by telephone or e-mail) from Landlord. In addition, Tenant shall pay interest at the rate of one (1%) percent (the “ Default Rate ”) for each month or any fraction thereof on any Rent not paid within ten (10) days after the date due. The sending of invoices to Tenant on one or more occasions shall not require Landlord to continue that practice for Yearly Fixed Rent or on account of regular monthly installments of Additional Rent. The term “ Rent ” as used in this Lease shall include Yearly Fixed Rent, Additional Rent and all other sums and charges payable by Tenant hereunder.

 

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4. Security Deposit . If a Security Deposit is required on the Reference Data Pages of this Lease, upon signing this Lease Tenant shall pay Landlord the Security Deposit which shall be held by Landlord as security for Tenant’s performance under this Lease. The Security Deposit shall be refunded to Tenant, without interest, within thirty (30) days after the termination of this Lease subject to Tenant’s satisfactory compliance with the conditions of this Lease and subject to deduction for payment of Tenant obligations not then fulfilled by Tenant. During the Term, Landlord shall have the right to use all or any portion of the Security Deposit to pay or perform any obligations of Tenant which Tenant fails to pay or perform within the time periods required herein, and any amount so used by Landlord shall be replenished by Tenant upon seven (7) days notice to Tenant. Tenant may not use the Security Deposit to pay any of Tenant’s payment obligations, and Tenant shall not have the right to mortgage, transfer, assign or encumber the Security Deposit.

5. Additional Rent .

A. Tenant shall pay the following as Additional Rent: (i) 100% of any and all costs and expenses, whether considered Operating Costs (as herein defined) or otherwise, attributable solely to the Premises, or to Tenant’s use, or resulting from the actions or inactions of Tenant or those acting by, through, or under Tenant (subject to limitations set forth in Section 15 hereof); (ii) the cost of utilities consumed within the Premises required to be paid by Tenant under Section 6 of this Lease; (iii) any increase in Real Estate Taxes (as herein defined) payable with respect to the Property, based upon Tenant’s Pro Rata Share, exceeding the Property Real Estate Taxes for the year ending June 30, 2015 (“ Base Tax Year ”); (iv) any increase in Operating Costs incurred by Landlord with respect to the Property and Building, based upon Tenant’s Pro Rata Share, exceeding the Operating Costs incurred by Landlord for the calendar year ending December 31, 2014 (“ Base Operating Cost Year ”); and (v) costs incurred by Landlord to repair items at the Property damaged by Tenant’s use. For the purpose of determining Operating Costs for the Base Operating Cost Year, in the event that less than ninety-five (95%) percent of the Building is occupied, costs which would be increased by additional occupancy, as reasonably determined by Landlord, shall be extrapolated to reflect 95% occupancy.

B. If, as and when requested by Landlord and with each Monthly Payment, Tenant shall make such payments in advance as Landlord shall reasonably request to be sufficient to pay as and when due, all Additional Rent required by Section 5.A hereof, and if Landlord does not request such advance payments Tenant shall be permitted to make estimated monthly payments on account of Additional Rent together with each Monthly Payment, with any adjustments paid or credited as applicable following Landlord’s reconciliation of Additional Rent. Tenant shall pay Additional Rent to Landlord within ten (10) days after the date Landlord invoices Tenant for same, as adjusted for any amounts previously paid by Tenant for the period covered by the invoice.

C. “ Operating Costs ” shall mean Landlord’s annual costs incurred to maintain, operate, insure, manage, and repair the Property, including (a) on-site personnel costs

 

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incurred in the operation of the Property; (b) utility costs for Property common areas, including water and sewer, fuel and other energy for heating and cooling the Building, and electricity for common areas; (c) costs of insurance carried by Landlord relating to the Property, including, without limitation, fire, casualty, liability and other insurance coverages as Landlord reasonably determines to obtain; (d) costs of cleaning, repair, replacement and other work relating to the maintenance, repair and improvements to the Building, the Property, and common facilities serving the Building and the Property, (to the extent required by this Lease to be paid by Landlord and not otherwise reimbursed by Tenant); (e) costs to maintain and repair the parking areas at the Property; (f) cost of snow plowing, snow removal, sanding and landscaping; (g) costs to operate the Building fitness facility and other amenity areas (including without limitation equipment leases and/or finance charges), and (h) costs of all service contracts, management fees (calculated at market rates) and other customary maintenance and operating expenses applicable to the Property incurred by Landlord. With respect to Operating Costs, Landlord agrees as follows: all included expenses shall be at Landlord’s direct cost, without markup; to the extent Landlord’s personnel costs are included, they shall be pro-rated for that portion of time actually committed to the Property and its operation; management fees shall be compensation for supervisory services calculated at generally accepted commercial rates; capital costs for structural repairs, to repave the parking lot and/or to replace worn out or obsolete major equipment or facilities (collectively “ C apital Repairs ”), as distinguished from customary maintenance and repairs, shall be amortized over their respective useful life as reasonably determined by Landlord, such that the annual cost thereof does not exceed a total of $40,000.00; capital improvements (as distinguished from Capital Repairs) shall not be included; costs recovered in full from one or more tenants other than Tenant shall not be included; costs to demise and renovate interior space for tenants shall not be included; the cost of work and repairs covered by insurance proceeds paid under Landlord’s insurance then in force shall not be included; costs which solely benefit leased areas of the Property shall not be included unless the same or similar benefit is provided to the Premises; and costs to enforce Landlord’s rights and remedies against other tenants shall not be included. Furthermore, “Operating Costs ” shall not include: expenses for any item or service which Tenant pays directly to a third party or separately pays to Landlord; leasing commissions; principal, interest and other expenses upon loans to Landlord or secured by a mortgage covering the Building or Property or a portion thereof; rent under any ground lease; salaries of executive officers of Landlord; depreciation claimed by Landlord for tax purposes; reserves; costs incurred due to the negligence or willful misconduct of the Landlord, its agents and employees; penalties, fines and other costs incurred due to violation by the Landlord of any lease or any laws and any interest or penalties attributable to late payment by Landlord of any of the Operating Costs; and costs and expenses of investigating, monitoring and remediating hazardous materials on, under or about the Building or Property.

D. “ Real Estate Taxes ” or “ Taxes ” shall mean all taxes, assessments, betterments, water or sewer entrance fees and charges, and all other charges, including charges for the use of municipal services if billed separately from other taxes, levied, assessed or imposed at any time by any governmental authority upon or against the land, the Building, and/or other improvements then comprising the Property. This definition of Real Estate Taxes is based upon the present system of real estate taxation in the Commonwealth of Massachusetts; if taxes upon rentals or any other basis shall be substituted, in whole or in part, for the present ad valorem real estate taxes, the term Real Estate Taxes shall be deemed changed to the extent to

 

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which there is such a substitution for the present ad valorem real estate taxes. Notwithstanding the foregoing, “ Taxes ” shall exclude (a) federal, state or local income, franchise, estate, conveyance or transfer taxes, and (b) interest and penalties assessed by reason of Landlord’s failure to pay such Taxes when due. Landlord agrees, that if any special taxes or assessment shall be levied against the Building, to elect to pay such assessment over the longest period of time permitted by law. The term “ fiscal year ” shall mean July 1st through June 30th next following, or such other tax period as may be established by law for the payment of Real Estate Taxes.

E. Following the end of each calendar year during the Term, Landlord shall deliver to Tenant a statement (“ Operating Statement ”) of the amount of the Operating Costs for such calendar year and Tenant’s Pro-Rata Share thereof, pro-rated with respect to any partial calendar year included in the Term. Tenant shall pay Landlord within ten (10) days after the date Landlord invoices Tenant therefor, Additional Rent due from Tenant under subsection 5.A. above, less any amounts previously paid by Tenant for that period. Any overpayment by Tenant shall be applied to Additional Rent next payable or, after this Lease terminates, shall be reimbursed to Tenant. Tenant shall have the right to audit Landlord’s books and records relating to any Operating Statement with respect to the period covered by such Operating Statement by delivering a notice of its intention to perform such audit to Landlord within sixty (60) days after Tenant’s receipt of the Operating Statement. Tenant shall then have a period of one hundred twenty (120) days after delivery of that notice (the “Audit Period ”) within which to perform the audit, and at Landlord’s request, Tenant shall provide a copy of such audit to Landlord. If, as a result of such audit, Tenant believes that it is entitled to receive a refund of any Operating Costs paid by Tenant with respect to that year, Tenant shall deliver to Landlord, no later than ten (10) days after receipt of the audit (but not later than the expiration of the Audit Period), a notice thereof, together with a copy of such audit and a statement of the grounds for, and the amount of, such proposed refund. If the audit indicates that Tenant has overpaid Tenant’s Pro Rata Share of Operating Costs, then Tenant shall be entitled to receive a refund from Landlord in the amount of such overpayment within thirty (30) days after Landlord’s receipt of such notice, or if Landlord fails to timely pay such refund, and the Lease has not then expired, Tenant shall be entitled to credit the amount of such overpayment against Additional Rent next becoming due under this Lease. If the audit indicates that Tenant has underpaid the amount of Tenant’s Pro Rata Share of the Operating Costs for such period, then Tenant shall pay the amount of such underpayment to Landlord within thirty (30) days after receipt of such audit. The cost of any such audit shall be paid by Tenant, except that, if it is established that the Pro Rata Share of Operating Costs paid by Tenant for the applicable year was overstated by more than five (5%) percent, the reasonable out-of-pocket cost of such audit paid to a third party other than an employee of Tenant, up to a maximum of Three Thousand ($3,000.00) Dollars, shall be paid or reimbursed to Tenant by Landlord. Any audit shall be performed by either (a) Tenant’s regular employees or (b) a reputable certified public accountant whose compensation is not, directly or indirectly, contingent in whole or in part on the results of the audit. If Landlord determines that an Operating Statement previously furnished by Landlord was in error, Landlord may furnish a corrective or supplemental Operating Statement to Tenant within one (1) year after the original Operating Statement was furnished, and if such corrective or supplemental Operating Statement results in increased Additional Rent, the Audit Period for the year covered by such report shall be extended for six (6) months after Landlord furnishes the corrective or supplemental Operating Statement.

 

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6. Electricity/Utilities . Beginning on the Term Commencement Date, Tenant shall pay for electricity consumed within the Premises for interior lighting, electric outlets and other customary office electric consumption (“ Customary Office Usage ”), which usage shall be separately metered. In addition, if Tenant installs additional computer servers or other specialized equipment and systems (“ Special Systems ”), including, without limitation, any Specialty HVAC (as defined in Section 10 hereof) serving any separately designated rooms or areas (such as computer/LAN rooms) where Specialty Systems are situated (“ Specialty Areas ”) which would increase Tenant’s electric or other utility consumption in any material respect, then electric and other utility consumption for such Special Systems or Specialty Areas shall be at additional cost to Tenant (either directly, if separately submetered, or based on an equitable allocation, if not separately metered). Tenant shall also be responsible for the cost of after-hours HVAC and other utility usage charges, without any cost markup from Landlord, and which usage shall be separately submetered by Landlord or otherwise proportionately charged by Landlord. Tenant shall pay all such charges for electricity and other utilities within ten (10) days after being invoiced therefor by Landlord. Landlord shall have no obligation to provide utilities other than as presently supplied and via facilities supplied either by the municipality in which the Property is located or by local electric service, as may in the ordinary course be modified or replaced by third party providers. In the event Tenant requires additional electric service or other utilities, the installation and maintenance thereof shall be Tenant’s sole obligation, which installation shall be subject to the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, provided all such work shall be performed in accordance with the provisions of Section 11 hereof. Tenant agrees that in no event shall Landlord be liable for any interruption or delay in providing utilities, facilities, or equipment or other services except if caused by Landlord’s gross negligence or willful misconduct.

7. Use of Leased Premises . Tenant shall use the Premises only for the Permitted Use and for no other purpose or use. Tenant acknowledges that Landlord’s reasonable control of uses under leases and tenancies at the Property is important to maintain the professional quality and attraction of the Property to existing, future and potential tenants.

8. Compliance with Laws . Tenant agrees that no trade or occupation shall be conducted at the Premises or use made thereof which may be unlawful, improper, noisy or offensive to other tenants and their patrons, or contrary to municipal by-law or ordinance, or may unduly tax the capacity of the Building structure or systems. Tenant shall comply with all state, federal and municipal laws, including, without limitation, all building, zoning, health, fire and safety ordinances, by-laws, codes, rules and regulations applicable to the Premises and the operation of Tenant’s business at the Premises (collectively “ Applicable Laws ”); provided that Tenant shall not be obligated to make any changes to the Building (other than to the Premises), and shall not be responsible for any structural changes to the Premises, unless, in either case, such changes to the Building or Premises are required on account of any change of use of the Premises or Tenant’s Work to the Premises (in all events any such change in use and/or Tenant’s Work remaining subject to Landlord’s approval pursuant to the terms set forth in this Lease). Tenant shall, at Tenant’s sole cost and expense, obtain and maintain in full force and effect during the Term, all licenses, permits and other authorizations required under Applicable Laws to enable Tenant to operate at the Premises for the Permitted Use, except that Landlord shall be responsible for obtaining the Certificate of Occupancy for the Premises, subject, however, to any delay in obtaining the Certificate of Occupancy caused by Tenant’s delay in completing any work to be performed by Tenant and/or installing any of Tenant’s furniture, fixtures and equipment.

 

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9. Insurance . Tenant shall not permit any use of the Premises which will make voidable any insurance on the Building, the Property or on the contents of the Building, or which shall be contrary to any law or regulation from time to time established by the New England Fire Insurance Rating Association, or any similar body succeeding to its powers. Tenant shall on demand reimburse Landlord for any and all additional insurance costs caused by the Permitted Use or any other Tenant’s use of the Premises.

10. Maintenance .

A. Tenant’s Obligations . Except to the extent required to be performed by Landlord pursuant to Section 10.B below, Tenant shall be responsible at its cost to keep clean and maintain in good condition, the Premises interior and to maintain, repair and replace, as necessary, all Special Systems and other systems, fixtures and equipment installed by Tenant and/or serving only the Premises, reasonable wear and damage by insured casualty only excepted, and whenever necessary, to replace Premises glass damaged by Tenant or damaged on account of Tenant’s use. Tenant’s maintenance of the Premises shall include, without limitation, replacement of light bulbs, paint and carpeting within the Premises, and maintenance, repair and replacement of lighting and other electrical fixtures, kitchen and other plumbing fixtures, if any, within the Premises, Premises doors, locks and windows, and any and all facilities and utilities installed by Tenant and/or serving only the Premises, such as telephone and computer systems, cables and wires and all lines, wires, pipes and ductwork serving Tenant’s Special Systems and/or Special HVAC. Notwithstanding anything set forth herein, in the event Tenant requires any additional or upgraded heating, ventilation and air conditioning (“ HVAC ”) system, Tenant shall be responsible for installation thereof in accordance with Section 11 , and shall be responsible to maintain in good operating condition, and to repair and replace as necessary any such additional or upgraded HVAC systems, including any such systems serving any Specialty Areas and/or Tenant’s local area network, computer systems and other Special Systems, and any other Tenant fixtures or equipment at the Premises which require heating, ventilation or air conditioning exceeding that required for customary office use (“ Specialty HVAC ”).

Except for Premises Punch-List Items, as described in Exhibit B , which are to be completed after the Term Commencement Date, Tenant acknowledges by taking occupancy of the Premises that on the Term Commencement Date the Premises are then in good order and the glass whole.

Tenant shall not permit the Premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste. Tenant shall not erect any sign on the Building or otherwise at the Property (including interior signage visible from outside the Premises), except in accordance with Section 25 hereof. Tenant shall use and conduct Tenant’s business at the Premises in such a manner as to assure that no water, noise, fumes, odor or any other condition escapes or is emitted from the Premises that is reasonably asserted to be objectionable by Landlord or other tenants, or which materially interferes with or in any material manner causes damage or nuisance to or upon the Property or any abutting tenant space or common area. The cost to repair damage caused by Tenant, Tenant’s employees, contractors, patrons, guests or invitees and others acting by,

 

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through or under Tenant (“ Tenant Parties ”) to the Premises or to other tenant property, the Building and the Property shall be borne by Tenant (subject to limitations set forth in Section 15 hereof). Tenant shall be responsible for emptying, transporting, disposing of, treating, or otherwise dealing with any hazardous, controlled or regulated materials or waste stored or used by Tenant or its guests, employees, invitees, contractors, or agents at the Premises, all of which shall be performed in strict compliance with Applicable Laws.

B. Landlord’s Obligations . Except for repairs caused by Tenant’s misuse (including for this purpose misuse by any Tenant Parties) and except for repairs, maintenance and replacement otherwise required by this Lease to be paid and/or performed by Tenant, Landlord agrees to (i) maintain the structure and roof of the Building together with common areas and facilities and systems serving the Property, including Property HVAC Systems and common plumbing and electrical systems to the entry point to Tenant’s Premises in reasonably good and serviceable condition, more specifically in the same condition as it is at the Term Commencement Date or as it may be put during the Term, reasonable wear and tear, damage by fire and other casualty excepted; (ii) provide heating and cooling to the Premises to maintain it generally to a reasonable temperature that is customarily provided in similar multi-tenant office buildings in the suburban Boston area in which the Property is located during the hours of 8:00 a.m. - 6:00 p.m. on Monday through Friday and 8:00 a.m. - 12:00 p.m. on Saturdays of each week (holidays excluded); (iii) clean the Premises interior by vacuuming carpets, dusting hard surface floors, and emptying normal office refuse from wastebaskets and cleaning common restrooms and restocking common restroom supplies on Monday through Friday of each week (holidays excluded) during the Term; (iv) keep driveways, walkways and parking areas free of snow, ice and other debris and maintain landscaped areas; (v) furnish hot and cold water to Tenant’s sink(s) in the Premises and sanitary sewer service to the common restrooms in the Building; (vi) maintain, repair and replace, as necessary, all electric lines and pipes, ductwork and plumbing lines within the walls, ceiling and floors of the Building to the point of attachment to Tenant’s electric fixtures and plumbing fixtures (including faucets, sinks, and plumbed appliances, as applicable), except that Tenant shall be responsible for such electric and plumbing lines, pipes and ductwork serving any Special Systems and/or Specialty HVAC; and (vii) subject to Section 6 hereof, furnish electric current to overhead lighting and convenience outlets in the Premises. As used herein, the term “ Property HVAC Systems ” shall mean the HVAC systems servicing the Building, including the Premises, but excluding the Specialty HVAC, if any, and excluding HVAC systems required to be maintained by other tenants at the Property. Landlord shall be given reasonable additional time to perform its agreements under this Lease to the extent third parties contracted for in good faith delay or fail to perform. In no event shall Landlord be required to spend in connection with its repair of insured casualty losses or restoration of eminent domain takings more than the amount of insurance proceeds or taking awards actually received. Landlord shall not be required to restore or replace any alterations which Tenant is, by the terms of this Lease, either entitled to, or may be required to remove upon expiration or early termination of this Lease, and in no event shall Landlord be required to restore or replace any of Tenant’s fixtures or personal property. Landlord shall not be liable for any inconvenience or annoyance to Tenant for injury to the business of Tenant resulting in any way from a taking, fire damage or casualty or occasioned by the repair thereof.

11. Alterations - Additions . Tenant shall not make any structural alterations or additions to the Premises, but may make non-structural alterations provided plans therefor

 

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prepared and stamped by a licensed architect and/or applicable engineer shall be submitted to Landlord and Landlord consents thereto in writing, which consent for alterations shall not be unreasonably withheld or delayed provided it does not affect the mechanical systems of the Building, or any other tenant space , or the exterior (including windows) of the Building, and does not detract from the continuing utility and structural integrity of the Building or the Property. Landlord’s consent shall not be required for alterations of a purely cosmetic nature (e.g. painting, carpeting, etc.) so long as Tenant provides not less than ten (10) business days notice to Landlord and otherwise complies with the provisions of this Section 11 . All permitted alterations shall be at Tenant’s sole expense, shall comply with all applicable Codes and Ordinances and be first class using new and appropriate materials. Tenant shall not permit any mechanic’s or similar lien to be placed upon the Premises or the Property for labor or materials furnished to Tenant or claiming to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed at the direction of Tenant, and Tenant shall cause any such lien to be released of record within seven (7) days without cost to Landlord. All fixtures, alterations and improvements made by Tenant to or at the Premises shall become the property of Landlord at the termination of Tenant’s occupancy or, if requested by Landlord, shall be removed by Tenant at Tenant’s cost and the Premises restored at the end of Tenant’s occupancy. Tenant shall indemnify Landlord and hold it harmless for all loss, cost, damage and expense, including without limitation, attorneys’ fees incurred by Landlord resulting from or relating to Tenant’s alterations and additions.

12. Assignment - Subleasing .

A. Tenant shall not assign, sublet or otherwise license the whole or any part or use of the Premises nor otherwise permit the use or occupancy of all or any of the Premises by other than the Tenant signing this Lease without Landlord’s prior written consent, which consent shall be determined consistent with the Permitted Use and based upon Landlord’s determination of the business plan, adequacy of financial condition and clear business history of the proposed assignee, sublessee, licensee or user. In the event of a proposed assignment, financial statements, supporting data and credit references of the proposed assignee and its majority principals requested by Landlord shall be delivered to Landlord, and Landlord will not unreasonably withhold, condition or delay its consent provided , however , Landlord may withhold its consent for reasonable cause or if the proposed assignee’s creditworthiness, financial condition or business history is not reasonably satisfactory to Landlord, or if the proposed assignment, subletting or licensing is otherwise not in compliance with the terms of this Section 12 . Notwithstanding such consent, Tenant shall remain liable to Landlord for the payment of all rent and for the full performance of all agreements, covenants and conditions of this Lease required of Tenant. Transfer of more than 49% of the ownership or control of Tenant’s business shall constitute an assignment. No assignment or subleasing shall be permitted unless the Yearly Fixed Rent to be paid by the proposed assignee or sublessee is at least equal to the Yearly Fixed Rent payable by Tenant to Landlord hereunder, except that Tenant may allow a customary then market rental concession not exceeding three (3) months. Notwithstanding the foregoing, at Tenant’s request, so long as Landlord does not then have available comparable size space (within fifteen percent (15%) more or less of the space proposed to be sublet) in the Building, the proposed sublet Yearly Fixed Rent will be not less than Twenty-Four ($24,00) Dollars per square foot ( provided Tenant may allow a customary then market rental concession, not exceeding three (3) months if the sublease is for a period less than four (4)

 

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years, and not exceeding six (6) months if the sublease is for a period in excess of four (4) years). In the event of an assignment or subleasing, fifty (50%) percent of the excess of the rent and other compensation collectible by Tenant over the sum of (i) the Yearly Fixed Rent and Additional Rent due from Tenant under this Lease, and (ii) the reasonable expenses of Tenant in connection with said assignment or subleasing (including brokerage fees, legal fees, improvement costs and/or allowances and review fees/expenses payable to Landlord) amortized over the term of the assignment or sublease, shall be remitted to Landlord as Additional Rent as and when first received by Tenant; and, to the extent a sublease is for less than all the Premises, then the foregoing determination shall be based on a proportional square foot calculation by Landlord. Tenant shall not solicit any other tenant or occupant in the Building or their affiliates (“ Building Occupant ”) for the letting of all or any portion of the Premises as a sublessee, assignee or otherwise, provided , however , in the event a Building Occupant approaches Tenant for the purpose of subletting all or any portion of the Premises (the “ Sublease Space ”), Tenant shall immediately notify Landlord of the Building Occupant’s interest (“ Sublet Interest Notice ”) to enable Landlord to itself negotiate with the Building Occupant to enter into a lease for the Sublease Space directly with Landlord on terms and conditions acceptable to Landlord in its sole discretion. In the event Landlord intends to negotiate or is able to enter into a direct leasing arrangement with the Building Occupant with respect to the Sublease Space, Landlord shall so notify Tenant within sixty (60) days after Landlord’s receipt of the Sublet Interest Notice from Tenant, and in such event, within thirty (30) days after Landlord’s written request therefor, Landlord and Tenant will enter into an early termination agreement with respect to the Sublease Space on terms mutually acceptable to Landlord and Tenant, and Tenant shall vacate the Sublease Space and leave it in the condition required for surrender under the terms of the Lease, unless otherwise agreed by Landlord. In the event Landlord has not notified Tenant that Landlord has or intends to enter into a direct leasing arrangement for the Sublease Space with the Building Occupant within sixty (60) days after receipt of the Sublet Interest Notice from the Tenant, or if Landlord notifies Tenant that it has elected not to negotiate directly with the Building Occupant with respect to the Sublease Space, then Tenant shall have the right to enter into a sublease agreement directly with the Building Occupant for the Sublease Space, provided Tenant otherwise complies with the terms of this Section 12 . No request for transfer, assignment or sublease will be considered unless written assurances reasonably satisfactory to Landlord are received to assure Landlord that it will be reimbursed its reasonable third party costs incurred in connection with the processing of Tenant’s request, including reasonable legal fees, whether or not consent is ultimately forthcoming.

B. Landlord shall consent to an assignment or sublease to an Affiliate (as herein defined) of the Tenant named herein within seven (7) days after satisfaction of the following conditions precedent: (i) Tenant is not in default under this Lease, nor would be in default but for the giving of notice or the passage of time or both; (ii) Tenant and the Affiliate comply with the other provisions of this Section 12 ; (iii) Tenant has provided Landlord with thirty (30) days’ advance written notice (“ Affiliate Assignee Notice ”) of such proposed assignment or sublease together with Tenant’s certification and documentation that the assignment or sublease is in fact to an Affiliate and complies with the provisions of this subsection 12.B .; and (iv) in the event of an assignment, each of Tenant and the Affiliate (if they remain separate entities, otherwise the surviving company in the event of a merger) shall have a clear credit history and a net worth at least comparable to Tenant as of the date of this Lease (“ Financial Condition Requirement ”). An “ Affiliate ” shall mean an entity into or with which

 

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Tenant is merged or consolidated; or to which substantially all of Tenant’s assets are transferred; or which controls or is controlled by Tenant or is under common control with Tenant. Notwithstanding the foregoing, a so-called “spin-off or other series of assignments or subleasing to entities which individually would be Affiliates, but which taken together are intended to circumvent the intent of this subsection 12.B ., shall not be permitted.

13. Subordination and Estoppel .

A. This Lease shall be automatically subject and subordinate to any and all mortgages, ground leases and other instruments in the nature of a mortgage or ground lease now or at any time hereafter a lien on the Property without requiring any writing by Tenant. Tenant shall, when requested, promptly (but not later than ten (10) days after request) execute and deliver such written instruments as may be requested by Landlord to confirm the subordination of this Lease to mortgages, ground leases or other instruments in the nature thereof. Should Tenant fail to execute, acknowledge and deliver such instruments within ten (10) days after Landlord’s written request, Tenant hereby appoints Landlord and its successors and assigns, as Tenant’s irrevocable attorney-in-fact to execute, acknowledge and deliver any such instrument for and on behalf of Tenant. With respect to mortgages and other instruments in the nature thereof executed after the Term Commencement Date, the foregoing subordination is expressly conditioned upon Tenant reserving the right to continued occupancy of the Premises in accordance with the terms of this Lease for so long as Tenant is not in Default hereunder notwithstanding any mortgage foreclosure or termination of ground lease. Landlord shall request a non-disturbance agreement from Landlord’s current mortgagee and/or ground lessor.

B. Tenant agrees that Tenant will recognize as its landlord under this Lease and shall attorn to any person succeeding to the interest of Landlord upon any foreclosure of any mortgage upon the Property or upon the execution of any deed in lieu of such foreclosure in respect of such mortgage, on the condition that such successor in interest does not disturb any of the rights of the Tenant under this Lease, so long as Tenant is not in Default hereunder.

C. Within ten (10) days after request by Landlord, Tenant will promptly complete and sign an estoppel certificate in form requested by Landlord to confirm the status of this Lease. Failure of Tenant to timely sign and complete the required estoppel shall, at Landlord’s election, be a Default under this Lease and, in all events, Landlord shall then be authorized to sign the estoppel certificate as Tenant’s agent and the information therein shall be binding upon Tenant provided it is signed by Landlord in good faith.

14. Landlord’s Access . Landlord and its agents may, at reasonable times, enter the Premises to (i) view the Premises and remove placards and signs materially visible from outside the Premises not approved by Landlord, (ii) make repairs and alterations as Landlord reasonably determines, and (iii) show the Premises to its lender(s) and insurers and at any time within nine (9) months before the expiration of the Term to show the Premises to tenant prospects. Tenant shall give Landlord keys or other lock access to the Premises to be used only for emergency purposes. Tenant shall not add to, or change any Premises locks without obtaining Landlord’s prior written consent and giving Landlord keys thereto. Landlord’s access to the Premises for the purposes referenced above and for routine maintenance shall minimize interference with Tenant’s business, and when possible be upon reasonable prior notice to Tenant, and if notice is not able to be given in advance, notice shall promptly be given to Tenant after Landlord’s entry in an emergency.

 

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15. Indemnification and Liability . Tenant shall save Landlord harmless and indemnified from any nuisance made or suffered on or from the Premises unless such loss is caused by the negligence of Landlord. Landlord shall not be liable to Tenant, Tenant’s employees, patrons or guests, or any other parties for damage to Tenant’s equipment, fixtures, inventory or other assets or goodwill or for any other consequence resulting or caused by Landlord’s failure to perform any of its obligations under this Lease unless such failure is caused by Landlord’s negligent acts or omission. In no event shall Landlord be liable for any indirect or consequential damages. Landlord’s responsibility and liability with respect to services to be performed under this Lease by Landlord shall be limited to costs of repair and labor to effect repair and/or performance. Performance by Landlord under this Lease shall be excused or delayed by causes beyond Landlord’s reasonable control which shall include, without limitation (a) Acts of God, (b) action or inaction by Tenant or its employees, patrons, contractors, guests, licensees or others for whom Tenant may be responsible, (c) failure of parties with whom Landlord has contracted, (d) inability to obtain supplies, materials or labor, (e) interruption of utilities services, and (f) similar conditions.

Landlord and Tenant release each other from any claims and demands of whatever nature for damage, loss or injury to the Property or to the other’s property in, on or about the Premises and the Property that are caused by or result from risks or perils insured against under any property insurance policies required by the Lease to be maintained insuring Landlord at the time of any such damage, loss or injury. If required by the terms of their respective insurance policy(ies), Landlord and Tenant shall cause their insurers to waive any right of recovery by way of subrogation against either Landlord or Tenant in connection with any property damage covered by any such policies. Notwithstanding the foregoing, Tenant is responsible for the cost of repair and reconstruction of all damage and casualty losses caused by Tenant or Tenant Parties within the Premises, provided , however , in the event of damage or casualty caused by Tenant or Tenant Parties affecting the Building outside the Tenant’s Premises, Tenant’s liability shall be limited to the limits of Tenant’s liability insurance coverage (not less than Six Million ($6,000,000.00) Dollars), plus any deductible paid by Landlord.

16. Tenant and Landlord Insurance . Tenant acknowledges that Tenant shall bear the sole risk of loss to its own leasehold improvements (whether existing within the Premises prior to the Lease Execution Date or added to the Premises by Landlord or Tenant), equipment, inventory, and other personal property within the Premises, and Landlord shall have no responsibility for loss or damage thereto. Tenant shall maintain with respect to the Premises and the Property (i) casualty insurance covering all of Tenant’s leasehold improvements, equipment, inventory and other personal property of Tenant; and (ii) commercial general liability insurance naming Landlord as additional insured in the amount of not less than $1,000,000.00 per occurrence and $2,000,000.00 general aggregate for bodily injury and property damage liability written with a Best’s A-1 rating or better. Tenant shall deposit with Landlord certificates for such insurance at or prior to the Term Commencement Date, and thereafter not later than thirty (30) days prior to the expiration of any such policies. All such insurance certificates shall confirm that such coverage will not be canceled without at least twenty (20) days prior written notice to Landlord. If Tenant fails to deliver evidence of the required insurance coverages

 

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continuing during the term of this Lease, Landlord may at its election, obtain coverage on behalf of Tenant and Tenant shall promptly reimburse Landlord therefor. To the extent Tenant’s use of the Premises is such that Landlord may reasonably incur greater risk of liability, Landlord may require an increase to Tenant’s liability coverage.

Throughout the Term, as part of Operating Costs, Landlord shall maintain, with responsible companies qualified to do business in the Commonwealth of Massachusetts, insurance on the Building covering the same against fire and other casualty under an “all-risk” policy, at its full replacement cost.

17. Fire Casualty-Eminent Domain . In the event a substantial portion of the Building is damaged by fire or other casualty or is taken by eminent domain, Landlord may at any time thereafter elect to terminate this Lease. When such fire, casualty or taking renders the Premises substantially unsuitable for its intended use, a just and proportionate abatement of rent shall be thereupon made until the Premises are restored to a condition substantially suitable for their intended use (but without obligation to restore any Tenant installed furniture, fixtures or equipment), and Tenant may elect to terminate this Lease if (a) Landlord fails to give written notice within forty-five (45) days of its intention to restore the Premises, substantially to their prior condition, or (b) at Tenant’s request, Landlord fails to provide reasonable assurance that the Premises is reasonably capable of being restored within nine (9) months after such fire, casualty or taking; or (c) Landlord fails to restore the Premises to a condition substantially suitable for their intended use by Tenant within nine (9) months after such fire, casualty or taking.

Landlord reserves, and Tenant grants to Landlord, all rights Tenant may have for damages or injury to the Premises for any taking by eminent domain except for damage to Tenant’s fixtures, property, or equipment and compensation for Tenant’s relocation costs obtained by separate award to Tenant.

18. Default . Each of the following shall be a “ Default ” or an “ Event of Default ” by Tenant under this Lease;

(a) (i) Failure of Tenant to pay when due any installment of Yearly Fixed Rent, Additional Rent or any other sum payable by Tenant under this Lease within ten (10) days after the date due, provided , however , not more than twice (2x) during any consecutive twelve (12) month period, Tenant shall have the right to cure such failure within ten (10) days after written notice to Tenant; or (ii) failure of Tenant to comply with the insurance requirements of this Lease as set forth in Section 16 hereof; or (iii) failure of Tenant to timely comply with the requirements of this Lease to deliver subordination and non-disturbance agreements and estoppel certificates within the time periods required by Section 13 hereof; or

(b) Failure of Tenant to observe or perform any of Tenant’s covenants, agreements, or obligations required by this Lease (other than as set forth in Section 18(a) above) unless that failure is corrected or fully cured by Tenant within fifteen (15) days after written notice provided, however, if such failure cannot reasonably be cured within such 15 day period, Tenant shall have such additional time (not to exceed sixty (60) days in the aggregate) as may be reasonably necessary to cure such failure, provided that Tenant commences the cure within such 15 day period and thereafter prosecutes and completes the cure with due diligence and dispatch

 

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provided, however , the foregoing sixty (60) day period may be extended for an additional thirty (30) days, if necessary, provided Tenant gives written notice to Landlord specifying the actions Tenant is taking to cure such default, there has been and in Landlord’s reasonable judgment there is not likely to be, any additional loss or liability to Landlord on account of such delay, and such default is diligently thereafter pursued to completion. Notwithstanding the foregoing, there will be no notice or grace period with respect to defaults which are committed by Tenant in bad faith or with malicious intent, except that if such default is committed by other than an officer, director, or management staff of Tenant, Tenant shall have a period of twenty-four (24) hours after notice to cure the default, except that if the default cannot reasonably be cured within such twenty-four (24) hour period, Tenant shall have such additional time as may reasonably be required, not to exceed ten (10) days, so long as Tenant has commenced the cure within such twenty-four (24) hour period, and thereafter prosecutes and completes the cure with diligence and dispatch; and with respect to other non-payment defaults, if the same default occurs more than once in any 12 month period, the cure period will be limited to 15 days; or

(c) If Tenant or any guarantor of Tenant’s agreements hereunder shall file a petition under any bankruptcy, insolvency or similar law; or if any such petition shall be filed against Tenant or any guarantor and is not dismissed within thirty (30) days after filing; or if Tenant or any guarantor is declared bankrupt or insolvent according to law; or if any assignment shall be made of any of Tenant’s or any guarantor’s assets for the benefit of creditors.

Upon the occurrence of an Event of Default by Tenant, Landlord shall have the right, but not the obligation, to then immediately re-enter and take complete possession of the Premises and declare the Term ended and remove Tenant’s effects, and exercise any other rights and remedies available to Landlord at law or in equity, in all cases without prejudice to any other remedies Landlord may thereafter assert to enforce its rights hereunder. Tenant shall indemnify Landlord against all loss of rent and other costs or liabilities which Landlord may incur by reason of such termination during the period which, but for that termination, would have been the remainder of the Term. If Tenant shall Default, Landlord, without being under any obligation to do so and without thereby waiving the Default, may pay such sums or take such actions as would be reasonably required to remedy that Default for the account and at the expense of Tenant, however, that remedy shall not be construed as a cure by Tenant. If Landlord makes any expenditure or incurs any obligation for the payment of money in connection with this Lease including but not limited to, reasonable attorney’s fees in instituting, prosecuting or defending any action or proceeding applicable to Tenant’s use of the Premises or applicable to any Tenant obligation under this Lease, such sums paid or obligations incurred together with interest thereon at the Default Rate, shall be paid to Landlord by Tenant as Additional Rent within ten (10) days after demand therefor. Tenant shall pay all Landlord’s costs, including reasonable attorney’s fees, in enforcing, defending, collecting and/or interpreting Landlord’s rights hereunder, within ten (10) days after demand therefor.

In addition to the foregoing, in the event of a Default by Tenant resulting in Landlord’s termination of this Lease, the following shall apply: upon Default and termination of the Lease, Tenant shall pay Landlord the following sums: (i) within seven (7) days after being invoiced therefor, the total of all amounts then due from Tenant under this Lease, and (ii) within twenty-one (21) days after Tenant’s receipt of an invoice therefore (“ Termination Invoice ”), the total of Yearly Fixed Rent and Landlord’s estimate of Additional Rent and other charges which may

 

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become due under this Lease through the end of the period which, but for the termination, would have been the remainder of the Term, plus interest through the date of payment of these amounts and costs of collection, present valued using an eight (8%) percent annual discount factor for sums paid in advance (sums described in clauses (i) and (ii) above are sometimes herein collectively called “ Termination Rent ”). At Tenant’s option, by written notice to Landlord, Tenant will have the right to pay the Termination Rent in installments of twenty-four (24) months (or the remainder of the Term if less than twenty-four (24) months) each, in advance, commencing ten (10) days after receipt of the Termination Invoice and on each second anniversary thereafter, provided that if any installment of Termination Rent is not paid when due, then the entire balance of the Termination Rent shall be immediately due and payable, with interest at the rate of twelve percent (12%) per annum until paid in full. In the event Tenant elects to pay the Termination Rent in installments, then the amount thereof shall be calculated without using the present value adjustment. Provided Tenant timely otherwise pays and performs its obligations under this Lease including, without limitation, payment of the Termination Rent, the rent Landlord collects for the Premises from a replacement tenant for the balance of the period which, but for the termination would have been the remainder of the Term, after deducting all leasing costs, brokerage commissions and improvement costs incurred by Landlord for the replacement lease, shall be remitted to Tenant if, as and when received by Landlord, up to but not exceeding, the amount paid by Tenant as Termination Rent. Landlord at Landlord’s option may make such alterations, repairs, replacements and decorations at the Premises as Landlord in Landlord’s sole judgment considers advisable and necessary for the purpose of re-letting the Premises, and the making of such alterations or decorations shall not operate or be construed to release Tenant from liability hereunder. Landlord shall in no event be liable in any way for the failure or refusal to re-let the Premises or any parts thereof, nor shall such failure or refusal of Landlord to re-let the Premises release or affect Tenant’s liability for damages provided , however , Landlord agrees to use good faith, commercially reasonable efforts to re-let the Premises on terms and conditions acceptable to Landlord in its sole discretion. Further, if the Premises are re-let, Landlord shall in no event be liable in any way for the failure to collect the rents due under such re-letting, provided that Landlord acts in good faith. This Section shall survive the expiration or earlier termination of this Lease.

In addition to all other rights and remedies of Landlord, upon the occurrence of an Event of Default by Tenant, Landlord shall have the right, but not the obligation, to perform such Tenant obligations as would be necessary to remedy any Default including the right to enter upon the Premises to do so. Landlord shall, as a courtesy only, notify Tenant of its intention to perform such obligation, and in the event of a failure by Tenant to perform an obligation required of Tenant by this Lease but which Landlord determines constitutes an emergency threatening imminent injury to persons or damage to property, Landlord shall have the right, but not the obligation, to enter upon the Premises after giving Tenant such notice, if any, as Landlord is reasonably able to provide, or if prior notice is not reasonably able to be provided, to give notice promptly after such entry. Notwithstanding the foregoing, such performance by Landlord shall not be deemed to cure Tenant’s Default, and Tenant shall reimburse Landlord for all costs, including reasonable attorney fees, incurred by Landlord in connection therewith, with interest at the Default Rate on all amounts not paid within seven (7) days after demand.

19. Notices . Notices from Landlord to Tenant under this Lease shall be deemed duly served if left at the Premises. Notices hereunder shall also be deemed duly given from and after

 

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such time as (i) they are deposited with the U.S. Mail for delivery via certified mail, return receipt requested, postage prepaid, (ii) deposited for overnight delivery with a national courier with delivery tracking service such as FedEx, or (iii) by in-hand delivery to Tenant or Landlord at his/their/its Initial Address on the Reference Data Pages hereof, or at such replacement address as may from time to time be given in writing. A courtesy copy of any default notices sent to Tenant shall also be sent to Foley Hoag LLP, 155 Seaport Boulevard, Boston, MA 02210, Attn: Gil Arie, Esq.

20. Surrender . At the expiration or other termination of this Lease, Tenant shall (i) remove all Tenant’s goods and effects, but including only those fixtures, furnishings and articles of personal property which are not any part of the heating, ventilation, air conditioning, electric or plumbing systems not approved in advance for removal by Landlord from the Premises and repair all damage caused by such removal, (ii) at Landlord’s election under Section 11 above remove Landlord-designated articles and fixtures added to the Premises by Tenant, and (iii) restore the Premises to its condition at the Term Commencement Date, or such better condition as the Premises may have thereafter been placed, reasonable wear and damage by insured casualty loss only excepted. Notwithstanding the foregoing, Tenant shall not be required to make any structural changes to the Building to accomplish the foregoing unless the same has been made by Tenant with Landlord’s consent. Title to all fixtures and additions required by this Lease to remain at the Premises at the end of the Term shall vest in Landlord free from any claim by Tenant or any party claiming through Tenant. At termination of this Lease, Tenant shall deliver to Landlord full possession of the Premises, and all keys and locks thereto, in the condition required above. In the event of Tenant’s failure to remove any of Tenant’s property from the Premises, same shall be considered to have been abandoned by Tenant (and its subtenants), and Landlord is hereby authorized, without liability to Tenant for loss or damage thereto, and at the sole risk and expense of Tenant, to (a) remove and store any of that property at Tenant’s expense, or (b) retain Tenant’s property under Landlord’s control, or (c) without further accounting to Tenant, sell at public or private sale, without notice, any or all of Tenant’s property not so removed and to apply the net proceeds of such sale to the payment of any sum due from Tenant hereunder, or (d) to otherwise remove, discard or destroy such property, without liability or accounting to Tenant or its subtenants.

21. Brokerage . If a Broker is listed and identified in the Reference Data Page(s) of this Lease, Tenant represents that Tenant was not shown the Premises nor has Tenant entered this Lease on account of the efforts of any party who may claim a commission or payment therefor other than the Broker, and if any party other than the Broker claims the right to be paid a commission or other payment on account of that party having introduced Tenant to the Premises, Tenant shall promptly pay same. Landlord shall be responsible for the commission payable to the Broker listed in the Reference Data Page of this Lease.

22. Landlord Improvements-Condition of Premises . Tenant acknowledges that it is leasing the Premises in its “ AS-IS ” condition, and if applicable, as improved only by and with the improvements listed on Exhibit B hereto annexed. Any additions or improvements required to the Premises on account of Tenant’s particular business or operating requirements shall be provided, paid for and maintained by Tenant.

 

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23. Extension . If one or more Extension Terms is/are included on the Reference Data Pages of this Lease, Tenant (the original Tenant signatory hereto only for its own use) shall have the right to extend the Term to include such Extension Term(s) by giving written notice to Landlord of its intent to extend on or before that date which is nine (9) months prior to the end of the then current Term (the “ Extension Notice Date ”). Yearly Fixed Rent for the applicable Extension Term shall be the Extension Term Yearly Fixed Rent for each twelve (12) month period of the Extension Term with monthly payments equal to one-twelfth of the Extension Term Yearly Fixed Rent. Tenant shall also pay Additional Rent during the Extension Term as required for the Initial Term. During any Extension Term, all other terms and conditions of this Lease shall remain in full force and effect except that the Yearly Fixed Rent shall be determined as set forth on Exhibit D hereof and there shall be no further right to extend after the final Extension Term. Tenant’s right to extend the Term of this Lease is expressly conditioned upon Tenant having then maintained its payment and performance obligations under this Lease current and without any Event of Default through the Term as then in effect, and except for transfers to an Affiliate as defined in Section 12.B . hereof, the Lease not having been assigned, nor more than forty (40%) percent of the Premises sublet or otherwise licensed for use and occupancy. Failure of Tenant to give written notice on or before the Extension Notice Date shall be deemed a waiver of Tenant’s right to extend the Term for the Extension Term.

24. Landlord Liability and Default . The obligations of the Landlord hereunder shall be binding upon Landlord and each succeeding owner of the Property hereunder only during the period of such ownership, and Landlord and each succeeding owner shall have no liability whatsoever except for its obligations during each such respective period. Landlord shall not be liable to Tenant or any other party for so long as Landlord acts in good faith and diligently commences and seeks to obtain performance of the requirements of Landlord under this Lease. Landlord’s liability under this Lease shall be limited to specific performance of the asserted breach, and in no event shall Landlord be liable for consequential, punitive or indirect damages. Further, recourse against Landlord under or on account of this Lease shall be limited to the Landlord’s interest in the Property; in no event may Tenant or any other party seek or obtain recourse to or from the assets of any manager, member, trustee, beneficiary or partner of Landlord or any employee, trustee, beneficiary, partner, officer, director, shareholder, manager or member of Landlord, or any of its members, managers, trustees, beneficiaries, managing agents or any of their respective successors and assigns.

Landlord shall not be deemed in default under this Lease nor shall Tenant have any cause of action against Landlord under this Lease unless and until Landlord receives written notice from Tenant detailing the asserted Landlord breach, and that breach continues without cure for fifteen (15) days or such additional time as is required to effect cure provided Landlord has then commenced and thereafter reasonably diligently pursues cure. Notwithstanding anything to the contrary contained in this Lease, Tenant’s obligations under this Lease are independent and shall not be conditioned upon performance by Landlord.

25. Signage . Tenant shall be listed on the Building’s exterior marquee and on all interior Building directories. Landlord shall provide a suite placard (consistent with Landlord’s signage program at the Property) identifying Tenant’s Premises. In addition, at the option of Tenant, Tenant shall at its sole cost and expense be permitted to install an exterior company nameplate on the Building at a location on the exterior of the Building determined by Landlord

 

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and acceptable to Tenant, the design (backlit being acceptable), sizing (18” tall letters being acceptable) and construction of which to be approved in advance by Landlord. Tenant’s exterior company nameplate shall: (i) comply with all applicable codes and ordinances; (ii) be maintenance in first-class condition by Tenant at its sole cost and expense; and (iii) at the end of the Lease Term be removed by Tenant at its sole cost and expense with any damaged caused thereby restored. Landlord makes no representation as to whether or not the City of Newton will allow Tenant to install the foregoing signage.

26. Quiet Enjoyment . Subject to Tenant timely performing and fulfilling its agreements and obligations under this Lease including, but not limited to, the timely payment of Yearly Fixed Rent and Additional Rent, Tenant shall be entitled to lawfully, peaceably and quietly have, hold, occupy and enjoy use of the Premises subject to the terms of this Lease, without hindrance or ejection by Landlord or any persons lawfully claiming through or under Landlord.

27. Tenant Holdover . If, (i) Tenant’s occupancy of the Premises continues beyond the Expiration Date or the earlier termination of this Lease (a “ Holdover Period ”), or (ii) Tenant fails to surrender the Premises to Landlord and fails to remove and restore as required by this Lease at the end of the Term or earlier termination of this Lease, then the time taken for Landlord to take possession and effect such surrender and restoration shall be deemed a holdover by Tenant for the Holdover Period on the following terms: Tenant shall be then deemed a month-to-month, tenant-at-will and otherwise on the same terms and conditions and including the same Tenant’s payment and performance obligations as applicable immediately prior thereto; Tenant’s payment obligations for a Holdover Period shall include, without limitation, Yearly Fixed Rent and Additional Rent payable monthly in advance, Tenant shall be responsible for the same surrender provisions as applicable at the end of the Term, and Tenant shall be obligated to pay such increases in monthly Fixed Rent as Landlord gives Tenant at least seven (7) days prior written notice. Notwithstanding the foregoing, if Landlord has not agreed in writing in advance to a Holdover Period, Tenant’s continued possession shall be as an unauthorized licensee at 150% of the last prior Fixed Rent for the first sixty (60) days and 200% thereafter. The foregoing shall not be construed to obligate Landlord to make available any holdover rights to Tenant initially or thereafter on a continuing basis subsequent to the Expiration Date or earlier termination of this Lease.

28. Recognition for Tenant . If Tenant or Tenant’s lender requests any agreement, recognition or acknowledgment of the status or priority of their rights as a lender to Tenant with respect to interests in Tenant’s assets or property or any other document which in the reasonable opinion of Landlord requires review by Landlord’s counsel, Tenant shall pay Landlord’s reasonable counsel fees. Landlord shall have no obligation to enter any such agreement which expands its risks or obligations beyond the giving of notice to one additional party of an Event of Default and Landlord’s actions to terminate on account thereof.

29. Environmental Hazards . Tenant agrees to conduct its business from the Premises in compliance with the laws, ordinances and regulations and such as to assure and provide for the proper and safe purchase, storage, use and disposal of materials which may be classified as being “hazardous”. Tenant shall hold Landlord harmless and indemnified from and against any and all claims, demands, liability, damages, judgments, costs and expenses arising on account of any

 

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failure by Tenant to comply with the provisions of this Lease governing the purchase, use, storage and disposition of “hazardous” materials, materials which may become “hazardous” and any equipment utilizing “hazardous” materials or substances. With respect to materials handling and storage at the Premises which may have an environmental impact upon the Property or its occupants or invitees, Tenant agrees to implement such procedures and policies as Landlord reasonably requests for safety purposes. In no event shall Tenant deposit regulated or “hazardous” materials in any Property trash receptacle, and Tenant shall be responsible to separately arrange and pay for its own safekeeping and disposal of all such materials requiring separate disposition.

30. Additional Right of Landlord Cure . In an Event of Default by Tenant, Landlord shall have the right, but not the obligation, to perform such Event of Default including the right to enter upon the Premises to do so. Landlord shall, as a courtesy only, notify Tenant of its intention to perform such obligation, and in the Event of a Default by Tenant to perform an obligation required of Tenant by this Lease but which Landlord determines constitutes an emergency threatening imminent injury to persons or damage to property, Landlord shall have the right, but not the obligation, to perform such obligation of Tenant, including the right to enter upon the Premises to do so, after giving Tenant such notice, if any, as Landlord is reasonably able to provide.

31. Waivers, Consents and Amendments . Landlord shall not be deemed to have: waived, obligated itself to defer, consented to or granted any postponement to or for Tenant’s performance of its obligations under this Lease, unless and until an agreement in writing for such waiver, deferral, consent or postponement has been signed by Landlord. Further, no postponement or delay by Landlord in pursuing collection and/or enforcement of Tenant’s obligations under this Lease shall either excuse Tenant’s subsequent and/or continuing responsibility therefor, whether with respect to prior, then current or future such obligations. No modification or amendment to this Lease shall be valid or binding unless and until in writing and signed by the party against whom enforcement therefor may be sought.

32. Other Provisions .

 

  A. If in the conduct of Tenant’s business from the Premises Landlord reasonably determines that Tenant’s refuse exceeds normal office use, Tenant shall pay that excess cost as Additional Rent.

 

  B. Intentionally omitted.

 

  C. Tenant shall abide by all rules and regulations adopted by Landlord from time to time provided they are uniformly applicable to all tenants similarly situated at the Property.

 

  D. No other agreements or representations have been made by either party except as expressly contained in this Lease.

 

  E. All Exhibits and any Riders hereto must be signed or initialed by Landlord and Tenant.

 

  F. Recording of this Lease or a copy of this Lease shall be a Default; however, if the Term of the Lease including any Extension Term is seven (7) years or longer, Landlord agrees, at Tenant’s request, to enter a Notice of Lease in form acceptable to Landlord for recording at Tenant’s cost.

 

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  G. The covenants and agreements of Landlord and Tenant shall be binding upon and inure to the benefit of each of them and their respective heirs, administrators, successors and assigns, subject to Landlord’s consent to any such assignment by Tenant. No covenant, agreement or liability of any one party as Landlord, shall be binding upon another owner of the Property except for defaults occurring or incurred during such owner’s period of ownership of the Property.

 

  H. For all purposes, Tenant and all Guarantors of Tenant’s performance under this Lease hereby agree and consent that jurisdiction for any litigation with respect to this Lease and/or enforcement or compliance by or against any of the parties shall be exclusively commenced and processed within the State Courts of the Commonwealth of Massachusetts. For all purposes, rules applicable to addresses for service of process for Landlord, Tenant and/or Guarantors shall be as required under the Notice provisions of this Lease set forth in ( Section 19 ) above.

 

  I. If Tenant is more than one person or party, Tenant’s obligations shall be joint and several for each. Unless repugnant to the context, the term, “ Landlord ” and “ Tenant ” mean the person or persons, natural or corporate, named above as the Landlord and Tenant respectively, together with their respective heirs, executors, administrators, successors and assigns, subject to Landlord’s consent to any Tenant assignment.

 

  J. The headings herein contained are for convenience and shall not be construed a part of this Lease. The sections and definitions on the Reference Data Pages are an integral and substantive part of this Lease.

 

  K. This Lease shall be construed under and be governed by with the laws of the Commonwealth of Massachusetts.

 

  L. Tenant represents and warrants that Tenant is a corporation duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts, and the person executing this Lease on behalf of Tenant has full right, power and authority to execute and deliver this Lease, and upon such execution and delivery, this Lease shall be binding upon Tenant. Simultaneously with the execution hereof, Tenant shall deliver to Landlord a certificate issued by the Secretary of State of the Commonwealth of Massachusetts evidencing that Tenant is legally existing and in good standing under the laws of the Commonwealth of Massachusetts, and, unless this Lease is executed by Tenant’s President and Treasurer, together with a Secretary’s Certificate or Board of Directors vote evidencing Tenant’s authority to enter into this Lease and the identity of Tenant’s officer’s authorized to execute this Lease.

 

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  M. If any provision of this Lease shall to any extent be invalid, the remainder of this Lease shall not be affected. The enumeration of specific examples of a general provision shall not be construed as a limitation of the general provision.

 

  N. This Lease is executed as a sealed instrument and in multiple counterparts, all copies of which are identical, and any one of which is to be deemed to be complete in itself and may be introduced in evidence or used for any purpose without the production of any other copy. Time is of the essence of the obligations of the parties to be performed within a specific time frame in this Lease.

 

  O. No payment by the Tenant or acceptance by the Landlord of a lesser amount than shall be due the Landlord from the Tenant shall be deemed to be anything but payment on account, and the acceptance by the Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon a letter accompanying said check, that said lesser amount is payment in full shall not be deemed an accord and satisfaction, and the Landlord may accept said check without prejudice to recover the balance due or pursue any other remedy.

 

  P. Tenant and Landlord hereby waive, to the fullest extent permitted by law, any present or future right to trial by jury in any action or proceeding relating directly or indirectly to or arising out of this Lease or in any manner relating to the Premises, the Building or the Property. This waiver of right to trial by jury is given knowingly and voluntarily by Landlord and Tenant.

 

  Q. Tenant represents and warrants that it is not listed, nor is it owned or controlled by, or acting for or on behalf of any person or entity, on the list of Specially Designated Nationals and Blocked Persons maintained by the Office of Foreign Assets Control of the United States Department of the Treasury, or any other list of persons or entities with whom Landlord is restricted from doing business (“ OFAC List ”). Notwithstanding anything to the contrary herein contained, Tenant shall not permit the Premises or any portion thereof to be used, occupied or operated by or for the benefit of any person or entity that is on the OFAC List. Tenant shall provide documentary and other evidence of Tenant’s identity and ownership as may be reasonably requested by Landlord at any time to enable Landlord to verify Tenant’s identity or to comply with any applicable legal requirement.

 

  R. The obligations of Tenant under this Lease are not intended to be and shall not be personally binding on, nor shall any resort be had to the personal assets of, any of its directors, officers, partners, beneficiaries, members, stockholders, employees, or agents. Except for damages incurred by Landlord as a result of Tenant’s holdover after the expiration of the Term, in no case shall Tenant be liable to Landlord hereunder for any form of special, indirect or consequential damages.

[END OF TEXT – SIGNATURE PAGE FOLLOWS]

 

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This Lease, including the attached Exhibit(s) and Rider, is signed as of the Execution Date as an instrument under seal.

 

LANDLORD: TENANT:
WELLS 60 REALTY LLC CYBER-ARK SOFTWARE, INC.
By: Intrum Corp., Manager
By:

/s/ Randy A. Goldberg

By:

/s/ Ehud Mokady

Randy A. Goldberg, President Ehud Mokady, President
duly authorized
By:

/s/ Suzy Peled-Spigelman

Suzy Peled-Spigelman, Director of
Finance, duly authorized

 

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LEASE RIDER

The following provisions are added to and incorporated within this Lease. To the extent of any inconsistency between this Rider and the other Lease provisions, the terms of this Rider shall prevail.

33. Expansion Right of First Offer . In the event either Suite 102 including approximately 6,546 rentable square feet located immediately adjacent to the Premises in the Building or Suite 100A including approximately 3,002 rentable square feet located across from the Premises in the Building (“ Qualified Expansion Space ”) becomes available during the Initial Term, and Landlord intends to market the Qualified Expansion Space to third parties, Landlord shall so notify Tenant (“ Market Notice ”) which Market Notice shall include the general terms and conditions, including the proposed Yearly Fixed Rent under which Landlord intends to market the Qualified Expansion Space. Tenant shall then have a one (1) time right of first offer to lease the Qualified Expansion Space upon the same terms and conditions set forth in the Market Notice, except that the Yearly Fixed Rent payable by Tenant for the Qualified Expansion Space shall be ninety-five percent (95%) of the Yearly Fixed Rent that Landlord intends to market to third parties. Tenant may exercise its right to lease the Qualified Expansion Space by giving written notice of its intention to do so (“ Lease Notice ”) within seven (7) business days after Tenant’s receipt of the Market Notice. If Tenant does not deliver the Lease Notice to Landlord within seven (7) business days after receipt of the Market Notice, or if for any reason other than Landlord’s delay or failure to negotiate in good faith, Tenant does not enter into an amendment to this Lease incorporating the Qualified Expansion Space into the Premises on the terms set forth in the Market Notice within ten (10) days after Tenant’s receipt of a draft amendment from Landlord, then Tenant’s right to lease the Qualified Expansion Space described in the Market Notice shall be deemed waived in its entirety, and Landlord shall thereafter be permitted to rent the Qualified Expansion Space free from this Expansion Right of First Offer (“ ROFO ”) and without any further obligation to Tenant. Notwithstanding the foregoing, Landlord will re-offer the space, one-time only, to Tenant under the foregoing conditions if, within 60 days after the delivery of the original Market Notice to Tenant, Landlord intends to lease the Qualified Expansion Space at a rent which is less than or equal to 75% of the proposed Yearly Fixed Rent included in the Market Notice. Notwithstanding anything to the contrary contained herein, this ROFO: (a) shall apply only during the Initial Term; (b) with respect to Suite 102, shall apply only on or after that date which is twenty-four (24) months after the Term Commencement Date; and (c) with respect to Suite 100A, shall not apply with respect to any extension, renewal or modification of the currently existing lease of that space.

34. MAAB . Access to the Building and entry to the Premises are presently compliant with the access requirements of the Massachusetts Architectural Access Board.

35. Condition Precedent . Landlord has advised Tenant that although the tenant previously occupying the Premises (“ Prior Tenant ”) has vacated the Premises, the lease with the Prior Tenant (“ Prior Lease ”) has not yet been terminated. Promptly after the execution of this Lease, Landlord agrees to use good faith efforts to enter into an agreement with the Prior Tenant for the termination of the Prior Lease on terms and conditions acceptable to Landlord in its sole discretion (the “ Prior Tenant Termination Agreement ”). Notwithstanding anything set forth herein, it shall be a condition precedent to the commencement of the Term that Landlord

 

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and the Prior Tenant have entered into a Prior Tenant Termination Agreement. Landlord and Tenant shall each have the right to terminate this Lease in the event that Landlord and Prior Tenant have not entered into a Prior Tenant Termination Agreement on or before that date which is thirty (30) days after the Execution Date hereof or such later date as Landlord and Tenant may agree (the “ Condition Precedent Termination Date ”); provided , however , Landlord shall have the right to extend the Condition Precedent Termination Date for an additional fifteen (15) days if Landlord is in the process of negotiating the Prior Tenant Termination Agreement and Landlord, in good faith, believes that such additional time is required to complete such negotiation. If Landlord has not entered into the Prior Tenant Termination Agreement on or before the Condition Precedent Termination Date and Landlord elects to terminate the Lease pursuant to this Section 35 , and if Landlord thereafter does enter into the Prior Tenant Termination Agreement within thirty (30) days after such termination of this Lease, then Landlord shall so notify Tenant and Tenant shall have the right to reinstate this Lease by notice to Landlord within five (5) business days after Tenant receives Landlord’s notice that Landlord has entered into a Prior Tenant Termination Agreement.

 

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EXHIBIT A

THE PREMISES

 

LOGO

Not to scale. Layout is approximate.

 

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EXHIBIT A-1

TENANT’S LAYOUT PLAN

 

LOGO

Not to scale. Layout is approximate.

Furniture is not included.

 

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LOGO

Not to scale. Layout is approximate.

Furniture is not included.

 

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EXHIBIT A-2

PARKING PLAN

 

LOGO

 

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EXHIBIT B

LANDLORD’S WORK

The Premises shall be delivered to Tenant in its present “AS-IS” condition, but with Landlord’s Work (as herein defined) completed by Landlord at its sole cost and expense, provided , however , any changes or upgrades requested by Tenant shall be at Tenant’s sole cost and expense. Landlord’s Work shall include the work shown on Tenant’s Layout Plan attached hereto as Exhibit A-1 , which shall be constructed in accordance with the following specifications (“ Specifications ”):

 

  1. Demolition . Demolish and remove all existing non-structural office partitions within the Premises to accommodate Tenant’s Layout Plan;

 

  2. Walls . Construct new walls in accordance with the configuration shown on Tenant’s Layout Plan. All new walls shall (i) be constructed to 6” above the finished ceiling; (ii) be framed with metal studs; (iii) be finished with one layer of 5/8” gypsum wall board on each side, and (iv) include batt R-11 insulation. New walls shall be taped, sanded and ready to receive finishes;

 

  3. Floors . Furnish and install carpet throughout the Premises (a maximum allowance of $25 per square yard including installation is included), color to be selected by Tenant from Landlord’s selection list. Install 4” vinyl wall base along base of walls where same meets finished flooring, color to be selected by Tenant from Landlord’s selection list. Notwithstanding the foregoing, any break areas, kitchen, copy/print and fax room(s), or file room(s) to later be delineated on Tenant’s Layout Plan shall include VCT tile flooring ($2.50 per square foot allowed), color to be selected by Tenant from Landlord’s selection list;

 

  4. Ceiling . Existing ceiling to remain, new drop ceiling (to match existing drop ceiling) to be added as required based upon the re-configuration required by Tenant’s Layout Plan (on account of the required demolition and construction of new interior walls);

 

  5. HVAC . Landlord shall re-work the existing duct work/diffusers duct work and/or add additional duct work/diffusers as required and determined by Landlord and its HVAC subcontractor in their sole discretion (if applicable) to satisfy Landlord’s heating and cooling obligations (applicable to customary office usage only) as set forth in the Lease based upon Tenant’s Layout Plan. Extraordinary HVAC requirements over customary office requirements including without limitation for any LAN/computer rooms is not included;

 

  6.

Electric . Existing with new duplex wall receptacles and light switching in the new walls to be constructed pursuant to paragraph 2 above per code. Provide six (6) power whips for Tenant provided cubicles, the location of same to be delineated on Tenant’s Layout Plan (Tenant shall be responsible for the termination of the whips and connection of power/electricity to its cubicles including the necessary electrical fittings), 3 amps per cube, maximum 90 cubes is allowed. New offices/enclosed areas

 

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  to include a minimum of three (3) duplex receptacles (Board room six (6) duplex receptacles). Each of Conference room and Board room to include Building standard floor box with duplex receptacle, location of same to be delineated on Tenant’s Layout Plan. All voice/data wiring and fixtures shall be the responsibility of Tenant at its sole cost and expense;

 

  7. Lighting . Landlord shall re-use the existing lighting fixtures (by relocating or keeping existing fixtures in place), and add additional Building standard lighting fixtures, all as shown on Tenant’s Layout Plan;

 

  8. Sprinkler . Reconfigure in-ceiling sprinkler heads to accommodate Tenant’s Layout Plan as required by code;

 

  9. Paint . Paint all walls and trim within the Premises, (trim - one color, semi-gloss, walls with a maximum of four (4) colors, eggshell unless otherwise specified), colors to be selected by Tenant from Landlord’s selection list. Apply 5’ tall band of IdeaPaint or whiteboard application on one (1) wall within each of the Conference rooms and Training room, locations to the delineated on Tenant’s Layout Plan;

 

  10. Doors . Landlord shall re-use existing doors, sidelights and hardware (relocate or to remain in existing locations), and add additional like doors and hardware based upon Tenant’s Layout Plan (newly created offices or other enclosed areas shall include Building standard sidelights);

 

  11. Countertops/Cabinetry . An allowance of $3,500.00 is provided for cabinetry and closet shelving within the Premises, the design and location of which to be later agreed upon. Install water supply line and power for Tenant provided dishwasher within the Lunch room, location TBD;

 

  12. LAN Computer Room . Landlord shall re-use the existing 3.5 ton split cooling system for Tenant’s LAN room (system to be in good operating condition on the Term Commencement Date), additional cooling requirements for Tenant’s LAN room shall be the responsibility of Tenant; and

 

  13. Specialties . Existing blinds to remain and shall be in good and operable condition. Install three (3) Building standard skylights, the final design, sizing and specifications therefor to be included on Tenant’s Layout Plan. Install Building standard butt-glazed glass wall measuring approximately 9’ x 7’2” with low profile metal channel at floor and soffit head all as shown on Tenant’s Layout Plan.

All electric fixtures (lighting, switches and receptacles), HVAC system(s) and blinds within and/or servicing the Premises shall be in good operating condition on the Term Commencement Date.

Notwithstanding anything set forth herein to the contrary, to the extent of any inconsistency between the Tenant’s Layout Plan and the Specifications, Tenant’s Layout Plan shall prevail, provided , however , Landlord’s Work shall not include any work shown on Tenant’s Layout Plan as “alternate” or “add alternate” (or words of similar import) unless and until Tenant

 

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has delivered a written change order for such work and has paid the cost thereof in advance (within three (3) business days after invoice by Landlord), which cost shall include a six and one-half percent (6.5%) supervision fee to Landlord. In the event clarifications are required with respect to Tenant’s Layout Plan or the Specifications, Landlord’s architect shall be the determining party.

Landlord shall substantially complete Landlord’s Work prior to the Term Commencement Date. All Landlord’s Work shall be subject to delays on account of delays in permitting, adverse weather conditions, delays caused by Tenant and reasonable construction delays. Landlord’s Work shall be performed materially in accordance with the specifications set forth in this Exhibit B , subject to such changes or modifications as may be reasonably required to comply with Applicable Laws and/or to accommodate building systems and mechanics, to expedite completion of Landlord’s Work, to accommodate unavailability of materials and supplies, and to obtain necessary building permits, provided such changes and modifications do not adversely affect, in any material respect, the utility, quality, or appearance of Landlord’s Work. Tenant shall provide Landlord with its finish selections (flooring and paint) within five (5) days after Landlord’s request therefor.

For purposes of this Lease, Landlord’s Work shall be deemed “substantially complete” when (i) Landlord delivers to Tenant a certificate from Landlord’s architect (“ Architect’s Certificate ”) confirming that Landlord’s Work has been completed in accordance with the requirements of this Lease, except for items of work and adjustment of equipment and fixtures which can be completed after Tenant has taken occupancy of the Premises without causing material interference with Tenant’s business operations and use and enjoyment of the Premises (“ Premises Punch-List Items ”), as specified in the architect’s certificate; and (ii) all permits and other authorizations, to the extent required by the Town of Needham to enable Tenant to take occupancy in accordance with applicable laws and regulations, have been issued, provided , however , in the event Landlord is delayed in obtaining the Certificate of Occupancy on account of Tenant’s delay in completion of any work to be performed by Tenant or installation of Tenant’s furniture, fixtures or equipment, then substantial completion shall be deemed to have occurred upon issuance of the Architect’s Certificate. Landlord agrees to complete the Premises Punch-List Items within thirty (30) days, subject to delays on account of unavailability of materials, supplies or equipment or other causes beyond Landlord’s reasonable control.

 

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EXHIBIT C

Not Applicable

 

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EXHIBIT D

EXTENSION TERM YEARLY FIXED RENT

Extension Term Yearly Fixed Rent shall be at Fair Market Rent for the Premises in their then condition without requiring any Landlord improvements shall be calculated and determined as follows:

 

A. Upon Landlord’s receipt of notice from Tenant that Tenant wishes to extend received by Landlord no later than nine (9) months prior to the expiration of the Initial Term or the Lease Term as extended, Landlord shall, within thirty (30) days of such notice by the Tenant, notify the Tenant of the proposed Extension Term Yearly Fixed Rent based upon Landlord’s estimate of Fair Market Rent. Under no condition shall the Extension Term Yearly Fixed Rent be less than the Yearly Fixed Rent being paid just prior to the Extension Term for which Yearly Fixed Rent is then being determined hereunder.

 

B. Within fifteen (15) days after receipt of Landlord’s notice of Extension Term Yearly Fixed Rent, Tenant will notify Landlord either of its acceptance or rejection of Landlord’s noticed Extension Term Yearly Fixed Rent; and if rejected, shall include Tenant’s proposal of Fair Market Rent on account of Yearly Fixed Rent during the forthcoming Extension Term. Landlord’s failure to timely receive Tenant’s written notice shall be deemed acceptance of Landlord’s noticed Fair Market Rent. If Tenant has timely rejected Landlord’s estimate of Fair Market Rent, Landlord and Tenant shall in good faith attempt to resolve their differences as to Fair Market Rent as aforesaid, within the next ten (10) days.

 

C. If Landlord and Tenant are unable to resolve their differences within the period set forth in the preceding sub-paragraph B., each of Landlord and Tenant shall appoint a representative to negotiate Extension Term Yearly Fixed Rent within the range of Fair Market Rent last proposed by Landlord and Tenant; said representatives shall be paid by the party which engaged them and shall be qualified commercial leasing agents from major rental firms experienced in renting similar commercial retail/office properties in general vicinity of the Building. The parties’ representatives shall in good faith seek to resolve a market rate of Yearly Fixed Rent for the Extension Term within the next ensuing twenty-one (21) day period. If the representatives are unable to agree upon Yearly Fixed Rent within that time period but the difference between them is no greater than 10% then Yearly Fixed Rent shall be the average of the two representatives written determinations. If the representatives are unable to agree upon Yearly Fixed Rent and their difference exceeds 10%, they shall select a third party, having similar qualifications, paid for one-half by each of Landlord and Tenant, and thereafter, within fifteen (15) days, the determination of a majority of the representatives shall prevail and issue a written report thereof.

 

D. If, for any reason whatsoever, Tenant fails to properly notify Landlord of its desire to extend the Lease, any and all Tenant rights or options to extend shall expire and Tenant shall have no further right to extend its tenancy beyond the Expiration Date. In this event Landlord shall be free to rent the Premises to whomever it chooses, on any terms it chooses, free and clear of this option.

 

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FIRST AMENDMENT OF LEASE

Reference is hereby made to the Lease dated October 28, 2013 as effected by the Term Commencement letter dated January 31, 2014 (the “ Lease ”) between Wells 60 Realty LLC (“ Landlord ”), and Cyber-Ark Software, Inc. (“ Tenant ”) pursuant to which Lease Tenant rented from Landlord premises located on the first floor of the Building as more particularly described in the Lease (called herein the “ Suite 103 Premises ”). The purpose of this First Amendment of Lease is to document the terms of Tenant (i) extending the Initial Term of the Lease of the Premises, and (ii) leasing additional space on the first floor of the Building as more particularly depicted as Suite No. 102 on Exhibit A attached hereto, and as further described below. Capitalized terms used herein and not otherwise defined shall have the same meanings as set forth in the Lease.

For good and valuable consideration, the sufficiency and adequacy of which is hereby acknowledged, Tenant and Landlord hereby amend the Lease as follows:

 

I. Premises . The Lease of the Suite 103 Premises shall continue, and the Initial Term applicable thereto shall be extended until the Expiration Date of the Suite 102 Initial Term as set forth below (so by way of example, if the Expiration Date of the Suite 102 Initial Term is February 28, 2022, then that same Expiration Date shall also apply to the Suite 103 Premises). Yearly Fixed Rent applicable to the Suite 103 Premises shall continue as set forth in the Lease with the qualification that Yearly Fixed Rent shall increase to the annual rate of $452,940.00 payable monthly in advance in equal monthly installments of $37,745.00 beginning on July 1, 2021 and continuing on the first day of each month thereafter through the end of the Expiration Date of the Suite 102 Initial Term. All other terms and conditions of the Lease applicable to the Suite 103 Premises shall continue without modification.

 

II. Rental of Suite No. 102 . The approximately 6,546 rentable square feet depicted as Suite No. 102 on Exhibit A attached hereto is herein called the “ Suite 102 Premises ” and the following shall be applicable thereto:

 

  1. Suite 102 Premises Commencement Date . The later of January 1, 2015, or five (5) days following Landlord’s written notice to Tenant that the Tenant Improvements required by Section 11.10 have been substantially completed as determined by Landlord’s architect. Upon the Suite 102 Premises Commencement Date, the term “ Premises ” as used herein shall mean the Suite 103 Premises and the Suite 102 Premises (except as separately identified herein).

 

  2. Suite 102 Premises Rent Commencement Date . That date which is sixty (60) days following the Suite 102 Premises Commencement Date.

 

  3. Expiration Date of the Suite 102 Premises Term . That date which is eighty four (84) months following the Suite 102 Premises Rent Commencement Date (plus a portion of a month if the term commences other than on the first day of a calendar month so that the term ends on the last day of a calendar month), the “ Suite 102 Initial Term ”, provided , however, if the Suite 102 Initial Term is extended as hereafter set forth, then the Expiration Date shall be 5:00 p.m. on the last day of the Extension Term then in effect.

 

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  4. Suite 102 Premises Yearly Fixed Rent . Yearly Fixed Rent for the Suite 102 Premises shall be as follows (during the Suite No. 102 Initial Term):

 

PERIOD

  

YEARLY
FIXED RENT

    

MONTHLY
PAYMENT

 

RCD -06/30/16

   $ 176,742.00       $ 14,728.50   

07/01/16-06/30/17

   $ 180,015.00       $ 15,001.25   

07/01/17-06/30/18

   $ 183,288.00       $ 15,724.00   

07/01/18-06/30/19

   $ 186,561.00       $ 15,546.75   

07/01/19-06/30/20

   $ 189,834.00       $ 15,819.50   

07/01/20-06/30/21

   $ 193,107.00       $ 16,092.25   

07/01/21-ED 102 IT

   $ 196,380.00       $ 16,365.00   

 

       Yearly Fixed Rent shall be payable monthly, in advance in equal monthly installments (“ Monthly Payment ”) as set forth above, on the first day of each month beginning on the Suite 102 Premises Rent Commencement Date (“ RCD ”). For clarification purposes, the first period shall begin on the RCD and continue until June 30, 2016, and the seventh period shall begin on July 1, 2021 and continue until the expiration of the Suite 102 Initial Term (“ ED 102 IT ”).

 

  5. Extension Term and Extension Term Yearly Fixed Rent . The Lease provisions applicable to the Extension Term and Extension Term Yearly Fixed Rent shall also apply to the Suite 102 Premises.

 

  6. Additional Rent . Tenant shall be required to pay its Pro Rata Share (defined below) of Additional Rent applicable to the Suite 102 Premises as required by Section 5 of the Lease during the Suite 102 Premises Term with the qualification that the Base Operating Cost Year for the Suite 102 Premises shall be the calendar year ending December 31, 2015.

 

  7. Electric . Tenant shall pay for electricity consumed within the Suite 102 Premises in accordance with Section 6 of the original Lease during the Suite 102 Premises Term beginning on the Suite 102 Premises Commencement Date.

 

  8. Security Deposit . Upon signing this First Amendment of Lease, Tenant shall provide Landlord with $14,728.50 to be added to the Security Deposit, so that the total Security Deposit is then $44,103.50;

 

  9. Pro Rata Share . The Pro Rata Share with respect to the Suite 102 Premises shall be 20.2%; and

 

  10. Tenant’s Improvements – Suite No. 102 . Prior to the Suite 102 Commencement Date, the interior of the Suite 102 Premises shall be improved in accordance with Tenant’s Final Layout Plan and the Construction Documents as those terms are defined below (“ Tenant Improvements ”). The following provisions shall be applicable to the Tenant Improvements:

 

        

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  A.

Attached hereto as Exhibit B-l is an initial layout plan (“ Tenant’s Initial Layout Plan ”) incorporating Tenant’s program requirements for the Suite 102 Premises, except that the demising wall between the Suite 102 Premises and the Suite 103 Premises shall remain, and two (2) additional skylights shall be added to the Suite 102 Premises (collectively, “ Tenant’s Program ”). Landlord and Tenant shall work together with Landlord’s architect in good faith to develop Tenant’s Initial Layout Plan into a final layout plan (“ Tenant’s Final Layout Plan ”). In all events Tenant’s Final Layout Plan shall be completed within seven (7) days after the full execution of this First Amendment. Within ten (10) days after the completion of Tenant’s Final Layout Plan, Landlord’s architect shall develop Tenant’s Layout Plan into construction documents (“ Construction Documents ”) in a form which will enable Landlord’s architect to stamp the Construction Documents, and to enable Landlord to obtain fixed pricing for the construction of the Tenant Improvements (“ Fixed Pricing ”), and to apply for and obtain a Building Permit for the Tenant Improvements (“ Building Permit ”). Within a maximum of three (3) days after request by Landlord, Tenant shall meet with Landlord and provide such supplemental information as Landlord or its architect may reasonably require in order to develop Tenant’s Final Layout Plan into the Construction Documents and to facilitate obtaining the Fixed Pricing and/or the Building Permit. Tenant agrees to follow Landlord’s recommendations regarding the selections of materials (using similar materials as used in other tenant spaces within the Building including the Suite 103 Premises but excluding upgrades to materials within that space previously paid for by Tenant) to be used to allow for the completion of the Tenant Improvements within thirty (30) to forty-five (45) days after the receipt of the Building Permit. Landlord reserves the right to make changes to the Construction Documents as required by Landlord’s architect to accommodate building systems (i.e. plumbing, mechanical, and electric, chases and/or structural components) and to expedite completion of the Tenant Improvements (such as to accommodate the unavailability of materials by substituting available materials of comparable quality) and otherwise as necessary to obtain Fixed Pricing, comply with applicable building, health, fire, safety and MAAB codes, orders, rules and regulations (“Codes”), and to obtain the Building Permit, provided such changes do not adversely affect, in any material manner, the utility or quality of Tenant Improvements or the cost to complete the Tenant Improvements. The Tenant Improvements shall be deemed modified by any such changes to the Construction Documents. Following the completion of the Construction Documents, Tenant shall review and approve the Construction Documents, which approval shall not be unreasonably withheld, conditioned or delayed, and which approval shall be deemed granted unless Tenant notifies Landlord of its disapproval thereof within three (3) days after receipt of the Construction Documents. Promptly following the completion of the Construction Documents, Landlord shall obtain Fixed Pricing to complete the Tenant Improvements from its contractor(s) and shall deliver to Tenant a summary of the total cost to complete the Tenant Improvements. Within a maximum of three (3) days following Landlord’s delivery of the Fixed Pricing, Tenant shall have the opportunity to request that Landlord and its architect work with Tenant to modify the

 

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  Construction Documents in an effort to reduce the Fixed Pricing. The parties shall then have seven (7) days to determine if such a reduction of the Fixed Pricing is feasible and finalize same, following which Landlord shall deliver to Tenant revised Fixed Pricing, which pricing shall be final. All costs to modify the Construction Documents to accomplish the foregoing shall be the responsibility of Tenant (to the extent available, Tenant shall be permitted to use any excess funds from the Improvement Allowance to pay for such costs in the event the Total Project Costs are less than $196,380.00). Landlord makes no representation as to whether or not the Total Project Costs will be less than or exceed the Improvement Allowance as those terms are defined below.

 

  B. Tenant shall pay to Landlord within ten (10) days after invoice therefor, the amount by which the total cost to complete the Tenant Improvements (“ Total Project Costs ”) exceeds the amount of the Improvement Allowance as herein defined (the “ Excess Cost ”). The Total Project Costs shall include, without limitation, all construction costs, including, without limitation, all materials, equipment, systems, labor, supervision, profit and overhead and similar costs necessary to complete the Tenant Improvements, plus all costs charged by Landlord’s architect to select Tenant finishes and/or Tenant materials. If, prior to commencement of construction, Tenant elects for the HVAC system to be designed by a mechanical engineer rather than on a design-build basis by Landlord’s HVAC contractor, then Landlord shall engage MEA Engineering Inc. (“ MEA Engineering ”) to design the HVAC system, and the cost for such engineering work shall be part of the Total Project Costs. Except as herein set forth, there shall be no changes to the Tenant Improvements or to the Construction Documents without the consent of Landlord and Tenant (which consent shall not be unreasonably withheld, conditioned or delayed), and in the event any such changes shall increase the Total Project Costs to an amount which is excess of the Improvement Allowance, then Tenant shall pay the costs of such change orders within ten (10) days after written request by Landlord, (and such cost shall be deemed Excess Cost as provided herein). If Tenant fails to timely pay the Excess Cost as required above, Landlord shall have the right to stop work on the Tenant Improvements until such time as the Excess Cost is paid.

 

  C. Landlord agrees that Tenant shall be entitled to receive an improvement allowance from Landlord (“ Improvement Allowance ”) in an amount which is the lesser of the following: (a) an aggregate total of $196,380.00; or (b) 100% of the Total Project Costs, if the Total Project Costs are less than $196,380.00. In all events, however, Tenant shall be responsible for the amount by which the Total Project Costs exceeds the Improvement Allowance. The Improvement Allowance shall be paid by Landlord directly to those contractors/parties performing the Tenant Improvements. Notwithstanding anything to the contrary contained herein, if (i) the Construction Documents do not require the removal of the existing demising wall between the Suite 102 Premises and the Suite 103 Premises (“ Demising Wall Removal ”) as part of Tenant’s Work, and (ii) the Total Project Costs are less than $196,380.00, then Tenant shall be permitted to use such remaining balance towards Tenant’s cost of the Demising Wall Removal, at such time (if any) that Tenant completes the Demising Wall Removal.

 

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  D. Notwithstanding anything set forth herein, if and to the extent that it is determined by Landlord’s architect or contractor that the Tenant Improvements cannot be completed without additional costs caused only by a preexisting Unforeseen Condition (defined below), then Landlord and Tenant shall cooperate to modify the Construction Documents to accommodate such Unforeseen Condition without increase to the Total Project Costs. An “ Unforeseen Condition ” is defined as an unanticipated condition, particular to the Building, which was unknown to Landlord’s architect and is not readily apparent or customary to the type of work included within the scope of the Tenant Improvements. If the Construction Documents cannot be modified to accommodate the Unforeseen Condition without increasing the Total Project Costs, and if the Unforeseen Condition exceeds the Improvement Allowance, then the amount of such excess caused by the Unforeseen Condition shall be paid 50% by Landlord and 50% by Tenant.

 

  E. If Tenant requests changes to the Construction Documents which will cause the time to complete the Tenant Improvements to exceed forty-five (45) days from receipt of the Building Permit, then Landlord and Tenant shall cooperate to modify the scope of the Tenant Improvements to enable completion within forty-five (45) days from receipt of the Building Permit.

 

  F. Notwithstanding anything set forth in this First Amendment to the contrary, if Tenant fails to follow Landlord’s recommendations regarding the selections of materials to allow for the completion of the Tenant Improvements within 45 days after the receipt of the Building Permit (as set forth in Section II.10.A ), or if Tenant increases the scope of the Tenant’s Program (including requesting changes to the Construction Documents (as set forth in Section II.10.E ) and Landlord and Tenant are not able to agree as to how to modify the Tenant Improvement work to enable completion within forty-five (45) days after receipt of the Building Permit, or if Tenant fails to timely pay sums due pursuant to Section II.10.B , or if Tenant otherwise fails to timely comply with Tenant’s obligations and agreements under this Section 11.10 , and as a result of such failures the Tenant Improvements are not completed within forty-five (45) days after receipt of the Building Permit, then the Suite 102 Premises Rent Commencement Date shall sixty (60) days after the date that is forty-five (45) days after receipt of the Building Permit.

 

  G.

For purposes of this Amendment, the Tenant Improvements shall be deemed “substantially completed” when (i) Landlord delivers to Tenant a certificate from Landlord’s architect (“ Architect’s Certificate ”) confirming that the Tenant Improvements have been completed in accordance with the requirements of this Amendment, except for items of work and adjustment of equipment and fixtures which can be completed after Tenant, or if applicable, a Landlord approved subtenant has taken occupancy of the Suite 102 Premises without causing material interference with its business operations and use and enjoyment of the Suite 102 Premises (“ Punch-List Items ”), as specified in the Architect’s Certificate; and (ii) all permits and other authorizations, to the extent required by the City of Newton to enable Tenant, or if applicable, a Landlord approved subtenant to take occupancy in accordance with applicable laws and regulations, have been issued, provided ,

 

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  however , in the event Landlord is delayed in obtaining the Certificate of Occupancy on account of work to be completed by Tenant, or if applicable, a Landlord approved subtenant (for example installation of cubicles, voice/data equipment, or other fixtures, furnishings and equipment), then substantial completion shall be deemed to have occurred upon issuance of the Architect’s Certificate. Landlord agrees to complete the Punch-List Items within thirty (30) days, subject to delays on account of unavailability of materials, supplies or equipment or other causes beyond Landlord’s reasonable control.

 

  H. Tenant shall be permitted access to the Suite 102 Premises up to fourteen (14) days prior to the Suite 102 Premises Commencement Date for purposes of installation of Tenant’s cubicles, voice/data equipment, or other fixtures, furnishings and equipment, provided that such access shall in no way delay or interfere with the substantial completion of the Tenant Improvements. Such access shall be subject to all of the terms and conditions of the Lease, as amended hereby, except that no Rent shall be payable with respect to the Suite 102 Premises prior to the Suite 102 Premises Commencement Date.

 

III. Parking . Tenant shall be permitted to use an additional twenty three (23) parking spaces within the parking areas at the Property in accordance with the terms and conditions of the Lease.

 

IV. Sublease . Landlord acknowledges that Tenant is considering subleasing all or a portion of the Suite 102 Premises for up to the first three (3) years of the Initial Term applicable to the Suite 102 Premises (an “ Initial Suite 102 Sublease ”). To facilitate an Initial Suite 102 Sublease, Landlord agrees that Tenant may offer a prospective subtenant reasonable market concessions in excess of three (3) months’ rent. The other terms and provisions of the Lease shall be applicable to an Initial Suite 102 Sublease.

 

V. Suite 102 Premises Signage . Landlord shall list Tenant on the interior Building directories and install a suite placard adjacent to the Suite 102 Premises consistent with other tenants in the Building.

 

VI. Broker . Each of Landlord and Tenant represent to the other that neither has dealt with any other broker in connection with this Amendment other than Landmark Real Estate Advisors (“ LREA ”) and Boston Realty Advisors (“ BRA ”). Landlord shall be responsible for a commission in connection with this Amendment to LREA and BRA pursuant to separate agreement between Landlord and those brokers.

 

VII. Status of Lease . Tenant acknowledges that the Lease is being modified as set forth herein, and that Tenant has no claims against Landlord under the Lease, and the Lease shall remain in full force and effect as presently drafted except as modified hereby.

 

VIII. Effect of Amendment . Except as otherwise specifically modified herein, all other terms and conditions of the Lease shall remain in full force and effect. The term Premises shall include the Suite 102 Premises after this First Amendment of Lease has been signed by the parties.

 

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[SIGNATURE PAGE FOLLOWS]

 

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Executed under seal this 23 rd day of October, 2014.

 

LANDLORD: TENANT:
Wells 60 Realty LLC Cyber-Ark Software, Inc.
By: Intrum Corp., Manager
By:

/s/ Randy A. Goldberg

By:

/s/ Ehud Mokady

Randy A. Goldberg, President Ehud Mokady, President
duly authorized
By:

/s/ Suzy Peled-Spigelman

Suzy Peled-Spigelman, Director of
Finance, duly authorized

 

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EXHIBIT A

SUITE NO. 102 PREMISES

 

LOGO

Note: Not to scale - layout is approximate.

 

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EXHIBIT B-1

TENANT’S INITIAL LAYOUT PLAN

 

LOGO

Note: Not to scale - layout is approximate.

 

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EXHIBIT B

“Subleased Premises”

 

LOGO

Note: Not to scale - layout is approximate.

 

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EXHIBIT C

“Inventory of Furniture, Fixtures & Equipment”

 

Item

   Quantity  

WORKSTATION CHAIRS

ALLSTEEL, ACCESS UPHOLSTERED SEAT, BLACK MESH BACK, FULLY ADJUSTABLE ARMS, STANDARD BLACK BASE, BLACK DUAL-WHEEL CASTERS UPHOSLTERY: PERENNIAL, BELLFLOWER

     51   

OFFICE CHAIRS

ALLSTEEL, TOLLESON FULLY UPHOLSTERED, FIXED LOOP POLY ARMS, 4-LEG BASE WITH GLIDES. UPHOLSTERY:PERENNIAL, BELLFLOWER FRAME:BLACK

     6   

CONFERENCE ROOM CHAIRS

PAOLI, FIRE UPHOLSTERED SEAT AND BACK, FIXED LOOP POLY ARMS, STANDARD BLACK BASE, BLACK HARD WHEEL CASTERS UPHOLSTERY:CANTER,ONYX

     14   

CONFERENCE ROOM TABLE

192”Lx54”W BOAT SHAPE LAMINATE TOP WITH KNIFE EDGE. LAMINATE HOLLOW PANEL BASES. (3)TECH CADDIES EACH INCLUDE (1)DATA, (3)POWER.

     1   

PRIVATE OFFICE FURNITURE

ALLSTEEL, INVOLVE PRIVATE OFFICE 30”Dx66”W RECTILINEAR SURFACE, PAINTED WOOD HALF MODESTY, 18”Dx 42”W RETURN WITH STANCHION SUPPORTS BELOW SURFACES, 18”Dx24”H LOW CREDENZA STORAGE WITH (1)36”W LATERAL, (1)36”W OPEN BOOKCASE. (1)42”Wx15”H WALL MOUNTED OVERHEAD CABINET WITH SLIDING DOOR

     6   

WORK STATIONS

ALLSTEEL,TERRACE/DNA & INVOLVE

     45   

 

        

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Exhibit 21.1

Subsidiaries

Chiasma (Israel) Ltd., an Israeli private limited company

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated April 16, 2015 (except Note 9 and Note 11, as to which the date is June 15, 2015) in the Registration Statement (Form S-1) and the related Prospectus of Chiasma, Inc. dated June 15, 2015.

 

 

June 15, 2015

Tel-Aviv, Israel

/s/ Kost Forer Gabbay & Kasierer

 

Kost Forer Gabbay & Kasierer

A Member of Ernst & Young Global