As filed with the Securities and Exchange Commission on July 6, 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
Aimmune Therapeutics, Inc.
(Exact name of Registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
2834 (Primary Standard Industrial Classification Code Number) |
45-2748244 (I.R.S. Employer Identification Number) |
8000 Marina Blvd, Suite 300
Brisbane, CA 94005
(650) 614-5220
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Stephen G. Dilly, M.B.B.S., Ph.D.
President and Chief Executive Officer
Aimmune Therapeutics, Inc.
8000 Marina Blvd, Suite 300
Brisbane, CA 94005
(650) 614-5220
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||||
Patrick A. Pohlen, Esq. Brian J. Cuneo, Esq. Latham & Watkins LLP 140 Scott Drive Menlo Park, CA 94025 Telephone: (650) 328-4600 Facsimile: (650) 463-2600 |
Stephen G. Dilly, M.B.B.S., Ph.D. President and Chief Executive Officer Aimmune Therapeutics, Inc. 8000 Marina Blvd, Suite 300 Brisbane, CA 94005 Telephone: (650) 614-5220 Facsimile: (650) 616-0075 |
Bruce K. Dallas, Esq. Stephen P. Salmon, Esq. Davis Polk & Wardwell LLP 1600 El Camino Real Menlo Park, CA 94025 Telephone: (650) 752-2000 Facsimile: (650) 752-2115 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please 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
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Title of each class of securities to be registered |
Proposed maximum aggregate offering price (1) |
Amount of registration fee |
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Common Stock, $0.0001 par value per share |
$115,000,000 | $13,363.00 | ||
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(1) | Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes shares that the underwriters have the option to purchase. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated , 2015
PROSPECTUS
Shares
Common Stock
This is Aimmune Therapeutics, Inc.s initial public offering. We are selling shares of our common stock.
We expect that the initial public offering price will be between $ and $ per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on The NASDAQ Global Market under the symbol AIMT.
We are an emerging growth company under applicable Securities and Exchange Commission rules and will be subject to reduced public company reporting requirements.
Investing in our common stock involves risks that are described in the Risk Factors section beginning on page 11 of this prospectus.
Per Share |
Total |
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Public offering price |
$ | $ | ||||||
Underwriting discounts and commissions (1) |
$ | $ | ||||||
Proceeds, before expenses, to us |
$ | $ |
(1) | We refer you to Underwriting beginning on page 151 for additional disclosure regarding total underwriting compensation. |
The underwriters may exercise their option to also purchase up to an additional shares from us, at the initial public offering price, less the underwriting discount, for 30 days the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2015.
BofA Merrill Lynch | Credit Suisse | Piper Jaffray |
The date of this prospectus is , 2015
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS |
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F-1 |
Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.
Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.
Aimmune Therapeutics, Inc., CODIT and our logo are some of our trademarks used in this prospectus. This prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ® and symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.
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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 deciding to invest in our common stock, you should read this entire prospectus carefully, including the sections of this prospectus entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes contained elsewhere in this prospectus. Unless the context otherwise requires, references in this prospectus to the company, Aimmune, we, us and our refer to Aimmune Therapeutics, Inc.
Aimmune Therapeutics, Inc.
Overview
We are a clinical-stage biopharmaceutical company advancing a new therapeutic approach, including the development of proprietary product candidates, for the treatment of peanut and other food allergies. It is estimated that over 30 million people in the United States and Europe have a food allergy, with peanut allergy being the most prevalent and most commonly associated with severe outcomes and life-threatening events. Our therapeutic approach, which we refer to as Characterized Oral Desensitization Immunotherapy, or CODIT, is a system designed to desensitize patients to food allergens using rigorously characterized biologic products, defined treatment protocols and tailored support services. In ARC001, our recently completed Phase 2 study of our lead CODIT product candidate, AR101, all of the 23 patients who completed the AR101 treatment regimen were desensitized to a clinically meaningful level of peanut protein of at least 443 mg, a level that substantially exceeds the amount of peanut protein typically encountered in an accidental exposure, which we believe to be approximately 100 mg or less. We intend to initiate a Phase 3 registration trial of AR101 in early 2016 and Phase 2 studies of other CODIT product candidates for two additional food allergies in 2016. AR101 has been granted Fast-Track designation and Breakthrough Therapy designation by the U.S. Food and Drug Administration, or FDA, and, if our planned Phase 3 program is successful, we intend to file a Biologics License Application with the FDA and a Marketing Authorization Application with the European Medicines Agency. We have worldwide commercial rights to all of our product candidates and, if approved, intend to commercialize in the United States and Europe with our own specialty sales force.
Food allergies are a severe and growing health problem in the United States, Europe and throughout the developed world. Peanut is the most common food allergy, and we estimate that there are over five million people in the United States and Europe with peanut allergy, including over two million children. The prevalence of peanut allergy in children in the United States is estimated to have increased at a constant annual growth rate of approximately 10% between 1997 and 2008, and experts believe it has continued to rise since 2008. Food-related allergic reactions are estimated to result in approximately 200,000 emergency room visits and over 10,000 hospital admissions each year in the United States.
There are currently no approved medical therapies to cure food allergies or prevent their effects. Avoidance is the primary method of managing a food allergy and successfully practicing avoidance can be virtually impossible, as allergic reactions can often be triggered by trace amounts of food proteins, or allergens. For example, of the over two million people with peanut allergy in the United States, 40% to 50% are sensitive to an exposure of 100 mg or less of peanut protein, the equivalent of less than half of a peanut kernel. For patients exposed to allergens, treatment options are limited. Epinephrine is used as a rescue medication, but its effectiveness is dependent on several factors, such as availability, the promptness of administration and sufficient dosage to counteract the effects of the allergic reaction. The stress of practicing avoidance and the limited availability of effective treatment options can result in a fear of a fatal accidental exposure, substantially diminishing the quality of life of patients and their families. This fear can lead to psychological traumas
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including fear of eating, social difficulties and severe anxiety. In addition, parents of food-allergic children often attempt to prevent accidental exposures by limiting their childs participation in everyday activities.
We believe our CODIT system and product candidates, if approved, have the potential to reduce the dangers posed to food-allergic patients, such as accidental exposures resulting in anaphylactic reactions, emergency room visits or hospitalization. We expect that this potential protection from accidental exposures will reduce the stress and anxiety of patients and their families and enable patients to live more normal lives.
Our Lead Proprietary Product Candidate
Our lead CODIT product candidate, AR101, is a proprietary product designed to desensitize patients to a level of peanut protein that we believe substantially exceeds the amount typically encountered in an accidental exposure using a gradual up-dosing and maintenance dosing regimen. Based on our clinical development to date, including our ARC001 study, we believe AR101 has the following key attributes:
| Proprietary Biologic Product : Our proprietary formulation is a complex mixture of naturally occurring proteins and pharmaceutical-grade ingredients that we developed to enable the convenient dosing of consistent amounts of peanut protein with well-defined relative concentrations of specific peanut allergens. |
| Clinically Meaningful and Reliable Desensitization : In ARC001, 23 of the 23 peanut allergic patients who completed the AR101 treatment regimen achieved clinically meaningful desensitization to peanut allergens. ARC001 and independent scientific research have indicated that clinically meaningful desensitization can be attained through an oral immunotherapy treatment regimen, independent of gender, age and other demographics. |
| Rapid and Predictable Onset of Action : In ARC001, a clinically meaningful level of protection was typically achieved by patients in the AR101 treatment group after only 22 weeks of dosing. Independent scientific research has also shown that continued maintenance dosing pursuant to an oral immunotherapy treatment regimen can confer increased protection over time. |
| Attractive Safety Profile : In ARC001, most patients tolerated AR101 well, experiencing only mild, intermittent side effects commonly associated with food allergies, during the up-dosing phase of treatment. The most frequent of these side effects included gastrointestinal symptoms ranging from itching of the lips to vomiting, hives, throat itching or discomfort and nasal congestion. Once patients are desensitized and on maintenance dosing, we believe that they are likely to experience few or no side effects. |
| Convenient Oral Administration : AR101 is designed to be provided to patients as a convenient, orally administered, once daily therapy that is mixed with common age-appropriate foods. |
| Direct, Targeted Mechanism of Action : Oral administration of AR101 enables the allergen to interact directly with immune cells in the gastrointestinal tract responsible for mediating the allergic reaction to peanuts. Oral desensitization works by gradually shifting the balance of the immune system to dampen the allergic response in the case of accidental exposure. |
| Compatibility with Current Clinical Practice and Infrastructure : The AR101 up-dosing regimen is similar to existing, widely adopted regimens for the treatment of non-food allergies, such as pollen and pet dander. We believe this feature will facilitate adoption by allergists and reimbursement by payors if AR101 is approved. |
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| CODIT Support Services : We intend to provide physician education, patient guidance and other support services to facilitate the administration of AR101, if approved. |
In June 2015, we presented our ARC001 Phase 2 data as a late-breaking abstract at the European Academy of Allergy and Clinical Immunology Congress. In ARC001, all patients who completed the up-dosing regimen in the AR101 treatment group were desensitized to a cumulative dose of 443 mg of peanut protein, the equivalent of approximately two peanut kernels, as compared to five of the 26 patients who received placebo. In addition, 18 of the 23 patients who completed the up-dosing regimen in the AR101 treatment group were desensitized to a cumulative dose of 1,043 mg of peanut protein, the equivalent of approximately four peanut kernels, as compared to none of the 26 patients who received placebo. Our ongoing open label Phase 2 study, ARC002, is evaluating, among other things, the long-term safety and tolerability of a regimen of daily maintenance doses of AR101 and its effect on desensitization.
Regulatory Status of AR101
In September 2014, the FDA granted AR101 Fast-Track designation for oral immunotherapy of peanut sensitive adults and children and in June 2015, the FDA granted AR101 Breakthrough Therapy designation for oral immunotherapy of peanut sensitive children and adolescents (ages 4 through 17). These designations are intended to facilitate the development and to expedite the review of drugs and biologics that are intended for the treatment of serious or life-threatening diseases or conditions and, in the case of a Fast-Track designation, that demonstrate the potential to address unmet medical needs for the disease or condition or, in the case of a Breakthrough Therapy designation, where preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Sponsors of products under development with a Fast-Track designation or Breakthrough Therapy designation may have greater interactions with the FDA, including the involvement of more senior staff members, and the FDA may initiate review of sections of a Fast-Track products marketing application before the application is complete. A product that receives these designations may be eligible for accelerated approval and priority review, if relevant criteria are met.
Key Advantages of Our CODIT System
Our CODIT system for the treatment of food allergies leverages and improves upon the extensive independent scientific research supporting oral immunotherapy, or OIT. Based on our clinical development to date, including our ARC001 study, we believe that our CODIT system will have the following key attributes:
| Standardized Products : Our proprietary biologic product candidates are derived from natural food products and are designed to contain precisely defined dosages of well-characterized food proteins so that each dosage is consistent for total protein and relative allergen content. In addition, we expect each of our product candidates, if approved, to be provided to patients as a convenient, orally administered, once daily therapy. |
| Safe and Well-Defined Treatment Regimens : We intend to demonstrate the safety and efficacy of each CODIT product candidate in large scale, well-controlled clinical trials. In addition, we expect each CODIT product candidate to feature clearly defined clinical protocols with gradual up-dosing and practical maintenance dosing regimens designed to enhance safety, tolerability and efficacy. |
| Clinically Meaningful Desensitization : We expect each approved CODIT product candidate to provide patients with protection from food allergens at a level that exceeds the amount typically encountered in an accidental exposure. |
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| Compatibility with Clinical Practice : We expect our protocols for each CODIT product candidate to be similar to treatment regimens currently utilized by allergists for non-food allergies. |
| Tailored Support Services : We intend to provide physician education, patient guidance and other support services to facilitate the administration of each approved CODIT product candidate. |
| Regulatory Approval : We believe regulatory approval of our CODIT product candidates, if obtained, will validate the extensive existing scientific research supporting oral desensitization and could lead to widespread adoption of our system. |
Additional Pipeline Product Candidates
We intend to leverage the expertise gained in our development of AR101 to develop CODIT product candidates for a range of additional food allergies. We are in the process of developing formulations for CODIT product candidates for the treatment of two additional food allergies. We currently anticipate that we will initiate Phase 2 studies of two additional CODIT product candidates in 2016.
Our Strategy
Our goal is to build a biopharmaceutical company that develops and commercializes proprietary therapies to improve the lives of food-allergic patients and their families. We intend to achieve this goal by pursuing the following key strategic objectives:
| Complete development and obtain approval of AR101 in the United States and Europe for the treatment of peanut allergy. |
| Commercialize AR101 in the United States and Europe through our own specialty sales force. |
| Leverage the CODIT system to develop additional proprietary product candidates for the treatment of food allergies. |
| Strategically pursue collaborations to develop and commercialize product candidates. |
Our History and Leadership
We were formed after a 2011 conference where leading researchers, clinicians, patient advocates and regulators in the field of food allergies concluded that oral desensitization had a strong scientific basis but required greater standardization and validation for widespread adoption. With the support of Food Allergy Research and Education (FARE), a leading patient advocacy organization, we were founded to pursue the development and commercialization of standardized oral desensitization medical therapies for the treatment of food allergies. To execute on this vision, we have assembled a team of experienced biotechnology and pharmaceutical executives who have collectively contributed to the development and regulatory approval of over 30 drugs and biologics. We believe that the quality of our team will strongly influence our ability to develop a new class of CODIT products to address the unmet medical needs of food-allergic patients. Our Chief Executive Officer, Dr. Stephen Dilly, was previously Chief Executive Officer at APT Pharmaceuticals, Inc., Senior Vice President, Head of Development, Chief Medical Officer at Chiron BioPharmaceuticals, a division of Chiron Corporation, and Vice President of Medical Affairs at Genentech, Inc. Other members of our management team have held senior positions at Bristol-Myers Squibb Company, Chiron Corporation, GlaxoSmithKline plc, Novartis AG, Onyx Pharmaceuticals, Inc., Pfizer Inc., Roche Holding AG and Teva Pharmaceutical Industries Limited. We also have leading financial investors such as Adage Capital, Aisling Capital, funds affiliated with Fidelity Management & Research Company, Foresite Capital, Longitude Capital, Palo Alto Investors and RA Capital.
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Risks Associated With Our Business
Our business is subject to numerous risks, as more fully described in the section entitled Risk Factors immediately following this prospectus summary. These risks include, among others:
| We have a limited operating history, have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. |
| We have never generated any revenue from product sales and may never be profitable. |
| Even if this offering is successful, we will require substantial additional financing to achieve our goals. |
| We are substantially dependent on the success of our lead product candidate, AR101, which will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales, and which may not be successful in clinical trials, receive regulatory approval or be successfully commercialized, even if approved. |
| The clinical drug development and regulatory approval process is lengthy, time-consuming and inherently unpredictable, and we may experience significant delays in obtaining regulatory approval of AR101, if at all, which would harm our business and our results of operations. |
| We use peanut flour from a single supplier as the source material for AR101 and are exposed to a number of sole supplier risks. |
Corporate Information
We were founded on June 24, 2011 as a Delaware corporation under the name Allergen Research Corporation. In May 2015, we changed our name to Aimmune Therapeutics, Inc. Our principal executive offices are located at 8000 Marina Blvd, Suite 300, Brisbane, CA 94005, and our telephone number is (650) 614-5220. Our website address is www.aimmune.com. The information on, or that can be accessed through, our website is not part of this prospectus. We have included our website address as an inactive textual reference only.
Implications of Being an Emerging Growth Company
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of the year following the fifth anniversary of the consummation of this offering, (2) the last day of the year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the year in which we are deemed to be a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:
| we will present only two years of audited consolidated financial statements, plus unaudited condensed consolidated financial statements for any interim period, and related managements discussion and analysis of financial condition and results of operations; |
| we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or Sarbanes Oxley; |
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| we will provide less extensive disclosure about our executive compensation arrangements; and |
| we will not require shareholder non-binding advisory votes on executive compensation or golden parachute arrangements. |
However, we are choosing to opt out of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition periods for complying with new or revised accounting standards is irrevocable.
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Issuer |
Aimmune Therapeutics, Inc. |
Common stock offered by us |
shares. |
Common stock to be outstanding after the offering |
shares. |
Underwriters option to purchase additional shares |
shares. |
Use of proceeds |
We estimate that the net proceeds from this offering will be approximately $ million, or approximately $ million if the underwriters exercise their option to purchase additional shares in full, at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
We currently expect to use the net proceeds from this offering to fund the continued clinical development of AR101, including to fund our planned Phase 3 registration trial through data readout, to fund the development of additional product candidates and for working capital and general corporate purposes. See Use of Proceeds on page 56 for a more complete description of the intended use of proceeds from this offering. |
Risk factors |
See Risk Factors beginning on page 11 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock. |
Proposed NASDAQ Global Market symbol |
AIMT |
The number of shares of common stock to be outstanding after this offering is based on 23,295,026 shares of common stock outstanding as of March 31, 2015, and excludes the following:
| 144,158 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2015 having a weighted-average exercise price of $0.19 per share; |
| 3,096,485 shares of common stock reserved for issuance pursuant to future awards under our 2013 Stock Plan, as amended, as of March 31, 2015, which will become available for issuance under our 2015 Equity Incentive Annual Plan after consummation of this offering; |
| shares of common stock reserved for issuance pursuant to future awards under our 2015 Equity Incentive Award Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering; and |
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| shares of common stock reserved for issuance pursuant to future awards under our Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering. |
In addition, unless we specifically state otherwise, all information in this prospectus assumes:
| the automatic conversion of all outstanding shares of our convertible preferred stock at March 31, 2015 into an aggregate of 19,021,461 shares of common stock immediately prior to the consummation of this offering; |
| the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the consummation of this offering; |
| no exercise of outstanding stock options subsequent to March 31, 2015; and |
| no exercise of the underwriters option to purchase additional shares of common stock. |
We refer to our Series A and Series B convertible preferred stock collectively as convertible preferred stock in this prospectus, as well as for financial reporting purposes and in the financial tables included in this prospectus, as more fully explained in Note 6 to our unaudited interim condensed financial statements included in this prospectus.
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SUMMARY FINANCIAL DATA
The following tables present summary financial data for our business. You should read this data together with our financial statements and related notes appearing elsewhere in this prospectus and the information under the captions Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations.
We derived the following statement of operations data for the years ended December 31, 2013 and 2014 from our audited financial statements appearing elsewhere in this prospectus. The statement of operations data for the three months ended March 31, 2014 and 2015 and the balance sheet data as of March 31, 2015 have been derived from our unaudited interim condensed financial statements appearing elsewhere in this prospectus and are not necessarily indicative of results to be expected for the full year. The unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of March 31, 2015 and the results of operations for the three months ended March 31, 2014 and 2015. Our historical results are not necessarily indicative of our future results.
Year Ended
December 31, |
Three Months Ended
March 31, |
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2013 | 2014 | 2014 | 2015 | |||||||||||||
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Statement of Operations Data: |
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Operating expenses: |
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Research and development |
$ | 3,495 | $ | 8,181 | $ | 1,199 | $ | 2,069 | ||||||||
General and administrative |
1,263 | 2,951 | 401 | 1,372 | ||||||||||||
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Total operating expenses |
4,758 | 11,132 | 1,600 | 3,441 | ||||||||||||
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Loss from operations |
(4,758 | ) | (11,132 | ) | (1,600 | ) | (3,441 | ) | ||||||||
Other income (expense), net |
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Interest income |
24 | 12 | 7 | | ||||||||||||
Interest expense |
(91 | ) | | | | |||||||||||
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Total other income (expense), net |
(67 | ) | 12 | 7 | | |||||||||||
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Net loss |
$ | (4,825 | ) | $ | (11,120 | ) | $ | (1,593 | ) | $ | (3,441 | ) | ||||
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Net loss per share, basic and diluted (1) |
$ | (2.17 | ) | $ | (5.00 | ) | $ | (0.72 | ) | $ | (1.06 | ) | ||||
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Weighted-average shares used in computing net loss per share, basic and diluted (1) |
2,222,222 | 2,223,916 | 2,222,222 | 3,233,777 | ||||||||||||
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Pro forma net loss per share, basic and diluted (unaudited) (1) |
$ | (0.90 | ) | $ | (0.20 | ) | ||||||||||
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Shares used in computing pro forma net loss per share, basic and diluted (unaudited) (1) |
12,295,268 | 17,059,658 | ||||||||||||||
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(1) | See Note 10 to our audited financial statements and Note 7 to our unaudited interim condensed financial statements included elsewhere in this prospectus for an explanation of the calculations of our net loss per share, basic and diluted, pro forma net loss per share, basic and diluted, and the shares used in computing the pro forma net loss per share, basic and diluted. |
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The table below presents our balance sheet data as of March 31, 2015:
| on an actual basis; |
| on a pro forma basis to give effect to: (i) the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 19,021,461 shares of common stock immediately prior to the consummation of this offering; and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering; and |
| on a pro forma as adjusted basis to give further effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
As of March 31, 2015 | ||||||||||||
Actual |
Pro Forma |
Pro Forma as
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(unaudited) | ||||||||||||
(in thousands) | ||||||||||||
Balance Sheet Data : |
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Cash and cash equivalents |
$ | 65,313 | $ | 65,313 | $ | |||||||
Working capital |
64,065 | 64,065 | ||||||||||
Total assets |
65,895 | 65,895 | ||||||||||
Convertible preferred stock |
83,811 | | ||||||||||
Accumulated deficit |
(20,958 | ) | (20,958 | ) | ||||||||
Total stockholders equity |
64,239 | 64,239 |
(1) | Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus), would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total stockholders equity 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 discount and commissions and estimated offering expenses payable by us. We may also increase (decrease) the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and stockholders equity by approximately $ million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. |
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Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations, before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements
We have a limited operating history, have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We have only one product candidate in clinical trials and no product sales, which, together with our limited operating history, make it difficult to assess our future viability.
We are a clinical-stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. To date, we have focused primarily on developing our CODIT system and our lead product candidate, AR101, which is currently our only product in clinical development, and researching additional product candidates. We are not profitable and have incurred losses each year since our inception in June 2011. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. We have not generated any revenue from product sales and, as a result, we have incurred significant losses. We incurred a net loss of $4.8 million and $11.1 million for the years ended December 31, 2013 and 2014, respectively, and $1.6 and $3.4 million for the three months ended March 31, 2014 and 2015, respectively. At December 31, 2014 and March 31, 2015, our accumulated deficit was $17.5 million and $21.0 million, respectively. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, seek regulatory approval for and begin to commercialize AR101, and as we develop other product candidates. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders equity and working capital.
Even if this offering is successful, we will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.
Since commencing our operations in 2011, substantially all of our efforts have been focused on research, development and the advancement of AR101. As of March 31, 2015, we had capital resources consisting of cash and cash equivalents of $65.3 million. We believe that we will continue to expend substantial resources for the foreseeable future as we continue clinical development, seek regulatory approval for and prepare for the commercialization of AR101, and as we develop other product candidates.
These expenditures will include costs associated with research and development, conducting nonclinical studies and clinical trials, obtaining regulatory approvals, manufacturing and supply, sales and marketing and general operations. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, we may not be able to accurately estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of AR101 or any other product candidates.
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We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will allow us to fund our planned operations for the 24 months following the date of this offering, including through data readout of our planned Phase 3 registration trial for AR101. However, our operating plan may change as a result of many factors, including factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity, debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business. If we raise additional capital through strategic collaborations agreements, we may have to relinquish valuable rights to our product candidates including possible future revenue streams. In addition, any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.
Our future funding requirements will depend on many factors, including, but not limited to:
| the time and cost necessary to initiate and complete our anticipated Phase 3 registration program for AR101; |
| the time and cost associated with clinical trials and pre-clinical development of other product candidates; |
| our ability to obtain regulatory approval for and subsequently commercialize AR101 or any other product candidates we develop; |
| the time and cost necessary to develop clinical supplies and a commercial-scale manufacturing process for AR101; |
| sales and marketing costs associated with AR101, if approved, including the cost and timing of developing our sales and marketing capabilities; |
| the amount of sales and other revenue from AR101, if approved; |
| our ability to achieve sufficient market acceptance, coverage and reimbursement from third-party payors and adequate market share for our product candidates; |
| the costs associated with any additional clinical trials of AR101; |
| the cash requirements of any future acquisitions or discovery of product candidates; |
| the time and cost necessary to respond to technological and market developments; |
| our ability to attract, hire and retain qualified personnel; and |
| our ability to obtain and maintain intellectual property protection for AR101 or any future product candidate and the associated costs of such activities, including for filing, prosecuting, defending and enforcing any patents for AR101 or any future product candidate. |
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate:
| clinical trials or other development activities for AR101 or any future product candidate; |
| our research and development activities; or |
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| our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize AR101 or any future product candidate. |
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control and may be difficult to predict, including:
| the timing and cost of, and level of investment in, research, development and commercialization activities relating to our product candidates, which may change from time to time; |
| coverage and reimbursement policies with respect to our product candidates, if approved, and potential future drugs that compete with our product candidates; |
| the cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements with manufacturers; |
| expenditures that we may incur to acquire, develop or commercialize additional product candidates and technologies; |
| the level of demand for our products, if approved, which may vary significantly; |
| future accounting pronouncements or changes in our accounting policies; and |
| the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners. |
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance.
This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue and/or earnings guidance we may provide.
Risks Related to Our Business
We are substantially dependent on the success of AR101 which will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales, and which may not be successful in clinical trials, receive regulatory approval or be successfully commercialized, even if approved.
To date, we have invested substantially all of our efforts and financial resources in the research and development of our CODIT system and AR101, which is currently our only product candidate in clinical development. Before seeking marketing approval from regulatory authorities for the sale of AR101, we must conduct extensive clinical trials to demonstrate the safety, purity and potency of the product in humans. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the
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U.S. Food and Drug Administration, or FDA, or comparable foreign regulatory authorities, and we may never receive such regulatory approval. We cannot be certain that AR101 will be successful in clinical trials. Further, AR101 may not receive regulatory approval even if it is successful in clinical trials. If we do not receive regulatory approvals for AR101, we may not be able to continue our operations. Our prospects, including our ability to finance our operations and generate revenue, will depend largely on the successful development, regulatory approval and commercialization of AR101. We do not expect that such commercialization will occur for at least the next two years, if ever. The clinical and commercial success of AR101 will depend on a number of factors, including the following:
| the results from our planned Phase 3 registration trial of AR101, and from ARC002, our ongoing open label Phase 2 clinical trial of AR101; |
| the frequency and severity of adverse effects of AR101; |
| the ability of third-party manufacturers to manufacture supplies of AR101 and to develop, validate and maintain a commercial-scale manufacturing process that is compliant with current good manufacturing practices, or cGMP; |
| our ability to maintain our exclusive supply relationship with the Golden Peanut Company; |
| our ability to demonstrate AR101s safety and efficacy to the satisfaction of the FDA and foreign regulatory authorities; |
| whether we are required by the FDA to conduct additional clinical trials prior to the approval to market AR101 and whether the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials; |
| the receipt of necessary marketing approvals from the FDA and foreign regulatory authorities; |
| whether the FDA may require implementation of a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of approval or post-approval; |
| whether the FDA may restrict the use of our products to a narrow population; |
| our ability to successfully commercialize AR101, if approved for marketing and sale by the FDA or foreign regulatory authorities, whether alone or in collaboration with others; |
| our success in educating physicians and patients about the benefits, administration and use of AR101; |
| acceptance of AR101 as safe and effective by patients and the medical community; |
| the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; |
| achieving and maintaining compliance with all regulatory requirements applicable to AR101; |
| the effectiveness of our own or any future collaborators marketing, pricing, coverage and reimbursement, sales and distribution strategies and operations; |
| our ability to obtain issued patents that cover AR101 and to enforce such patents and other intellectual property rights in and to AR101; |
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| our ability to avoid third-party intellectual property claims; and |
| a continued acceptable safety profile of AR101 following approval. |
Many of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of AR101. If we are not successful in commercializing AR101, or are significantly delayed in doing so, our business will be materially harmed.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and we may encounter substantial delays in our clinical trials. Furthermore, results of earlier studies may not be predictive of future studies results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials and of similar academic research studies. For example, the positive results generated to date in our Phase 2 clinical trial of AR101 do not ensure that our planned Phase 3 registration trial will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval or commercial acceptance for our product candidates.
In addition, we do not know whether our anticipated Phase 3 registration trial of AR101 or clinical trials of other product candidates will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or terminated for a variety of reasons, including delay or failure to:
| obtain regulatory approval to commence a clinical trial; |
| reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among CROs and clinical trial sites; |
| obtain institutional review board, or IRB, or foreign equivalent approval at each site; |
| recruit suitable patients to participate in a clinical trial; |
| have patients complete a clinical trial or return for post-treatment follow-up; |
| ensure that clinical sites observe clinical trial protocols, operate in accordance with good clinical practice standards, or continue to participate in a clinical trial; |
| address any patient safety concerns that arise during the course of a clinical trial, particularly with respect to the double-blind, placebo-controlled food challenges; |
| address any conflicts with new or existing laws or regulations; |
| initiate or add a sufficient number of clinical trial sites; or |
| manufacture sufficient quantities of product candidate for use in clinical trials. |
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For example, subsequent to filing our IND for AR101, the FDA put the Phase 2 clinical trial on clinical hold in order to obtain additional information regarding our manufacturing process and to request certain changes to the design of the clinical trial. Specifically, the FDA requested information regarding the procedures used to ensure that the drug product was not contaminated, the procedures used to ensure the uniformity and consistency of the drug product, our acceptance procedures for the drug product and the placebo, and procedures to ensure correct dosing. In addition, the FDA requested changes to the clinical trial relating to the stopping rules for the trial, withdrawal criteria for the trial, exclusion criteria for patients, the appearance of the drug and the placebo and the drug lots used in the trial. We provided the FDA with the information it requested and made agreed upon changes to the clinical trial. However, complying with the FDAs request resulted in an approximately two month delay in initiation of the trial.
We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have agreements governing their committed activities, we have limited influence over their actual performance and, as a result, may be subject to unanticipated delays. We anticipate that we will conduct our clinical trials, at least in part, at leading academic allergy research centers in the United States and Europe. The number and capacity of such sites is limited and our ability to access the sites may be affected by the number and size of other trials occurring at the same time, including trials sponsored by our competitors. If adequate capacity at these sites is not available, the initiation and pace of our clinical trials may be adversely affected.
Conducting clinical trials in foreign countries, as we intend to do for our Phase 3 registration trial of AR101, presents additional risks that may delay completion of our clinical trials. These risks include the failure of physicians or enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes and political and economic risks relevant to such foreign countries. In addition, the FDA may determine that our clinical trial results obtained in foreign subjects are not representative of the U.S. patient population and are thus not supportive of a Biologics License Application, or BLA, approval in the United States.
Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, the design of the clinical trial, safety, competing clinical trials and clinicians and patients perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating. In addition, certain sub-groups of patients may be more difficult to recruit than others. For example, in our planned Phase 3 registration trial of AR101, we currently intend to recruit a significant number of patients over the age of 26. We have not enrolled patients in this age group before and believe they may be more difficult to recruit than younger patients. If we are not able to recruit sufficient numbers of patients over the age of 26 into our Phase 3 registration trial, any approval that we obtain, if any, will not include an indication for patients over the age of 26. If we are not able to recruit patients to participate in our clinical trials in a timely manner, our business and results of operations could be adversely affected.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such studies are being conducted, by an independent Safety Review Board for such clinical trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, failure to pass inspections of the clinical trial operations or trial site by the FDA or other regulatory authorities, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the product, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. For example, the protocols for our clinical trials require that patients participate in food challenges where they receive increasing amounts of the food to which they are allergic. In our clinical trials, participation in these food challenges has resulted in allergic reactions severe enough to require treatment with epinephrine. It is possible that patients could have allergic reactions severe enough to require hospitalization or even cause death. In such event, we could be required to suspend or terminate our clinical trials.
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If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
In our clinical trials, we utilize an oral food challenge procedure designed to trigger an allergic reaction, which could be severe or life threatening.
In accordance with our food allergy clinical trial protocols, we utilize a double-blind, placebo-controlled food challenge procedure. This consists of giving the offending food protein to patients in order to assess the sensitivity of their food allergy, and thus the safety and efficacy of our product candidates versus placebo. The food challenge protocol is meant to induce objective symptoms of an allergic reaction. These oral food challenge procedures can potentially trigger anaphylaxis, a potentially life-threatening systemic allergic reaction. Even though these procedures are well-controlled, standardized and performed in highly specialized centers with intensive care units, there are inherent risks in conducting a clinical trial of this nature. Such risks may dissuade patients, particularly children, or their parents from participating in our clinical trials. In addition, an uncontrolled allergic reaction could potentially lead to serious or even fatal reactions and any such serious clinical event could potentially adversely affect our clinical development timelines, including a complete clinical hold on our food allergy clinical trials. For instance, we are aware of one clinical trial for a peanut allergy treatment that was terminated by its safety monitoring committee because of severe adverse events arising from the administration of food challenges. We may also become liable to subjects who participate in our clinical trials and experience any such serious or fatal reactions. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price.
The regulatory approval process is lengthy, time-consuming and inherently unpredictable, and we may experience significant delays in obtaining regulatory approval of AR101, if at all, which would delay the commercialization of AR101, adversely impact our ability to generate revenue, and harm our business and our results of operations.
To gain approval to market a biologic product candidate, such as AR101, we must provide the FDA and foreign regulatory authorities with clinical, non-clinical and manufacturing data that adequately demonstrates to the satisfaction of such regulatory authority the safety, purity, potency and effectiveness of the product for the intended indication applied for in the BLA or other relevant regulatory filing. We have not previously submitted a BLA to the FDA, or similar approval filings to comparable foreign regulatory authorities. A BLA or other relevant regulatory filing must include extensive nonclinical and clinical data and supporting information to establish that the product candidate is safe, pure and potent for each desired indication. The BLA or other relevant regulatory filing must also include significant information regarding the chemistry, manufacturing and controls for the product.
The FDA or any foreign regulatory bodies can delay, limit or deny approval to market AR101 for many reasons, including:
| our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that AR101 is safe, pure and potent for the proposed indication; |
| the FDA or the applicable foreign regulatory authority may disagree with the interpretation of data from clinical trials; |
| our inability to demonstrate that the clinical and other benefits of AR101 outweigh any safety or other perceived risks; |
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| the FDA or the applicable foreign regulatory authority may require additional nonclinical studies or clinical trials; |
| the CROs that we retain to conduct our clinical trials may take actions outside of our control that materially adversely impact our clinical trials; |
| the FDA or the applicable foreign regulatory authority may not approve or disagree with the formulation, labeling and/or the specifications of AR101; |
| if our BLA, if and when submitted, is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition of approval, additional nonclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions; |
| the FDA or the applicable foreign regulatory authority may require development of a REMS as a condition of approval or post-approval; |
| our inability to demonstrate that the manufacturing process for AR101 is adequately controlled to ensure that all product produced meets required quality standards; |
| the FDA or the applicable foreign regulatory authority may fail to approve the third-party manufacturers or testing laboratories with which we contract; or |
| the potential for approval policies or regulations of the FDA or the applicable foreign regulatory authorities to significantly change in a manner rendering our clinical data insufficient for approval. |
Of the large number of drugs and biologics in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized. In addition, the FDA has never approved a drug based on efficacy as measured by a double-blind, placebo controlled food challenge, which is the testing mechanism for determining the desensitization efficacy of AR101.
Even if we eventually complete clinical testing and receive approval of a BLA or foreign marketing authorization for AR101, the FDA or the applicable foreign regulatory authority may grant approval contingent on the performance of costly additional clinical trials. The FDA or the applicable foreign regulatory authority may also approve AR101 for a more limited indication and/or a narrower patient population than we originally request, and the FDA or applicable foreign regulatory authority may not approve the labeling that we believe is necessary or desirable for the successful commercialization of AR101. Any delay in obtaining, or inability to obtain, applicable regulatory approval or a regulatory approval for a more limited indication and/or narrower patient population would delay, prevent, or limit commercialization of AR101 and would materially adversely impact our business and prospects.
If we do not receive marketing approval for AR101 or are otherwise not successful in commercializing AR101, or are significantly delayed in doing so, our business will be materially harmed and we may need to curtail or cease operations. We currently have no products approved for sale, and we may never obtain regulatory approval to commercialize AR101.
If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of AR101 or any future product candidates may be delayed, and our business will be harmed.
We sometimes 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
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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 authorities and the timing thereof; |
| other actions, decisions or rules issued by regulators; |
| our ability to access sufficient, reliable and affordable supplies of materials used in the manufacture of our product candidates; |
| the efforts of our collaborators 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 expect, the commercialization of AR101 and any future product candidates may be delayed, and our business and results of operations may be harmed.
We rely exclusively on the Golden Peanut Company to provide the source material for AR101 and are exposed to a number of sole supplier risks.
The source material for AR101 is a specific type of peanut flour, which we purchase from the Golden Peanut Company, or GPC, pursuant to a long-term exclusive commercial supply agreement. In order to develop AR101 as an FDA-approvable biological product we were required to precisely characterize the protein signature of the flour. We believe the flour produced by GPC has a distinct protein signature that is significantly different from the protein signatures of other commercially available peanut flours and, as a result, it is unlikely that we could use any other peanut flours as the source material for AR101. If GPC became unwilling or unable to supply us with peanut flour, our business and operating results would be materially adversely affected.
In addition, our agreement with GPC does not require GPC to provide us with peanut flour with a specific protein signature. We have tested multiple lots of GPC peanut flour produced in several different years and have not identified a significant variation in protein signature between lots. However, we can provide no assurance that natural variations or variations in GPCs manufacturing process will not result in alterations in the protein signature in GPCs peanut flour that would make it unsuitable for use in AR101. If such variations occurred, we would not be able to manufacture AR101 and our business and operating results would be materially adversely affected.
Our agreement with GPC restricts it from selling peanut flour of the type (or equivalent to the type) we use to any third party in the United States, Canada, Mexico, the European Union or Japan for use in oral immunotherapy, or OIT, for peanut allergy. The agreement remains in effect until five years after the first delivery to us of peanut flour for commercial use and includes an option for us to extend the term for an additional five years, however GPC may terminate the agreement upon 60 days written notice if we fail to meet our minimum annual purchase commitment and fail to pay an amount equal to GPCs standard price for the
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unpurchased quantity within the notice period. GPC may also terminate the agreement if we fail to cure a material breach within 30 days of receiving notice of such breach from GPC or if we fail to perform our obligations under the agreement for a continuous period of 90 days due to a force majeure event or an insolvency or bankruptcy-related events. If GPC were to make sales despite the restrictions set forth in the agreement, or terminate the agreement as a result of any of the foregoing or if we were to otherwise lose exclusivity, we could face additional competition from pharmaceutical and biotechnology companies, with considerably more resources and experience than we have, that are researching and selling products designed to treat food allergies or allergies in general.
AR101 may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. To date, patients treated with AR101 have experienced drug-related side effects, which mainly include gastrointestinal issues ranging from itching of the lips to vomiting. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our clinical trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the clinical trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
In addition, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of subjects and limited duration of exposure in our clinical trials, we cannot be assured that rare and severe adverse effects of AR101 will not be uncovered when a significantly larger number of patients are exposed to the drug. Further, we have not designed our clinical trials to determine the effect and safety consequences of taking AR101 over a multi-year period.
Although we have monitored the subjects in our studies for certain safety concerns and we have not seen evidence of significant safety concerns in our clinical trials, patients treated with AR101 may experience adverse reactions. For instance, in independent research studies, patients receiving OIT for peanut allergy have suffered severe anaphylactic reactions. While we have developed AR101 and its associated treatment regimen in a manner which we believe reduces the risk of adverse reactions, we can provide no assurance that patients administered AR101 will not also suffer severe anaphylactic reactions, including reactions leading to death. For example, in our ARC001 clinical trial, one patient had an allergic reaction that was attributed to AR101 that was severe enough to require the administration of epinephrine and six patients in our ARC001 clinical trial who received AR101 and who did not achieve desensitization dropped out of the clinical trial early in the treatment regimen due to gastrointestinal side effects. It is possible that the FDA may ask for additional data regarding such matters.
If safety problems are identified prior to approval of AR101, the FDA or other regulatory agencies may not approve AR101, may limit the population it is used in or may require warnings on the label. If AR101 is ultimately approved and we or others later identify undesirable side effects caused by AR101, the FDA or other regulatory agencies may require that we amend the labeling of AR101, require additional warnings, create a medication guide outlining the risks of such side effects for distribution to patients, order us to recall AR101 or even withdraw marketing approval for AR101. In addition, we could be sued and held liable for harm caused to patients and our reputation may suffer. Each of these events could prevent us from achieving or maintaining market acceptance of AR101, if approved, and could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price.
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The potential efficacy of AR101, if approved, is dependent upon patient compliance with the prescribed dosing regimen and failure to adhere to the dosing regimen could increase the potential of a patient experiencing an adverse allergic reaction.
The AR101 treatment regimen, if approved, would require that patients start with a very low dose of AR101 and gradually increase their dose over time. Based on our existing clinical data, we anticipate it will take patients between five and six months to reach a daily dose level of 300 mg of peanut protein. Patients would then continue on a daily 300 mg maintenance dose.
In order to maintain desensitization, patients would need to continue to take a daily 300 mg maintenance dose. The potential efficacy of AR101, if approved, is dependent upon patients complying with the prescribed dosing regimen, including the continued maintenance dosing. Based on our studies and independent studies, we do not believe that the occasional failure to take a dose will affect desensitization. However, in the event a patient fails to follow the prescribed dosing regimen, halts or skips treatment and then restarts the dosing regimen, the likelihood of an adverse allergic reaction to the allergen is greatly increased, as any level of desensitization previously achieved may have dissipated. Further, patients will be required to continue to practice avoidance to peanut exposure and if patients begin to achieve desensitization, it is possible that they may become less vigilant in practicing avoidance and further increase their risk of an accidental exposure. As a result, a lack of patient compliance and the resulting increased likelihood for adverse safety events could have a material adverse effect on our ability to obtain and maintain, if approved, the regulatory approval necessary to commercialize AR101. Failure to do so would significantly harm our business, results of operations, financial condition, prospects and stock price. In addition, if patients drop out of our clinical trial due to the strict dosing regimen, the likelihood that we will be able to demonstrate clinically meaningful desensitization will be decreased.
We intend to rely on third parties to manufacture our clinical and commercial drug supply of AR101 and to manufacture nonclinical, clinical and commercial supplies of any future product candidate.
We do not currently have, nor do we currently plan to acquire, the infrastructure or internal capability to produce our clinical or commercial supply of AR101, and we lack the internal resources and the capability to manufacture any product candidates on a nonclinical, clinical or commercial scale. The FDA and other comparable foreign regulatory authorities must, pursuant to inspections that will be conducted before and after we submit our BLA or relevant foreign regulatory submission, approve our contract manufacturers to manufacture AR101 or any future product candidates.
We do not directly control the manufacturing of, and are completely dependent on, contract manufacturers for compliance with cGMP for manufacture of our products and product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or foreign regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Furthermore, all of our contract manufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may generally affect the regulatory clearance of our contract manufacturers facilities. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws its approval in the future, we may need to find alternative manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
We intend to rely on a single manufacturer for each of the production of the drug product used in AR101 and the packaging of AR101. If one of these manufacturers encountered financial difficulties and was unable to continue operating or was acquired by a third party and changed strategic direction, our ability to obtain supplies of AR101 or future product candidates could be materially adversely affected.
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We have not yet entered into an agreement with a third-party manufacturer to produce commercial quantities of AR101 and any failure to reach such an agreement and commence the development process for AR101 in a timely manner would delay commercialization of AR101.
We intend to rely on a third-party manufacturer to develop a commercial-scale manufacturing process for AR101. While we have identified a potential manufacturing partner for the commercial supply of AR101 we have not yet entered into agreements with respect to that supply. Aspects of our manufacturing process for AR101 are complex and our existing manufacturing process will need to be scaled up to meet our anticipated commercial requirements. If we and our third-party manufacturer are not able to successfully develop a commercial manufacturing process or do so in a timely manner, we will not be able to initiate commercialization of AR101 within our estimated timeline, if at all. We anticipate that we will initially be dependent on a single contract manufacturer for the production of AR101 and that during such time, our commercialization efforts will be substantially dependent on this single contract manufacturers ability to scale up the manufacturing process for AR101. In addition, we will need to make a substantial investment in property and equipment in order to support the commercial production of AR101. Any delay in making that investment and acquiring the necessary infrastructure could delay commercial production of AR101.
We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize AR101 or any future product candidates.
We do not have the ability to independently conduct clinical trials. We rely and plan to continue to rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as CROs, to conduct clinical trials on our product candidates. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these studies and the subsequent collection and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount or timing of resources that they devote to our programs. Although we rely on these third parties to conduct our clinical trials, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on these third parties does not relieve us of our regulatory responsibilities.
The FDA and foreign regulatory authorities require us and our third-party contractors to comply with regulations and standards, including regulations commonly referred to as good clinical practices, or GCPs, which are regulations and guidelines enforced by the FDA and foreign regulatory authorities for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the clinical trial subjects are adequately informed of the potential risks of participating in clinical trials. Regulatory authorities enforce these GCPs through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or any of our third-party contractors fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials complies with GCP regulations. In addition, certain of our clinical trials must be conducted with product produced under current good manufacturing practice, or cGMP, regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
In addition, the execution of clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. In addition, our agreements with third parties may typically be terminated by such third parties upon as little as 30 days prior written notice or, in certain cases, under certain other circumstances, including our insolvency. If the
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third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such studies.
Even if AR101 or any future product candidates obtain regulatory approval, they may never achieve market acceptance or commercial success, which will depend, in part, upon the degree of acceptance among clinicians, patients, patient advocacy groups, healthcare payors and the general medical community.
Even if we obtain FDA or other regulatory approvals, AR101 or any future product candidates may not achieve market acceptance among clinicians, patients, patient advocacy groups, healthcare payors and the general medical community. With respect to AR101, which we intend to market as a means of obtaining protection from accidental exposure to peanut protein and not as a cure for peanut allergy, we anticipate that clinicians will continue to recommend that their patients strictly avoid foods that may contain any amount of peanut protein and continue to carry epinephrine auto-injectors even if the patients have been successfully desensitized with AR101. As a result, if we are unable to persuade clinicians, patients and caregivers that AR101 has therapeutic value when used in conjunction with the practice of avoidance, our sales will be adversely affected.
In addition, we may face challenges in gaining market acceptance as a result of our therapeutic approach, which exposes patients to the exact allergen that poses a risk of causing a severe allergic reaction. Many clinicians believe that previous oral immunotherapy approaches to the treatment of peanut allergy are too unsafe or unreliable to use in clinical practice. We are also susceptible to changes in the public perception of the safety and efficacy of desensitization treatments. For example, if a competitors desensitization treatment similar to our own had significant safety issues, perceptions of our products could also be negatively impacted even if our product did not have similar safety issues. If we are unable to convince clinicians and their patients that AR101 is safe and reliable, our sales will be adversely affected.
Furthermore, market acceptance of AR101 or any future product candidates for which we receive approval depends on a number of factors, including:
| the efficacy of the product as demonstrated in clinical trials; |
| the frequency and severity of any adverse effects and overall safety profile of the product; |
| the clinical indication for which the product is approved including any limitations on the patient population for which it is indicated; |
| acceptance by clinicians and patients of the product as a safe and effective treatment and their perceptions of the benefit of the product; |
| the evaluation of our products by governmental health technology assessment organizations; |
| the relative convenience and ease of administration of our products, including patients acceptance of the need to take our product candidates mixed with food; |
| patient and parent acceptance of our products form factor and packaging; |
| the willingness of patients to comply with a treatment regimen that requires daily administration of our product candidates on a chronic basis; |
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| the potential and perceived advantages of our product candidates over current treatment options or alternative treatments, including future alternative treatments; |
| the cost of treatment in relation to alternative treatments and willingness to pay for our products, if approved, on the part of clinicians and patients; |
| the availability of products and their ability to meet market demand, including a reliable supply for long-term daily treatment; |
| the strength of our marketing and distribution organizations; |
| the quality of our relationships with patient advocacy groups; sufficient third-party coverage or reimbursement for our product candidates; and |
| sufficient third-party payments to clinicians for the procedures necessary to administer product candidates. |
Any failure by our product candidates that obtain regulatory approval to achieve market acceptance or commercial success would adversely affect the results of our operations.
AR101, if approved, or any future product candidates may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.
The pharmaceutical market is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. In particular, we compete in the segments of the pharmaceutical, biotechnology and other related markets that address the treatment of food allergies. As a result, we may face competition from many pharmaceutical and biotechnology companies, with considerably more resources and experience than we have, that are researching and selling products designed to treat food allergies or allergies in general. We are aware that DBV Technologies S.A. is developing a treatment for peanut allergy though we cannot predict the timing or success of such development. Many of our competitors have materially greater financial, manufacturing, marketing, research and drug development resources than we do. Large pharmaceutical and biotechnology companies in particular have extensive expertise in nonclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors. Failure to effectively compete against future products approved for the treatment of peanut allergy could harm our business and results of operations.
In addition, we may face competition from clinicians who provide oral immunotherapy to patients using commercially available source material. If we are unable to convince clinicians, patients and caregivers, that our products have advantages over these self-developed approaches to oral immunotherapy, our business and results of operation could be materially adversely affected.
AR101 and any future product candidates are regulated as biological products, or biologics, which may subject them to competition sooner than anticipated.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the Affordable Care Act, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as interchangeable based on its similarity to an existing brand product. To be considered biosimilar, a product candidate must be highly similar to the reference product notwithstanding minor differences in clinically inactive components. In addition, there
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can be no clinically meaningful differences between the product candidate and the reference product in terms of the safety, purity and potency of the product. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. We believe that the concentrations of relevant proteins in the peanut flour we source pursuant to our exclusive contract with GPC are significantly different from the concentrations of proteins found in other commercially available sources of peanut flour, and that a product candidate using different concentrations of such proteins or different proteins might not be considered highly similar to AR101 by the FDA. In that case, such a product candidate would not be eligible for the biosimilar approval pathway. However, there can be no guarantee that the FDA would agree with this interpretation. Indeed, the BPCIA is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement the BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological product candidates.
Under the BPCIA, no approval of an application for a biosimilar product may be made effective until 12 years after the original branded product is first licensed by the FDA pursuant to the approval of a BLA. We believe that if the FDA approves a BLA for AR101, AR101 should qualify for this 12-year period of market exclusivity, known as reference product exclusivity, such that no approval of a biosimilar version of our product could become effective prior to the expiration of that 12-year period. However, these exclusivity provisions have been subject to various interpretations that have not yet been fully addressed by the FDA, and there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider AR101 to be eligible for reference product exclusivity, potentially creating the opportunity for competition sooner than anticipated. In addition, even if AR101 were to receive reference product exclusivity, a competitor may seek approval of a product candidate under a full BLA rather than a biosimilar product application. In such a case, although the competitor would not enjoy the benefits of the abbreviated pathway for biosimilar approval created under the BPCIA, the FDA would not be precluded from making effective an approval of the competitor product pursuant to a BLA prior to the expiration of our 12-year period of marketing exclusivity.
In addition, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear. In particular, it is unclear at this juncture whether products deemed interchangeable by the FDA will, in fact, be readily substituted by pharmacies. Such substitution will depend on a number of marketplace and regulatory factors that are still developing.
We currently have no sales organization or distribution network. If we are unable to establish sales capabilities and a distribution network on our own or through third parties, we may not be able to market, sell and distribute AR101, if approved, or any future product candidates or generate product revenue.
We currently do not have a sales organization. In order to commercialize AR101, we will need to build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If AR101 receives regulatory approval, we expect to establish a specialty sales organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time-consuming. We have no prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. Further, given our lack of prior experience in marketing, selling and distributing pharmaceutical products, our estimates of the number of sales representatives needed to
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commercialize AR101 may be materially less than the actual number of sales representatives required. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization of AR101, which could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price.
We may choose to collaborate with third parties that have direct sales forces or established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize AR101. If we are not successful in commercializing AR101 or any future product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we would incur significant additional losses.
Any product candidate that we are able to commercialize may become subject to unfavorable pricing regulations, third-party coverage or reimbursement policies.
Significant uncertainty exists as to the coverage and reimbursement status of any drug candidates for which we obtain regulatory approval. Our ability to commercialize any products successfully in the United States will depend in part on the extent to which coverage and reimbursement for these products becomes available from third-party payors, including government health administration authorities, such as those that administer the Medicare and Medicaid programs, and private health insurers. Third-party payors decide which medications they will cover and establish reimbursement levels. A primary trend in the U.S. healthcare industry is cost containment. Government programs and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot assure you that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. If coverage and reimbursement are not available or are available only at limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.
There may be significant delays in obtaining coverage and reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. In the United States, private third-party payors often rely upon Medicare coverage and reimbursement policies and payment limitations in setting their own coverage and reimbursement policies. Our inability to promptly obtain coverage, reimbursement and profitable payment rates from both government funded and private payors for new products that we develop could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price.
In addition, the anticipated treatment regimen for AR101 and our other products candidates requires a clinician to see the patient every two weeks during the up-dosing portion of the regimen. These appointments may take significant time as the patient has to be monitored for two hours after receiving an increased dose. It is not certain whether the existing reimbursement codes that can be appropriately used for these visits adequately compensate clinicians for the time spent on the visits. We may decide to seek the creation of new codes and associated reimbursement rates to ensure that clinicians are adequately compensated; however, creation of new
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codes is a complicated and lengthy process and we may not be successful in any such efforts. If appropriate codes and compensation are not available, clinicians may be deterred from offering AR101 to their patients and our business and operating results would be adversely affected.
In addition, under the Medicare program, physician payments are updated on an annual basis according to a statutory formula. Because application of the statutory formula for the update factor would have resulted in a decrease in total physician payments for the past several years, Congress has intervened with interim legislation to prevent the reductions. In April 2015, however, the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, was signed into law, which repealed and replaced the statutory formula for Medicare payment adjustments to physicians. MACRA provides a permanent end to the annual interim legislative updates that had previously been necessary to delay or prevent significant reductions to payments under the Medicare Physician Fee Schedule. MACRA extended existing payment rates through June 30, 2015, with a 0.5% update for July 1, 2015 through December 31, 2015, and for each calendar year through 2019, after which there will be a 0% annual update each year through 2025. In addition, MACRA requires the establishment of the Merit-Based Incentive Payment System (MIPS), beginning in 2019, under which physicians may receive performance-based payment incentives or payment reductions based on their performance with respect to clinical quality, resource use, clinical improvement activities and meaningful use of electronic health records. MACRA also requires Centers for Medicare & Medicaid Services, or CMS, beginning in 2019, to provide incentive payments for physicians and other eligible professionals that participate in alternative payment models, such as accountable care organizations, that emphasize quality and value over the traditional volume-based fee-for-service model. It is unclear what impact, if any, MACRA will have on our business and operating results, but any resulting decrease in payment may result in reduced demand for our product candidates or additional pricing pressures.
Outside of the United States, the regulations that govern marketing approvals, pricing, coverage and reimbursement for new therapeutic products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay or prevent our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of the product in that country. We will need to evaluate clinician compensation mechanisms in each market outside of the United States to determine whether any action needs to be taken to allow for payment of physicians for administration of the treatment regimens.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of AR101 or any future product candidates, and our existing insurance coverage may not be sufficient to satisfy any liability that may arise.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. In addition, we may be sued if our product fails to protect a patient from exposure to a food allergen. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
| decreased demand for AR101 or any future product candidates; |
| injury to our reputation; |
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| withdrawal of clinical trial participants; |
| costs to defend the related litigation; |
| a diversion of managements time and our resources; |
| substantial monetary awards to clinical trial participants or patients; |
| regulatory investigations, product recalls or withdrawals, or labeling, marketing or promotional restrictions; |
| loss of revenue; and |
| the inability to commercialize AR101 or any future product candidates. |
Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of AR101 or any future products we develop. We currently carry product liability insurance covering use in our clinical trials in the amount of $5.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.
If and when we obtain approval for marketing AR101, we intend to expand our insurance coverage to include the sale of AR101. However, we may be unable to obtain this liability insurance on commercially reasonable terms, if at all.
We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.
As of March 31, 2015, we had 13 full-time employees. We will need to continue to expand our managerial, operational, finance, clinical, manufacturing, commercial and other resources in order to manage our operations, regulatory filings, manufacturing and supply activities, marketing and commercialization activities, clinical trials and develop and commercialize AR101 or any future product candidates. Our management, personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:
| expand our general and administrative, manufacturing, sales, marketing and clinical development organizations; |
| identify, recruit, retain, incentivize and integrate additional employees; |
| establish the infrastructure necessary to support international operations; |
| manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and |
| continue to improve our operational, legal, financial and management controls, reporting systems and procedures. |
We may be unable to successfully implement these tasks, which could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price.
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If we fail to attract and retain senior management, we may be unable to successfully develop AR101 or any future product candidates, conduct our clinical trials and commercialize AR101 or any future product candidates.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified personnel. In particular, we are highly dependent upon our senior management. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trial or the commercialization of AR101 or any future product candidates. Although we have entered into employment agreements with our senior management team, these agreements do not provide for a fixed term of service.
Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and manufacturing activities. We may not be able to attract and retain quality personnel on acceptable terms or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.
We will incur significant costs as a result of operating as a public company, and our management will devote substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of Sarbanes Oxley, which could result in sanctions or other penalties that would harm our business.
We will incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Exchange Act and regulations regarding corporate governance practices. The listing requirements of The NASDAQ Global Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors and officers insurance, on acceptable terms.
In addition, we expect that we will need to implement an enterprise resource planning, or ERP, system for our company. An ERP system is intended to combine and streamline the management of our financial, accounting, human resources, sales and marketing and other functions, enabling us to manage operations and track performance more effectively. However, an ERP system would likely require us to complete many processes and procedures for the effective use of the system or to run our business using the system, which may result in substantial costs. Additionally, during the conversion process, we may be limited in our ability to convert any business that we acquire to the ERP. Any disruptions or difficulties in implementing or using an ERP system could adversely affect our controls and harm our business, including our ability to forecast or make sales and collect our receivables. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management attention.
After this offering, we will be subject to Section 404, or Section 404, of the Sarbanes-Oxley Act of 2002, or Sarbanes Oxley, and the related rules of the Securities and Exchange Commission, or SEC, which
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generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Beginning with the second annual report that we will be required to file with the SEC, Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting. We will remain an emerging growth company until the earlier of (1) of the last day of the year following the fifth anniversary of the consummation of this offering, (2) the last day of the year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the year in which we are deemed to be a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
To date, we have never conducted a review of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. For example, during the course of our audit for the years ended December 31, 2013 and 2014 we identified a material weakness in our internal control over financial reporting. If we are unable to remediate this weakness or if additional material weaknesses in our internal controls over financial reporting are identified, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we will be required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Market or other adverse consequences that would materially harm our business. We anticipate that to meet these new reporting obligations, we will need to implement new finance and accounting systems.
We identified a material weakness in our internal control over financial reporting at December 31, 2013 and December 31, 2014, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate any material weaknesses or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.
In connection with the contemporaneous audit of our financial statements for the years ended December 31, 2013 and 2014, we identified control deficiencies in the design and operation of our internal control over financial reporting that constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
The material weakness identified in our internal control over financial reporting related to our lack of written policies regarding our accounting function, lack of oversight of account reconciliations, lack of control of manual journal entries and inadequate segregation of duties for check writing and wire transfers. We have taken certain actions to remediate the material weakness, including implementing new procedures for review of account reconciliations and manual journal entries and restricting check writing and wire transfer authority. We intend to implement further segregation of duties and to establish formal written policies for our accounting function by the
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end of the year. However, we cannot assure you that these measures will be sufficient to remediate the material weakness that has been identified or prevent future material weaknesses or significant deficiencies from occurring. We also cannot assure you that we have identified all of our existing material weaknesses.
Neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of Sarbanes Oxley. In light of the control deficiencies and the resulting material weakness that were previously identified as a result of the limited procedures performed, we believe that it is possible that, had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes Oxley, additional material weaknesses and significant control deficiencies may have been identified.
If we identify future material weaknesses in our internal controls over financial reporting or fail to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes Oxley, we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations. Under Section 404, we will be required to evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our second annual report following this offering, which will be the annual report for the year ended December 31, 2016, provide a management report as internal control over financial reporting. Failure to comply with Section 404 could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. We cannot assure that our existing material weakness will be remediated or that additional material weaknesses will not exist or otherwise be discovered, any of which could adversely affect our reputation, financial condition and results of operations.
If we are not successful in identifying, acquiring or commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.
Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of AR101, an important element of our strategy is to expand our product portfolio by identifying, developing and commercializing additional therapies including therapies using our CODIT system. Other than AR101, none of our product candidates have been tested in human clinical trials and many of our potential product candidates are still in the discovery stage. In addition, while we intend to evaluate product candidates and technologies for the treatment of food allergies, we currently have no plans to acquire or in-license any specific product candidate. Our efforts to develop, acquire or in-license product candidates may be unsuccessful for many reasons, including:
| we may not be successful in identifying potential product candidates; |
| we may not accurately assess the relative technical feasibility or commercial potential of potential product candidates and may not select the most promising product candidates for development, acquisition or in-licensing; |
| competitors may develop alternatives that render our product candidates obsolete or less attractive; |
| product candidates we develop, acquire or in-license may nevertheless be covered by third-parties patents or other exclusive rights; |
| the market for a product candidate may change over time so that such a product may become unreasonable to continue to develop; |
| a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; |
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| a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and |
| a product candidate may not be accepted as safe and effective by clinicians, patients, patient advocacy groups, healthcare payors or the general medical community. |
If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing AR101.
Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize AR101 and potential future product candidates.
We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of AR101 and other product candidates depending on the merits of retaining commercialization rights for ourselves as compared to entering into collaboration arrangements. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.
Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:
| collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations; |
| collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; |
| collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; |
| collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates; |
| a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities; |
| we could grant exclusive rights to our collaborators that would prevent us from collaborating with others; |
| collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; |
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| disputes may arise between us and a collaborator that causes the delay or termination of the research, development or commercialization of our current or future products or that results in costly litigation or arbitration that diverts management attention and resources; |
| collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future products; |
| collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; and |
| a collaborators sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings. |
If we engage in acquisitions, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.
Although we currently have no plans to do so, we may attempt to acquire businesses, technologies, services, products or product candidates that we believe are a strategic fit with our business. If we do undertake any acquisitions, the process of integrating an acquired business, technology, service, products or product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and managements attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.
If we obtain approval to commercialize AR101 outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.
If we or a collaborator seek to commercialize AR101 outside the United States, we expect that we will be subject to additional risks related to entering into these international markets or business relationships, including:
| different regulatory requirements for drug approvals in foreign countries; |
| different approaches by reimbursement agencies regarding the assessment of the cost effectiveness of AR101; |
| differing U.S. and foreign drug import and export rules; |
| reduced protection for intellectual property rights in certain foreign countries; |
| unexpected changes in tariffs, trade barriers and regulatory requirements; |
| different reimbursement systems for food allergy medications and for clinicians treating food allergy patients; |
| economic weakness, including inflation, or political instability in particular foreign economies and markets; |
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| compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
| foreign taxes, including withholding of payroll taxes; |
| foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; |
| workforce uncertainty in countries where labor unrest is more common than in the United States; |
| production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; |
| potential liability resulting from activities conducted on our behalf by distributors or other vendors we engage; and |
| business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters. |
Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our research and development activities and our third-party manufacturers and suppliers activities involve the controlled storage, use and disposal of hazardous materials. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and governmental authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage. Any of the foregoing risks could have a material adverse impact on our business.
Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our business, including reduced ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of the foregoing could have a materially adverse impact on our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
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We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate headquarters is located in the San Francisco Bay Area, which in the past has experienced severe earthquakes. We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price.
If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.
Furthermore, our contract manufacturer and integral parties in our supply chain, are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. In particular, our contract manufacturers facility is located in Florida, which in the past has experienced severe hurricanes. If hurricanes or other natural disasters were to affect our contract manufacturer or our supply chain, it could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price.
Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our drug development programs.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of our product candidates 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 were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.
Our product development programs for candidates may require substantial financial resources and may ultimately be unsuccessful.
In addition to the development of AR101, we are pursuing development of our other early-stage development programs. Our current early-stage development programs are still in the pre-clinical formulation phase and may not result in product candidates we can advance to the clinical development phase. None of our other potential product candidates have commenced clinical trials, and there are a number of FDA and foreign regulatory requirements that we must satisfy before we can commence these clinical trials. Satisfaction of these requirements will entail substantial time, effort and financial resources. We may never satisfy these requirements. Any time, effort and financial resources we expend on our other early-stage development programs may adversely affect our ability to continue development and commercialization of AR101 product candidates, and we may never commence clinical trials of such development programs despite expending significant resources in pursuit of their development. Even if we do commence clinical trials of our other potential product candidates, such product candidates may never be approved by the FDA or the foreign regulatory authorities.
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Risks Related to Government Regulation
The regulatory approval process is highly uncertain and we may not obtain regulatory approval for the commercialization of AR101 or any future product candidates.
The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of biologics 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.
Neither we nor any future collaboration partner will be permitted to market AR101 or any future product candidate in the United States until we receive approval of a BLA from the FDA, and we will not be permitted to market AR101 in other countries until similar regulatory approvals are obtained in those countries. We have not submitted an application or obtained marketing approval for AR101 anywhere in the world and will not be able to do so until we complete additional clinical trials. Obtaining regulatory approval of a BLA in the United States and similar applications in other countries can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable United States and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions or other actions, including:
| warning letters; |
| civil and criminal penalties; |
| injunctions; |
| withdrawal of regulatory approval of products; |
| product seizure or detention; |
| product recalls; |
| total or partial suspension of production; and |
| refusal to approve pending BLAs or supplements to approved BLAs. |
Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory authorities, that such product candidates are safe, pure and potent for their intended uses. The number of nonclinical studies and clinical trials that will be required for FDA approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, regulatory authorities may not agree that such data are sufficient to support approval. Administering product candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA or other regulatory authorities denying approval of a product candidate for any or all targeted indications.
Regulatory approval of a BLA or equivalent application in other territories is not guaranteed, and the approval process is expensive and may take several years. The FDA and foreign regulatory authorities also have substantial discretion in the approval process and we may be required to expend additional time and resources and any approval we may seek may be delayed or prevented. For example, the FDA or other regulatory authority may require us to conduct additional studies or studies for AR101 either prior to or post-approval, such as
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additional or safety or efficacy studies or studies in specific patient subpopulations, or it may object to elements of our clinical development program. Despite the time and expense exerted, failure can occur at any stage. Regulatory authorities can delay, limit or deny approval of a drug candidate for many reasons, including, but not limited to, the following:
| a drug candidate may not be deemed safe or effective; |
| the characterization of the active pharmaceutical ingredient and the data to demonstrate adequate control of the manufacturing process may be deemed insufficient; |
| regulatory officials may not find the data from nonclinical studies and clinical trials sufficient; |
| the regulatory authorities might not approve our third-party manufacturers processes or facilities; or |
| the regulatory authorities may change its approval policies or adopt new regulations. |
If AR101 or any future product candidate fails to demonstrate safety and efficacy in clinical trials or does not gain regulatory approval, our business and results of operations will be materially and adversely harmed. Additionally, if the FDA or other regulatory authorities require that we conduct additional clinical trials, place limitations on AR101 in our label, delay approval to market AR101 or limit the use of AR101, our business and results of operations may be harmed.
Even if we receive regulatory approval for AR101 or any future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, any product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.
Even if a drug is approved, regulatory authorities may still impose significant restrictions on a products indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing studies. Furthermore, any new legislation addressing drug safety issues could result in delays or increased costs to assure compliance.
If AR101 is approved it will be subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-marketing information, including both federal and state requirements in the United States and the requirements of the regulatory agencies in other countries. In addition, manufacturers and manufacturers facilities are required to comply with extensive regulatory requirements, including ensuring that quality control and manufacturing procedures conform to current cGMP requirements. As such, we and our contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control. We will also be required to report certain adverse reactions and production problems, if any, to regulatory authorities, and to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the products approved label. As such, we may not promote our products for indications or uses for which they do not have regulatory approval.
If a regulatory authority discovers 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, or
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disagrees with the promotion, marketing or labeling of a product, a regulatory authority may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory authority or enforcement authority may:
| issue warning letters; |
| impose civil or criminal penalties; |
| suspend or withdraw regulatory approval; |
| suspend any of our ongoing clinical trials; |
| refuse to approve pending applications or supplements to approved applications submitted by us; |
| impose restrictions on our operations, including closing our contract manufacturers facilities; or |
| seize or detain products or require a product recall. |
Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues from AR101. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from the sale of AR101 our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.
If approved, AR101 or any future products may cause or contribute to adverse medical events that we are required to report to regulatory authorities and if we fail to do so we could be subject to sanctions that would materially harm our business.
Some participants in our clinical trials have reported adverse effects after being treated with AR101. For example, in our ARC001 clinical trial, one patient had an allergic reaction that was attributed to AR101 that was severe enough to require the administration of epinephrine and six patients in our ARC001 clinical trial receiving AR101 dropped out of the trial early in the treatment regimen due to gastrointestinal side effects. If we are successful in completing the development of, obtaining approval for, and commercializing AR101 or any other products, FDA and foreign regulatory authority regulations require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA or a foreign regulatory authority could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products or delay in approval or clearance of future products.
Our failure to obtain regulatory approvals in foreign jurisdictions for AR101 would prevent us from marketing AR101 internationally.
In order to market any product in the European Economic Area, or EEA (which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein), and many other foreign jurisdictions, separate regulatory approvals are required. In the EEA, medicinal products can only be
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commercialized after obtaining a Marketing Authorization, or MA. Before granting the MA, the European Medicines Agency 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.
The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not be able to file for foreign regulatory approvals or do so on a timely basis, and even if we do file we may not receive necessary approvals to commercialize our products in any market.
We may be subject to healthcare laws, regulation and enforcement.
Although we do not currently have any products on the market, once we begin commercializing our products, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the U.S. by the federal government and the states and by the governments of other countries where we conduct our business. The laws that will affect our ability to operate as a commercial organization include:
| the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce 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 federal healthcare programs such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims laws; |
| U.S. federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent; |
| U.S. federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of these statutes or specific intent to violate them to have committed a violation; |
| the U.S. federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; |
| the U.S. federal physician sunshine requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, which requires certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; |
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| state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; |
| state laws that require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; |
| state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts; and |
| European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers. |
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to market our products and adversely impact our financial results.
Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or approval of our product candidates and to produce, market and distribute our products after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
| additional clinical trials to be conducted prior to obtaining approval; |
| changes to manufacturing methods; |
| recall, replacement or discontinuance of one or more of our products; and |
| additional record keeping. |
Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price.
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In addition, the full impact of recent healthcare reform and other changes in the healthcare industry and in healthcare spending is currently unknown, and may adversely affect our business model. In the United States, the Affordable Care Act was enacted in 2010 with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by both government and private insurers. The Affordable Care Act, among other things, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D.
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 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 legislations automatic reduction to several government programs. This included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 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, further reduced Medicare payments to several providers, including hospitals.
It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect the demand for any drug products for which we may obtain regulatory approval, our ability to set a price that we believe is fair for our products, our ability to obtain coverage and reimbursement approval for a product, our ability to generate revenues and achieve or maintain profitability, and the level of taxes that we are required to pay.
Neither a Fast-Track designation nor a Breakthrough Therapy designation by the FDA may actually lead to a faster development or regulatory review or approval process.
Even though we do have Fast-Track designation for AR101 for oral immunotherapy of peanut sensitive adults and children and Breakthrough Therapy designation for AR101 for oral immunotherapy of peanut sensitive children and adolescents (ages 4-17), we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast-Track designation or Breakthrough Therapy designation if it believes that the designation is no longer supported by data from our clinical development program or other sources.
Risks Related to Intellectual Property
If we are unable to obtain and maintain adequate intellectual property protection for AR101 or any future product candidates, we may not be able to compete effectively in our market.
Our commercial success depends in part on our ability to obtain and maintain proprietary or intellectual property protection in the United States and other countries for AR101 and any future product candidates. We intend to rely upon a combination of patents, trademarks, trade secrets and confidentiality agreements to protect our product candidates. Evaluating the strength of patents in the biotechnology and pharmaceutical fields involves complex legal and scientific questions and, as a result, the patent position of biopharmaceutical companies can generally be highly uncertain. Further, any disclosure to or misappropriation by third parties of our confidential or proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
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The degree of patent protection we require to successfully commercialize our product candidates may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or maintain any competitive advantage. For instance, we do not currently own or license any issued patents, and we do not anticipate that we will be able to obtain a composition of matter patent over the active pharmaceutical ingredient in AR101 or for any other product candidates that are based on widely or readily available food products. Although we have filed patent applications that relate to the manufacture, formulation, stability and other aspects of AR101, these patent applications are at an early stage in the prosecution process and we cannot assure you that they will result in any issued patents in the U.S. or foreign countries. Even if any such patents issue, we cannot assure you that they or any other patents we obtain will include any claims with a scope sufficient to protect AR101 or any other future product candidate or otherwise provide us with meaningful protection or competitive advantage.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally twenty years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. 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. If we encounter delays in our clinical trials or other delays during the regulatory approval process, even if we obtain patents covering AR101 or other product candidates, the period of time during which we could exclusively market AR101 or such other product candidates under such patents would be reduced. As a result, any patents we obtain may not provide us with adequate and continuing patent protection sufficient to exclude others from commercializing products similar or identical to our product candidates, including generic versions of such products.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and therefore, even if we acquire patent protection with respect to AR101 or other product candidates, third parties may challenge our patents in the courts or patent offices in the United States and abroad. Any issued patents we obtain could be narrowed, invalidated, held unenforceable or circumvented, any of which could limit our ability to prevent competitors and other third parties from developing and marketing similar products or limit the length of terms of patent protection we may obtain for our product candidates. Competitors or other third parties may also claim that they invented the inventions claimed in our patent applications, or any patents that may issue in the future, prior to us, or may file patent applications before we do. Further, our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.
Such challenges may also result in our inability to manufacture or commercialize our future products, including AR101, without infringing third-party patent rights. If the breadth or strength of protection provided by any patents we obtain with respect to AR101 or any future product candidates is successfully challenged, then our ability to commercialize AR101 or any future product candidates could be negatively affected, and we may face unexpected competition that could have a material adverse impact on our business.
Even if they are unchallenged, any patents issuing from our pending patent applications may not adequately protect our intellectual property or prevent others from designing around our claims to circumvent those patents by developing similar or alternative technologies or drugs in a non-infringing manner. For example, a third party may develop a competitive product that provides benefits similar to AR101 or a future product candidate but falls outside the scope of our patent protection. If the patent protection covering our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business.
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In addition, we may in the future be subject to claims by our former employees or consultants asserting an ownership right in our patents or patent applications, as a result of the work they performed on our behalf. Although we generally require all of our employees, consultants and advisors and any other third parties who have access to our proprietary know-how, information or technology to assign to their inventions to us, we cannot be certain that we have executed such agreements with all parties who may have contributed to our intellectual property, nor can we be certain that our agreements with such parties will be upheld in the face of a potential challenge, or that they will not be breached, for which we may not have an adequate remedy.
We may become subject to claims alleging infringement of third-party patents or proprietary rights, the outcome of which could result in delay or prevent the development and commercialization of AR101 or any future product candidates or otherwise prevent us from competing effectively in our market.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our drug candidates and use our proprietary technologies without infringing or otherwise violating the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical industries are characterized by extensive and frequent litigation regarding patents and other intellectual property rights. Third parties, including our competitors may initiate legal proceedings against us or our collaborators alleging that we are infringing or otherwise violating their patent or other intellectual property rights. Given the vast number of patents in our field of technology, we cannot assure you that AR101 or any future product candidates we develop will not infringe existing patents or patents that may be granted in the future. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because pending patent claims can be revised before issuance, there may be applications now pending of which we are unaware that may later result in issued patents that may be infringed by the manufacture, use or sale of AR101 or any future product candidates. If a patent holder believes our drug product candidate infringes on its patent, the patent holder may sue us even if we have received patent protection for our technology.
If a patent infringement suit were brought against us or any future collaborators, we or they could be forced to stop or delay the research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. Defending any such claims would cause us to incur substantial expenses of financial and other resources and, if unsuccessful, we could be forced to pay substantial damages, including treble damages and attorneys fees if we are found to have willfully infringed a third-party patent. Furthermore, we may be required to indemnify our collaborators against such claims.
We may choose to seek, or may be required to seek, a license from the third-party patent holder and would most likely be required to pay license fees or royalties or both, each of which could be substantial. These licenses may not be available on commercially reasonable terms, however, or at all. Even if we were able to obtain a license, the rights we obtain may be nonexclusive, which would provide our competitors access to the same intellectual property rights upon which we are forced to rely. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease aspects of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. Even if we are successful in defending against any infringement claims, litigation is expensive and time-consuming and is likely to divert managements attention and substantial resources from our core business, which could harm our business.
We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Competitors and other third parties may infringe, misappropriate or otherwise violate any patents we obtain or other intellectual property rights. To counter infringement or unauthorized use, we may be required to initiate infringement proceedings, which can be expensive and time-consuming. A court may disagree with our
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allegations, however, and may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the third-party technology in question. Further, such third parties could counterclaim that we infringe their intellectual property or that a patent we have asserted against them is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims challenging the validity, enforceability or scope of asserted patents are commonplace.
In addition, third parties may initiate their own legal proceedings against us to assert such challenges to our intellectual property rights. For example, we may be subject to a third-party submission of prior art to the United States Patent and Trademark Office, or USPTO, challenging the priority of an invention claimed within any patents we may obtain. Such third-party prior art submissions may also be made prior to a patents issuance, precluding such issuance at all. We may 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 from whom we have obtained licenses to such rights. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights.
The outcome of any such proceeding is generally unpredictable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Patents may be unenforceable if someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. It is possible that prior art of which we and the patent examiner were unaware during prosecution exists, which could render any patents we obtain invalid. Moreover, it is also possible that prior art may exist that we are aware of but do not believe is relevant to patents we may obtain, but that could nevertheless be determined to render such patents invalid. An adverse result in any litigation or other proceeding to defend or enforce any patents we may obtain could put one or more of such patents at risk of being invalidated, held unenforceable, or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of any patents we obtain covering AR101 or future product candidates, we would lose at least part, and perhaps all, of any patent protection covering such product candidate, which would materially impair our competitive position.
Intellectual property litigation could cause us to spend considerable resources and would be likely to distract our personnel from their normal responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time-consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. 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 and 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. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.
We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, including patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or Leahy-Smith Act, signed into law on September 16, 2011, could increase those uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a first-to-file system. The first-to-file provisions, however, only became effective on March 16, 2013. Accordingly, it is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could make it more difficult to obtain patent protection for our technology and could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any patents we obtain, all of which could harm our business, results of operations and financial condition.
The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce any patents that we might obtain in the future.
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.
The USPTO and various foreign patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. In addition, periodic maintenance fees and various other governmental fees on patents and patent applications often must be paid to the USPTO and foreign patent agencies over the lifetime of the patents or for the prosecution of patent applications. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance 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. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our products or procedures, we may not be able to stop a competitor from marketing products that are the same as or similar to our products, which would have a material adverse effect on our business.
We may not be able to effectively enforce our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The requirements for patentability differ, in varying degrees, from country to country. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patent and other intellectual property rights, especially those relating to life sciences. This could make it difficult for us to stop the infringement of any patents we obtain or the
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misappropriation of our other intellectual property rights. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
Proceedings to enforce our patent rights in foreign jurisdictions, regardless of whether successful, would result in substantial costs and divert our efforts and attention from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market AR101 or any future products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize our products in all of our expected significant foreign markets.
If we are unable to protect the confidentiality of our trade secrets and proprietary know-how or if competitors independently develop viable competing products, our business and competitive position may be harmed.
We rely on trade secrets and confidentiality agreements to protect our proprietary know-how and other confidential information related to our development processes and other elements of our technology for which patent protection may not be available or may be difficult to obtain or enforce. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how and other confidential information related to such technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached.
Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. We cannot guarantee that our trade secrets and other proprietary and confidential information will not be disclosed or that competitors will not otherwise gain access to our trade secrets. If any of the parties to these confidentiality agreements breaches or violates the terms of such agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Enforcing a claim that a third party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time-consuming, and the outcome is unpredictable. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad.
Even if we are able to adequately protect our trade secrets and proprietary information, our trade secrets could otherwise become known or could be independently discovered by our competitors. Competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, in the absence of patent protection, we would have no right to prevent them, or those to whom they communicate, from using that technology or information to compete with us. If our trade secrets are not adequately protected so as to protect our market against competitors products, our competitive position could be adversely affected, as could our business.
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Risks Related to Our Common Stock and This Offering
Our stock price may be volatile and you may not be able to resell shares of our common stock at or above the price you paid.
The trading price of our common stock following this offering could be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this Risk Factors section and others such as:
| results of, or delays in, our clinical trials; |
| regulatory approval or our receipt of a complete response letter to AR101 and our other product candidates, or limitations to specific label indications or patient populations for its use, or changes or delays in the regulatory review process; |
| severe adverse events in our trials or in our competitors trials as a result of exposure to the peanut allergen; |
| therapeutic innovations or new products developed by us or our competitors; |
| adverse actions taken by regulatory authorities with respect to our clinical trials, manufacturing supply chain or sales and marketing activities; |
| changes or developments in laws or regulations applicable to AR101 and our other product candidates; |
| any changes to our relationship with any manufacturers or suppliers; |
| the success or failure of our efforts to acquire, license or develop additional product candidates; |
| any intellectual property infringement actions in which we may become involved; |
| announcements concerning our competitors or the pharmaceutical industry in general; |
| achievement of expected product sales and profitability; |
| manufacturing, supply or distribution delays or shortages; |
| acquisitions or significant partnerships by us or our competitors; |
| actual or anticipated fluctuations in our operating results; |
| changes in financial estimates or recommendations by securities analysts; |
| failure to meet financial projections that we or the investment community may provide; |
| trading volume of our common stock; |
| an inability to obtain additional funding; |
| sales of our common stock by us, our executive officers and directors or our stockholders in the future; |
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| general economic and market conditions and overall fluctuations in the United States equity markets; and |
| additions or departures of any of our key scientific or management personnel. |
In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business, which could seriously harm our financial position. Any adverse determination in litigation could also subject us to significant liabilities.
An active, liquid and orderly market for our common stock may not develop, and you may not be able to resell your common stock at or above the public offering price.
Prior to this offering, there has been no public market for shares of our common stock, and an active public market for our shares may not develop or be sustained after this offering. We and the representatives of the underwriters will determine the initial public offering price of our common stock through negotiation. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. In addition, an active trading market may not develop following the consummation of this offering or, if it is developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications or technologies using our shares as consideration.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We are an emerging growth company and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our
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common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the year following the fifth anniversary of the consummation of this offering, (2) the last day of the year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the year in which we are deemed to be a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based upon the number of shares outstanding as of March 31, 2015, upon the closing of this offering, we will have outstanding a total of shares of common stock, assuming no exercise of the underwriters option to purchase additional shares. Of these shares, approximately shares of our common stock sold in this offering, plus any shares sold upon exercise of the underwriters option to purchase additional shares, will be freely tradable, without restriction, in the public market immediately following this offering, subject to the lock-up agreements described below.
The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC, however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements. After the lock-up agreements expire, as of March 31, 2015, up to an additional shares of common stock will be eligible for sale in the public market, of which shares are held by current directors, executive officers and other affiliates and may be subject to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.
In addition, as of March 31, 2015, up to shares of common stock that are either subject to outstanding options or reserved for future issuance under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. After this offering, the holders of approximately million shares of our common stock, or approximately % of our total outstanding common stock as of March 31, 2015 will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting schedules and to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of July 1, 2015, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately % of our outstanding voting stock and, upon the closing of this offering, that same group will hold approximately % of our outstanding voting stock (assuming no exercise of the underwriters option to purchase additional shares and no exercise of outstanding options). Therefore, even after this offering these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example,
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these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
We have broad discretion to determine how to use the funds raised in this offering, and may use them in ways that may not enhance our operating results or the price of our common stock.
Our management will have broad discretion over the use of proceeds from this offering, and we could spend the proceeds from this offering in ways our stockholders may not agree with or that do not yield a favorable return, if at all. We currently intend to use our net proceeds from this offering to fund the continued clinical development of AR101, including to fund our planned Phase 3 registration trial through data readout, to fund the development of additional product candidates and for working capital and general corporate purposes. However, our use of these proceeds may differ substantially from our current plans. If we do not invest or apply the proceeds of this offering in ways that improve our operating results, we may fail to achieve expected financial results, which could cause our stock price to decline.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.
Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect immediately prior to the consummation of this offering will contain provisions that could significantly reduce the value of our shares to a potential acquirer or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents will include the following:
| a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; |
| no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
| the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
| the required approval of at least 66 2/3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause; |
| the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; |
| the ability of our board of directors to alter our bylaws without obtaining stockholder approval; |
| the required approval of at least 66 2/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; |
| a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; |
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| the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and |
| advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirors own slate of directors or otherwise attempting to obtain control of us. |
In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.
We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. For a description of our capital stock, see the section titled Description of Capital Stock.
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. This provision may limit a stockholders 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 this provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
We provide broad indemnity to our directors and officers. Claims for such indemnification may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws to be effective immediately prior to the completion of this offering and our indemnification agreements that we have entered into with our directors and officers provide that:
| We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such persons conduct was unlawful. |
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| We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law. |
| We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification. |
| We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification. |
| The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons. |
| We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents. |
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an ownership change, generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a rolling three-year period, the corporations ability to use its pre-change net operating loss, or NOL, carryforwards to offset its post-change taxable income may be limited. Limitations may also apply to the utilization of other pre-change tax attributes as a result of an ownership change. As of December 31, 2014, we had generated NOL carryforwards for federal income tax purposes of $11.9 million and for state income tax purposes of $11.9 million. These federal and state NOL carryforwards will begin to expire in 2031, if not utilized. As described above, our ability to utilize NOL carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we have experienced an ownership change under Section 382 of the Code. Following the issuance of the Series B convertible preferred stock in January and February 2015, we performed a Section 382 analysis and believe that we experienced multiple ownership changes under Section 382 of the Code prior to March 31, 2015 and, as a result, such federal and state NOL carryforwards and our tax credits are subject to limitation. In addition, we may have experienced ownership changes since March 31, 2015 and could experience ownership changes in the future, including in connection with this offering and as a result of future changes in our stock ownership, some of which changes may be outside our control. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset post-change taxable income may be subject to limitations. For these reasons, we may not be able to utilize a material portion of our NOL carryforwards and other tax attributes, which could adversely affect our future cash flows.
We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as aim, anticipate, assume, believe, contemplate, continue, could, due, estimate, expect, goal, intend, may, objective, plan, predict, potential, positioned, seek, should, target, will, would, and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
| our expectations regarding the potential market size and the size of the patient populations for AR101 and our future product candidates, if approved for commercial use; |
| clinical and regulatory development plans with respect to AR101 and our future product candidates; |
| timing of commencement of future clinical trials and research and development programs; |
| our ability to develop, acquire and advance product candidates into, and successfully complete, clinical trials; |
| our intention and our ability to establish collaboration partnerships; |
| the timing or likelihood of regulatory filings and approvals for AR101 and our future product candidates; |
| our ability to commercialize AR101 and our future product candidates; |
| our commercialization, marketing and manufacturing capabilities; |
| the pricing and reimbursement of AR101 and our future product candidates, if approved; |
| the implementation of our business model and strategic plans for our business, product candidates and technology; |
| the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, including the projected terms of patent protection; |
| estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital; |
| our use of proceeds from this offering; |
| our financial performance; |
| developments and projections relating to our competitors and our industry, including competing therapies; and |
| other risks and uncertainties, including those listed under the caption Risk Factors. |
These forward-looking statements are based on managements current expectations, estimates, forecasts and projections about our business and the industry in which we operate and managements beliefs and
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assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Risk Factors and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See Where You Can Find More Information.
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This prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our product candidates, including data regarding the estimated food-allergic patient population and the prevalence and severity of peanut allergy, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.
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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 range set forth on the cover of this prospectus), after deducting the 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 net proceeds will be approximately $ million after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus) would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $ million, assuming the assumed initial public offering price stays the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.
We currently expect to use our net proceeds from this offering as follows:
| approximately $ million to $ million to fund the continued clinical development of AR101, including to fund our planned Phase 3 registration trial through data readout; |
| approximately $ million to $ million to fund the development of additional product candidates; and |
| the remainder, if any, for working capital and general corporate purposes. |
However, due to the uncertainties inherent in the clinical development and regulatory approval process, it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering that may be used for the above purposes. As such, our management will retain broad discretion over the use of the net proceeds from this offering. The amounts and timing of our expenditures will depend upon numerous factors, including (i) the time and cost necessary to implement our anticipated Phase 3 registration trial of AR101; (ii) the time and cost associated with clinical trials and pre-clinical development of other product candidates; (iii) our ability to obtain regulatory approval for and subsequently commercialize AR101 or any other product candidates we develop; and (iv) the time and cost necessary to develop clinical supplies and a commercial-scale manufacturing process for AR101.
We believe that our existing cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to fund our planned operations for the 24 months following the date of this offering. Following this offering, we will require substantial capital in order to commercialize AR101 and complete the clinical development of any additional product candidate. For additional information regarding our potential capital requirements, see Even if this offering is successful, we will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts under the heading Risk Factors.
Pending the use of the proceeds from this offering, we intend to invest the net proceeds in interest-bearing, investment-grade securities, certificates of deposit or government securities.
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We have never declared or paid cash dividends on our capital stock. We 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 related to dividend policy will be made at the discretion of our board of directors.
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The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2015:
| on an actual basis; |
| on a pro forma basis to give effect to: (i) the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 19,021,461 shares of common stock immediately prior to the consummation of this offering and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering; and |
| on a pro forma as adjusted basis to give further effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
You should read this information together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the headings Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations.
As of March 31, 2015 | ||||||||||||
Actual | Pro Forma |
Pro Forma As
Adjusted (1) |
||||||||||
(unaudited) | ||||||||||||
(in thousands, except per share data) | ||||||||||||
Cash and cash equivalents |
$ | 65,313 | $ | 65,313 | $ | |||||||
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Stockholders (deficit) equity: |
||||||||||||
Convertible preferred stock, $0.0001 par value per share, 19,171,461 shares authorized; 19,021,461 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted |
83,811 | | ||||||||||
Preferred stock, $0.0001 par value per share, no shares authorized, issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted |
| | ||||||||||
Common stock, $0.0001 par value per share, 38,000,000 shares authorized, 4,273,565 shares issued and outstanding, actual; 38,000,000 shares authorized, 23,295,026 shares issued and outstanding, pro forma, and shares authorized, shares issued and outstanding, pro forma as adjusted |
| | ||||||||||
Additional paid-in capital |
1,386 | 85,197 | ||||||||||
Accumulated deficit |
(20,958 | ) | (20,958 | ) | ||||||||
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Total stockholders equity |
64,239 | 64,239 | ||||||||||
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|
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Total capitalization |
$ | 64,239 | $ | 64,239 | $ | |||||||
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(1) |
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus), would increase (decrease) the amount of cash and cash equivalents, additional paid-in capital, total stockholders equity and total capitalization 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 |
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underwriting discount and commissions and estimated offering expenses payable by us. We may also increase (decrease) the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the amount of cash and cash equivalents, additional paid in capital, total stockholders equity and total capitalization by approximately $ million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. |
The outstanding share information in the table above excludes the following:
| 144,158 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2015 having a weighted-average exercise price of $0.19 per share; |
| 3,096,485 shares of common stock reserved for issuance pursuant to future awards under our 2013 Stock Plan, as amended, as of March 31, 2015, which will become available for issuance under our 2015 Equity Incentive Award Plan after consummation of this offering; |
| shares of common stock reserved for issuance pursuant to future awards under our 2015 Equity Incentive Award Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering; and |
| shares of common stock reserved for issuance pursuant to future awards under our Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering. |
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If you invest in our common stock in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the net tangible book value per share of our common stock after this offering. As of March 31, 2015, we had a historical net tangible book value of $ million, or $ per share of common stock. Our net tangible book value represents total tangible assets less total liabilities all divided by the number of shares of common stock outstanding on March 31, 2015. Our pro forma net tangible book value as of March 31, 2015, before giving effect to this offering, was $ million, or $ per share of our common stock. Pro forma net tangible book value, before the issuance and sale of shares in this offering, gives effect to:
| the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 19,021,461 shares of common stock immediately prior to the consummation of this offering; and |
| the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering. |
After giving effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of March 31, 2015 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share |
$ | |||||
Historical net tangible book value per share as of March 31, 2015 |
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Pro forma increase in net tangible book value per share |
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Pro forma net tangible book value per share as of March 31, 2015 |
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Increase in pro forma net tangible book value per share attributable to new investors |
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Pro forma as adjusted net tangible book value per share after this offering |
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Dilution per share to new investors participating in this offering |
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A $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus) would increase (decrease) our pro forma as adjusted net tangible book value as of March 31, 2015 after this offering by approximately $ million, or approximately $ per share, and would decrease (increase) dilution to investors in this offering by approximately $ per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value as of March 31, 2015 after this offering by approximately $ million, or approximately $ per share, and would decrease (increase) dilution to investors in this offering by approximately $ per share, assuming the assumed initial public offering price per share remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.
If the underwriters fully exercise their option to purchase additional shares, pro forma as adjusted net tangible book value after this offering would increase to approximately $ per share, and there would be an immediate dilution of approximately $ per share to new investors.
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To the extent that outstanding options with an exercise price per share that is less than the pro forma as adjusted net tangible book value per share, before giving effect to the issuance and sale of shares in this offering, are exercised, new investors will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
The following table shows, as of March 31, 2015, on a pro forma as adjusted basis, after giving effect to the pro forma adjustments described above, the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and by new investors purchasing common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus), before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (in thousands, except share and per share amounts and percentages):
Shares Purchased |
Total Consideration |
Average
Share |
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Number |
Percent |
Amount |
Percent |
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Existing stockholders |
% | $ | % | $ | ||||||||||||||
Investors participating in this offering |
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Total |
100 | % | $ | 100 | % | $ | ||||||||||||
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The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of March 31, 2015 and excludes the following:
| 144,158 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2015 having a weighted-average exercise price of $0.19 per share; |
| 3,096,485 shares of common stock reserved for issuance pursuant to future awards under our 2013 Stock Plan, as amended, as of March 31, 2015, which will become available for issuance under our 2015 Equity Incentive Award Plan after consummation of this offering; |
| shares of common stock reserved for issuance pursuant to future awards under our 2015 Equity Incentive Award Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering; and |
| shares of common stock reserved for issuance pursuant to future awards under our Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering. |
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The selected statement of operations data for the years ended December 31, 2013 and 2014 and the selected balance sheet data as of December 31, 2013 and 2014 are derived from our audited financial statements included elsewhere in this prospectus. The selected statement of operations data for the three months ended March 31, 2014 and 2015 and the selected balance sheet data as of March 31, 2015 are derived from our unaudited interim condensed financial statements included elsewhere in this prospectus. The unaudited interim condensed financial information has been prepared on the same basis as the annual financial information and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements.
Our historical results are not necessarily indicative of the results to be expected in the future, and our interim unaudited results are not necessarily indicative of the results to be expected for the full year. You should read the following selected financial data together with the section of this prospectus entitled Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes included in this prospectus.
Year Ended
December 31, |
Three Months Ended
March 31, |
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2013 | 2014 | 2014 | 2015 | |||||||||||||
(unaudited) | ||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Statement of Operations Data: |
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Operating expenses: |
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Research and development |
$ | 3,495 | $ | 8,181 | $ | 1,199 | $ | 2,069 | ||||||||
General and administrative |
1,263 | 2,951 | 401 | 1,372 | ||||||||||||
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Total operating expenses |
4,758 | 11,132 | 1,600 | 3,441 | ||||||||||||
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Loss from operations |
(4,758 | ) | (11,132 | ) | (1,600 | ) | (3,441 | ) | ||||||||
Other income (expense), net |
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Interest income |
24 | 12 | 7 | | ||||||||||||
Interest expense |
(91 | ) | | | | |||||||||||
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Total other income (expense), net |
(67 | ) | 12 | 7 | | |||||||||||
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Net loss |
$ | (4,825 | ) | $ | (11,120 | ) | $ | (1,593 | ) | $ | (3,441 | ) | ||||
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Net loss per share, basic and diluted (1) |
$ | (2.17 | ) | $ | (5.00 | ) | $ | (0.72 | ) | $ | (1.06 | ) | ||||
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Weighted-average shares used in computing net loss per share, basic and diluted (1) |
2,222,222 | 2,223,916 | 2,222,222 | 3,233,777 | ||||||||||||
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Pro forma net loss per share, basic and diluted (unaudited) (1) |
$ | (0.90 | ) | $ | (0.20 | ) | ||||||||||
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Shares used in computing pro forma net loss per share, basic and diluted (unaudited) (1) |
12,295,268 | 17,059,658 | ||||||||||||||
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(1) | See Note 10 to our audited financial statements and Note 7 to our unaudited interim condensed financial statements included elsewhere in this prospectus for an explanation of the calculations of our net loss per share, basic and diluted, pro forma net loss per share, basic and diluted, and the shares used in computing the pro forma net loss per share, basic and diluted. |
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As of
December 31, |
As of
March 31, 2015 |
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2013 | 2014 | |||||||||||
(unaudited) | ||||||||||||
(in thousands) | ||||||||||||
Balance Sheet Data: |
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Cash and cash equivalents |
$ | 11,951 | $ | 2,269 | $ | 65,313 | ||||||
Working capital |
11,552 | 571 | 64,065 | |||||||||
Total assets |
12,156 | 2,531 | 65,895 | |||||||||
Convertible preferred stock |
16,928 | 16,928 | 83,811 | |||||||||
Accumulated deficit |
(6,397 | ) | (17,517 | ) | (20,958 | ) | ||||||
Total stockholders equity |
11,637 | 671 | 64,239 |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled Selected Financial Data and our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled Risk Factors included elsewhere in this prospectus.
Overview
We are a clinical-stage biopharmaceutical company advancing a new therapeutic approach, including the development of proprietary product candidates, for the treatment of peanut and other food allergies. It is estimated that over 30 million people in the United States and Europe have a food allergy, with peanut allergy being the most prevalent and most commonly associated with severe outcomes and life-threatening events. Our therapeutic approach, which we refer to as Characterized Oral Desensitization Immunotherapy, or CODIT, is a system designed to desensitize patients to food allergens using rigorously characterized biologic products, defined treatment protocols and tailored support services. In ARC001, our recently completed Phase 2 study of our lead CODIT product candidate, AR101, all of the 23 patients who completed the AR101 treatment regimen were desensitized to a clinically meaningful level of peanut protein of at least 443 mg, a level that substantially exceeds the amount of peanut protein typically encountered in an accidental exposure, which we believe to be approximately 100 mg or less. Our ARC002 study, an open label Phase 2 follow on study of patients who participated in ARC001, is ongoing. We intend to initiate a Phase 3 registration trial of AR101 and Phase 2 studies of other CODIT product candidates for two additional food allergies in 2016. AR101 has been granted Fast-Track designation and Breakthrough Therapy designation by the U.S. Food and Drug Administration, or FDA, and, if our planned Phase 3 program is successful, we intend to file a Biologics License Application, or BLA, with the FDA and a Marketing Authorization Application, or MAA, with the European Medicines Agency, or EMA. We have worldwide commercial rights to all of our product candidates and, if approved, we intend to commercialize in the United States and Europe with our own specialty sales force.
Since commencing our operations in 2011, substantially all of our efforts have been focused on research, development and the advancement of our lead CODIT product candidate, AR101. We have not generated any revenue from product sales and, as a result, we have incurred significant losses. We incurred a net loss of $4.8 million and $11.1 million for the years ended December 31, 2013 and 2014, respectively, and $1.6 and $3.4 million for the three months ended March 31, 2014 and 2015, respectively. As of December 31, 2014 and March 31, 2015, our accumulated deficit was $17.5 million and $21.0 million, respectively. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, seek regulatory approval for, and begin to commercialize, AR101 and as we develop other product candidates.
Since our inception and through March 31, 2015, we have funded our operations primarily through the sale and issuance of convertible preferred stock. In January and February 2015, we received net proceeds of $79.8 million from the sale of our Series B convertible preferred stock, of which $12.9 million was used to repurchase outstanding shares of our Series A convertible preferred stock. As of March 31, 2015, we had $65.3 million in cash and cash equivalents. We believe that our existing cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to fund our planned operations for the 24 months following the date of this offering, including through data readout of our planned Phase 3 registration trial for AR101.
We do not expect to generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for, and begin to commercialize one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly,
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we anticipate that we will need to raise additional capital to fund our future operations. Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings and debt financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.
We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party clinical research organizations, or CROs, to carry out our clinical trials and we do not yet have a sales organization. We expect to significantly increase our investment in costs relating to our manufacturing process and sales organization as we prepare for the filing of a BLA with the FDA and a MAA with the EMA and prepare for a possible commercial launch of AR101.
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving managements judgments and estimates.
Research and Development Costs
We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and we include these costs in accrued liabilities in the consolidated balance sheets and within research and development expense in the statement of operations and comprehensive loss. These costs are a significant component of our research and development expenses. We record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these third parties.
We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed, the number of patients enrolled and the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. To date, there have been no material differences from our accrued expenses to actual expenses.
65
Stock-Based Compensation
We recognize compensation costs related to stock options granted to employees and directors based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. We estimate the grant date fair value using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.
We recorded stock-based compensation expense related to options granted of $0.1 million in each of the years ended December 31, 2013 and 2014, and $16,000 and $26,000 for the three months ended March 31, 2014 and 2015, respectively.
In determining the fair value of the stock-based awards, we use the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.
| Expected Term. The expected term represents the period that stock-based awards are expected to be outstanding. We used the simplified method to determine the expected term, which is calculated as the mid-point between the vesting date and the end of the contractual term of the options. |
| Expected Volatility . Since we are not yet a public company and do not have any trading history for our common stock, the expected volatility was estimated based on the average historical volatilities of common stock of comparable publicly traded entities over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. |
| Risk-Free Interest Rate . The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option. |
| Expected Dividend . We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero. |
The following table presents the weighted-average assumptions used to estimate the fair value of options granted:
Year Ended
December 31, |
||||||||
2013 | 2014 | |||||||
Weighted-average exercise price of options granted |
$ | 0.19 | $ | 0.19 | ||||
Expected volatility |
85.52 | % | 79.62 | % | ||||
Risk-free interest rate |
1.56 | % | 1.51 | % | ||||
Dividend yield |
0.00 | % | 0.00 | % | ||||
Expected term (in years) |
4.76 | 4.65 |
No stock options were granted during the three months ended March 31, 2014 and 2015 and, as such, no weighted average assumptions for estimating fair value of options granted during such periods are available.
In addition to the Black-Scholes assumptions, we estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment, and if the actual number of future forfeitures differs from our estimates, we might be required to record adjustments to stock-based compensation in future periods.
66
See Note 7 to our audited financial statements included elsewhere in this prospectus for information concerning certain of the specific assumptions used in applying the Black-Scholes option-pricing model to determine the estimated fair value of employee stock options granted in 2013 and 2014. In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture rates utilized for our stock-based compensation expense calculations on a prospective basis.
As of March 31, 2015, we had $86,000 of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over an estimated weighted-average period of 2.2 years. For stock option awards subject to ratable vesting, we recognize compensation cost on a straight-line basis over the service period for the entire award. In future periods, our stock-based compensation expense is expected to increase as a result of recognizing our existing unrecognized stock-based compensation for awards that will vest and as we issue additional stock-based awards to attract and retain our employees.
Common Stock Valuation
Historically, for all periods prior to this offering, the fair value of the shares of common stock underlying our share-based awards were estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, contemporaneous valuations of our common stock prepared by an unrelated third-party valuation firm at March 31, 2013, May 31, 2014 and February 28, 2015 in accordance with the guidance provide by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Given the absence of a public trading market for our common stock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including our stage of development; progress of our research and development efforts; the rights, preferences and privileges of our preferred stock relative to those of our common stock; equity market conditions affecting comparable public companies and the lack of marketability of our common stock.
The unrelated third-party valuations were prepared using the Probability Weighted Expected Return Method, or PWERM, to arrive at the estimated fair value of our common stock. The PWERM is a scenario-based analysis that estimates the value per share of common stock based on the probability-weighted present value of expected future equity values for the common stock, under various possible future liquidity event scenarios, including initial public offering, sale of the company, dissolution and staying private. The PWERM utilized in each of the March 31, 2013, May 31, 2014 and February 28, 2015 valuations was based on several assumptions, including the likelihood of successfully completing our then-planned clinical trials, the likelihood of receiving necessary regulatory approvals to commercialize AR101 and the likely timeframe of the relative liquidity event scenarios based, in part, on the occurrence of the preceding assumptions. The PWERM utilizes a combination of the market and income approach in determining equity value.
After the completion of this offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant.
The table below shows the intrinsic value of our outstanding vested and unvested options as of March 31, 2015 based upon an assumed initial public offering price of $ per share, which is the mid-point of the range reflected on the cover page of this prospectus.
Number of
|
Intrinsic value |
|||||
Total vested options outstanding |
$ | |||||
Total unvested options outstanding |
$ | |||||
Total options outstanding |
$ |
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Income Taxes
We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. We periodically evaluate the positive and negative evidence bearing upon realizability of our deferred tax assets. Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we maintained a full valuation allowance on the net deferred tax assets. We intend to maintain a full valuation allowance on the federal and state deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.
As of December 31, 2014, we had generated net operating loss, or NOL, carryforwards for federal income tax purposes of $11.9 million and for state income tax purposes of $11.9 million. These federal and state NOL carryforwards will begin to expire in 2031, if not utilized. Our ability to utilize NOL carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we have experienced an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. Following the issuance of the Series B convertible preferred stock in January and February 2015, we performed a Section 382 analysis and believe that we have experienced multiple ownership changes under Section 382 of the Code and, as a result, our federal and state NOL carryforwards and tax credits are subject to limitation.
We record unrecognized tax benefits as liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2013 and 2014 and March 31, 2015, we did not have any unrecognized tax benefits.
Components of Results of Operations
Research and Development Expenses
The largest component of our total operating expenses has historically been our investment in research and development activities. Research and development expenses consist primarily of:
| costs incurred to conduct research, such as the discovery and development of our product candidates; |
| costs related to production of clinical supplies, including fees paid to contract manufacturers; |
| fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis; |
| salaries and related costs, including stock-based compensation expense, for personnel in our research and development functions; and |
| costs related to compliance with drug development regulatory requirements. |
We recognize all research and development costs as they are incurred. Clinical trial costs, contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed.
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We expect our research and development expenses to increase in absolute dollars in the future as we advance our product candidates into and through clinical trials and pursue regulatory approval of our product candidates in the United States and Europe. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates and technology platforms may be affected by a variety of factors including: the quality of our product candidates, early clinical data, investment in our clinical program, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates.
General and Administrative Expenses
General and administrative expenses include personnel costs, expenses for outside professional services and other allocated expenses. Personnel costs consist of salaries, bonuses, severance, benefits and stock-based compensation. Outside professional services consist of legal, accounting and audit services and other consulting fees. Allocated expenses consist of rent expense related to our office facility. We expect to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, and those of The NASDAQ Global Market, additional insurance expenses, investor relations activities and other administrative and professional services.
Interest Income (Expense)
Interest income consists of interest earned on our cash and cash equivalents. Interest expense consists of interest expense on amounts borrowed under a convertible note.
Results of Operations
Comparison of the Three Months Ended March 31, 2014 and 2015
Three Months Ended
|
||||||||||||||||
2014 | 2015 | $ Change | % Change | |||||||||||||
(unaudited) | ||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
$ | 1,199 | $ | 2,069 | $ | 870 | 73% | |||||||||
General and administrative |
401 | 1,372 | 971 | 242% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
1,600 | 3,441 | 1,841 | 115% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (Loss) from operations |
(1,600 | ) | (3,441 | ) | (1,841 | ) | 115% | |||||||||
Other income (expense), net |
||||||||||||||||
Interest income |
7 | | (7 | ) | * | |||||||||||
Interest expense |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income (expense), net |
7 | | (7 | ) | * | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss and comprehensive loss |
$ | (1,593 | ) | $ | (3,441 | ) | $ | (1,848 | ) | 116% | ||||||
|
|
|
|
|
|
|
|
* | Percentage not meaningful. |
69
Research and Development Expenses
The following table summarizes our research and development expenses incurred during the three months ended March 31, 2014 and 2015:
Three Months Ended
|
||||||||||||||||
2014 | 2015 | $ Change | % Change | |||||||||||||
(unaudited) | ||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Clinical development and regulatory |
$ | 405 | $ | 971 | $ | 566 | 140% | |||||||||
Contract manufacturing |
416 | 669 | 253 | 61% | ||||||||||||
Compensation and related personnel costs |
355 | 330 | (25 | ) | (7)% | |||||||||||
Other research and development costs |
| 50 | 50 | * | ||||||||||||
Facility costs |
23 | 49 | 26 | 113% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total research and development |
$ | 1,199 | $ | 2,069 | $ | 870 | 73% | |||||||||
|
|
|
|
|
|
|
|
* | Percentage not meaningful. |
Research and development expenses were $2.1 million for the three months ended March 31, 2015, an increase of $0.9 million, from $1.2 million for the three months ended March 31, 2014. This increase was primarily attributable to a $0.6 million increase in clinical development expenses mainly associated with our ongoing trials and a $0.3 million increase in contract manufacturing costs of our clinical product candidates. The decrease in compensation and related personnel costs was due to departure of certain executives in our clinical development function. We have subsequently filled these positions and we expect to incur additional compensation and related personnel costs in connection with our ongoing open label Phase 2 study of AR101, ARC002.
General and Administrative Expenses
The following table summarizes our general and administrative expenses incurred during the three months ended March 31, 2014 and 2015:
Three Months Ended
|
||||||||||||||||
2014 | 2015 | $ Change | % Change | |||||||||||||
(unaudited) | ||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Compensation and related personnel costs |
$ | 179 | $ | 646 | $ | 467 | 261% | |||||||||
Outside professional services |
93 | 548 | 455 | 489% | ||||||||||||
Facility costs |
37 | 58 | 21 | 57% | ||||||||||||
Other general and administrative |
92 | 120 | 28 | 30% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total general and administrative |
$ | 401 | $ | 1,372 | $ | 971 | 242% | |||||||||
|
|
|
|
|
|
|
|
General and administrative expenses were $1.4 million for the three months ended March 31, 2015, an increase of $1.0 million, from $0.4 million for the three months ended March 31, 2014. This increase was primarily due to a $0.5 million increase in compensation expenses primarily related to our additional administrative and executive personnel and severance payments to certain former executives, and $0.5 million in professional fees incurred in connection with financial consulting, public relations and communications activities.
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Comparison of the Years Ended December 31, 2013 and 2014
Year Ended
December 31, |
||||||||||||||||
2013 | 2014 | $ Change | % Change | |||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
$ | 3,495 | $ | 8,181 | $ | 4,686 | 134% | |||||||||
General and administrative |
1,263 | 2,951 | 1,688 | 134% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
4,758 | 11,132 | 6,374 | 134% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (Loss) from operations |
(4,758 | ) | (11,132 | ) | (6,374 | ) | 134% | |||||||||
Other income (expense), net |
||||||||||||||||
Interest income |
24 | 12 | (12 | ) | * | |||||||||||
Interest expense |
(91 | ) | | 91 | * | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income (expense), net |
(67 | ) | 12 | 79 | * | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss and comprehensive loss |
$ | (4,825 | ) | $ | (11,120 | ) | $ | (6,295 | ) | 130% | ||||||
|
|
|
|
|
|
|
|
* | Percentage not meaningful. |
Research and Development Expenses
The following table summarizes our research and development expenses incurred during the years ended December 31, 2013 and 2014:
Year Ended
December 31, |
||||||||||||||||
2013 | 2014 | $ Change | % Change | |||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Clinical development and regulatory |
$ | 2,228 | $ | 4,565 | $ | 2,337 | 105% | |||||||||
Contract manufacturing |
114 | 1,834 | 1,720 | * | ||||||||||||
Compensation and related personnel costs |
1,101 | 1,559 | 458 | 42% | ||||||||||||
Facility costs |
52 | 149 | 97 | 187% | ||||||||||||
Other research and development costs |
| 74 | 74 | * | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total research and development |
$ | 3,495 | $ | 8,181 | $ | 4,686 | 134% | |||||||||
|
|
|
|
|
|
|
|
* | Percentage not meaningful. |
Research and development expenses were $8.2 million for the year ended December 31, 2014, an increase of $4.7 million, from $3.5 million for the year ended December 31, 2013. This increase was primarily attributed to a $2.3 million increase in clinical development expenses mainly associated with ongoing trials, a $1.7 million increase in contract manufacturing costs of our clinical product candidates, a $0.5 million increase in compensation expenses primarily related to hiring of additional research and development staff and a $0.2 million increase in facility costs and other research and development costs.
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General and Administrative Expenses
The following table summarizes our general and administrative expenses incurred during the years ended December 31, 2013 and 2014:
Year Ended
December 31, |
||||||||||||||||
2013 | 2014 | $ Change | % Change | |||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Compensation and related personnel costs |
$ | 533 | $ | 1,716 | $ | 1,183 | 222% | |||||||||
Outside professional services |
405 | 786 | 381 | 94% | ||||||||||||
Other general and administrative |
225 | 274 | 49 | 22% | ||||||||||||
Facility costs |
100 | 175 | 75 | 75% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total general and administrative |
$ | 1,263 | $ | 2,951 | $ | 1,688 | 134% | |||||||||
|
|
|
|
|
|
|
|
General and administrative expenses were $3.0 million for the year ended December 31, 2014, an increase of $1.7 million, from $1.3 million for the year ended December 31, 2013. This increase was primarily due to a $1.2 million increase in compensation expenses primarily related to our additional administrative and executive personnel, and $0.4 million in professional fees incurred in connection with public relations and communications activities.
Interest Expense
Interest expense was nil for the year ended December 31, 2014, a decrease of $91,000 from the year ended December 31, 2013. The interest expense in 2013 was primarily attributable to the conversion of a convertible note payable into Series A preferred stock and expensing the remaining unamortized conversion discount on the convertible note.
Liquidity, Capital Resources and Plan of Operations
Since our inception and through March 31, 2015, we have funded our operations primarily through the sale and issuance of convertible preferred stock. In January and February 2015, we received net proceeds of $79.8 million from the sale of our Series B convertible preferred stock, of which $12.9 million was used to repurchase outstanding shares of our Series A convertible preferred stock. As of March 31, 2015, we had $65.3 million in cash and cash equivalents. We believe that our existing cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to fund our planned operations for the 24 months following the date of this offering, including through data readout of our planned Phase 3 registration trial for AR101.
We do not expect to generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for and begin to commercialize one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital to fund our future operations. Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings and debt financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.
72
Our future funding requirements will depend on many factors, including the following:
| the time and cost necessary to initiate and complete our anticipated Phase 3 registration program for AR101; |
| the time and cost associated with clinical trials and pre-clinical development of other product candidates; |
| our ability to obtain regulatory approval for and subsequently commercialize AR101 or any other product candidates we develop; |
| the time and cost necessary to develop clinical supplies and a commercial-scale manufacturing process for AR101; |
| sales and marketing costs associated with AR101, if approved, including the cost and timing of developing our sales and marketing capabilities; |
| the amount of sales and other revenue from AR101, if approved; |
| our ability to achieve sufficient market acceptance, coverage and reimbursement from third-party payors and adequate market share for our product candidates; |
| the costs associated with any additional clinical trials of AR101; |
| the cash requirements of any future acquisitions or discovery of product candidates; |
| the time and cost necessary to respond to technological and market developments; |
| our ability to attract, hire and retain qualified personnel; and |
| our ability to obtain and maintain intellectual property protection for AR101 and the associated costs of such activities, including for filing, prosecuting, defending and enforcing any patents for AR101. |
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate:
| clinical trials or other development activities for AR101 or any future product candidate; |
| our research and development activities; or |
| our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize AR101 or any future product candidate. |
Cash Flows
Comparison of the Three Months Ended March 31, 2014 and 2015
The following table summarizes our cash flows for the periods indicated:
Three Months Ended
|
||||||||
2014 | 2015 | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Net cash provided by (used in) |
||||||||
Operating activities |
$ | (1,949 | ) | $ | (3,993 | ) | ||
Investing activities |
(5 | ) | (44 | ) | ||||
Financing activities |
| 67,081 | ||||||
|
|
|
|
|||||
Net change in cash and cash equivalents |
$ | (1,954 | ) | $ | 63,044 | |||
|
|
|
|
73
Net Cash Used In Operating Activities
Net cash used in operating activities was $4.0 million for the three months ended March 31, 2015, an increase of $2.1 million, from $1.9 million for the three months ended March 31, 2014. This increase was primarily due to to higher net loss from operations resulting from increased research and development expenses and general and administrative expenses.
Net Cash Used In Investing Activities
Cash used in investing activities consisted primarily of investment in equipment.
Net Cash Provided By Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2015 consisted primarily of the proceeds of $79.8 million from the issuance of the Series B convertible preferred stock, net of offering costs, and $0.2 million from the exercise of stock options, offset in part by $12.9 million from the repurchase of shares of Series A from certain investors.
As of March 31, 2015, we had cash and cash equivalents of $65.3 million, including the net proceeds we received from the issuance of Series B convertible preferred stock in January and February 2015.
Comparison of the Years Ended December 31, 2013 and 2014
The following table summarizes our cash flows for the periods indicated:
Year Ended
December 31, |
||||||||
2013 | 2014 | |||||||
(in thousands) | ||||||||
Net cash provided by (used in) |
||||||||
Operating activities |
$ | (4,362 | ) | $ | (9,777 | ) | ||
Investing activities |
(69 | ) | (96 | ) | ||||
Financing activities |
16,164 | 191 | ||||||
|
|
|
|
|||||
Net change in cash and cash equivalents |
$ | 11,733 | $ | (9,682 | ) | |||
|
|
|
|
Net Cash Used In Operating Activities
Net cash used in operating activities was $9.8 million for the year ended December 31, 2014, an increase of $5.4 million, from $4.4 million for the year ended December 31, 2013. This increase was primarily due to to higher net loss from operations resulting from increased research and development expenses and general and administrative expenses.
Net Cash Used In Investing Activities
Cash used in investing activities consisted primarily of investment in equipment.
Net Cash Provided By Financing Activities
Net cash provided by financing activities was $0.2 million for the year ended December 31, 2014, a decrease of $16.0 million, from $16.2 million for the year ended December 31, 2013. The net cash provided by financing activities in 2014 was primarily from the exercise of stock options and the net cash provided by financing activities in 2013 was primarily from the sale of preferred stock.
As of December 31, 2014, we had cash and cash equivalents of approximately $2.3 million.
74
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of December 31, 2014:
Payments due by periods | ||||||||||||||||||||
Total |
Less than 1
|
1 to 3 years |
3 to 5 years |
More than 5
|
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating leases (1)(2) |
$ | 423 | $ | 167 | $ | 170 | $ | 86 | $ | | ||||||||||
Other purchase commitments (3) |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total contractual obligations |
$ | 423 | $ | 167 | $ | 170 | $ | 86 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | In March 2015, we signed a new facility lease for our corporate headquarters and research facilities in Brisbane, California. The new headquarters lease calls for future aggregate non-cancellable lease payments of $2.0 million over a period of 51 months, which have not been reflected in the table above. |
(2) | In June 2015, we signed a new facility lease for a manufacturing facility Clearwater, Florida. The new manufacturing facility lease calls for future aggregate lease payments of $1.7 million over a period of 10 years, which have not been reflected in the table above. |
(3) | We purchase peanut flour, the source material for AR101, from the Golden Peanut Company pursuant to a long-term exclusive commercial supply agreement. Pursuant to the agreement, our purchase obligation commences with the first delivery of peanut flour for commercial use, which we currently anticipate will not occur prior to 2018. Assuming that our first delivery for commercial use occurs in 2018, which is not assured, the aggregate purchase commitment under this agreement would be $1.2 million over the following five years. |
We enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for pre-clinical studies and other services and products for operating purposes which are cancelable at any time by us, generally upon 30 days prior written notice. These payments are not included in this table of contractual obligations.
Except for the new facility lease described above, our contractual obligations as of March 31, 2015 have not materially changed from December 31, 2014.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have variable interests in variable interest entities.
Material Weakness
In connection with the contemporaneous audit of our financial statements for the years ended December 31, 2013 and 2014, we identified control deficiencies in the design and operation of our internal control over financial reporting that aggregated to a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
The material weakness identified in our internal control over financial reporting related to our lack of written policies regarding our accounting function, lack of oversight of account reconciliations, lack of independent review of manual journal entries and inadequate segregation of duties for check writing and wire transfers. We have taken certain actions to remediate this material weakness, including implementing new procedures for review of account reconciliations and manual journal entries and restricting check writing and wire transfer authority. We intend to implement further segregation of duties and to establish formal written policies for our accounting function by the end of the year. However, we cannot assure you that these measures will be sufficient to remediate or prevent future material weaknesses or significant deficiencies from occurring. See Risk FactorsRisks Related to our BusinessWe identified a material weakness in our internal control
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over financial reporting at December 31, 2013 and December 31, 2014, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate any material weaknesses or if we fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.
Quantitative and Qualitative Disclosures about Market Risk
As of March 31, 2015, we had cash and cash equivalents of $65.3 million, which consisted primarily of bank and money market deposits. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant. We had no outstanding debt as of March 31, 2015.
We have not historically been exposed to material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act of 2012. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act 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.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which provides a framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles (U.S. GAAP). The ASU provides a five-step analysis of transactions to determine when and how revenue is recognized. The ASU will require many companies to use more judgment than under current U.S. GAAP. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, for public business entities. On April 29, 2015, the FASB issued for comment a proposed ASU, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The proposed ASU would permit both public and nonpublic organizations to adopt the new revenue standard early, but not before the original public organization effective date (that is, annual periods beginning after December 15, 2017).
In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation . ASU 2014-10 simplifies the accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments related to the elimination of the inception-to-date information and other disclosure requirements of Topic 915 should be applied retrospectively and are effective for annual reporting periods beginning after December 15, 2014 and interim periods therein. We have elected to early adopt this guidance and, accordingly, there is no inception to date information presented in our financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under todays guidance. ASU 2014-15 is effective for the first quarter of 2016 with early adoption permitted. We do not believe the impact of adopting ASU 2014-15 on our financial statements will be material.
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Overview
We are a clinical-stage biopharmaceutical company advancing a new therapeutic approach, including the development of proprietary product candidates, for the treatment of peanut and other food allergies. It is estimated that over 30 million people in the United States and Europe have a food allergy, with peanut allergy being the most prevalent and most commonly associated with severe outcomes and life-threatening events. Our therapeutic approach, which we refer to as Characterized Oral Desensitization Immunotherapy, or CODIT, is a system designed to desensitize patients to food allergens using rigorously characterized biologic products, defined treatment protocols and tailored support services. In ARC001, our recently completed Phase 2 study of our lead CODIT product candidate, AR101, all of the 23 patients who completed the AR101 treatment regimen were desensitized to a clinically meaningful level of peanut protein of at least 443 mg, a level that substantially exceeds the amount of peanut protein typically encountered in an accidental exposure, which we believe to be approximately 100 mg or less. We intend to initiate a Phase 3 registration trial of AR101 in early 2016 and Phase 2 studies of other CODIT product candidates for two additional food allergies in 2016. AR101 has been granted Fast-Track designation and Breakthrough Therapy designation by the U.S. Food and Drug Administration, or FDA, and, if our planned Phase 3 program is successful, we intend to file a Biologics License Application, or BLA, with the FDA and a Marketing Authorization Application, or MAA, with the European Medicines Agency, or EMA. We have worldwide commercial rights to all of our product candidates and, if approved, we intend to commercialize in the United States and Europe with our own specialty sales force.
Our CODIT system for the treatment of food allergies leverages and improves upon the extensive independent scientific research demonstrating that food-allergic patients can be desensitized to clinically meaningful levels of a food allergen by orally administering them increasing amounts of such allergen over a period of months. Based on our clinical development to date, including our ARC001 study, we believe that our CODIT system will have the following key attributes:
| Standardized Products : Our proprietary biologic product candidates are derived from natural food products and are designed to contain precisely defined dosages of well-characterized food proteins so that each dosage is consistent for total protein and relative allergen content. In addition, we expect each of our product candidates, if approved, to be provided to patients as a convenient, orally administered, once daily therapy. |
| Safe and Well-Defined Treatment Regimens : We intend to demonstrate the safety and efficacy of each CODIT product candidate in large scale, well-controlled clinical trials. In addition, we expect each CODIT product candidate to feature clearly defined clinical protocols with gradual up-dosing and practical maintenance dosing regimens designed to enhance safety, tolerability and efficacy. |
| Clinically Meaningful Desensitization : We expect each approved CODIT product candidate to provide patients with protection from food allergens at a level that exceeds the amount typically encountered in an accidental exposure. |
| Compatibility with Clinical Practice : We expect our protocols for each CODIT product candidate to be similar to treatment regimens currently utilized by allergists for non-food allergies. |
| Tailored Support Services : We intend to provide physician education, patient guidance and other support services to facilitate the administration of each approved CODIT product candidate. |
| Regulatory Approval : We believe regulatory approval of our CODIT product candidates, if obtained, will validate the extensive existing scientific research supporting oral desensitization and could lead to widespread adoption of our system. |
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Food allergies are a severe and growing health problem in the United States, Europe and throughout the developed world. Peanut is the most common food allergy, and we estimate that there are over five million people in the United States and Europe with peanut allergy, including over two million children. The prevalence of peanut allergy in children in the United States is estimated to have increased at a constant annual growth rate of approximately 10% between 1997 and 2008, and experts believe it has continued to rise since 2008. Food-related allergic reactions are estimated to result in approximately 200,000 emergency room visits and over 10,000 hospital admissions each year in the United States.
There are currently no approved medical therapies to cure food allergies or prevent their effects. Avoidance is the primary method of managing a food allergy and successfully practicing avoidance can be virtually impossible, as allergic reactions can often be triggered by trace amounts of food proteins, or allergens. For example, of the over two million people with peanut allergy in the United States, 40% to 50% are sensitive to an exposure of 100 mg or less of peanut protein, the equivalent of less than half of a peanut kernel. For patients exposed to allergens, treatment options are limited. Epinephrine is used as a rescue medication, but its effectiveness is dependent on several factors, such as availability, the promptness of administration and sufficient dosage to counteract the effects of the allergic reaction. The stress of practicing avoidance and the limited availability of effective treatment options can result in a fear of a fatal accidental exposure, substantially diminishing the quality of life of patients and their families. This fear can lead to psychological traumas, including fear of eating, social difficulties and severe anxiety. In addition, parents of food-allergic children often attempt to prevent accidental exposures by limiting their childs participation in everyday activities.
We believe our CODIT system and product candidates, if approved, have the potential to reduce the dangers posed to food-allergic patients, such as accidental exposures resulting in anaphylactic reactions, emergency room visits or hospitalization. For instance, at high levels of accidental exposure, we believe the severity of an allergic response could potentially be reduced from a severe event requiring the use of epinephrine to a non-life-threatening warning sign, such as itching of the mouth or pruritus. We expect that this potential protection from accidental exposures will reduce the stress and anxiety of patients and their families and enable patients to live more normal lives.
Our lead CODIT product candidate, AR101, is a proprietary product designed to desensitize patients to a level of peanut protein that we believe substantially exceeds the amount typically encountered in an accidental exposure using gradual up-dosing and practical maintenance dosing regimens. Based on our clinical development to date, including our ARC001 study, we believe AR101 has the following key attributes:
| Proprietary Biologic Product : Our proprietary formulation is a complex mixture of naturally occurring proteins and pharmaceutical-grade ingredients that we developed to enable the convenient dosing of consistent amounts of peanut protein with well-defined relative concentrations of specific peanut allergens. |
| Clinically Meaningful and Reliable Desensitization : In ARC001, 23 of the 23 peanut allergic patients who completed the AR101 treatment regimen achieved clinically meaningful desensitization to peanut allergens. ARC001 and independent scientific research have indicated that clinically meaningful desensitization can be attained through an oral immunotherapy treatment regimen, independent of gender, age and other demographics. |
| Rapid and Predictable Onset of Action : In ARC001, a clinically meaningful level of protection was typically achieved by patients in the AR101 treatment group after only 22 weeks of dosing. Independent scientific research has also shown that continued maintenance dosing pursuant to an oral immunotherapy treatment regimen can confer increased protection over time. |
|
Attractive Safety Profile : In ARC001, most patients tolerated AR101 well, experiencing only mild, intermittent side effects commonly associated with food allergies during the up-dosing phase of treatment. The most frequent of these side effects included gastrointestinal symptoms ranging from itching of the lips |
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to vomiting, hives, throat itching or discomfort and nasal congestion. Once patients are desensitized and on maintenance dosing, we believe that they are likely to experience few or no side effects. |
| Convenient Oral Administration : AR101 is designed to be provided to patients as a convenient, orally administered, once daily therapy that is mixed with common age-appropriate foods. |
| Direct, Targeted Mechanism of Action : Oral administration of AR101 enables the allergen to interact directly with the immune cells in the gastrointestinal tract responsible for mediating the allergic reaction to peanuts. Oral desensitization works by gradually shifting the balance of the immune system to dampen the allergic response in the case of accidental exposure. |
| Compatibility with Current Clinical Practice and Infrastructure : The AR101 up-dosing regimen is similar to existing, widely adopted regimens for the treatment of non-food allergies, such as pollen and pet dander. We believe this feature will facilitate adoption by allergists and reimbursement by payors if AR101 is approved. |
| CODIT Support Services : We intend to provide physician education, patient guidance and other support services to facilitate the administration of AR101, if approved. |
In June 2015, we presented our ARC001 Phase 2 data as a late-breaking abstract at the European Academy of Allergy and Clinical Immunology Congress, or EAACI. In ARC001, all patients who completed the up-dosing regimen in the AR101 treatment group were desensitized to a cumulative dose of 443 mg of peanut protein, the equivalent of approximately two peanut kernels, as compared to five of the 26 patients who received placebo. In addition, 18 of the 23 patients who completed the up-dosing regimen in the AR101 treatment group were desensitized to a cumulative dose of 1,043 mg of peanut protein, the equivalent of approximately four peanut kernels, as compared to none of the 26 patients who received placebo. Our ongoing open label Phase 2 study, ARC002, is evaluating, among other things, the long-term safety and tolerability of a regimen of daily maintenance doses of AR101 and its effect on desensitization.
We believe the consistency and reliability of patients responses to AR101, if confirmed in future studies and if AR101 is approved for its intended use, will result in patients and their caregivers feeling less stress and anxiety about the possibility of an accidental exposure and allow them to lead more normal lives. We intend to initiate a Phase 3 registration trial of AR101 in early 2016 and Phase 2 studies of CODIT product candidates for two additional food allergies in 2016. The FDA has granted AR101 Fast-Track designation for oral immunotherapy of peanut sensitive adults and children and Breakthrough Therapy designation for oral immunotherapy of peanut sensitive children and adolescents (ages 4-17) and, if our planned Phase 3 registration program is successful, we intend to file a BLA with the FDA and a MAA with the EMA.
We were formed after a 2011 conference where leading researchers, clinicians, patient advocates and regulators in the field of food allergies concluded that oral desensitization had a strong scientific basis but required greater standardization and validation for widespread adoption. With the support of Food Allergy Research and Education (FARE), a leading patient advocacy organization, we were founded to pursue the development and commercialization of standardized oral desensitization medical therapies for the treatment of food allergies. To execute on this vision, we have assembled a team of experienced biotechnology and pharmaceutical executives who have collectively contributed to the development and regulatory approval of over 30 drugs and biologics. We believe that the quality of our team will strongly influence our ability to develop a new class of CODIT products to address the unmet medical needs of food-allergic patients. Our Chief Executive Officer, Dr. Stephen Dilly, was previously Chief Executive Officer at APT Pharmaceuticals, Inc., Senior Vice President, Head of Development, Chief Medical Officer at Chiron BioPharmaceuticals, a division of Chiron Corporation, and Vice President of Medical Affairs at Genentech, Inc. Other members of our management team have held senior positions at Bristol-Myers Squibb Company, Chiron Corporation, GlaxoSmithKline plc, Novartis AG, Onyx Pharmaceuticals, Inc., Pfizer Inc., Roche Holding AG and Teva Pharmaceutical Industries Limited. We also have leading financial investors such as Adage Capital, Aisling Capital, funds affiliated with Fidelity Management & Research Company, Foresite Capital, Longitude Capital, Palo Alto Investors and RA Capital.
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Our Strategy
Our goal is to build a biopharmaceutical company that develops and commercializes proprietary therapies to improve the lives of food-allergic patients and their families. We intend to achieve this goal by pursuing the following key strategic objectives:
| Complete development and obtain approval of AR101 in the United States and Europe for the treatment of peanut allergy : In early 2016, we intend to initiate a Phase 3 registration trial of AR101 in patients with peanut allergy to support the submission of a BLA in the United States and a MAA in the European Union. |
| Commercialize AR101 in the United States and Europe through our own specialty sales force : We own worldwide commercial rights to our product candidates. If AR101 is approved for the treatment of peanut allergy, we intend to commercialize our lead product candidate by developing a specialty sales force targeting a subset of the approximately 4,500 practicing allergists in the United States as well as allergy-focused clinicians in the five largest European markets. We anticipate that this sales force could also support the commercialization of additional CODIT product candidates, if approved. |
| Leverage the CODIT system to develop additional proprietary product candidates for the treatment of food allergies : Leveraging the expertise we have gained developing AR101, we intend to initiate Phase 2 studies for two additional CODIT product candidates for food allergies in 2016. |
| Strategically pursue collaborations : We intend to evaluate opportunities to work with partners that meaningfully enhance our capabilities with respect to the development and commercialization of our product candidates. In addition, working with key opinion leaders and academic researchers, we intend to evaluate the potential to develop other approaches to treating food allergies. |
Food Allergy Overview
Food Allergies are a Significant and Growing Health Problem
Food allergies are a significant and growing health problem in the United States, Europe and throughout the developed world. It is estimated that over 30 million people in the United States and Europe have a food allergy, including over 11 million children. According to a study published in JAMA Pediatrics, the economic cost of food allergies in the United States is estimated to equal approximately $25 billion per year, of which approximately $4 billion is associated with direct medical expenses. Food allergies are a particularly urgent issue for children because of the greater prevalence of food allergies in that age group and because of the increased risk of accidental exposures leading to a serious allergic reaction. A recent large scale study concluded that approximately 8% of children in the United States have a food allergy and that approximately 39% of that group had a history of at least one severe allergic reaction. We estimate that over 50% of patients with peanut allergy experience a severe allergic reaction each year.
Peanut is the most common type of food allergy. Among children with food allergies in the United States, approximately 25% are allergic to peanuts, with other common food allergies being milk (21%), shellfish (17%), tree nut (13%) and egg (10%). We estimate that there are over five million people in the United States and Europe with peanut allergy, including over two million children . The prevalence of peanut allergy in children in the United States is estimated to have increased at a constant annual growth rate of approximately 10% between 1997 and 2008, and experts believe it has continued to rise since 2008.
Risks Associated with Allergic Reactions
Allergic reactions to food are painful, frightening and potentially deadly. Symptoms of an allergic reaction include hives, swelling, vomiting, abdominal pain, wheezing, breathlessness and lowered blood
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pressure. Severe and potentially life-threatening reactions are referred to as anaphylaxis and such reactions require urgent medical attention and often result in treatment at hospital emergency departments. Food-related allergic reactions are estimated to result in approximately 200,000 emergency room visits and over 10,000 hospital admissions each year in the United States.
Allergic reactions, including severe allergic reactions, can be triggered by exposure to minute quantities of the relevant food allergen. For example, of the over two million people with peanut allergy in the United States, 40% to 50% are sensitive to an exposure of 100 mg or less of peanut protein, the equivalent of less than half of a peanut kernel. In addition, people with peanut allergy are often sensitive to as little as 10 mg of peanut protein, the equivalent of approximately 1/25th of a peanut kernel. As a result, accidental exposure arising from contamination of a food source or the inaccurate or confusing labeling of food products occurs regularly and can result in severe allergic reactions.
Causes of Allergic Reactions
Food allergies occur when the immune system responds to a harmless food as if it were a threat. The human gastrointestinal tract contains immune cells whose purpose is to identify and mount a response against proteins deemed to be foreign and unsafe. These cells come into contact with a large amount and variety of food proteins. In a non-allergic person, a tolerance for food proteins develops early in life, and the immune cells do not mount a response when food proteins are detected. In contrast, in an allergic patient, the immune system is sensitized to one or more food proteins, or allergens. As a result of this sensitization, the immune system produces antibodies, known as IgE antibodies, which are directed against a particular allergen, such as a specific peanut protein. The IgE antibodies link with mast cells and basophils, which are other immune cells. When an IgE antibody linked to these immune cells encounters the allergen it is directed against, the immune cells are activated and release histamine and other inflammatory mediators into the blood. These mediators then provoke the symptoms of an allergic reaction.
The development and progression of food allergies is highly variable. It is unknown why some people develop food allergies while others do not. For certain types of allergies, such as milk and egg, patients may outgrow their allergies, but for others, such as peanuts, tree nuts and shellfish, most patients remain allergic for life. In addition, a persons sensitivity appears to vary over time based on a range of factors. It is not unusual for a persons first allergic reaction to be mild and their second allergic reaction to be severe or life-threatening.
Challenges in the Current Treatment and Management of Food Allergies
There are currently no approved medical therapies to cure food allergies or prevent their symptoms. The most common practices are strict avoidance of food allergens and emergency treatment of allergy symptoms in the event of an accidental exposure. These options have substantial limitations and the burdens of practicing avoidance and stress caused by the limited availability of effective treatment options for accidental exposure can have a substantial negative impact on the quality of life of food-allergic patients and their families. For example, food-allergic patients and their caregivers often have difficulties managing their social and day-to-day lives, and live with an ongoing fear of accidental exposure and anaphylaxis. One study found that children with peanut allergy reported a poorer quality of life than children with insulin-dependent diabetes mellitus. A separate study found that the parents of peanut-allergic children reported more disruption in their familys lives than the parents of children with rheumatological disease.
Limitations of Practicing Avoidance of Food Allergens
Successfully practicing avoidance can be very difficult and requires careful reading of food labels, care in the storage and preparation of foods, awareness of product recalls for mislabeling and contamination, and oftentimes avoidance of cuisines where the food allergen is known to be common. In addition, activities such as attending a sporting event, traveling by airplane or visiting public spaces become difficult and stressful for food-allergic patients and their families. Practicing avoidance can be particularly difficult on food-allergic children as
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parents often attempt to prevent accidental exposures by limiting their childs participation in everyday activities, including social activities, eating outside the home and sometimes even choosing to home school their child because such food-allergic children may not have the awareness or self-regulation skills to practice avoidance by themselves.
Limitations of Emergency and Symptomatic Treatments
Due to a lack of approved symptomatic or disease-modifying food allergy treatments, food-allergic patients typically must carry rescue medication to treat severe and possibly life-threatening allergic reactions. The most widely used treatment is epinephrine (also known as adrenaline) which is administered using an auto-injector, such as an EpiPen or Auvi-Q. Epinephrine blunts certain symptoms of the allergic reaction by increasing heart rate and blood pressure and dilating airways, but it does not treat the allergic reaction itself. While epinephrine is useful as a rescue medication, it is not always administered properly or quickly enough and may not be sufficient to counteract the effects of the allergic reaction.
Limitations of Current Desensitization Treatments
Emergency and symptomatic remedies are reactive treatments and often ineffective in the chronic management of food allergies. The most commonly practiced proactive therapy for food and other allergies is desensitization therapy. Desensitization therapy consists of repeated administrations of increasing quantities of an allergen to an allergic patient in order to decrease the immune response to that allergen. The most common form of desensitization therapy is subcutaneous injections for patients with environmental allergies. While desensitization therapy has had significant success in the treatment of environmental allergies, it has been less successful in the treatment of food allergies. Four different desensitization therapy approaches to food allergies have been researched:
| Subcutaneous Injections : Involves the subcutaneous injection of the food allergen. This approach has been shown to induce desensitization in some patients but has had an unacceptably high incidence of adverse events and research on this approach has largely been abandoned. |
| Sublingual Immunotherapy : Involves the administration of increasing amounts of food extract under a patients tongue. This approach has been shown to be safe, but it appears to induce only a modest degree of desensitization. |
| Epicutaneous Desensitization : Involves the use of a patch that causes allergens to be absorbed by the skin. Clinical trials are ongoing to explore the potential viability of this approach. |
| Oral Immunotherapy : Involves the administration of increasing doses of a food-based product on a daily basis over a period of months. This approach has the potential to produce a high degree of desensitization but adoption has been hampered by lack of standardization for products and protocols. |
We believe the most effective form of desensitization therapy is oral immunotherapy, or OIT.
Immunology of Oral Desensitization
Oral desensitization works by gradually shifting the balance of the immune system to dampen the allergic response in the case of accidental exposure.
The initial step in an immune response is the presentation of an allergenic protein by an antigen presenting cell, such as a dendritic cell, and subsequent recognition of the allergenic protein by T-cells. T-cells proliferate into Th2 cells upon antigen recognition and secrete a set of proteins called inflammatory cytokines,
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such as IL-5 and IL-13, which are important in cell signaling. Secretion of this group of cytokines results in B-cell maturation and production of IgE antibodies. IgE antibody cross-linking at the surface of mast cells results in the mast cells releasing histamines, proteoglycans and other molecules, which elicit symptoms of an allergic reaction.
In oral desensitization, very low levels of allergen insufficient to trigger an IgE-mediated allergic reaction induce regulatory T-cells, which dampen the Th2 immune response and induce B-cells to produce IgG4 antibodies. IgG4 antibodies compete with IgE antibodies for mast cell binding and inhibit IgE antibody cross-linking at the surface of the mast cells. As such, when IgG4 antibodies are bound to mast cells, they act to dampen the symptoms of an allergic reaction.
The following provides an overview of the immunology of allergies.
Oral Desensitization in Practice
In an OIT treatment regimen, the initial administration of a particular dose of the food allergen will typically be provided in an allergists office and the subsequent administrations will be done at home. The highest level of dosing administration will vary depending on the patient and the protocol, but generally the goal is to achieve desensitization to a level of food allergen greater than the amount a patient might be exposed to in an accidental exposure. Once the highest dosing level is attained, the patient will continue to be administered a maintenance dose on a regular basis. Over time, this regular administration has been shown to result in the patient being desensitized to an amount of food substantially greater than the maintenance dose.
Numerous clinical trials at leading academic research centers have shown that OIT can desensitize patients to a range of food allergies, including peanut, egg and milk. While OIT generally does not cure a patient of their allergy, it can provide protection from food allergens at a level that exceeds the amount typically encountered in an accidental exposure. For many patients, this protection meaningfully decreases their stress and anxiety and enables them to lead a more normal life.
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While OIT has been shown to be effective, it has not been widely adopted and is currently available only from a limited number of academic research centers and specialized allergy clinics. These institutions have access to compounding pharmacies to produce the doses of food-based product necessary for the therapy and also have the resources to provide the required patient support. However, because no OIT protocol or product has been validated in a large scale clinical trial or approved by the FDA, the treatment regimen and food source used in OIT treatment is determined by the allergist based on their experience and review of the scientific literature, which can lead to varying results. While studies have shown that most patients tolerate OIT well, the incidence of severe adverse events associated with OIT treatment has historically been high enough to raise concerns in the medical community that it is not safe enough to be a standard part of an allergists practice. We believe these safety concerns along with complexity and lack of standardization have limited the adoption of OIT by community-based allergists. As a result, we believe that a widely adoptable OIT approach must feature:
| Standardized Products : The product used must be well-defined and be manufactured to the same standards as other pharmaceutical-grade products. |
| Safe and Well-Defined Treatment Regimens : The safety and efficacy of the treatment approach must be demonstrated in a large scale, well-controlled clinical trial and the treatment regimen must be clearly established so that allergists can be confident that they are administering the product appropriately. |
| Clinically Meaningful Desensitization : The treatment must result in the patient attaining protection from food allergens at a level that exceeds the amount typically encountered in an accidental exposure. |
| Compatibility with Clinical Practice : The treatment must be compatible with existing practices of allergists and must enable allergists to reliably, conveniently and safely use oral desensitization as part of their regular clinical practice. |
| Availability of Support Services : Physicians, parents and patients should have access to support services to guide them through the treatment regimen. |
| Regulatory Approval : The treatment approach must be reviewed and approved by independent regulatory authorities in order to appeal to patients, parents, allergists and payors. |
Our Solution
Our CODIT system for the treatment of food allergies leverages and improves upon the extensive independent scientific research supporting OIT. Based on our clinical development to date, including our ARC001 study, we believe that our CODIT system has the potential to be widely adopted by allergists and to appeal to patients and parents as a result of the following key attributes:
| Standardized Products : Our proprietary biologic product candidates are derived from natural food products and are designed to contain precisely defined dosages of well-characterized food proteins so that each dosage is consistent for total protein and relative allergen content. In addition, we expect each of our product candidates, if approved, to be provided to patients as a convenient, orally administered, once daily therapy. |
| Safe and Well-Defined Treatment Regimens : We intend to demonstrate the safety and efficacy of each CODIT product candidate in large scale, well-controlled clinical trials. In addition, we expect each CODIT product candidate to feature clearly defined clinical protocols with gradual up-dosing and practical maintenance dosing regimens designed to enhance safety, tolerability and efficacy. |
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| Clinically Meaningful Desensitization : We expect each approved CODIT product candidate to provide patients with protection from food allergens at a level that exceeds the amount typically encountered in an accidental exposure. |
| Compatibility with Clinical Practice : We expect our protocols for each CODIT product candidate to be similar to treatment regimens currently utilized by allergists for non-food allergies. |
| Tailored Support Services : We intend to provide physician education, patient guidance and other support services to facilitate the administration of each approved CODIT product candidate. |
| Regulatory Approval : We believe regulatory approval of our CODIT product candidates, if obtained, will validate the extensive existing scientific research supporting oral desensitization and could lead to widespread adoption of our system. |
We believe our CODIT system and product candidates, if approved, have the potential to reduce the dangers posed to food-allergic patients, such as accidental exposures resulting in anaphylactic reactions, emergency room visits or hospitalization. We expect that this potential protection from accidental exposures will reduce the stress and anxiety of patients and their families and enable patients to live more normal lives.
AR101 for Peanut Allergy
Overview
We are developing our lead CODIT product candidate, AR101, for the treatment of peanut allergy in children and adults. AR101 is intended to desensitize patients to a level of peanut protein that substantially exceeds the amount typically encountered in an accidental exposure. Patients successfully treated with AR101 will still need to avoid the consumption of peanuts and foods containing peanuts, but we believe that protection from accidental exposure will significantly improve the lives of food-allergic patients and their families.
We believe AR101, if approved, will provide allergists with a safe and practical means of providing oral desensitization treatment to their patients with peanut allergy. AR101 is designed to be taken orally once daily after having been mixed with a common age-appropriate food. As with OIT, patients would start with a very low dose of AR101 and gradually increase their dose over time. The initial assessment of patients and each initial increase in dosage would occur at an allergists office. Based on our existing clinical data, we anticipate it will take patients between five and six months to reach a daily dose level of 300 mg of peanut protein. Patients would then continue on a daily 300 mg maintenance dose. Based on independent scientific research, we anticipate that with continued maintenance dosing, patients level of desensitization will increase over time. In order to maintain desensitization, patients would need to continue to take a daily 300 mg maintenance dose; however, based on experience with OIT, we do not believe that the occasional failure to take a maintenance dose will significantly affect desensitization.
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Our up-dosing and maintenance dosing regimens are set forth below:
For patients in the up-dosing phase of the AR101 treatment regimen, AR101 would be provided in a series of color coded pharmaceutical grade capsules of various dose levels. These capsules can be easily opened and the contents mixed with food. For patients who have reached the 300 mg maintenance dose level, AR101 would be provided in an easy to open sachet. We are in the process of evaluating additional delivery forms for AR101 for the maintenance phase including caplets that could be swallowed.
AR101 Product Characteristics
We believe the following characteristics of AR101 could enable it, if approved, to achieve widespread market acceptance and distinguish it from existing treatments and potentially competing products in development:
| Proprietary Biologic Product : Our proprietary formulation is a complex mixture of naturally occurring proteins and pharmaceutical-grade ingredients that we developed to enable the convenient dosing of consistent amounts of peanut protein with well-defined relative concentrations of peanut specific allergens. |
| Clinically Meaningful and Reliable Desensitization : Based on the results of ARC001, we believe that patients who successfully complete the AR101 up-dosing regimen will be desensitized to a level of peanut protein that substantially exceeds the amount typically found in a peanut-contaminated food product. In addition, even if such patients have an allergic reaction, based on the results of ARC001, we believe it is likely to be less severe as a result of treatment with AR101. ARC001 and independent scientific research have indicated that clinically meaningful desensitization can be attained through an oral immunotherapy treatment regimen, independent of gender, age and other demographics. |
| Rapid and Predictable Onset of Action : In ARC001, a clinically meaningful level of protection was typically achieved by patients in the AR101 treatment group after only 22 weeks of dosing. Independent scientific research has also shown that continued maintenance dosing pursuant to an oral immunotherapy treatment regimen can confer increased protection over time. |
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Attractive Safety Profile : In ARC001, most patients tolerated AR101 well, experiencing only mild, intermittent side effects commonly associated with food allergies during the up-dosing phase of treatment. The most frequent of these side effects included gastrointestinal symptoms ranging from itching of the lips to vomiting, hives, throat itching or discomfort and nasal congestion. We believe that many of these side effects are associated with the increases in dosage amounts during the initial up-dosing phase of the treatment regimen. Once patients are desensitized and on maintenance dosing, we believe that they are likely to experience few or no side effects. Of the 29 patients |
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treated with AR101, 23 completed the AR101 treatment regimen, with six patients discontinuing treatment due to gastrointestinal side effects that occurred in the first two to four weeks, which were resolved, in each case, within one to three weeks after cessation of treatment. |
| Convenient Oral Administration : AR101 is designed to be provided to patients as a convenient, orally administered, once daily therapy that is mixed with common age-appropriate foods. Compared to subcutaneous, epicutaneous or sublingual administration, we believe our CODIT system represents a more convenient and practical method of dosing, particularly in young patients. |
| Direct, Targeted Mechanism of Action : Oral administration of AR101 enables the allergen to interact directly with immune cells in the gastrointestinal tract responsible for mediating the allergic reaction to peanuts. Oral desensitization works by gradually shifting the balance of the immune system to dampen the allergic response in the case of accidental exposure. |
| Compatibility with Current Clinical Practice and Infrastructure : The AR101 up-dosing regimen involves a series of visits to an allergist. This process is similar in many ways to existing regimens for the treatment of non-food allergies, such as pollen and pet dander, which we believe will facilitate adoption by allergists and reimbursement by payors if AR101 is approved. |
| CODIT Support Services : We intend to provide physician education, patient guidance and other support services to facilitate the administration of AR101, if approved. |
Phase 2 Clinical TrialsARC001
Clinical Trial Design
Our first clinical trial, ARC001, was a randomized, multi-center, double blind, placebo controlled Phase 2 trial of AR101 for the treatment of peanut allergy. Fifty-five patients with confirmed peanut allergy ranging in age from four to 21 years old participated in the trial, which was conducted at eight leading academic medical research centers in the United States. Of the fifty-five patients, 29 received AR101 and 26 received placebo. Patients were required to have experienced a prior allergic reaction that was attributed to peanuts, have elevated levels of anti-peanut protein antibodies in their blood and/or tested positive for peanut allergy on a skin prick test, and failed a double blind placebo controlled food challenge, or DBPCFC, at a dosage level of 100 mg of peanut protein or less. A DBPCFC is generally considered the gold standard method of measuring a patients sensitivity to peanuts or other foods. A DBPCFC is performed in a clinical setting in two sessions that are usually on two separate days. On each day, the patient is orally administered escalating doses of either a suspected allergenic food or a placebo over time and monitored to see if an allergic reaction is elicited. For example, in the entry DBPCFC for ARC001, patients were administered challenge does of 3 mg, 10 mg, 30 mg and 100 mg of peanut protein 20 to 30 minutes apart in one session and a series of placebo doses on the same schedule in the other session. Neither the patient nor the clinicians overseeing the DBPCFC knew what substance was being administered in a given session. If the patient developed a moderate or stronger allergic reaction after being administered a dose of peanut protein, then such patient was deemed to have failed the food challenge at that dosage level. While in our clinical trials we screened patients for peanut allergy using a DBPCFC because of its sensitivity, we do not anticipate that a DBPCFC will be a requirement for prescribing AR101 as DBPCFCs are not widely used a diagnostic tool in current clinical practice.
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The table below shows the escalation of challenge doses in a peanut DBPCFC along with the corresponding cumulative exposure attained at each dose level:
Dose # |
Challenge Dose Amount (mg) |
Cumulative Exposure (mg) |
||||||
1 |
3 | 3 | ||||||
2 |
10 | 13 | ||||||
3 |
30 | 43 | ||||||
4 |
100 | 143 | ||||||
5 |
300 | 443 | ||||||
6 |
600 | 1,043 | ||||||
7 |
1,000 | 2,043 |
We selected failure at a challenge dose of 100 mg or less on a DBPCFC as an inclusion criteria for ARC001 to enable the study of AR101 in patients with more severe allergies. In addition, because a patients sensitivity to peanut protein can fluctuate significantly based on various factors, we believed that using a lower maximum tolerated dose would reduce the likelihood that patients in the trial would pass the exit DBPCFC at 300 mg solely due to natural variations in their sensitivity.
The table below shows the baseline demographics of patients participating in ARC001:
Active AR101 |
Placebo |
|||
Intent To Treat | 29 patients | 26 patients (1) | ||
Gender | 20 male; 9 female | 16 male; 10 female | ||
Median Age (min, max) | 7 years (4 to 21) | 8 years (4 to 14) | ||
Median Peanut Specific IgE (min, max) | 64.3 (0.8 to >100) | 100.0 (3.5 to >100) | ||
Median Wheal (min, max) | 14 mm (5 to 30) | 13 mm (5 to 26) | ||
Median Max Tolerated Dose, Cumulative (min, max) | 13 mg (3 to 43) | 28 mg (3 to 43) |
(1) | The placebo group initially contained 27 patients, with one patient withdrawing from the study prior to the commencement of treatment. |
In ARC001, 29 patients received AR101 and 26 patients received placebo. On the first day of the study, patients were up-dosed to a dose of 3 mg or 6 mg at the clinical site. Patients then took a daily 3 mg or 6 mg dose at home for two weeks and returned to the clinical site to be up-dosed to the next dose level, either 6 mg or 12 mg dose. This process continued with doses of 12 mg, 20 mg, 40 mg, 80 mg, 120 mg, 160 mg, 200 mg, 240 mg and, finally, 300 mg. If a patient had an allergic reaction at a particular level, the allergist could maintain the patient at that dose for a longer period of time or reduce the dose for a period of time before resuming up-dosing. In addition, if a patients schedule did not allow him or her to visit an allergists office exactly two weeks after an up-dosing, the patient was permitted to remain on the current dose until he or she was able to visit an allergist. Even with this flexibility, the median completion time for the patients in the AR101 group was not significantly longer than the scheduled completion time. After patients had been taking the 300 mg dose for two weeks, they were administered a DBPCFC with a maximum challenge dose of 600 mg.
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The trial design for ARC001 is set forth below:
Clinical Trial Results and Key Metrics
As the tables below show, ARC001 met the primary endpoint of passing a DBPCFC at a 300 mg challenge dose and met an additional endpoint of passing a DBPCFC at a 600 mg challenge dose.
Primary Endpoint = Pass 300 mg (443 mg cumulative) Challenge at Exit (p<0.0001)
|
||||||||
Active AR101 (29 patients) |
Placebo (26 patients) |
|||||||
Patients |
% |
Patients |
% |
|||||
Responder |
23 | 79% | 5 | 19% | ||||
Non-responder |
6 (1) | 21% | 21 | 81% | ||||
Additional Endpoint = Pass 600 mg (1,043 mg cumulative) Challenge at Exit (p<0.0001)
|
||||||||
Active AR101 (29 patients) |
Placebo (26 patients) |
|||||||
Patients |
% |
Patients |
% |
|||||
Responder |
18 | 62% | 0 | 0% | ||||
Non-responder |
11 (2) | 38% | 26 | 100% |
(1) | All were early discontinuations. |
(2) | Includes the 6 early discontinuations. |
Statistical significance is denoted in the table above by reference to the p-values in the Primary Endpoint and Additional Endpoint. The p-value is a measure that states the probability that a comparable or better result would be produced purely by chance. A p-value <0.0001 in the chart means that if the drug was only as effective as the placebo, there would be less than a 0.01% chance that a comparable or better result would be produced purely by chance. A p-value £ 0.05 is a commonly used criterion for statistical significance. When evaluating the potential efficacy of a drug product, the FDA reviews a statistical analysis to determine whether the results of the clinical trial demonstrated that the drug product was efficacious, and a showing of statistical significance in favor of the tested criterion supports the finding of efficacy.
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In ARC001, 23 of the 29 patients in the AR101 treatment group completed the trial. All 23 patients who completed the trial passed an exit DBPCFC at a 300 mg challenge dose as compared with five of the 26 patients who received placebo (p £ 0.0001). In addition, 18 of the 23 patients in the AR101 treatment group that completed the trial passed an exit DBPCFC at a 600 mg challenge dose compared to none of the 26 patients who received placebo (p £ 0.0001). Those patients who passed the DBPCFC at a 300 mg challenge dose had received a cumulative dose of 443 mg of peanut protein, the equivalent of approximately two peanut kernels, and those patients who passed the DBPCFC at a 600 mg challenge dose had received a cumulative dose of 1,043 mg of peanut protein, the equivalent of approximately four peanut kernels. We believe these results suggest that AR101 has the potential to provide patients with peanut allergy protection from accidental exposure to peanut protein even when taking into account natural variations in sensitivity. Consistent with independent academic research, our results in ARC001 indicate that clinically meaningful desensitization can be attained independent of gender, age and other demographics.
The charts below illustrate the efficacy results from ARC001:
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In addition, we believe that AR101 may lessen the severity of a patients reaction to an accidental exposure. As the charts below indicate, patients in the placebo group had significantly more severe reactions to exposure to peanut protein in the exit DBPCFCs compared to patients in the AR101 group at the same challenge dose level.
These results are corroborated by the use of epinephrine during the entry and exit DBPCFCs. During the entry DBPCFCs, four patients in each of the AR101 group and the placebo group had an allergic reaction severe enough to require the use of epinephrine. In contrast, in the exit DBPCFCs, only two patients in the AR101 group needed epinephrine, while eleven patients in the placebo group were administered epinephrine, including three who required two doses. The epinephrine use in the placebo group was caused by severe reactions starting at doses as low as 30 mg, while in the active group, both uses were triggered by moderate reactions at the highest challenge dose of 600 mg.
The results of ARC001 also indicate that AR101 was well-tolerated. Among patients in the AR101 treatment group, there was only one incident of anaphylactic reaction of moderate severity that was treated with epinephrine, and there were no other serious or severe adverse events related to treatment with AR101 in the study. Six of the 29 patients in the AR101 treatment group dropped out of the trial. Four patients dropped out of the trial because of moderate gastrointestinal side effects, such as abdominal discomfort and vomiting, and two dropped out of the trial because of a combination of gastrointestinal side effects and compliance issues. This drop-out rate was consistent with prior academic OIT studies. The patients in ARC001 who discontinued treatment prematurely all began to have gastrointestinal symptoms at the 3 mg or 12 mg dose level and generally dropped out of the study early. Their gastrointestinal issues resolved without significant medical intervention within one to three weeks. One of the patients was diagnosed with eosinophilic esophagitis, or EoE, a condition in which a certain type of white blood cell accumulates in the esophagus. EoE is an immune condition that can be triggered by exposure to food allergens. The standard of care for EoE is simply to avoid exposure to the triggering food allergen, which allows the condition to resolve. Once this patient ceased ingesting AR101, the patients EoE symptoms resolved within three weeks. No patients in the placebo group dropped out and there were no incidents of anaphylaxis or other severe or serious adverse events related to treatment in the placebo group.
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Phase 2 Clinical TrialsARC002
Patients who completed ARC001 were eligible to participate in our Phase 2 follow-on study, ARC002, an open label study designed to evaluate the long-term safety, efficacy and tolerability of AR101. In ARC002, those patients who had been in the AR101 treatment group for ARC001 were maintained on a 300 mg maintenance dose for three months and then administered a DBPCFC with a the maximum challenge dose of 1,000 mg, resulting in a maximum cumulative dose of 2,043 mg. After administration of this DBPCFC, the patients could choose to continue with a 300 mg maintenance dose or to up-titrate to a higher dose level. Patients who had been in the placebo group in ARC001 began ARC002 by going through the same up-titration regimen that had been administered to the active group in ARC001 and then were placed on a 300 mg maintenance dose for three months. As with the original active group, they were administered DBPCFCs at the end of both the up-titration period and the three month maintenance period. They then could choose to either stay at a daily dose of 300 mg or begin an up-titration regimen. Independent scientific research has shown that continued maintenance dosing can confer increased protection over time.
Based on independent scientific research, we believe that chronic administration of AR101 will generally be safe and well-tolerated. Those patients in the AR101 treatment group who completed ARC001 reported mild and intermittent sides effects generally related to gastrointestinal issues. These side effects appear to be the result of the increasing dose levels during the initial part of the treatment regimen. Once patients are desensitized and on maintenance dosing, we believe that they are likely to experience few or no side effects.
AR101 Historical Clinical Development Program
Our development of AR101 leveraged the substantial pre-existing independent scientific research on peanut allergy and OIT. In connection with our IND submission, we licensed data from studies conducted at three leading academic research institutions. These studies demonstrated the potential of using OIT to desensitize peanut allergic patients. The results of the studies are as follows:
| In a placebo controlled study conducted jointly at Duke University and the University of Arkansas, 16 out of 17 patients were successfully up-dosed to a daily dose of 2,400 mg of peanut protein over the course of a year. At the end of the study, the 16 patients in the active group who completed treatment passed a DBPCFC at a mean level of 5,000 mg of peanut protein while the nine patients in the placebo group passed at a mean level of 280 mg of peanut protein (p=0.0001). |
| For the purposes of creating a safety database, the results of the above study were combined with results from an open label crossover study of the placebo patients from the above study and also with an open label OIT study conducted at Stanford University. This safety analysis covered a total of 53 patients who received OIT treatment with peanut flour. The analysis concluded that the therapy was generally well-tolerated and no specific safety concerns were noted. |
We have also leveraged academic studies that have shown that the daily administration of a relatively low maintenance dose can enable patients to attain and sustain a significant degree of desensitization. For example, in one study, 29 children with peanut allergy completed an OIT up-dosing regimen and then received a 300 mg daily maintenance dose of peanut protein for 12 months. At the end of that period, 27 of the patients were desensitized to exposure of 3,900 mg of peanut protein and the remaining two were desensitized to exposure of 2,100 mg of peanut protein. Two other studies have also shown that 300 mg maintenance doses can result in consistent desensitization to exposure many times the level of the maintenance dose.
Our clinical trial designs were developed following a review of the academic study protocols described above as well as protocols used in clinical practice. Many of the protocols used in clinical practice have maximum dose levels of several thousand milligrams of peanut protein and use aggressive dose escalation rates to reach the maximum dose levels quickly. We believe that, as a result, patients under these protocols sometimes
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receive too much peanut protein too soon and consequently suffer anaphylaxis, contributing to the perception that OIT is not safe. In designing our clinical trials, we have incorporated low initial dose levels, a more gradual escalation of the dosing and much lower maintenance dose levels. We believe that this approach provides for an improved protocol and has the potential to enable patients to safely attain a clinically significant level of desensitization in a reasonable time frame.
We also believe that a successful oral desensitization treatment regimen requires a well-characterized and precisely manufactured drug product. Independent scientific research has shown that the quantity of peanut protein and the relative concentrations of key peanut proteins can vary widely between the different commercially available peanut products that could potentially be used as a source for oral desensitization therapy. These variations could significantly impact the reliability and safety of an oral desensitization treatment regimen. In order to reduce the potential for variability, we have chosen to use peanut flour solely from the Golden Peanut Company, or GPC, as the basis for AR101. This flour has been used in most of the leading academic studies of peanut allergy OIT and, based on our own testing, shows little variation in the level of peanut protein in different batches of the companys flour, including between batches produced in different years. In order to develop AR101 as an FDA-approvable biological product, we took the further step of precisely characterizing the protein signature of GPC flour. Independent scientific research has identified numerous peanut proteins that are the allergens that cause allergic reactions to peanuts. Three of these proteins appear to be the most significant and representative of the levels of the other proteins. Our characterization of AR101 is based on precisely measuring total protein amount and the concentrations of those three key proteins.
We filed an Investigational New Drug application for AR101 in April 2013 for use in oral desensitization therapy for peanut allergy in children and adults. In June 2013, the FDA placed our proposed Phase 2 clinical trial on hold in order to obtain additional information regarding our manufacturing process and to request certain changes to the trial design. Specifically, the FDA requested information regarding the procedures used to ensure that the drug product was not contaminated, the procedures used to ensure the uniformity and consistency of the drug product, our acceptance procedures for the drug product and the placebo, and procedures to ensure correct dosing. In addition, the FDA requested changes to the clinical trial relating to the stopping rules for the trial, withdrawal criteria for the trial, exclusion criteria for patients, the appearance of the drug and the placebo, and the drug lots used in the trial. We provided the FDA with the information it requested and made agreed upon changes to the clinical trial. The FDA lifted the clinical hold in August 2013.
Because there are no robust animal models of peanut allergy, we did not conduct any pre-clinical efficacy studies of AR101. In addition, because AR101 is based on a food product, the FDA did not require us to submit any pre-clinical toxicology data.
AR101 Development and Commercialization Plan
We have developed AR101 in close consultation with the FDA and the EMA. In September 2014, the FDA granted AR101 Fast-Track designation for oral immunotherapy of peanut sensitive adults and children and in June 2015, the FDA granted AR101 Breakthrough Therapy designation for oral immunotherapy of peanut sensitive children and adolescents (ages 4 through 17). These designations are intended to facilitate the development and to expedite the review of drugs and biologics that are intended for the treatment of serious or life-threatening diseases or conditions and, in the case of a Fast-Track designation, that demonstrate the potential to address unmet medical needs for the disease or condition or, in the case of a Breakthrough Therapy designation, where preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Sponsors of products under development with a Fast-Track designation or Breakthrough Therapy designation may have greater interactions with the FDA, including the involvement of more senior staff members, and the FDA may initiate review of sections of a Fast-Track products marketing application before the application is complete. A product that receives these designations may be eligible for accelerated approval and priority review, if relevant criteria are met.
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We have had several formal communications and meetings with the FDA relating to the clinical development of AR101 and its manufacture and have scheduled end-of-Phase 2 meetings with the FDA for July 2015. We have had two country level scientific advice meetings with European regulatory authorities and have received positive preliminary feedback on our Pediatric Investigation Plan for AR101 from the EMA.
We anticipate initiating ARC003, a Phase 3 registration trial of AR101, in early 2016. ARC003 will be a randomized, double blind, placebo-controlled study of AR101 for the treatment of peanut allergy in children and adults. We anticipate that ARC003 will enroll between 350-500 patients and utilize a protocol that is essentially a combination of the protocols for ARC001 and ARC002. Patients in ARC003 will be up-dosed to a daily 300 mg dose over a period of 5 to 6 months and then maintained at that dose level for three months. At the end of the maintenance period, patients will be administered a DBPCFC. The primary endpoint of the study will be desensitization to cumulative exposure to 1,043 mg of peanut protein and a secondary endpoint will be desensitization to cumulative exposure of 2,043 mg of peanut protein. We anticipate conducting the study at approximately 35 sites in the United States and approximately 15 sites in Europe. Assuming we are able to initiate the study in early 2016, we anticipate completing the study in 2017. Based on our discussions with regulatory authorities, we anticipate that ARC003, if successful, will be sufficient to support the filing of a BLA with the FDA and an MAA with the EMA.
If AR101 is approved by the FDA and the EMA for the treatment of peanut allergy, we intend to commercialize it by developing a specialty sales force targeting a subset of the approximately 4,500 practicing allergists in the United States as well as allergy-focused clinicians in the five largest European markets.
Additional Food Allergy Research and Development
We intend to leverage the expertise gained in our development of AR101 to develop CODIT product candidates for a range of additional food allergies. A critical part of our process is transforming natural food products into biopharmaceuticals. This process requires identifying the key proteins that need to be in the product, developing characterizations methods for those proteins, creating usable formulations and ensuring the stability of those formulations.
We are in the process of developing formulations for CODIT product candidates for the treatment of two additional food allergies. We currently anticipate that we will initiate Phase 2 studies of two additional CODIT product candidates in 2016. We expect to conduct these studies at leading academic allergy research centers in the United States and Europe. As there are a limited number of such sites and their capacity to conduct clinical trials is limited, the timing of the initiation of the Phase 2 studies may be affected by the available capacity of the sites.
Based on existing scientific research, we believe that once a significant level of desensitization to the allergens in certain foods has been achieved, it may be possible to re-introduce that food into the patients diet in a controlled manner. The level of desensitization necessary to allow for reintroduction of those foods into the diet is likely to be much higher than is necessary to reduce the risk from accidental exposure. Therefore, the CODIT treatment regimen to reintroduce food may be significantly longer. In addition, the development pathway for those therapies may be different from the one used for AR101.
We are also researching potential CODIT product candidates for several other food allergies and for the treatment of two or more food allergies at once. We also believe that AR101 and our other potential future CODIT product candidates could potentially be used in conjunction with certain drugs on the market and in development for environmental allergies and asthma. We believe that using these drugs in combination with our CODIT product candidates, if approved, could allow for a quicker up-dosing regimen or for the treatment of highly sensitive patients. We are currently evaluating potential clinical approaches to studying these drug combinations.
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Manufacturing
We currently do not own manufacturing facilities and have limited personnel with manufacturing experience. We contract with third-party manufacturers to produce the food product and final biologic product for our product candidates and to package our product candidates. We plan to continue to rely on contract manufacturers for the production of supply for our clinical trials, and if we receive marketing approval for a product candidate, for commercial supply.
Our product candidates are manufactured in accordance with stringent manufacturing processes. Our processes are designed to ensure that that the total protein content of each formulation and the relative concentrations of particular proteins are consistent. Through our contract manufacturers, we are capable of producing dosages with protein content as small as 0.5 mg and have developed advanced analytical methods to ensure each dose contains precisely defined amounts of multiple well-characterized allergenic proteins. Our formulations are also designed to ensure that the drug product is acceptably stable and can be easily mixed with food.
AR101 is currently produced for us by a contract manufacturer using our proprietary process. This process involves several blending and characterization steps intended to ensure that each dose contains a precise amount of peanut flour containing a specific concentration of peanut protein. Because peanut flour is a sensitizing agent, AR101 must be produced on a manufacturing line that is physically separated from other manufacturing lines and that has its own ventilation system. The manufacturing line that we have used to produce the clinical supply for our planned Phase 3 trial will not be adequate to produce commercial supplies of AR101. In June 2015, we leased space in a building proximate to our current contract manufacturers existing facility and intend to establish a commercial scale manufacturing line for AR101 in that space. We are currently in the process of negotiating a supply agreement with our contract manufacturer pursuant to which the manufacturer would use our manufacturing line to produce commercial supplies of AR101 for us. Producing commercial quantities of AR101 will require us to scale up our existing manufacturing process and institute rigorous quality control and assurance procedures. In addition, we will need to engage a new provider of packaging services. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel. Qualifying manufacturers and providers of packaging services is a lengthy process. If at any time, one or more of our qualified contract organizations were not able to manufacture or package our drug product candidate or provide other requisite services, our business and financial condition could be materially adversely affected.
Our third-party suppliers, their facilities and all lots of product candidates used in our clinical trials are required to be in compliance with current Good Manufacturing Practices, or cGMP. The cGMP regulations include requirements relating to organization and personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. The manufacturing facilities for our products must meet cGMP requirements to the FDAs satisfaction before any product is approved and we can manufacture commercial products. Our third-party manufacturers are also subject to periodic inspections of facilities by the FDA and other authorities, which may include the evaluation of procedures and operations used in the testing and manufacture of our products to assess compliance with applicable regulations.
Suppliers
Our lead product candidate, AR101, contains peanut flour and pharmaceutical-grade ingredients. We source the peanut flour from GPC, a wholly-owned subsidiary of Archer Daniels Midland. We chose to use peanut flour from GPC as the basis for AR101 because its peanut flour has been used in most of the leading academic studies of peanut allergy OIT and because we believe that the widespread use of GPC peanut products in the United States may make their peanut flour representative of the type of peanut protein that patients are
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most likely to encounter in an accidental exposure. The other ingredients in AR101, such as diluents, glidants and lubricants, are sourced from established producers of pharmaceutical grade ingredients. In order to develop AR101 as an FDA-approvable biological product, we took the further step of precisely characterizing the protein signature of GPC flour. Independent scientific research has identified numerous peanut proteins that are the allergens that cause allergic reactions to peanuts. Three of these proteins appear to be the most significant and representative of the levels of the other proteins. Our characterization of AR101 is based on precisely measuring total protein amount and the concentrations of those three key proteins.
We purchase standard food-grade peanut flour from GPC pursuant to a long term exclusive commercial supply agreement. Under the terms of the agreement, we are obligated to purchase peanut flour exclusively from GPC provided that GPC is able to supply us in a timely manner with the quantity of peanut flour that we require. GPC is not allowed to sell peanut flour of the type (or equivalent to the type) we use to any third party in United States, Mexico, Canada, the European Union or Japan for use in OIT for peanut allergy provided that we are in compliance with our exclusive purchase obligation and meet specified annual purchase commitments. The agreement remains in effect until five years after the first delivery to us of peanut flour for commercial use and includes an option for us to extend the term for an additional five years. We may terminate the agreement at any time for any reason upon providing 60 days written notice to GPC, and GPC may terminate the agreement upon 60 days written notice if we fail to meet our minimum annual purchase commitment and fail to pay an amount equal to GPCs standard price for the unpurchased quantity within the notice period. Either party may terminate the agreement if the other party fails to cure their material breach within 30 days of receiving notice of such breach from the non-breaching party or if the other party fails to perform their obligations under the agreement for a continuous period of 90 days due to a force majeure event or an insolvency or bankruptcy-related events.
Intellectual Property
We have filed patent applications in the United States and international patent applications pursuant to the Patent Cooperation Treaty relating to the manufacture, formulation and stability of AR101 and anticipate filing similar applications with respect to our other product candidates. Our existing patent applications are in the early stages of prosecution. There is no assurance that any patents will issue from any of these applications. Even if patents do issue, there can be no assurance that the scope of the claims contained in the patents will be broad enough to provide protection from potentially competing products. If issued, our patents relating to AR101 are projected to expire between 2033 and 2034 without taking into account any potential patent term extensions. Our patent applications seek protection relating to our formulations and methods of manufacture. We do not own or license, and do not anticipate that we will be able to obtain, a composition of matter patent over the active pharmaceutical ingredient in AR101 or for any other product candidates that are based on widely or readily available food products.
In addition to patents, we rely upon unpatented trade secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. We protect our proprietary information, in part, using confidentiality agreements with our commercial partners, collaborators, employees and consultants and invention assignment agreements with our employees. We also have confidentiality agreements or invention assignment agreements with our commercial partners and selected consultants. Despite these measures, any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages. For more information, please see Risk FactorsIntellectual Property.
Sales and Marketing
Subject to regulatory approval, we intend to commercialize AR101 in the United States and Europe by developing a specialty sales force targeting a subset of the approximately 4,500 practicing allergists in the United States as well as allergy-focused clinicians in the five largest European markets. We anticipate that this sales force could also support the commercialization of additional CODIT product candidates, if approved. We intend
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to focus our sales efforts on patients with more severe food allergies, particularly children. While in our clinical trials we have screened patients for peanut allergy using a DBPCFC because of its sensitivity, we do not anticipate that a DBPCFC will be a requirement for prescribing AR101 as DBPCFCs are not widely used a diagnostic tool in current clinical practice. We anticipate that our CODIT system for food allergies will encompass providing a range of services to patients and their physicians including telephone and e-mail support for patients, physician awareness and education activities, reimbursement assistance, benefit navigation and co-pay and patient assistance programs. Based on the estimated direct medical expenses associated with peanut allergy and the estimated number of people with peanut allergy in the United States, we believe the potential market opportunity for approved peanut allergy treatments in the United States could exceed one billion dollars annually.
Competition
Our industry is highly competitive and subject to rapid and significant technological change. While we believe that our development experience and scientific knowledge provide us with competitive advantages, we may face competition from large pharmaceutical and biotechnology companies, smaller pharmaceutical and biotechnology companies, specialty pharmaceutical companies, generic drug companies, academic institutions, government agencies and research institutions and others.
Many of our potential competitors may have significantly greater financial, technical and human resources than we have. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop or market products or other novel technologies that are more effective, safer or less costly than any that will be commercialized by us, or if they obtain regulatory approval for their product candidates more rapidly than we may obtain approval for ours. Our success will be based in part on our ability to identify, develop and manage a portfolio of drugs that are safer, more efficacious and/or more cost-effective than alternative therapies.
Currently there are no approved medical therapies for the treatment of food allergies. We are aware that DBV Technologies S.A., or DBV, is developing treatments for peanut allergy and other food allergies based on a patch technology that epicutaneously delivers food allergens to the patient with the goal of desensitizing the patient to the allergens. DBV recently completed a Phase 2 study for the treatment of peanut allergy. If AR101 and/or any future product candidate of ours is approved, they may face competition from DBVs product candidates, if approved.
In addition, we may face competition from allergists who decide to provide OIT and other desensitization therapies to their patients using their own formulations of food allergens and treatment protocols rather than adopting our product candidates or we may face competition from companies that develop their own OIT products or other desensitization therapy products.
In the future, we may face competition from competitors seeking to use AR101 as a reference product while developing a biosimilar product candidate using the FDAs abbreviated approval pathway for biosimilar products. The abbreviated regulatory pathway, created pursuant to the Biologics Price Competition and Innovation Act of 2009, or BPCIA, establishes legal authority for the FDA to review and approve biosimilar biologics. To be considered a biosimilar, a product candidate must be highly similar to the reference product notwithstanding minor differences in clinically inactive components. In addition, there can be no clinically meaningful differences between the product candidate and the reference product in terms of the safety, purity, and potency of the product. We believe that the concentrations of relevant proteins in the peanut flour we source pursuant to our exclusive contract with the GPC are significantly different from the concentrations of proteins found in other commercially available sources of protein flour, and that a product candidate using different concentrations of such proteins or different proteins might not be considered highly similar to AR101 by the FDA. Such a product candidate would not be eligible for the biosimilar approval pathway. However, there can be no guarantee that the FDA would agree with this interpretation.
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Under the BPCIA, a reference product may be eligible for a 12-year period of exclusivity starting from the date that the product is first licensed by the FDA pursuant to the approval of a BLA, during which time no approval of a biosimilar product under the abbreviated approval pathway may be made effective. We believe that if the FDA approves a BLA for AR101, AR101 should qualify for this 12-year period of market exclusivity, known as reference product exclusivity, such that no approval of a biosimilar version of our product could become effective prior to the expiration of that 12-year period. However, these exclusivity provisions have been subject to various interpretations that have not yet been fully addressed by the FDA, and there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider AR101 to be eligible for reference product exclusivity, potentially creating the opportunity for competition sooner than anticipated. In addition, even if AR101 were to receive reference product exclusivity, a competitor may seek approval of a product candidate under a full BLA rather than a biosimilar product application. In such a case, although the competitor would not enjoy the benefits of the abbreviated pathway for biosimilar approval created under the BPCIA, the FDA would not be precluded from making effective an approval of the competitor product pursuant to a BLA prior to the expiration of our 12-year period of marketing exclusivity.
Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the United States and markets in other countries, 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. Third-party payors include government payor programs at the federal and state levels, including Medicare and Medicaid, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payors decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. 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.
The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and possible legislative proposals. Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their 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 approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our net revenue and results.
Different pricing and reimbursement schemes exist in each country. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some
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jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular drug candidate to currently available treatment approaches. Other member states allow companies to set their own prices for medicines, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country. There can be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricing arrangements for any of our products.
Significant uncertainty also surrounds the reimbursement of allergists for administering the anticipated treatment regimen for AR101 and our other products candidates. In the United States, it is not certain whether the existing reimbursement codes that can be appropriately used for AR101 up-dosing sessions will adequately compensate clinicians for the time spent on these visits. We may decide to seek the creation of new codes and associated reimbursement rates to ensure that clinicians are adequately compensated; however, creation of new codes is a complicated and lengthy process, and we may not be successful in any such efforts. In markets outside of the United States, we will need to evaluate clinician compensation mechanisms in each market to determine whether any action needs to be taken to ensure appropriate payment of physicians for administration of the treatment regimens.
Healthcare Reform
In the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations as we begin to directly commercialize our products.
In particular, there have been and continue to be a number of initiatives at the U.S. federal and state level that seek to reduce healthcare costs. Initiatives to reduce the federal deficit and to reform healthcare delivery are increasing cost-containment efforts. We anticipate that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental changes to the healthcare delivery system. Any proposed or actual changes could limit or eliminate our spending on development projects and affect our ultimate profitability.
In March 2010, the Affordable Care Act was signed into law, which has the potential to substantially change the way healthcare is financed by both governmental and private insurers. The Affordable Care Act, among other things, established: an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents; revised the methodology by which rebates owed by manufacturers for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated; increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; extended the Medicaid Drug Rebate program to utilization of certain injectable outpatient drugs, as well as prescriptions of individuals enrolled in Medicaid managed care organizations; and required manufacturers to offer 50% point-of-sale discounts on negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D.
In the future, there may continue to be additional proposals relating to the reform of the United States healthcare system, some of which could further limit the prices we are able to charge for our products candidates, or the amounts of reimbursement available for our product candidates. If future legislation were to impose direct governmental price controls and access restrictions, it could have a significant adverse impact on our business. Managed care organizations, as well as Medicaid and other government agencies, continue to seek price
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discounts. Some states have implemented, and other states are considering, price controls or patient access constraints under the Medicaid program, and some states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible. Due to the volatility in the current economic and market dynamics, we are unable to predict the impact of any unforeseen or unknown legislative, regulatory, payor or policy actions, which may include cost containment and healthcare reform measures. Such policy actions could have a material adverse impact on our profitability.
Government Regulation
Government Regulation in the United States
Government authorities in the United States at the federal, state and local level, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacturing, labeling, packaging, promotion, advertising, storage, distribution, marketing, post-approval monitoring and reporting, and export and import of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various pre-clinical, clinical and commercial requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates. 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.
Overview of Biologics Regulation in the United States
In the United States, our product candidates are regulated by the FDA as biologics under the Federal Food, Drug, and Cosmetic Act, or the FDCA, the Public Health Service Act, or PHSA, and regulations implemented by the FDA. Section 351(i)(1) of the PHSA defines a biological product (biologic) as a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein (except any chemically synthesized polypeptide), or analogous product applicable to the prevention, treatment, or cure of a disease or condition of human beings. The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:
| completion of pre-clinical laboratory tests and animal studies performed in accordance with the FDAs Good Laboratory Practices, or GLP, regulations; |
| submission to the FDA of an IND which must become effective before human clinical trials may begin and must be updated annually; |
| approval by an independent Institutional Review Board, or IRB, or ethics committee at each clinical site before the trial is initiated; |
| performance of adequate and well-controlled clinical trials to establish the safety, purity and potency of the proposed biologic product candidate for its intended purpose; |
| preparation, and submission to, the FDA of a BLA after completion of clinical trials; |
| a determination by the FDA within 60 days of its receipt of a BLA to file the application for review; |
| satisfactory completion of an FDA Advisory Committee review, if applicable; |
| satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with cGMP requirements, and to assure that the facilities, methods and controls are adequate to preserve the biological products continued safety, purity and potency; and |
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| FDA review and approval of the BLA prior to any commercial marketing or sale of the product in the United States. |
Pre-clinical Studies and Investigational New Drug Application
Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical trials. The IND also generally includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. Because there are no robust animal models of peanut allergy, we did not conduct any pre-clinical efficacy studies of AR101. In addition, because AR101 is based on a food product, the FDA did not require us to submit any pre-clinical toxicology data.
Clinical Trials
An IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to the proposed clinical trials. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trials can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with Good Clinical Practices, or 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 study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each clinical protocol and any subsequent protocol amendments must be submitted to the FDA as part of the IND, and an IRB at each site where the study is to be conducted must also approve the study. The IRB must monitor the study until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries. Clinical trials typically are conducted in three or four sequential phases, but the phases may overlap or be combined.
| Phase 1 . The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. |
| Phase 2 . The investigational product is administered to a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse side effects and safety risks and preliminarily evaluate efficacy. |
| Phase 3 . The investigational product is administered to an expanded patient population, generally at geographically dispersed clinical study sites to generate enough data to statistically evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational product, and to provide an adequate basis for product licensure. |
| Phase 4 . In some cases, the FDA may condition approval of a BLA for a product candidate on the sponsors agreement to conduct additional clinical trials after approval. In other cases, a sponsor may voluntarily conduct additional clinical trials after approval to gain more information about the product. Such post-approval studies are typically referred to as Phase 4 clinical trials. |
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The FDA, the IRB, 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 are being exposed to an unacceptable health risk. 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 trial. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate. Concurrent with clinical trials, companies may complete additional in vitro studies and develop additional information about the biological characteristics of the product candidate, and must 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 product candidate and, among other things, must develop methods for testing the safety, purity and potency of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
Review and Approval of a Biologics License Application
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed information regarding the investigational product is submitted to the FDA in the form of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent pre-clinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the products chemistry, manufacturing, controls, and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators. Under federal law, the submission of most BLAs is subject to an application user fee, and the sponsor of an approved BLA is also subject to annual product and establishment user fees. These fees are typically increased annually. A waiver of user fees may be obtained under certain limited circumstances.
Once a BLA has been submitted, the FDAs goal is to review the application within ten months after it accepts the application for filing, or, if the application relates to an unmet medical need in a serious or life-threatening indication, six months after the FDA accepts the application for filing. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the products continued safety, purity and potency.
Before approving a BLA, the FDA typically will inspect the facility or facilities at which the product is manufactured. The FDA will not approve the application 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. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP requirements. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
The FDA is required to refer an application for a novel product to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides 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.
After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its substance will be produced, the FDA may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the product with specific
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prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 trial or trials, and/or other significant, expensive and time-consuming requirements related to clinical trials, pre-clinical trials or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. The FDA may also approve the BLA with a Risk Evaluation and Mitigation Strategy (REMS) plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials, and may limit further marketing of the product based on results of these post-marketing studies. Such post-market testing may include Phase 4 trials and surveillance to further assess and monitor the products safety and effectiveness after commercialization. In addition, once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace. New government requirements, including those resulting from new legislation, may also be established, or the FDAs policies may change, which could delay or prevent regulatory approval of our products under development.
Expedited Review and Approval Programs
A sponsor may seek approval of its product candidate under programs designed to accelerate FDAs review and approval of new drugs and biological products that meet certain criteria. Specifically, new drugs and biological products are eligible for Fast-Track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for that disease or condition. For a Fast-Track product, the FDA may consider sections of the BLA for review on a rolling basis before the complete application is submitted if relevant criteria are met. A Fast-Track designated product candidate may also qualify for priority review, under which the FDA sets the target date for FDA action on the BLA at six months after the FDA accepts the application for filing. Priority review is granted when there is evidence that the proposed product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious condition. If criteria are not met for priority review, the application is subject to the standard FDA review period of 10 months after FDA accepts the application for filing. Priority review designation does not change the scientific or medical standard for approval or the quality of evidence necessary to support approval.
Under the accelerated approval program, the FDA may approve a BLA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Post-marketing studies or completion of ongoing studies after marketing approval are generally required to verify the biologics clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit. In September 2014, the FDA granted AR101 Fast-Track designation.
In 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law established a new regulatory scheme allowing for expedited review of products designated as Breakthrough Therapies. A product may be designated as a Breakthrough Therapy if it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to Breakthrough Therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
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Post-Approval Requirements
Biologics manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data. Manufacturers of biologics and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP requirements, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
| restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
| fines, warning letters or holds on post-approval clinical trials; |
| refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals; |
| product seizure or detention, or refusal to permit the import or export of products; or |
| injunctions or the imposition of civil or criminal penalties. |
The FDA strictly regulates the marketing, labeling, advertising, and promotion of biologics. A company may make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the products labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers communications on the subject of off-label use of their products.
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Abbreviated Licensure Pathway of Biological Products as Biosimilar or Interchangeable
The Patient Protection and Affordable Care Act, or PPACA, signed into law on March 23, 2010, included the BPCIA, which amended the PHSA and established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. To date, only one biosimilar has been licensed under the BPCIA, although numerous biosimilars have been approved in Europe. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.
Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is biosimilar to or interchangeable with a previously approved biological product or reference product. In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity, and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years after the date that the reference product is first licensed by the FDA. In addition, the approval of an application for a biosimilar product may not be made effective by the FDA until 12 years after the date that the reference product is first licensed by the FDA. These exclusivity provisions have been subject to various interpretations that have not yet been fully addressed by the FDA. In addition, even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsors own pre-clinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed interchangeable by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
Other Healthcare Laws in the United States
In the United States, our activities are potentially subject to regulation 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 United States Department of Justice and individual United States Attorney offices within the Department of Justice, and state and local governments. The laws we are subject to include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, physician payment transparency and privacy and security laws and regulations.
The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The Anti-Kickback Statute is subject to evolving interpretations. In the past, the government has enforced the Anti-Kickback Statute to reach large settlements with healthcare companies based on sham consulting and other financial arrangements with physicians. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act. The majority of states also have anti-kickback laws which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers.
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Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the United States government. Actions under the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the False Claims Act can result in very significant monetary penalties and treble damages. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices. The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal convictions under applicable criminal statutes. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers and manufacturers compliance with applicable fraud and abuse laws.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, 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. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, among other things, imposed new reporting requirements on drug manufacturers for payments made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for knowing failures), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers are required to submit reports to the government by the 90th day of each calendar year. Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians.
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology 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 HIPAAs privacy and security standards directly applicable to business associates, defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek 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, thus complicating compliance efforts.
Government Regulation in Europe
In the European Economic Area, or EEA, (which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein), medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA.
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There are two types of MAs:
| 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 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, and medicinal products 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. Under the Centralized Procedure the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when the authorization of a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. Under the accelerated procedure the standard 210 days review period is reduced to 150 days. |
| 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 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.
Employees
As of June 30, 2015, we had 21 full-time employees. Of these employees, fifteen are engaged in research and development. Our employees are not represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.
Facilities
We lease approximately 11,500 square feet of office space in Brisbane, California under a lease that expires in 2019 and approximately 20,000 square feet of manufacturing space in Clearwater, Florida pursuant to a lease that expires in 2025. We believe that our existing facilities and other available properties will be sufficient for our needs for the foreseeable future.
Legal Proceedings
We are not currently party to any material legal proceedings.
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Executive Officers and Directors
The following table sets forth information regarding our executive officers, directors and key employees as of the date of this prospectus:
Name |
Age |
Position(s) |
||
Executive Officers and Employee Directors |
||||
Stephen G. Dilly, M.B.B.S., Ph.D. |
56 | President, Chief Executive Officer and Director | ||
Warren L. DeSouza. |
46 | Chief Financial Officer | ||
Howard V. Raff, Ph.D. |
64 | Chief Operating Officer | ||
Robert M. Elfont, M.D., Ph.D. |
57 | Chief Medical Officer | ||
Mary M. Rozenman, Ph.D. |
34 | Senior Vice President, Corporate and Commercial Development | ||
Key Employees |
||||
Michael S. Holfinger, Ph.D. |
52 | Vice President, Manufacturing | ||
Joseph W. Suttner. |
49 | Vice President, Clinical Operations | ||
Non-Employee Directors |
||||
Patrick G. Enright |
53 | Director | ||
Kathryn E. Falberg. |
54 | Director | ||
Mark T. Iwicki |
48 | Director | ||
Mark D. McDade |
60 | Chairman of the Board | ||
Stacey D. Seltzer. |
38 | Director |
Executive Officers and Employee Directors
Stephen G. Dilly, M.B.B.S., Ph.D. has served as our Chief Executive Officer since April 2014 and as a member of our board of directors since April 2013. Dr. Dilly was Chief Executive Officer of PhotoThera, Inc., a medical device company, from January 2012 to December 2012. Since April 2010, Dr. Dilly has served as an independent director of Sangamo Biosciences, Inc., a biopharmaceutical company, where he also currently serves as chair of the clinical review committee. From 2006 to December 2011, Dr. Dilly served as President and Chief Executive Officer and a member of the board of directors of APT Pharmaceuticals, Inc., a drug development company. From 2007 to 2009, he was a member of the board of directors of Avigen, Inc., a biopharmaceutical company, which merged with MediciNova, Inc. in December 2009. From 2003 to 2006, he served as Chief Medical Officer and Senior Vice President of Development of Chiron BioPharma, a biotechnology company which was later acquired by Novartis International AG. From 1998 to 2003, Dr. Dilly held various management positions at Genentech, Inc., a biotechnology company, including Vice President of Development Sciences from 2002 to 2003 and Vice President of Medical Affairs from 1998 to 2001. From 1988 to 1998, Dr. Dilly held various management positions in drug development with SmithKline Beecham, PLC, a healthcare company in the U.K. During his career, Dr. Dilly has been closely associated with the development and launch of marketed drugs for many therapeutic areas, including Kytril, Paxil, Kredex, Requip, TNKase, Xolair, Avastin, Raptiva, Tarceva, Lucentis and Cubicin. Dr. Dilly received an M.B.B.S., the equivalent of an M.D., from the University of London in the U.K. and a Ph.D. in cardiac physiology from University of London. We believe that Dr. Dilly is qualified to serve on our board of directors due to his extensive management experience in the life science industry and drug development experience.
Warren L. DeSouza has served as our Chief Financial Officer since April 2015. Mr. DeSouza served as a consultant on financial matters to Onyx Pharmaceuticals, Inc., or Onyx, a biopharmaceutical company, from August 2013 to January 2014, during which the company was acquired by Amgen, Inc. From January 2005 to August 2013, Mr. DeSouza served as Vice President, Finance for Onyx, where he led accounting, SEC reporting,
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purchasing, tax, treasury and risk management. From 2002 to 2005, Mr. DeSouza served as a senior manager at Deloitte & Touche LLP, an accounting firm. From 1990 to 2002, Mr. DeSouza was a senior manager at Arthur Andersen LLP, an accounting firm. Mr. DeSouza received a B.B.A. from the University of Notre Dame and is a certified public accountant (inactive).
Howard V. Raff, Ph.D. has served as our Chief Operating Officer since July 2012. From 2007 to March 2012, Dr. Raff served as Chief Operating Officer for APT Pharmaceuticals, Inc., a pharmaceutical company. Dr. Raff was Vice President of Development Management for Chiron Corporation, a biotechnology company, from 1995 until its acquisition by Novartis International AG, a pharmaceutical company, in 2006. Dr. Raff also served as the head of west coast operations for The Biologics Consulting Group, a regulatory consulting firm in product development and regulatory strategy for biologics, drugs and medical devices, and spent 11 years in discovery research and development for Bristol-Myers Squibb, a pharmaceutical company. Dr. Raff has been involved with the development and approval of several drugs in the U.S. and Europe, including CTLA4-lg, Proleukin, Menjugate vaccine and Cubicin. Dr. Raff received a B.S. in Zoology from the University of Illinois and an M.S. and Ph.D. in Immunology and Microbiology from Washington State University.
Robert M. Elfont, M.D., Ph.D has served as our Chief Medical Officer since March 2014. From April 2012 to March 2014, Dr. Elfont served as Chief Medical Officer for PhotoThera, Inc., a medical device company. From December 2009 to March 2014, he was a consultant for Strategic Clinical Development, LLC, a life sciences consulting company, of which he was a founder. From 2008 to December 2009, Dr. Elfont served as Associate Vice President of Clinical Development and Acting Chief Medical Officer at Avigen, Inc., a biopharmaceutical company. During 2007, he served as Vice President of Clinical Development for Medivation, Inc., a biopharmaceutical company. From 2005 to 2007, Dr. Elfont was Clinical Research and Licensing Liaison, Neuroscience, at Roche Pharmaceuticals, a biotechnology company. Dr. Elfont also served as Medical Director, Early Clinical Development for Pfizer, Inc., a biopharmaceutical company, from 2002 to 2005, and as Medical Director for Teva Neuroscience, Inc., a pharmaceutical company. Prior to that, Dr. Elfont was an assistant professor of neurology at Johns Hopkins University School of Medicine and Drexel University College of Medicine. Dr. Elfont received an A.B. in Biology and English from the University of Pennsylvania and an M.D. and Ph.D. in Neuroanatomy from the University of Rochester School of Medicine and Dentistry. Dr. Elfont is Board-certified in neurology.
Mary M. Rozenman, Ph.D. has served as our Senior Vice President, Corporate and Commercial Development, since February 2015. From February 2013 to January 2015, Dr. Rozenman was Vice President at Longitude Capital Management Co., LLC, a venture investment company, where she focused on biotechnology investments in therapeutics, diagnostics and research and development tools and services. From February 2008 to January 2013, Dr. Rozenman was at McKinsey & Company, a management-consulting company, where she most recently served as Associate Principal. Dr. Rozenman previously served as an observer on the boards of directors of Esperion Therapeutics, Inc., a biopharmaceutical company, and CardioDx, Inc., a molecular diagnostics company. Dr. Rozenman received a B.A. in Biochemistry and Russian Literature from Columbia University and a Ph.D. in Organic Chemistry and Chemical Biology from Harvard University.
Key Employees
Michael S. Holfinger, Ph.D. has served as our Vice President, Manufacturing and Supply Chain since March 2015. From June 2013 to March 2015, Dr. Holfinger was Vice President, Manufacturing and Supply Chain Management at Alexza Pharmaceuticals, Inc., a pharmaceutical company. From 2006 to June 2013, he served in various roles at Affymax, Inc., a biopharmaceutical company, including Executive Director, Senior Director and Director of API Manufacturing and Process Development and, most recently, Vice President, Manufacturing and CMC Development. Previously, Dr. Holfinger served as Senior Manager, API Support Team at Pfizer, Inc., a biopharmaceutical company, from 2002 to 2006, and as Scientist, Research Scientist and Senior Research Scientist, Process Development for Pharmacia & Upjohn Company, LLC, a biopharmaceutical company and a subsidiary of Pfizer, Inc., from 1992 to 2002. Dr. Holfinger received a B.S. in Chemistry and a B.S. in Applied Science, Paper Science and Engineering from Miami University and a Ph.D. Chemical Engineering from the University of Wisconsin-Madison.
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Joseph W. Suttner has served as our Vice President, Clinical Operations since November 2012. From July 2012 to November 2012, he served as Director, Clinical Operations at PhotoThera, Inc., a medical device company. From March 2011 to June 2012, he served as Director, Clinical Operations at Ipsen, a pharmaceutical company. From 2007 to April 2011, Mr. Suttner served as Director, Clinical Development for Peplin, Ltd., a pharmaceutical company. Mr. Suttner received a B.A. in Liberal Arts from California State University-Long Beach and an M.B.A. from the University of Liverpool.
Non-Employee Directors
Patrick G. Enright has served as a member of our board of directors since April 2013. Since July 2007, Mr. Enright has served as a Managing Director of Longitude Capital, a venture capital firm, of which he is a founder. From 2002 through 2006, Mr. Enright was a Managing Director of Pequot Ventures, a venture capital investment firm, where he co-led the life sciences investment practice. He currently serves on the board of directors and as a member of the compensation committee of Jazz Pharmaceuticals, PLC, a biopharmaceutical company, where he also served as a member of the audit committee from 2009 to 2014. Mr. Enright also currently serves on the board of directors and as a member of the audit committee of Corcept Therapeutics Incorporated, a pharmaceutical company and Esperion Therapeutics, Inc., a pharmaceutical company. Mr. Enright received a B.S. in Biological Sciences from Stanford University and an M.B.A. from the Wharton School at the University of Pennsylvania. We believe that Mr. Enright is qualified to serve on our board of directors due to his experience serving on the board of directors of clinical-stage biotechnology companies and his investment experience in the life sciences industry.
Kathryn E. Falberg has served as a member of our board of directors since May 2015. Ms. Falberg served as Executive Vice President and Chief Financial Officer of Jazz Pharmaceuticals, PLC, a biopharmaceutical company, from March 2012 to March 2014, after serving as Senior Vice President and Chief Financial Officer since December 2009. From 1995 to 2001, Ms. Falberg was with Amgen Inc., a biotechnology company, where she served as Senior Vice President, Finance and Strategy and Chief Financial Officer, and before that as Vice President, Controller and Chief Accounting Officer and Vice President, Treasurer. Ms. Falberg currently serves as chair of the board of directors and chair of the audit committee of Halozyme Therapeutics, Inc., a biopharmaceutical company, Medivation, Inc., a biopharmaceutical company, and aTyr Pharma, Inc., a biotherapeutics company. She previously served on the board of directors of QLT Inc., a biotechnology company. Ms. Falberg received a B.A. in Economics and M.B.A. from the University of California, Los Angeles and is a certified public accountant (inactive). We believe Ms. Falberg is qualified to serve on our board of directors due to her extensive financial experience as a certified public accountant and principal financial officer of numerous public companies, as well as her experience as a director of numerous public companies in the life science industry.
Mark T. Iwicki has served as a member of our board of directors since May 2015. Mr. Iwicki served as President and Chief Executive Officer and a member of the board of directors of Civitas Therapeutics, Inc., a biopharmaceutical company, from January 2014 until its acquisition by Acorda Therapeutics, Inc., a biotechnology company, in September 2014. From December 2012 to January 2014, Mr. Iwicki served as President and Chief Executive Officer and director at Blend Therapeutics, Inc., a biopharmaceutical company. From 2007 to June 2012, Mr. Iwicki was President and Chief Executive Officer and director of Sunovion Pharmaceuticals, Inc., formerly Sepracor, Inc., a pharmaceutical company. From 1998 to 2007, Mr. Iwicki served as Vice President and Business Unit Head at Novartis Pharmaceuticals Corporation, a pharmaceuticals company. Mr. Iwicki has also held management positions at Astra Merck Inc. and Merck & Co., Inc., pharmaceutical companies. Mr. Iwicki received a B.A. in Business Administration from Ball State University and an M.B.A. from Loyola University. We believe that Mr. Iwicki is qualified to serve on our board of directors due to his executive management and operational experience in the life science industry.
Mark D. McDade has served as the Chairman of our board of directors since May 2015. He is currently the Executive Vice President, Chief Operating Officer at UCB S.A., a biopharmaceutical company, where he
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previously served as Executive Vice President, Established Brands, Solutions and Supply and Executive Vice President, Global Operations since joining in 2008. From 2002 to 2007, Mr. McDade served as Chief Executive Officer and a member of the board of directors of PDL BioPharma, Inc., a biotechnology company. From 2000 to 2002, Mr. McDade was Chief Executive Officer of Signature BioScience, Inc., a drug discovery company. From 1994 to 2000, Mr. McDade served as Chief Operating Officer and a director of Corixa Corporation, a biopharmaceutical company he co-founded. At Corixa, he most recently served as its President and Chief Operating Officer. Mr. McDade currently serves on the board of directors and as a member of the audit and conflicts committees for Phillips Edison Grocery Center REIT II, Inc., a real estate investment company. He has served on the board of directors of Five Prime Therapeutics, Inc., a biotechnology company, since 2006 and Dermira, Inc., biopharmaceutical company, since August 2014. He previously served on the board of directors of several public and private companies, including Cytokinetics, Inc., a biopharmaceutical company, PDL BioPharma, Inc., a biotechnology company, and Valentis, Inc., a biotechnology company. Mr. McDade received a B.A. in history from Dartmouth College and an M.B.A. from Harvard Business School. We believe that Mr. McDade is qualified to serve on our board of directors due to his executive management and leadership experience in the life science industry, as well as extensive experience as a director of public companies.
Stacey D. Seltzer has served as a member of our board of directors since January 2015. Ms. Seltzer is currently a partner at Aisling Capital, where she previously served as principal since joining in September 2008. From 2004 to 2008, Ms. Seltzer held various positions at Schering-Plough Corporation, a pharmaceutical company, including U.S. Schering-Plough Brand Lead for Zetia, Associate Director, U.S. Marketing, Senior Manager, Global Licensing and Management Associate. From 2001 to 2002, Ms. Seltzer served as Director of Business Development for Akceli, Inc., a biotechnology company. Ms. Seltzer serves on the board of directors of Miramar Labs, Inc., a privately-held medical device company. She previously served as a board observer for Agile Therapeutics, Inc., a pharmaceutical company, Durata Therapeutics, Inc., a pharmaceutical company, and Zeltiq Aesthetics, Inc. a medical equipment supplier. Ms. Seltzer received a B.S. and M.S. in Molecular Biophysics and Biochemistry from Yale University and an M.B.A. from the Wharton School at the University of Pennsylvania. We believe that Ms. Seltzer is qualified to serve on our board of directors due to her investment and management experience in the life science industry.
Board Composition
Director Independence
Our board of directors currently consists of six members. Our board of directors has determined that all of our directors, other than Dr. Dilly, qualify as independent directors in accordance with The NASDAQ Global Market listing requirements. Dr. Dilly is not considered independent because he is an employee of Aimmune Therapeutics, Inc. The NASDAQ Global Markets independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his or her family members has engaged in various types of business dealings with us. In addition, as required by The NASDAQ Global Market rules, our board of directors has made a subjective determination as to each independent director that no relationships exists that, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each directors business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers.
Classified Board of Directors
In accordance with our amended and restated certificate of incorporation to be in effect immediately prior to the consummation of this offering, our board of directors will be divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then
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expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Effective upon the consummation of this offering, we expect that our directors will be divided among the three classes as follows:
| the Class I directors will be , and , and their terms will expire at the annual meeting of stockholders to be held in 2016; |
| the Class II directors will be , and , and their terms will expire at the annual meeting of stockholders to be held in 2017; and |
| the Class III directors will be , and , and their terms will expire at the annual meeting of stockholders to be held in 2018. |
Our amended and restated certificate of incorporation will 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 will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company.
Voting Arrangements
The election of the members of our board of directors is governed by the amended and restated voting agreement, as amended, that we entered into with certain holders of our common stock and certain holders of our convertible preferred stock and the related provisions of our amended and restated certificate of incorporation.
Pursuant to the voting agreement and these provisions the holders of our Series A convertible preferred stock, voting together as a single class, have the right to elect one (1) director to our board of directors, the holders of our Series B convertible stock, voting together as a single class, have the right to elect two (2) directors to our board of directors, the holders of our common stock, voting together as a single class, have the right to elect one (1) director to our board of directors and the holders of our common stock and any other class or series of voting stock (including our convertible preferred stock), voting together as a single class, have the right to elect the balance of the total number of our directors, which are designated as follows:
| one (1) member designated by Longitude Venture Partners II, L.P. (together with its affiliated funds) and elected by our Series A convertible preferred stock, for which Mr. Enright has been designated; |
| one (1) member designated by Foresite Capital Fund II, L.P. (together with its affiliated funds) and elected by our Series B convertible preferred stock, which is currently vacant; |
| one (1) member designated by Aisling Capital III, L.P. (together with its affiliated funds) and elected by our Series B convertible preferred stock, for which Ms. Seltzer has been designated; |
| one (1) member designated and elected by the holders of a majority of the shares of our common stock, for which Dr. Dilly has been designated; and |
| three (3) members designated and elected by the holders of a majority of our voting capital stock, including our preferred stock and common stock, voting together as a single class on an as-converted basis, for which Kathryn E. Falberg, Mark T. Iwicki and Mark D. McDade have been designated. |
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The holders of our common stock and convertible preferred stock who are parties to our voting agreement are obligated to vote for such designees indicated above. The provisions of this voting agreement will terminate upon the consummation of this offering and our certificate of incorporation will be amended and restated, after which there will be no further contractual obligations or charter provisions regarding the election of our directors. Our directors hold office until their successors have been elected and qualified or appointed, or the earlier of their death, resignation or removal.
Leadership Structure of the Board
Our bylaws and corporate governance guidelines provide our board of directors with flexibility to combine or separate the positions of chairman of the board of directors and Chief Executive Officer and/or the implementation of a lead director in accordance with its determination that utilizing one or the other structure would be in the best interests of our company. Mr. McDade currently serves as the Chairman of our board of directors. In that role, Mr. McDade presides over the executive sessions of the board of directors.
Our board of directors has concluded that our current leadership structure is appropriate at this time. However, our board of directors will continue to periodically review our leadership structure and may make such changes in the future as it deems appropriate.
Role of Board in Risk Oversight Process
Risk assessment and oversight are an integral part of our governance and management processes. Our board of directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings, and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the board of directors at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks.
Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure, our audit committee is responsible for overseeing our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The audit committee also monitors compliance with legal and regulatory requirements and considers and approves or disapproves any related person transactions. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
Board Committees
Audit Committee
Our audit committee oversees our corporate accounting and financial reporting process. Among other matters, the audit committee:
| appoints our independent registered public accounting firm; |
| evaluates the independent registered public accounting firms qualifications, independence and performance; |
| determines the engagement of the independent registered public accounting firm; |
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| reviews and approves the scope of the annual audit and the audit fee; |
| discusses with management and the independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements; |
| approves the retention of the independent registered public accounting firm to perform any proposed permissible non-audit services; |
| monitors the rotation of partners of the independent registered public accounting firm on our engagement team in accordance with requirements established by the SEC; |
| is responsible for reviewing our financial statements and our managements discussion and analysis of financial condition and results of operations to be included in our annual and quarterly reports to be filed with the SEC; |
| reviews our critical accounting policies and estimates; and |
| reviews the audit committee charter and the committees performance at least annually. |
The current members of our audit committee are Kathryn E. Falberg, Mark T. Iwicki and Stacey D. Seltzer. Ms. Falberg serves as the chairperson of the committee. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and The NASDAQ Global Market. Our board of directors has determined that Ms. Falberg is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite financial sophistication as defined under the applicable rules and regulations of The NASDAQ Global Market. Under the rules of the SEC, members of the audit committee must also meet heightened independence standards. Our board of directors has determined that each of Ms. Falberg, Mr. Iwicki and Ms. Seltzer are independent under the applicable rules of the SEC and The NASDAQ Global Market. The audit committee operates under a written charter that satisfies the applicable standards of the SEC and The NASDAQ Global Market.
Compensation Committee
Our compensation committee oversees policies relating to compensation and benefits of our officers and employees. The compensation committee reviews and recommends corporate goals and objectives relevant to compensation of our executive officers (other than our Chief Executive Officer), evaluates the performance of these officers in light of those goals and objectives and approves the compensation of these officers based on such evaluations. The compensation committee also recommends to our board of directors the issuance of stock options and other awards under our stock plans (other than for our Chief Executive Officer). The compensation committee reviews the performance of our Chief Executive Officer and makes recommendations to our board of directors with respect to his compensation, and our board of directors retains the authority to make compensation decisions relative to our Chief Executive Officer. The compensation committee will review and evaluate, at least annually, the performance of the compensation committee and its members, including compliance by the compensation committee with its charter. The current members of our compensation committee are Patrick G. Enright, Kathryn E. Falberg and Mark D. McDade. Mr. Enright serves as the chairman of the committee. Each of the members of our compensation committee is independent under the applicable rules and regulations of The NASDAQ Global Market, is a non-employee director as defined in Rule 16b-3 promulgated under the Exchange Act and is an outside director as that term is defined in Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, or Section 162(m). The compensation committee operates under a written charter that satisfies the applicable standards of the SEC and The NASDAQ Global Market.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee is responsible for making recommendations to our board of directors regarding candidates for directorships and the size and composition of our board of directors.
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In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance policies and reporting and making recommendations to our board of directors concerning governance matters. The current members of our nominating and corporate governance committee are Patrick G. Enright, Mark D. McDade and Stacey D. Seltzer. Mr. McDade serves as the chairman of the committee. Each of the members of our nominating and corporate governance committee is an independent director under the applicable rules and regulations of The NASDAQ Global Market relating to nominating and corporate governance committee independence. The nominating and corporate governance committee operates under a written charter that satisfies the applicable standards of the SEC and The NASDAQ Global Market.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2014, our compensation committee consisted of Patrick G. Enright, Walter Flamenbaum, M.D. and Joon Yun, M.D. Each of Drs. Flamenbaum and Yun resigned from our board of directors in 2015. None of the members of our compensation committee has at any time been one of our officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers on our board of directors or compensation committee.
Board Diversity
Upon consummation of this offering, our nominating and corporate governance committee will be responsible for reviewing with the board of directors, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, may take into account many factors, including but not limited to the following:
| personal and professional integrity; |
| ethics and values; |
| experience in corporate management, such as serving as an officer or former officer of a publicly held company; |
| experience in the industries in which we compete; |
| experience as a board member or executive officer of another publicly held company; |
| diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; |
| conflicts of interest; and |
| practical and mature business judgment. |
Currently, our board of directors evaluates, and following the consummation of this offering will evaluate, each individual in the context of the board of directors as a whole, with the objective of assembling a group that can best maximize the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas.
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Code of Business Conduct and Ethics
Prior to the consummation of this offering, we will adopt a code of business conduct and ethics that will apply to all of our employees, officers and directors, including those officers responsible for financial reporting. Following the consummation of this offering, the code of business conduct and ethics will be available on our website. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.
Limitation on Liability and Indemnification Matters
Our amended and restated certificate of incorporation, which will become effective immediately prior to the consummation of this offering, will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:
| any breach of the directors duty of loyalty to us or our stockholders; |
| any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or |
| any transaction from which the director derived an improper personal benefit. |
Each of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to the consummation of this offering, will provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and restated bylaws will also obligate us to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors and officers liability insurance.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage.
Director Compensation
The following table presents the total compensation for each person who served as a non-employee member of our board of directors during the year ended December 31, 2014. Other than as set forth in the table
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below, in the year ended December 31, 2014 we did not grant any equity awards, or pay any other compensation to, any of the non-employee members of our board of directors. We reimburse our directors for travel and other necessary business expenses incurred in the performance of their services for us.
Dr. Dilly served as a non-employee member of our board of directors until his commencement of employment with us in April 2014. Dr. Walser served as a member of our board of directors during his employment with us, and following cessation of employment, as a non-employee member of our board of directors.
In connection with this offering, we intend to approve and implement a compensation program for our non-employee directors that consists of annual retainer fees and initial and annual long-term equity awards.
Director Compensation Table
The following table sets forth information for the year ended December 31, 2014 regarding the compensation awarded to, earned by or paid to our non-employee directors:
Name (1) |
Fees Earned or Paid
|
Total ($) |
||||||
Patrick Enright |
25,000 | 25,000 | ||||||
Walter Flamenbaum, M.D. (2) |
70,000 | 70,000 | ||||||
Bryan Walser, M.D., J.D. (2)(3) |
| | ||||||
Joon Yun, M.D. (2)(4) |
| |
(1) | The compensation that Dr. Dilly received during the fiscal year ended December 31, 2014 in his capacity as a director is reflected in the 2014 Summary Compensation Table below in accordance with SEC disclosure rules. |
(2) | Dr. Flamenbaum resigned from our Board in March 2015, Dr. Walser resigned from our Board in May 2015 and Dr. Yun resigned from our Board in April 2015. |
(3) | Dr. Walser did not receive any compensation for his role as a director. See the 2014 Summary Compensation Table below for information regarding his compensation as our former Chief Executive Officer and as a consultant to us. |
(4) | Dr. Yun was entitled to $25,000 cash compensation as a director. However, Dr. Yun requested that we not pay him his cash compensation. |
As of December 31, 2014, (i) Patrick Enright held options to purchase 50,000 shares of our common stock; (ii) Dr. Bryan Walser held options to purchase 564,058 shares of our common stock, which he exercised in full; and (iii) Drs. Walter Flamenbaum and Joon Yun each held options to purchase 50,000 shares of our common stock. No other non-employee director held any outstanding equity awards as of December 31, 2014.
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Overview
This section discusses the material components of the executive compensation program for our executive officers who are named in the 2014 Summary Compensation Table below. In 2014, our named executive officers and their positions were as follows:
| Dr. Stephen G. Dilly, Chief Executive Officer; |
| Dr. Bryan Walser, Former Chief Executive Officer; |
| Dr. Howard Raff, Chief Operating Officer; and |
| Dr. Robert Elfont, Chief Medical Officer. |
Dr. Walser served as our Chief Executive Officer through April 4, 2014. Dr. Dilly commenced employment with us in April 2014 and has served as our Chief Executive Officer since April 5, 2014.
2014 Summary Compensation Table
The following table shows information regarding the compensation of our named executive officers for services performed in the year ended December 31, 2014.
Name and Principal Position |
Year |
Salary($) |
Bonus($) |
Option
|
Non-Equity
Incentive Plan
($) |
All Other Compensation ($) |
Total($) |
|||||||||||||||||||||
Dr. Stephen G. Dilly (2) |
2014 | $ | 262,500 | $ | 125,000 | $ | 57,181 | | $ | 25,000 | (3) | $ | 469,681 | |||||||||||||||
Chief Executive Officer |
||||||||||||||||||||||||||||
Dr. Bryan Walser (4) |
2014 | $ | 107,510 | | | | $ | 406,994 | (5) | $ | 514,504 | |||||||||||||||||
Former Chief Executive Officer |
||||||||||||||||||||||||||||
Dr. Howard Raff. |
2014 | $ | 275,000 | $ | 55,000 | | | | $ | 330,000 | ||||||||||||||||||
Chief Operating Officer |
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Dr. Robert Elfont (6) |
2014 | $ | 219,984 | $ | 55,000 | $ | 30,171 | | | $ | 305,155 | |||||||||||||||||
Chief Medical Officer |
(1) | Amounts reported in the Option Awards column represent the grant date fair values of stock options granted during 2014, calculated in accordance with ASC Topic 718. For a discussion of the assumptions used to calculate the value of our stock options, see Note 7 to our audited financial statements included elsewhere in this prospectus. |
(2) | Dr. Dilly commenced employment with us in April 2014. |
(3) | Represents cash director fees of $25,000 in respect of Dr. Dillys service as a director prior to his commencement of employment with us during the year ended December 31, 2014. |
(4) | Dr. Walsers employment with us terminated on April 4, 2014. |
(5) | Represents (a) the following severance payments and benefits: (i) continued payment of Dr. Walsers base salary for twelve months following termination ($300,000), (ii) Company-paid COBRA coverage for up to twelve months following termination (valued at $10,494) and (iii) his target annual bonus for the year of termination ($90,000), and (b) consulting fees equal to $6,500. |
(6) | Dr. Elfont commenced employment with us in March 2014. |
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Narrative Disclosure to Summary Compensation Table
2014 Salaries
The named executive officers receive a base salary to compensate them for services rendered to us. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executives skill set, experience, role and responsibilities. The actual base salaries paid to each named executive officer for 2014 are set forth in the 2014 Summary Compensation Table above. For 2014, Dr. Dillys annual base salary was $350,000, Dr. Walsers annual base salary was $300,000, Dr. Elfonts annual base salary was $265,000 and Dr. Raffs annual base salary was $275,000.
2014 Bonuses
During 2014, each of Drs. Dilly, Raff and Elfont were eligible to receive annual cash bonuses pursuant to their respective employment letters or Board approved compensation arrangements with the Company. The 2014 annual bonuses for Drs. Dilly, Elfont and Raff were targeted at 40%, 20% and 20% of their respective base salaries. The annual bonuses, which are determined by the board of directors, are discretionary and are not based on pre-determined Company or individual goals or metrics. Instead, the board determines individual bonus amounts at the end of each fiscal year based on a comprehensive assessment of the applicable executives performance and the Companys operational and financial performance. In determining 2014 annual bonuses, the board considered each named executive officers individual performance and the Companys financial and operational performance during 2014.
The actual 2014 annual bonuses paid to each of Drs. Dilly, Raff and Elfont for 2014 are set forth in the 2014 Summary Compensation Table above.
Dr. Walser, whose employment with us terminated on April 4, 2014, became entitled to his 2014 target annual bonus pursuant to the terms of his settlement agreement with the Company, described below under Executive Compensation ArrangementsBryan Walser Agreements.
Equity Compensation
We have historically granted stock options under our 2013 Stock Plan, as amended, to our named executive officers. Our stock options generally may be exercised in full at any time, subject to a right of repurchase upon a termination of the applicable executives employment prior to the final vesting date of the underlying stock option.
During 2014, Drs. Dilly and Elfont received grants of stock options covering 427,997 shares and 227,033 shares of our common stock, respectively, under our 2013 Stock Plan. These stock options vest over a four-year period, with 25% of the shares subject to the option vesting on the first anniversary of the applicable vesting commencement date and one-forty-eighth of the shares subject to the option vesting on each monthly anniversary of the vesting commencement date thereafter, subject to the applicable executive officers continued service through the vesting date. For additional information about the 2013 Stock Plan, please see 2013 Stock Plan below.
In April 2014, in connection with Dr. Walsers termination as our Chief Executive Officer, our board of directors modified his outstanding vested stock options to provide for such options to remain exercisable for six (6) months following his termination of employment with us.
In connection with this offering, we intend to adopt a 2015 Equity Incentive Award Plan in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of its affiliates and to enable our company and certain of its affiliates to obtain and retain services of these individuals, which is essential to our long-term success. We expect that the
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2015 Equity Incentive Award Plan will be effective on the date on which it is adopted by our board of directors, subject to approval of such plan by our stockholders. For additional information about the 2015 Equity Incentive Award Plan, please see 2015 Equity Incentive Award Plan below.
Other Elements of Compensation
Retirement Plan
We maintain a 401(k) retirement savings plan for the benefit of our employees, including our named executive officers, who satisfy certain eligibility requirements. Under the 401(k) plan, eligible employees may elect to defer a portion of their compensation, within the limits prescribed by the Internal Revenue Code, on a pre-tax or after-tax (Roth) basis through contributions to the 401(k) plan. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.
Employee Benefits and Perquisites
All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, including medical, dental and vision benefits, medical flexible spending accounts, short-term and long-term disability insurance and life insurance. We do not provide our named executive officers with perquisites or other personal benefits, other than the retirement, health and welfare benefits that apply uniformly to all of our employees.
No Tax Gross-Ups
We are not required to make gross-up payments to cover our named executive officers personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company.
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Outstanding Equity Awards at Fiscal Year End
The following table sets forth specified information concerning the outstanding equity awards held by each of the named executive officers as of December 31, 2014.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||
Name |
Grant
Date |
Vesting
Commence- ment Date |
Number of
Securities Underlying Unexercised Options (#) Exercisable (1) |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
Number
of Shares or Units of Stock That Have Not Vested (#) |
Market
Value of Shares or Units of Stock That Have Not Vested ($)(2) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
|||||||||||||||||||||||||||||||||
Dr. Stephen G. Dilly |
8/22/2013 | 4/1/2013 | | | | | | 24,105 | (3) | $ | 4,580 | | | |||||||||||||||||||||||||||||||
Chief Executive Officer |
12/5/2013 | 4/1/2013 | | | | | | 18,079 | (3) | $ | 3,435 | | | |||||||||||||||||||||||||||||||
9/30/2014 | 4/1/2014 | | | | | | 427,997 | (4) | $ | 81,319 | | | ||||||||||||||||||||||||||||||||
Dr. Bryan Walser |
8/22/2013 | 12/2/2011 | 564,058 | (5) | | | $ | 0.19 | 8/21/2023 | |||||||||||||||||||||||||||||||||||
Former Chief Executive Officer |
||||||||||||||||||||||||||||||||||||||||||||
Dr. Howard Raff |
8/22/2013 | 7/1/2012 | | | | 8/21/2024 | 128,812 | (4) | $ | 24,474 | | | ||||||||||||||||||||||||||||||||
Chief Operating Officer |
||||||||||||||||||||||||||||||||||||||||||||
Dr. Robert Elfont |
9/30/2014 | 3/1/2014 | 227,033 | (5) | | | $ | 0.19 | 9/29/2024 | | | | | |||||||||||||||||||||||||||||||
Chief Medical Officer |
(1) | Stock options are exercisable immediately, in whole or in part, conditioned upon the holder entering into a restricted stock purchase agreement with respect to any unvested shares. |
(2) | Based on the per share price of our common stock as of December 31, 2014 ($0.19 per share). |
(3) | Represents shares of Company common stock acquired upon the early exercise of stock options by the applicable holder. One-twenty-fourth of the shares are released from the Companys right of repurchase on each monthly anniversary of the vesting commencement date, subject to the applicable executives continued service through the applicable vesting date. |
(4) | Represents shares of Company common stock acquired upon the early exercise of stock options by the applicable holder. One-fourth of the shares are released from the Companys right of repurchase on the first anniversary of the vesting commencement date and 1/48 th of the shares are released from the Companys right of repurchase on each monthly anniversary of the vesting commencement date thereafter, subject to the applicable executives continued service through the applicable vesting date. |
(5) | Represents stock options which vest as to as to 1/4 th of the shares subject thereto on the first anniversary of the vesting commencement date, and as to 1/48 th of the shares subject thereto on each monthly anniversary of the vesting commencement date thereafter, subject to the applicable executives continued service through the applicable vesting date. The applicable holder may exercise the stock option in full at any time, subject to a right of repurchase upon a termination of his employment prior to the fourth anniversary of the grant date. |
Executive Compensation Arrangements
Howard Raff Offer Letter
Under Dr. Raffs offer of employment letter with the Company, dated July 2, 2012, Dr. Raff receives an annual base salary of $275,000. In addition, Dr. Raff is eligible to participate in the Companys annual bonus plan, with an annual bonus targeted at 20% of his base salary, and customary benefit plans available to similarly situated executives. Dr. Raff is not entitled to any severance benefits under his offer of employment letter with the Company.
Robert Elfont Offer Letter
Under Dr. Elfonts offer of employment letter with the Company, dated February 24, 2014, Dr. Elfont receives an annual base salary of $265,000. In addition, Dr. Elfont is eligible to participate in the Companys annual bonus plan,
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with an annual bonus targeted at 20% of his base salary, and customary benefit plans available to similarly situated executives. Dr. Elfont is not entitled to any severance benefits under his offer of employment letter with the Company.
Bryan Walser Agreements
In connection with his termination of employment in April 2014, we entered into a settlement agreement with Dr. Walser, or the Walser Agreement, pursuant to which he became entitled to receive certain severance payments and benefits. Pursuant to the Walser Agreement, upon his termination of employment with us, subject to his execution and non-revocation of a general release of claims, Dr. Walser became entitled to receive (i) continued payment of his base salary for twelve months following termination, (ii) Company-paid COBRA coverage for up to six months following termination and (iii) his target annual bonus for the year of termination. In addition, pursuant to the Walser Agreement we modified Dr. Walsers outstanding vested stock options to provide for such options to remain exercisable for six months following cessation of services to the Company.
In connection with Dr. Walsers termination of employment with the Company in April 2014, we entered into a consulting agreement with Dr. Walser, or the Walser Consulting Agreement, pursuant to which he provided consulting services to the Company from April 4, 2014 through October 4, 2014. Pursuant to the Walser Consulting Agreement, Dr. Walser was entitled to a consulting fee equal to $2,000 for each day during which he provided consulting services to us (or, if less, $250 per hour multiplied by the number of hours worked during such day), as well as reimbursement for ordinary and necessary business expenses incurred in connection with his performance of the consulting services. The Walser Consulting Agreement includes confidentiality restrictions effective during the term of Dr. Walsers consulting relationship with the Company, as well as non-solicit restrictions effective during the term of Dr. Walsers consulting relationship with the Company and for a period of two years thereafter.
Equity Compensation Plans
2015 Equity Incentive Award Plan
In connection with this offering, we will adopt the 2015 Equity Incentive Award Plan, or 2015 Plan, which will be effective on the closing of this offering. The principal purpose of the 2015 Plan is to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards. The material terms of the 2015 Plan, as it is currently contemplated, are summarized below.
Share Reserve. Under the 2015 Plan, an aggregate of shares of our common stock will be initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, deferred stock awards, dividend equivalent awards, stock payment awards and performance awards, plus the number of shares remaining available for future awards under the 2013 Stock Plan, or 2013 Plan, as of the consummation of this offering. The number of shares initially reserved for issuance or transfer pursuant to awards under the 2015 Plan will be increased by (i) the number of shares represented by awards outstanding under our 2013 Plan that are forfeited or lapse unexercised and which following the effective date are not issued under our 2013 Plan and (ii) an annual increase on the first day of each fiscal year beginning in 2016 and ending in 2025, equal to the lesser of (A) percent ( %) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by our board of directors; provided, however, that no more than shares of stock may be issued upon the exercise of incentive stock options.
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The following counting provisions will be in effect for the share reserve under the 2015 Plan:
| to the extent that an award terminates, expires or lapses for any reason or an award is settled in cash without the delivery of shares, any shares subject to the award at such time will be available for future grants under the 2015 Plan; |
| to the extent shares are tendered or withheld to satisfy the grant, exercise price or tax withholding obligation with respect to any award under the 2015 Plan, such tendered or withheld shares will be available for future grants under the 2015 Plan; |
| to the extent that shares of our common stock are repurchased by us prior to vesting so that shares are returned to us, such shares will be available for future grants under the 2015 Plan; |
| the payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2015 Plan; and |
| to the extent permitted by applicable law or any exchange rule, shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by us or any of our subsidiaries will not be counted against the shares available for issuance under the 2015 Plan. |
Awards granted under the 2015 Plan upon the assumption of, or in substitution for, awards authorized or outstanding under a qualifying equity plan maintained by an entity with which the company enters into a merger or similar corporate transaction will not reduce the shares available for grant under the 2015 Plan. The maximum number of shares of shares of common stock that may be subject to one or more awards granted to any non-employee director pursuant to the 2015 Plan during any calendar year will be shares.
Administration. The compensation committee of the companys board of directors is expected to administer the 2015 Plan. The board or compensation committee may delegate their duties and responsibilities to committees of directors and/or officers, subject to certain limitations that may be imposed under Section 162(m) of the Code, Section 16 of the Exchange Act and/or stock exchange rules. The plan administrator must consist of at least two members of our board of directors, each of whom is intended to qualify as an outside director, within the meaning of Section 162(m) of the Code, a non-employee director for purposes of Rule 16b-3 under the Exchange Act and an independent director within the meaning of the rules of the applicable stock exchange, or other principal securities market on which shares of our common stock are traded. The 2015 Plan provides that the board or compensation committee may delegate its authority to grant awards to employees other than executive officers and certain senior executives of the company to a committee consisting of one or more members of our board of directors or one or more of our officers, other than awards made to our non-employee directors, which must be approved by our full board of directors. Our board of directors may at any time remove the compensation committee as the administrator and revest in itself the authority to administer the 2015 Plan.
Subject to the terms and conditions of the 2015 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2015 Plan. The administrator is also authorized to adopt, amend or rescind rules relating to administration of the 2015 Plan.
Eligibility. Options, SARs, restricted stock and all other stock-based and cash-based awards under the 2015 Plan may be granted to individuals who are then our officers, employees or consultants or are the officers, employees or consultants of certain of our subsidiaries. Such awards also may be granted to our directors. Only employees of our company or certain of our subsidiaries may be granted incentive stock options, or ISOs.
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Awards. The 2015 Plan provides that the administrator may grant or issue stock options, SARs, restricted stock, restricted stock units, deferred stock, dividend equivalents, performance awards, stock payments and other stock-based and cash-based awards, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.
| Nonstatutory Stock Options , or NSOs, will provide for the right to purchase shares of our common stock at a specified price which may not be less than fair market value on the date of grant, and usually will become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participants continued employment or service with us and/or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the administrator that does not exceed ten years. |
| Incentive Stock Options , or ISOs, will be designed in a manner intended to comply with the provisions of Section 422 of the Code and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees and must not be exercisable after a period of ten years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of our capital stock, the 2015 Plan provides that the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the ISO must not be exercisable after a period of five years measured from the date of grant. |
| Restricted Stock may be granted to any eligible individual and made subject to such restrictions as may be determined by the administrator. Restricted stock, typically, may be forfeited for no consideration or repurchased by us at the original purchase price if the conditions or restrictions on vesting are not met. In general, restricted stock may not be sold or otherwise transferred until restrictions are removed or expire. Purchasers of restricted stock, unlike recipients of options, will have voting rights and will have the right to receive dividends, if any, prior to the time when the restrictions lapse, however, extraordinary dividends will generally be placed in escrow, and will not be released until restrictions are removed or expire. |
| Restricted Stock Units may be awarded to any eligible individual, typically without payment of consideration, but subject to vesting conditions based on continued employment or service or on performance criteria established by the administrator. Like restricted stock, restricted stock units may not be sold, or otherwise transferred or hypothecated, until vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied. |
| Deferred Stock Awards represent the right to receive shares of our common stock on a future date. Deferred stock may not be sold or otherwise hypothecated or transferred until issued. Deferred stock will not be issued until the deferred stock award has vested, and recipients of deferred stock generally will have no voting or dividend rights prior to the time when the vesting conditions are satisfied and the shares are issued. Deferred stock awards generally will be forfeited, and the underlying shares of deferred stock will not be issued, if the applicable vesting conditions and other restrictions are not met. |
|
Stock Appreciation Rights , or SARs, may be granted in connection with stock options or other awards, or separately. SARs granted in connection with stock options or other awards typically will provide for payments to the holder based upon increases in the price of our common stock over a |
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set exercise price. The exercise price of any SAR granted under the 2015 Plan must be at least 100% of the fair market value of a share of our common stock on the date of grant. Except as required by Section 162(m) of the Code with respect to a SAR intended to qualify as performance-based compensation as described in Section 162(m) of the Code, there are no restrictions specified in the 2015 Plan on the exercise of SARs or the amount of gain realizable therefrom, although restrictions may be imposed by the administrator in the SAR agreements. SARs under the 2015 Plan will be settled in cash or shares of our common stock, or in a combination of both, at the election of the administrator. |
| Dividend Equivalents represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the award. Dividend equivalents may be settled in cash or shares and at such times as determined by the compensation committee or board of directors, as applicable. |
| Performance Awards may be granted by the administrator on an individual or group basis. Generally, these awards will be based upon specific performance targets and may be paid in cash or in common stock or in a combination of both. Performance awards may include phantom stock awards that provide for payments based upon the value of our common stock. Performance awards may also include bonuses that may be granted by the administrator on an individual or group basis and which may be payable in cash or in common stock or in a combination of both. |
| Stock Payments may be authorized by the administrator in the form of common stock or an option or other right to purchase common stock as part of a deferred compensation or other arrangement in lieu of all or any part of compensation, including bonuses, that would otherwise be payable in cash to the employee, consultant or non-employee director. |
Change in Control. In the event of a change in control where the acquiror does not assume or replace awards granted, prior to the consummation of such transaction, awards issued under the 2015 Plan will be subject to accelerated vesting such that 100% of such awards will become vested and exercisable or payable, as applicable. In addition, the administrator will also have complete discretion to structure one or more awards under the 2015 Plan to provide that such awards will become vested and exercisable or payable on an accelerated basis in the event such awards are assumed or replaced with equivalent awards but the individuals service with us or the acquiring entity is subsequently terminated within a designated period following the change in control event. The administrator may also make appropriate adjustments to awards under the 2015 Plan and is authorized to provide for the acceleration, cash-out, termination, assumption, substitution or conversion of such awards in the event of a change in control or certain other unusual or nonrecurring events or transactions. Under the 2015 Plan, a change in control is generally defined as:
| the transfer or exchange in a single transaction or series of related transactions by our stockholders of more than 50% of our voting stock to a person or group; |
| a change in the composition of our board of directors over a two-year period such that 50% or more of the members of the board of directors were elected through one or more contested elections; |
| a merger, consolidation, reorganization or business combination in which we are involved, directly or indirectly, other than a merger, consolidation, reorganization or business combination which results in our outstanding voting securities immediately before the transaction continuing to represent a majority of the voting power of the acquiring companys outstanding voting securities and after which no person or group beneficially owns 50% or more of the outstanding voting securities of the surviving entity immediately after the transaction; |
| the sale, exchange or transfer of all or substantially all of our assets; or |
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| stockholder approval of our liquidation or dissolution. |
Adjustments of Awards. In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization, distribution of our assets to stockholders (other than normal cash dividends) or any other corporate event affecting the number of outstanding shares of our common stock or the share price of our common stock other than an equity restructuring (as defined below), the administrator will make appropriate, proportionate adjustments to:
| the aggregate number and type of shares subject to the 2015 Plan; |
| the number and kind of shares subject to outstanding awards and terms and conditions of outstanding awards (including, without limitation, any applicable performance targets or criteria with respect to such awards); and |
| the grant or exercise price per share of any outstanding awards under the 2015 Plan. |
In the event of one of the adjustments described above or other corporate transactions, in order to prevent dilution or enlargement of the potential benefits intended to be made available under the 2015 Plan, the administrator has the discretion to make such equitable adjustments and may also:
| provide for the termination or replacement of an award in exchange for cash or other property; |
| provide that any outstanding award cannot vest, be exercised or become payable after such event; |
| provide that awards may be exercisable, payable or fully vested as to shares of common stock covered thereby; or |
| provide that an award under the 2015 Plan cannot vest, be exercised or become payable after such event. |
In the event of an equity restructuring, the administrator will make appropriate, proportionate adjustments to the number and type of securities subject to each outstanding award and the exercise price or grant price thereof, if applicable. In addition, the administrator will make equitable adjustments, as the administrator in its discretion may deem appropriate to reflect such equity restructuring, with respect to the aggregate number and type of shares subject to the 2015 Plan. The adjustments upon an equity restructuring are nondiscretionary and will be final and binding on the affected holders and the Company.
For purposes of the 2015 Plan, equity restructuring means a nonreciprocal transaction between us and our stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of shares (or other securities) or the share price of our common stock (or other securities) and causes a change in the per share value of the common stock underlying outstanding stock-based awards granted under the 2015 Plan.
Foreign Participants, Claw-Back Provisions and Transferability . The plan administrator may modify award terms, establish subplans and/or adjust other terms and conditions of awards, subject to the share limits described above, in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United States. All awards will be subject to the provisions of any claw-back policy implemented by the Company to the extent set forth in such claw-back policy and/or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the 2015 Plan are generally non-transferable prior to vesting unless otherwise determined by the plan administrator, and are exercisable only by the participant.
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Amendment and Termination. Our board of directors or the compensation committee (with board approval) may terminate, amend or modify the 2015 Plan at any time and from time to time. However, we must generally obtain stockholder approval:
| to increase the number of shares available under the 2015 Plan (other than in connection with the automatic annual increases and certain corporate events, in each case, as described above); |
| to reduce the price per share of any outstanding option or SAR granted under the 2015 Plan; |
| to cancel any outstanding option or SAR in exchange for cash or another award when the option or SAR price per share exceeds the fair market value of the underlying shares; or |
| to the extent required by applicable law, rule or regulation (including any applicable stock exchange rule). |
Termination. The board of directors may terminate the 2015 Plan at any time. No incentive stock options may be granted pursuant to the 2015 Plan after the tenth anniversary of the effective date of the 2015 Plan, and no additional annual share increases to the 2015 Plans aggregate share limit will occur from and after such anniversary. Any award that is outstanding on the termination date of the 2015 Plan will remain in force according to the terms of the 2015 Plan and the applicable award agreement.
We intend to file with the SEC a registration statement on Form S-8 covering the shares of our common stock issuable under the 2015 Plan.
2013 Stock Plan
We currently maintain the 2013 Stock Plan, as amended, or the 2013 Plan. The purposes of the 2013 Plan are to attract, retain and provide additional incentives to eligible employees, officers, directors and consultants and to promote the success of our business. The material terms of the 2013 Plan, as amended, are summarized below.
Share Reserve. The 2013 Plan reserved an aggregate of 5,291,986 shares of our common stock for issuance pursuant to awards of stock options, restricted stock purchase rights and restricted stock bonuses. The following counting provisions are in effect for the share reserve under the 2013 Plan:
| to the extent that an award terminates, expires or is canceled for any reason, any shares subject to the award at such time will be available for future grants under the 2013 Plan; and |
| to the extent shares are subject to an award that is settled in cash or withheld or reacquired by the Company in satisfaction of tax withholding obligations, such shares will be available for future grants under the 2013 Plan. |
Administration. The Companys board of directors administers the 2013 Plan. Subject to the terms and conditions of the 2013 Plan, the plan administrator has the authority to select the persons to whom awards are to be made, to determine the types of awards granted, the number of shares to be subject to awards and the terms and conditions of awards, and to adopt, amend or rescind rules relating to administration of the 2013 Plan.
Eligibility. Awards under the 2013 Plan may be granted to individuals who are then our officers, employees or consultants or are the officers, employees or consultants of certain of our parents and subsidiaries. Such awards also may be granted to our directors. Only employees of our company or certain of our subsidiaries may be granted ISOs.
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Awards. The 2015 Plan provides that the administrator may grant or issue stock options, restricted stock purchase rights, restricted stock bonuses or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.
| Nonstatutory Stock Options , or NSOs, provide for the right to purchase shares of our common stock at a specified price which may not be less than fair market value on the date of grant, and usually will become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participants continued employment or service with us and/or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the administrator that does not exceed ten years. |
| Incentive Stock Options , or ISOs, are intended to comply with the provisions of Section 422 of the Code and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, and must not be exercisable after a period of ten years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of our capital stock, the 2013 Plan provides that the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the ISO must not be exercisable after a period of five years measured from the date of grant. |
| Restricted Stock Bonuses may be awarded to any eligible individual and made subject to such restrictions as may be determined by the administrator. Restricted stock bonuses may not be sold or otherwise transferred until restrictions are removed or expire. Restricted stock bonuses may not be sold or otherwise transferred until vesting conditions are removed or expire. Recipients of restricted stock bonuses generally will have no dividend rights prior to the time when vesting conditions are satisfied. |
| Restricted Stock Purchase Rights represent the right to purchase shares of Company common stock for a per share purchase price determined by the administrator. Restricted stock purchase rights are exercisable during a specified period, typically thirty days following the grant date, established by the administrator. Like restricted stock bonuses, restricted stock purchase rights are typically subject to such vesting conditions based on continued employment or service or on performance criteria established by the administrator. Restricted stock purchase rights may not be sold or otherwise transferred until vesting conditions are removed or expire. Recipients of restricted stock purchase rights generally will have no dividend rights prior to the time when vesting conditions are satisfied. |
Change in Control. In the event of a change in control of the Company, the board of directors may provide that (i) outstanding awards will vest and, if applicable, become exercisable in full, (ii) the acquiror will assume or replace awards granted, awards issued under the 2013 Plan; provided that any such awards that are not assumed or replaced will terminate upon such change in control; or (iii) outstanding awards will be cancelled in exchange for cash or other property.
280G Best Pay Provision . The 2013 Plan includes a Section 280G best pay provision, whereby if any accelerated vesting or other payments or benefits received by a participant in connection with a change in control of the Company would subject a participant to the excise tax under Section 4999 of the Code, the participant may elect to receive either (i) the full amount of such payments and benefits or (ii) a reduced amount of such payments or benefits that will not result in the imposition of the excise tax imposed by Section 4999 of the Code (whichever results in the greater after-tax benefit to the participant).
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Adjustments of Awards. In the event of any change in Company common stock effected without receipt of consideration by the Company, the administrator will make appropriate, proportionate adjustments to:
| the aggregate number and type of shares subject to the 2013 Plan; |
| the number and kind of shares subject to outstanding awards; and |
| the purchase or exercise price per share of any outstanding awards under the 2013 Plan. |
Amendment and Termination. Our board of directors may terminate, amend or suspend the 2013 Plan at any time and from time to time. However, we must generally obtain stockholder approval:
| to increase the number of shares available under the 2013 Plan (other than in connection with certain corporate events, as described above); |
| to change the individuals eligible to receive incentive stock options; or |
| to the extent required by applicable law, rule or regulation (including any applicable stock exchange rule). |
2015 Employee Stock Purchase Plan
In connection with this offering, we will adopt the 2015 Employee Stock Purchase Plan, which we refer to as our ESPP, which will be effective immediately prior to the effectiveness of the registration statement to which this prospectus relates. The ESPP is designed to allow our eligible employees to purchase shares of our common stock, at semi-annual intervals, with their accumulated payroll deductions. The ESPP is intended to qualify under Section 423 of the Code.
Plan Administration . Subject to the terms and conditions of the ESPP, our compensation committee will administer the ESPP. Our compensation committee can delegate administrative tasks under the ESPP to the services of an agent and/or employees to assist in the administration of the ESPP. The administrator will have the discretionary authority to administer and interpret the ESPP. Interpretations and constructions of the administrator of any provision of the ESPP or of any rights thereunder will be conclusive and binding on all persons. We will bear all expenses and liabilities incurred by the ESPP administrator.
Shares Available Under ESPP . The maximum number of our shares of our common stock which will be authorized for sale under the ESPP is equal to the sum of (a) shares of common stock and (b) an annual increase on the first day of each year beginning in 2016 and ending in 2025, equal to the lesser of (i) % of the shares of common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (ii) such number of shares of common stock as determined by our board of directors; provided, however, no more than shares of our common stock may be issued under the ESPP. The shares made available for sale under the ESPP may be authorized but unissued shares or reacquired shares reserved for issuance under the ESPP.
Eligible Employees . Employees eligible to participate in the ESPP for a given offering period generally include employees who are employed by us or one of our designated subsidiaries on the first day of the offering period, or the enrollment date. Our employees and any employees of our subsidiaries who customarily work less than five months in a calendar year or are customarily scheduled to work less than 20 hours per week will not be eligible to participate in the ESPP. Finally, an employee who owns (or is deemed to own through attribution) 5% or more of the combined voting power or value of all our classes of stock or of one of our subsidiaries will not be allowed to participate in the ESPP.
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Participation . Employees will enroll under the ESPP by completing a payroll deduction form permitting the deduction from their compensation of at least 1% of their compensation but not more than the lesser of 15% of their compensation and $ per offering period. Such payroll deductions are expressed as a whole number percentage and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. However, a participant may not purchase more than shares in each offering period, and may not subscribe for more than $25,000 in fair market value of shares our common stock (determined at the time the option is granted) per calendar year falling in the offering period. The ESPP administrator has the authority to change these limitations for any subsequent offering period.
Offering . Under the ESPP, participants are offered the option to purchase shares of our common stock at a discount during a series of successive offering periods. The offering periods will commence and end on dates as determined by the ESPP administrator. However, in no event may an offering period be longer than 27 months in length.
The option purchase price will be the lower of 85% of the closing trading price per share of our common stock on the first trading date of an offering period in which a participant is enrolled or 85% of the closing trading price per share on the semi-annual purchase date, which will occur on the last trading day of each offering period.
Unless a participant has previously canceled his or her participation in the ESPP before the purchase date, the participant will be deemed to have exercised his or her option in full as of each purchase date. Upon exercise, the participant will purchase the number of whole shares that his or her accumulated payroll deductions will buy at the option purchase price, subject to the participation limitations listed above.
A participant may cancel his or her payroll deduction authorization at any time prior to the end of the offering period. Upon cancellation, the participant will have the option to either (a) receive a refund of the participants account balance in cash without interest or (b) exercise the participants option for the current offering period for the maximum number of shares of common stock on the applicable purchase date, with the remaining account balance refunded in cash without interest. Following at least one payroll deduction, a participant may also decrease (but not increase) his or her payroll deduction authorization once during any offering period. If a participant wants to increase or decrease the rate of payroll withholding, he or she may do so effective for the next offering period by submitting a new form before the offering period for which such change is to be effective.
A participant may not assign, transfer, pledge or otherwise dispose of (other than by will or the laws of descent and distribution) payroll deductions credited to a participants account or any rights to exercise an option or to receive shares of our common stock under the ESPP, and during a participants lifetime, options in the ESPP shall be exercisable only by such participant. Any such attempt at assignment, transfer, pledge or other disposition will not be given effect.
Adjustments upon Changes in Recapitalization, Dissolution, Liquidation, Merger or Asset Sale . In the event of any increase or decrease in the number of issued shares of our common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock or any other increase or decrease in the number of shares of common stock effected without receipt of consideration by us, we will proportionately adjust the aggregate number of shares of our common stock offered under the ESPP, the number and price of shares which any participant has elected to purchase pursuant under the ESPP and the maximum number of shares which a participant may elect to purchase in any single offering period.
If there is a proposal to dissolve or liquidate us, then the ESPP will terminate immediately prior to the consummation of such proposed dissolution or liquidation, and any offering period then in progress will be shortened by setting a new purchase date to take place before the date of our dissolution or liquidation. We will notify each participant of such change in writing at least ten business days prior to the new exercise date. If we undergo a merger with or into another corporation or sale of all or substantially all of our assets, each outstanding
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option will be assumed or an equivalent option substituted by the successor corporation or the parent or subsidiary of the successor corporation. If the successor corporation refuses to assume the outstanding options or substitute equivalent options, then any offering period then in progress will be shortened by setting a new purchase date to take place before the date of our proposed sale or merger. We will notify each participant of such change in writing at least ten business days prior to the new exercise date.
Amendment and Termination . Our board of directors may amend, suspend or terminate the ESPP at any time. However, the board of directors may not amend the ESPP without obtaining stockholder approval within 12 months before or after such amendment to the extent required by applicable laws. The ESPP will terminate on the 10th anniversary of the date of its initial approval of our stockholders, unless earlier terminated.
We intend to file with the SEC a registration statement on Form S-8 covering our shares issuable under the ESPP.
Rule 10b5-1 Sales Plans
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from the director or executive officer. The director or executive officer may amend or terminate the plan in limited circumstances. Our directors and executive officers may also buy or sell additional shares of common stock outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of transactions since January 1, 2012 to which we have been a party, in which the amount involved exceeds $120,000, and in which any of our directors, executive officers or holders of more than 5% of our capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest.
Sales and Purchases of Securities
Convertible Promissory Note
In June 2012, we entered into an unsecured convertible promissory note in aggregate principal amount of $750,000 with Food Allergy & Research Education, Inc. The note provided for an annual interest rate of 3% and a due date of December 31, 2013, but could be extended by mutual agreement for an additional year. Under the terms of the note, under certain circumstances, the balance of the note, including any accrued interest, would convert into preferred stock upon the closing of a future preferred stock financing that met specified criteria. Such conversion would be at a 15% discount to the per share price of the preferred stock sold in the financing. In February 2013, as part of the issuance of Series A convertible preferred stock, the note, plus $14,000 of accrued interest converted into 527,232 shares of Series A convertible preferred stock at a rate of $1.45 per share in full payment for the note and accrued interest.
Series A Preferred Stock Financing
In February and April 2013, we issued an aggregate of 10,071,352 shares of our Series A convertible preferred stock at a price per share of either (i) $1.70 in cash or (ii) with respect to 527,232 shares of Series A convertible preferred stock issued to Food Allergy Research & Education, Inc. in exchange for the cancellation by Food Allergy Research & Education, Inc. of a convertible promissory note issued by us, $1.45 in cancellation of indebtedness, for a total amount raised (including the cancellation of indebtedness) of $16.9 million, net of offering costs. The table below sets forth the number of shares of Series A preferred stock sold to our directors, executive officers or owners of more than 5% of a class of our capital stock, or an affiliate or immediate family member thereof:
Name |
Number of Shares
|
Purchase Price ($) |
||||||
Longitude Venture Partners II, L.P. (1) |
2,941,177 | 5,000,001 | ||||||
Sunshine Charitable Foundation |
2,058,824 | 3,500,001 | ||||||
Food Allergy Research & Education, Inc. (2) |
2,056,644 | 3,364,487 | ||||||
Explore Holdings LLC. |
1,764,706 | 3,000,000 | ||||||
Winchester Partners, L.P. (3) |
588,235 | 1,000,000 |
(1) | Mr. Enright, who is a member of our board of directors, is a managing member of Longitude Capital Partners II, LLC, which is the general partner of Longitude Venture Partners II, L.P. |
(2) | Food Allergy Research & Education, Inc. was a holder of more than 5% of a class of our capital stock at the time of the Series A convertible preferred stock financing. |
(3) | Winchester Partners, L.P. was a holder of more than 5% of a class of our capital stock at the time of the Series A convertible preferred stock financing. |
Series B Preferred Stock Financing
In January and February 2015, we issued an aggregate of 10,666,667 shares of our Series B convertible preferred stock at a price per share of $7.50, for a total amount raised of $79.8 million, net of offering costs. The
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table below sets forth the number of shares of Series B convertible preferred stock sold to our directors, executive officers or owners of more than 5% of a class of our capital stock, or an affiliate or immediate family member thereof:
Name |
Number of Shares
|
Purchase Price ($) |
||||||
Foresite Capital Fund II, L.P. |
2,866,667 | 21,500,003 | ||||||
Longitude Venture Partners II, L.P. |
2,466,667 | 18,500,003 | ||||||
Aisling Capital III, L.P. |
1,666,667 | 12,500,003 | ||||||
Fidelity Select Portfolios: Biotechnology Portfolio, and its affiliated funds |
2,000,000 | 15,000,000 |
Series A Preferred Stock Repurchase
In January 2015, we repurchased an aggregate of 1,716,558 shares of our Series A convertible preferred stock at $7.50 per share for a total amount of $12,874,185, using proceeds from our Series B convertible preferred stock financing. The table below sets forth the number of shares of Series A convertible preferred stock purchased from our directors, executive officers or owners of more than 5% of a class of our capital stock, or an affiliate or immediate family member thereof:
Name |
Number of Shares
|
Purchase Price ($) |
||||||
Food Allergy Research & Education, Inc. |
1,028,322 | 7,712,415 |
Consulting Agreements
In February 2015, we entered into a Consulting and Independent Contractor Agreement with Bryan L. Walser, M.D., J.D., a former member of our board of directors, or the 2015 Walser Consulting Agreement, under which Dr. Walser provides certain consulting services to us in connection with the development of additional oral immunotherapy product candidates. Pursuant to the 2015 Walser Consulting Agreement, Dr. Walser is entitled to a consulting fee equal to $300 per hour he provides consulting services to us, which is not to exceed 20 hours per week, as well as reimbursement for ordinary and necessary business expenses incurred in connection with his performance of the consulting services. The 2015 Walser Consulting Agreement includes confidentiality restrictions as well as non-solicit restrictions effective during the term of Dr. Walsers consulting relationship with the Company and for a period of two years thereafter. This agreement terminates on December 31, 2015.
Indemnification Agreements and Directors and Officers Liability Insurance
We have entered into or intend to enter into indemnification agreements with each of our directors and executive officers. These agreements will require us to, among other things, indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys fees, judgments, penalties fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the persons services as a director or executive officer. We have obtained an insurance policy that insures our directors and officers against certain liabilities, including liabilities arising under applicable securities laws. For additional information see ManagementLimitation of Liability and Indemnification Matters.
Investor Rights Agreements
We entered into an amended and restated investor rights agreement with the purchasers of our outstanding convertible preferred stock, including entities with which certain of our directors are affiliated. As of March 31, 2015, the holders of approximately 19,021,461 shares of our common stock, including the shares of
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common stock issuable upon the conversion of our convertible preferred stock, are entitled to rights with respect to the registration of their shares under the Securities Act. For a more detailed description of these registration rights, see Description of Capital StockRegistration Rights. The investor rights agreement also provides for a right of first refusal in favor of certain holders of convertible preferred stock with regard to certain issuances of our capital stock. The rights of first refusal will not apply to, and will terminate upon the consummation of, this offering.
Voting Agreement
We entered into an amended and restated voting agreement with certain holders of our common stock and convertible preferred stock. Upon the consummation of this offering, the amended and restated voting agreement will terminate. For a description of the amended and restated voting agreement, see ManagementBoard CompositionVoting Arrangements.
Right of First Refusal and Co-Sale Agreement
We entered into an amended and restated right of first refusal and co-sale agreement with certain holders of our common stock and convertible preferred stock. This agreement provides for rights of first refusal and co-sale relating to the shares of our common stock held by the parties to the agreement. Upon the consummation of this offering, the amended and restated right of first refusal and co-sale agreement will terminate.
Policies and Procedures for Related Party Transactions
Prior to the consummation of this offering, our board of directors will adopt a written related person transaction policy, to be effective upon the consummation of this offering, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest, including without limitation purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including but not limited to whether the transaction is on terms comparable to those that could be obtained in an arms length transaction with an unrelated third party and the extent of the related persons interest in the transaction. All of the transactions described in this section occurred prior to the adoption of this policy.
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The following table sets forth information relating to the beneficial ownership of our common stock as of July 1, 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 after July 1, 2015 through the exercise of any stock option, warrants 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.
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The percentage of shares beneficially owned is computed on the basis of 23,348,097 shares of our common stock outstanding as of July 1, 2015, which reflects the assumed conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 19,021,461 shares of common stock. Shares of our common stock that a person has the right to acquire within 60 days after July 1, 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 Aimmune Therapeutics, Inc., 8000 Marina Blvd, Suite 300, Brisbane, CA 94005.
Beneficial Ownership Prior to this Offering |
Beneficial Ownership
|
|||||||||||||||||||||
Name of Beneficial Owner |
Number of
|
Number of
|
Number of
|
Percentage
|
Number of
|
Percentage
|
||||||||||||||||
5% and Greater Stockholders |
||||||||||||||||||||||
Longitude Venture Partners II, L.P. (1) |
5,407,844 | 0 | 5,407,844 | 23.16 | % | % | ||||||||||||||||
Aisling Capital III, L.P. (2) |
1,666,667 | 0 | 1,666,667 | 7.14 | % | % | ||||||||||||||||
Foresite Capital Fund II, L.P. (3) |
2,866,667 | 0 | 2,866,667 | 12.28 | % | % | ||||||||||||||||
Entities affiliated with Fidelity Management & Research Company (4) |
2,000,000 | 0 | 2,000,000 | 8.57 | % | % | ||||||||||||||||
Food Allergy Research & Education, Inc. (5) |
1,954,248 | 0 | 1,954,248 | 8.37 | % | % | ||||||||||||||||
Explore Holdings LLC (6) |
1,764,706 | 0 | 1,764,706 | 7.56 | % | % | ||||||||||||||||
Bryan L. Walser, M.D. (7) |
1,675,169 | 0 | 1,675,169 | 7.17 | % | % | ||||||||||||||||
Sunshine Charitable
|
2,058,824 | 0 | 2,058,824 | 8.82 | % | % | ||||||||||||||||
Named Executive Officers and Directors |
||||||||||||||||||||||
Stephen G. Dilly, M.D. (9) |
681,100 | 452,500 | 1,133,600 | 4.76 | % | % | ||||||||||||||||
Patrick G. Enright (10) |
5,407,844 | 50,000 | 5,457,844 | 23.33 | % | % | ||||||||||||||||
Kathryn E. Falberg (11) |
53,071 | 0 | 53,071 | * | % | |||||||||||||||||
Mark T. Iwicki (12) |
0 | 39,804 | 39,804 | * | % | |||||||||||||||||
Mark D. McDade (13) |
0 | 79,607 | 79,607 | * | % | |||||||||||||||||
Stacey D. Seltzer |
0 | 0 | 0 | * | % | |||||||||||||||||
Howard V. Raff, Ph.D. (14) |
325,418 | 75,000 | 400,418 | 1.71 | % | % | ||||||||||||||||
Robert M. Elfont, M.D., Ph.D. (15) |
227,033 | 20,000 | 247,033 | 1.06 | % | % | ||||||||||||||||
All directors and executive officers as a group (10 persons) (16) |
6,694,466 | 1,247,625 | 7,942,091 | 32.29 | % | % |
* | Indicates beneficial ownership of less than 1% of the total outstanding common stock. |
(1) | Consists of (a) 2,941,177 shares of common stock issuable upon conversion of Series A convertible preferred stock and (b) 2,466,667 shares of common stock issuable upon conversion of Series B convertible preferred stock. Longitude Capital Partners II, LLC (Longitude Capital II) is the general partner of Longitude Venture Partners II, L.P. (Longitude Venture II). Longitude Capital II and Longitude Venture II may be deemed to have sole voting, investment and dispositive power over the shares held by Longitude Venture II. Patrick G. Enright and Juliett Tammenoms Bakker are the managing members of Longitude Capital II and in their capacity as such, may be deemed to exercise shared voting and investment power with respect to such shares. Each of Ms. Bakker and Mr. Enright disclaim beneficial ownership of such shares except to the extent of his or her pecuniary interest therein. The address of Longitude Venture Partners II, L.P. is 800 El Camino Real, Suite 220, Menlo Park, CA 94025. |
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(2) | Consists of 1,666,667 shares of common stock issuable upon conversion of Series B convertible preferred stock. Aisling Capital Partners III LLC (Aisling Capital III) is the general partner of Aisling Capital III, L.P. Steve Elms, Dennis J. Purcell and Andrew N. Schiff are the managing members of Aisling Capital III and in their capacity as such, may be deemed to have shared voting and investment power with respect to such shares. Each Mssrs. Elms, Pucell and Schiff disclaim beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of Aisling Capital III, L.P. is 888 Seventh Avenue, 30 th Floor, New York, NY 10106. |
(3) | Consists of 2,866,667 shares of common stock issuable upon conversion of Series B convertible preferred stock. Foresite Capital Management II, LLC (Foresite Management II) is the general partner of Foresite Capital Fund II, L.P. (Foresite Capital II). Foresite Management II may be deemed to have sole voting, investment and dispositive power over the shares held by Foresite Capital II. James Tananbaum is the managing member of Foresite Management II and in his capacity as such, may be deemed to exercise sole voting and investment power with respect to such shares. The address of Foresite Capital Fund II, L.P. is 101 California Street, Suite 4100, San Francisco, CA 94111. |
(4) | Consists of (a) 1,650,640 shares of common stock issuable upon conversion of Series B convertible preferred stock held by Fidelity Select Portfolios: Biotechnology Portfolio (Fidelity Select Portfolios) and (b) 349,360 shares of common stock issuable upon conversion of Series B convertible preferred stock held by Fidelity Advisor Series VII: Fidelity Advisory Biotechnology Fund (Fidelity Advisors, and, together with Fidelity Select Portfolios, the Fidelity Investments). The Fidelity Investments are managed by direct or indirect subsidiaries of Fidelity Management and Research LLC (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 shareholders have entered into a shareholders 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 shareholders 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 (Fidelity Funds) advised by Fidelity Management & Research Company (FMR Co), 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 affiliated with Fidelity Investments is 245 Summer Street, Boston, MA 02110. |
(5) | Consists of (a) 925,926 shares of common stock and (b) 1,028,322 shares of common stock issuable on conversion of Series B Preferred Stock. The Board of Directors of Food Allergy Research & Education, Inc. (FARE) has sole voting, investment and dispositive power over such shares. The address of FARE is 7925 Jones Branch Dr. Suite 1100 McLean, VA 22102. |
(6) | Consists of 1,764,706 shares of common stock issuable upon conversion of Series A convertible preferred stock. Paul Dauber is the manager of Explore Holdings LLC and, in his capacity as such, may be deemed to have sole voting and investment power over such shares. The address of Explore Holdings LLC is Post Office Box 94314, Seattle, WA 98124. |
(7) | Consists of (a) 1,275,169 shares of common stock held by Dr. Walser individually, (b) 200,000 shares of common stock held by Bryan L. Walser, as Trustee of The Bryan L. Walser 2015 Grantor Retained Annuity Trust dated June 29, 2015 (The Bryan Walser Trust) and (c) 200,000 shares of common stock held by Bianca M. Walser, as Trustee of The Bianca M. Walser 2015 Grantor Retained Annuity Trust dated June 29, 2015 (The Bianca Walser Trust). Dr. Walser has sole voting, investment and dispositive power over the shares held by The Bryan Walser Trust. Ms. Walser has sole voting, investment and dispositive power over the shares held by The Bianca Walser Trust. |
(8) | Consists of 2,058,824 shares of common stock issuable upon conversion of Series A convertible preferred stock. The Board of Directors of Sunshine Charitable Foundation has sole voting, investment and dispositive power over such shares. The address of Sunshine Charitable Foundation is 225 East Deepath Road, Suite 210, Lake Forest, IL 60045. |
(9) |
Consists of (a) 681, 100 shares of common stock, of which 303,165 are subject to repurchase as of July 1, 2015, and (b) 452,500 shares of common stock that may be acquired pursuant to the exercise of stock options within 60 days of July 1, 2015. Of such 681,100 shares of common stock, (x) 581,100 shares are held by Dr. Dilly individually, (y) 50,000 shares are held by Stephen G. Dilly, as Trustee of The Stephen G. Dilly 2015 Grantor Retained Annuity Trust dated June 23, 2015 (The Dilly Trust) and (z) 50,000 shares are held by Edwina Lynette Mullens, as Trustee of The Edwina Lynette Mullens 2015 Grantor Retained Annuity Trust dated June 23, 2015 (The Mullens Trust). Dr. Dilly has sole voting, |
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investment and dispositive power over the shares held by The Dilly Trust. Ms. Mullens has sole voting, investment and dispositive power over the shares held by The Mullens Trust. |
(10) | Consists of (a) 50,000 shares of common stock that may be acquired pursuant to the exercise of stock options within 60 days of July 1, 2015, and (b) the securities beneficially owned by Longitude Venture Partners II, L.P. as set forth in footnote (1). Mr. Enright disclaims beneficial ownership of the shares listed in footnote (1), except to the extent of his pecuniary interest therein. |
(11) | Consists of 53,071 shares of common stock, of which 48,649 shares were subject to repurchase as of July 1, 2015. |
(12) | Consists of 39,804 shares of common stock that may be acquired pursuant to the exercise of stock options within 60 days of July 1, 2015. |
(13) | Consists of 79,607 shares of common stock that may be acquired pursuant to the exercise of stock options within 60 days of July 1, 2015. |
(14) | Consists of (a) 325,418 shares of common stock held by Howard V. Raff, Trustee, and any successor trustee, of the Howard V. Raff Revocable Trust dated March 28, 2014 (The Raff Trust), of which 81,355 shares were subject to repurchase as of July 1, 2015 and (b) 75,000 shares of common stock that may be acquired pursuant to the exercise of stock options within 60 days of July 1, 2015. Dr. Raff has sole voting, investment and dispositive power over the shares held by The Raff Trust. |
(15) | Consists of (a) 227,033 shares of common stock, of which 151,356 shares were subject to repurchase as of July 1, 2015 and (b) 20,000 shares of common stock that may be acquired pursuant to the exercise of stock options within 60 days of July 1, 2015. |
(16) | Includes 1,286,622 shares of common stock and 5,407,844 shares of common stock issuable upon the conversion of shares of preferred stock, of which 584,525 shares were subject to repurchase within 60 days of July 1, 2015, and 1,247,625 shares of common stock issuable upon the exercise of stock options within 60 days of July 1, 2015. |
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The following summary describes our capital stock and the material provisions of our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective immediately prior to the consummation of this offering, the investor rights agreement to which we and certain of our stockholders are parties and of the Delaware General Corporation Law. Because the following is only a summary, it does not contain all of the information that may be important to you. For a complete description, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws and amended and restated investor rights agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is part.
General
Immediately prior to the consummation of this offering, we will file our amended and restated certificate of incorporation that authorizes shares of common stock, $0.0001 par value per share, and shares of preferred stock, $0.0001 par value per share. As of March 31, 2015, there were outstanding:
| 23,295,026 shares of our common stock, on an as-converted basis, held by approximately 25 stockholders of record; and |
| 144,158 shares of our common stock issuable upon exercise of outstanding stock options. |
Common Stock
Voting Rights
Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to elect all of the directors. In addition, the affirmative vote of holders of 66 2 / 3 % of the voting power of all of the then outstanding voting stock will be required to take certain actions, including amending certain provisions of our amended and restated certificate of incorporation, such as the provisions relating to amending our amended and restated bylaws, the classified board and director liability.
Dividends
Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.
Liquidation
In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences
Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of our preferred stock that we may designate in the future.
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Fully Paid and Nonassessable
All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.
Preferred Stock
Immediately prior to the consummation of this offering, all outstanding shares of our convertible preferred stock will be converted into shares of our common stock. See Note 6 to our unaudited interim condensed financial statements included elsewhere in this prospectus for a description of our currently outstanding convertible preferred 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 convertible preferred stock. From and after the consummation of this offering, our board of directors will have the authority, without further action by our stockholders, to issue up to 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 plan to issue any shares of preferred stock.
Registration Rights
Under our amended and restated investor rights agreement, following the consummation of this offering, the holders of approximately 19,021,461 shares of common stock, or their transferees, have the right to require us to register their shares under the Securities Act so that those shares may be publicly resold, or to include their shares in any registration statement we file, in each case as described below.
Demand Registration Rights
Based on the number of shares outstanding as of March 31, 2015, after the consummation of this offering, the holders of approximately 19,021,461 shares of our common stock (on an as-converted basis), or their transferees, will be entitled to certain demand registration rights. Beginning one hundred eighty (180) days following the effectiveness of the registration statement of which this prospectus is a part, the holders of at least fifty percent (50%) of these shares can, on not more than two occasions, request that we register all or a portion of their shares if the aggregate price to the public of the shares offered is at least $3,000,000. Additionally, we will not be required to effect a demand registration during the period beginning 90 days prior to the filing and ending 180 days following the effectiveness of a company-initiated registration statement relating to an initial public offering of our securities.
Piggyback Registration Rights
Based on the number of shares outstanding as of March 31, 2015, after the consummation of this offering, in the event that we determine to register any of our securities under the Securities Act (subject to certain exceptions), either for our own account or for the account of other security holders, the holders of approximately 19,021,461 shares of our common stock (on an as-converted basis), or their transferees, will be entitled to certain piggyback registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to a registration related to employee benefit plans, the
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offer and sale of debt securities, or corporate reorganizations or certain other transactions, the holders of these shares are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration. In an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include.
Form S-3 Registration Rights
Based on the number of shares outstanding as of March 31, 2015, after the consummation of this offering, the holders of approximately 19.0 million shares of our common stock (on an as-converted basis), or their transferees, will be entitled to certain Form S-3 registration rights. The holders of any of at least twenty five percent (25%) of these shares can make a written request that we register their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at least $1,000,000 net of certain expenses related to the sale of the shares. These stockholders may make an unlimited number of requests for registration on Form S-3, but in no event shall we be required to file more than two registrations on Form S-3 in any given calendar year.
Expenses of Registration
We will pay the registration expenses of the holders of the shares registered pursuant to the demand, piggyback and Form S-3 registration rights described above, including the expenses in an amount not to exceed $25,000 of one counsel for the selling holders.
Expiration of Registration Rights
The demand, piggyback and Form S-3 registration rights described above will expire, with respect to any particular stockholder, upon the earlier of five years after the consummation of this offering or when that stockholder can sell all of its shares under Rule 144 of the Securities Act during any three-month period.
Anti-Takeover Effects of Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Delaware Law
Some provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws that will become effective immediately prior to the consummation of this offering contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.
These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, which prohibits persons deemed interested stockholders from engaging in a business combination with a publicly-held Delaware corporation for three years following the date these persons become interested stockholders unless the business
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combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an interested stockholder is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporations voting stock. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, such as discouraging takeover attempts that might result in a premium over the market price of our common stock.
Undesignated Preferred Stock
The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.
Special Stockholder Meetings
Our amended and restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board of directors, Chief Executive Officer or President, or by a resolution adopted by a majority of our board of directors.
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.
Elimination of Stockholder Action by Written Consent
Our amended and restated certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.
Classified Board; Election and Removal of Directors; Filling Vacancies
Effective upon consummation of this offering, our board of directors will be divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors. Our amended and restated certificate of incorporation provides for the removal of any of our directors only for cause and requires a stockholder vote by the holders of at least a 66 2 ⁄ 3 % of the voting power of the then outstanding voting stock. For more information on the classified board, see ManagementBoard Composition. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of the board, may only be filled by a resolution of the board of directors unless the board of directors determines that such vacancies shall be filled by the stockholders. This system of electing and removing directors and filling vacancies may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.
Choice of Forum
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any
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action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Although our amended and restated certificate of incorporation contains the choice of forum provision described above, it is possible that a court could find that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable.
Amendment of Charter Provisions
The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue undesignated preferred stock, would require approval by a stockholder vote by the holders of at least a 66 2 ⁄ 3 % of the voting power of the then outstanding voting stock.
The provisions of the Delaware General Corporation Law, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Limitations of Liability and Indemnification Matters
For a discussion of liability and indemnification, see ManagementLimitation on Liability and Indemnification Matters.
Listing
We intend to apply to have our common stock listed on The NASDAQ Global Market under the symbol AIMT.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Wells Fargo Shareowner Services. The transfer agent and registrars address is 1110 Centre Pointe Curve, Mendota Heights, Minnesota 55120.
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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 or 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 in the future. 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 consummation of this offering due to contractual and legal restrictions on resale described below. Future sales of our common stock in the public market either before (to the extent permitted) or after restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital at a time and price we deem appropriate.
Sale of Restricted Shares
Based on the number of shares of our common stock outstanding as of March 31, 2015 and assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus), upon the consummation of this offering and assuming (1) the conversion of our outstanding convertible preferred stock into 19,021,461 shares of common stock, (2) no exercise of the underwriters option to purchase additional shares of common stock and (3) no exercise of any of our other outstanding options, we will have 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. All remaining shares of common stock held by existing stockholders immediately prior to the consummation of this offering will be restricted securities as such term is defined in Rule 144. These restricted securities were issued and sold by us, or will be issued and sold by us, in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, including the exemptions provided by Rule 144 or Rule 701, which rules are summarized below.
As a result of the lock-up agreements referred to below and the provisions of Rule 144 and Rule 701 under the Securities Act, based on the number of shares of our common stock outstanding as of March 31, 2015 and assumptions (1) (3) described above, the shares of our common stock (excluding the shares sold in this offering) that will be available for sale in the public market are as follows:
Approximate Number of Shares |
First Date Available for Sale into Public Market |
|
shares |
180 days after the date of this prospectus upon expiration of the lock-up agreements referred to below, subject in some cases to applicable volume limitations under Rule 144 |
Lock-Up Agreements
In connection with this offering, we, our directors, our executive officers and substantially all of our other stockholders and option holders have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of the lock-up agreement continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Merrill, Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC.
Prior to the consummation of the offering, certain of our employees, including our executive officers, and/or directors may enter into written trading plans that are intended to comply with Rule 10b5-1 under the Exchange Act. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above.
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Following the lock-up periods set forth in the agreements described above, and assuming that the representatives of the underwriters do not release any parties from these agreements, all of the shares of our common stock that are restricted securities or are held by our affiliates as of the date of this prospectus will be eligible for sale in the public market in compliance with Rule 144 under the Securities Act.
Rule 144
In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for at least 90 days, a person (or persons whose shares are required to be aggregated) who is not deemed to have been one of our affiliates for purposes of Rule 144 at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell those shares in the public market (subject to the lock-up agreement referred to above, if applicable) without complying with the manner of sale, volume limitations or notice provisions of Rule 144, but subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than affiliates, then such person is entitled to sell such shares in the public market without complying with any of the requirements of Rule 144 (subject to the lock-up agreement referred to above, if applicable). In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Exchange Act for at least 90 days, our affiliates, as defined in Rule 144, who have beneficially owned the shares proposed to be sold for at least six months are entitled to sell in the public market, upon expiration of any applicable lock-up agreements and within any three-month period, a number of those shares of our common stock that does not exceed the greater of:
| 1% of the number of common shares then outstanding, which will equal approximately shares of common stock immediately after this offering (calculated as of March 31, 2015 on the basis of the assumptions (1)(3) described above ); 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 such sale. |
Such sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions, notice requirements and to the availability of current public information about us. Notwithstanding the availability of Rule 144, the holders of substantially all of our restricted securities have entered into lock-up agreements as referenced above and their restricted securities will become eligible for sale (subject to the above limitations under Rule 144) upon the expiration of the restrictions set forth in those agreements.
Rule 701
In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who acquired common stock from us in connection with a written compensatory stock or option plan or other written agreement in compliance with Rule 701 under the Securities Act before the effective date of the registration statement of which this prospectus is a part (to the extent such common stock is not subject to a lock-up agreement) is entitled to rely on Rule 701 to resell such shares beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act in reliance on Rule 144, but without compliance with the holding period requirements contained in Rule 144. Accordingly, subject to any applicable lock-up agreements, beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act, under Rule 701 persons who are not our affiliates, as defined in Rule 144, may resell those shares without complying with the minimum holding period or public information requirements of Rule 144, and persons who are our affiliates may resell those shares without compliance with Rule 144s minimum holding period requirements (subject to the terms of the lock-up agreement referred to below, if applicable).
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Registration Rights
Based on the number of shares outstanding as of March 31, 2015, after the consummation of this offering, the holders of approximately 19,021,461 shares of our common stock, or their transferees, will, subject to any lock-up agreements they have entered into, be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. For a description of these registration rights, see Description of Capital StockRegistration Rights. If the offer and sale of these shares are registered, they will be freely tradable without restriction under the Securities Act.
Stock Plans
We intend to file with the SEC a registration statement under the Securities Act covering the shares of common stock that we may issue upon exercise of outstanding options reserved for issuance under our 2013 Stock Plan and our 2015 Equity Incentive Annual Plan. Such registration statement is expected to be filed and become effective as soon as practicable after the consummation of this offering. Accordingly, shares registered under such registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up agreements described above, if applicable.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership and disposition of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations promulgated thereunder, judicial decisions and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the IRS), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the purchase, ownership and disposition of our common stock.
This discussion is limited to Non-U.S. Holders that hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a Non-U.S. Holders particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:
| U.S. expatriates and former citizens or long-term residents of the United States; |
| persons subject to the alternative minimum tax; |
| persons holding our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
| banks, insurance companies and other financial institutions; |
| brokers, dealers or traders in securities; |
| controlled foreign corporations, passive foreign investment companies, and corporations that accumulate earnings to avoid U.S. federal income tax; |
| partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein); |
| tax-exempt organizations or governmental organizations; |
| persons deemed to sell our common stock under the constructive sale provisions of the Code; and |
| tax-qualified retirement plans. |
If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
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SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a Non-U.S. Holder is any beneficial owner of our common stock that is neither a U.S. person nor an entity treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
| an individual who is a citizen or resident of the United States; |
| a corporation 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 that (1) is subject to the primary supervision of a U.S. court and all substantial decisions of which are controlled by one or more United States persons (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes. |
Distributions
As described in the section entitled Dividend Policy, we do not anticipate paying any cash dividends in the foreseeable future. However, if we do make distributions of cash or property on our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holders adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under Sale or Other Taxable Disposition.
Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch
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profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Sale or Other Taxable Disposition
Subject to the discussion below regarding FATCA, a Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our common stock unless:
| the gain is effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable); |
| the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or |
| our common stock constitutes a U.S. real property interest (USRPI) by reason of our status as a U.S. real property holding corporation (USRPHC) for U.S. federal income tax purposes. |
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by certain U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of our common stock will not be subject to U.S. federal income tax if our common stock is regularly traded, as defined by applicable Treasury Regulations, on an established securities market, and such Non-U.S. Holder owned, actually and constructively, 5% or less of our common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holders holding period.
Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Payments of dividends on our common stock will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our common stock paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition
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of our common stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of our common stock conducted through a non-U.S. office of a non-U.S. broker that does not have certain enumerated relationships with the United States generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holders U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax will be imposed on dividends on, or gross proceeds from the sale or other disposition on or after January 1, 2017 of, our common stock paid to a foreign financial institution or a non-financial foreign entity (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any substantial United States owners (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain specified United States persons or United States-owned foreign entities (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.
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Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of shares of common stock set forth opposite its name below.
Underwriter |
Number
|
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
||
Credit Suisse Securities (USA) LLC |
||
Piper Jaffray & Co. |
||
|
||
Total |
||
|
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares.
Per Share |
Without Option |
With Option |
||||||||||
Public offering price |
$ | $ | $ | |||||||||
Underwriting discount |
$ | $ | $ | |||||||||
Proceeds, before expenses, to the Company |
$ | $ | $ |
The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by us. We have agreed to reimburse the underwriters for expenses of $ relating to the clearance of this offering with the Financial Industry Regulatory Authority.
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Option to Purchase Additional Shares
We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to additional shares at the public offering price, less the underwriting discount. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriters initial amount reflected in the above table.
No Sales of Similar Securities
We, our executive officers and directors and our other existing security holders have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Merrill, Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:
| offer, pledge, sell or contract to sell any common stock, |
| sell any option or contract to purchase any common stock, |
| purchase any option or contract to sell any common stock, |
| grant any option, right or warrant for the sale of any common stock, |
| lend or otherwise dispose of or transfer any common stock, |
| request or demand that we file a registration statement related to the common stock, or |
| enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise. |
This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
The NASDAQ Global Market Listing
We expect the shares to be approved for listing on The NASDAQ Global Market, subject to notice of issuance, under the symbol AIMT.
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are
| the valuation multiples of publicly traded companies that the representatives believe to be comparable to us, |
| our financial information, |
| the history of, and the prospects for, our company and the industry in which we compete, |
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| an assessment of our management, its past and present operations and the prospects for, and timing of, our future revenues, |
| the present state of our development, and |
| the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. |
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.
In connection with the offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the underwriters option to purchase additional shares described above. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option granted to them. Naked short sales are sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on The NASDAQ Global Market, in the over-the-counter market or otherwise.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
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Electronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.
In addition, in the ordinary course of their business activities, the underwriters and 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. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area (each, a Relevant Member State), no offer of shares may be made to the public in that Relevant Member State other than:
A. | to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
B. | to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives; or |
C. | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares shall require the Company or the representatives 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 initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
The Company, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
This prospectus has been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a
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prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the Company or the underwriters to publish a prospectus for such offer.
For the purpose of the above provisions, the expression an offer to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
Notice to Prospective Investors in the United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and
155
has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (ASIC), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the Exempt Investors) who are sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial
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guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, Japanese Person shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(a) | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(b) | where no consideration is or will be given for the transfer; |
(c) | where the transfer is by operation of law; |
(d) | as specified in Section 276(7) of the SFA; or |
as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
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The validity of the issuance of our common stock offered in this prospectus will be passed upon for us by Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California 94025. Davis Polk & Wardwell LLP is acting as counsel for the underwriters in connection with this offering.
The financial statements of Aimmune Therapeutics, Inc. as of December 31, 2013 and 2014 and for each of the years in the two-year period ended December 31, 2014, have been included herein in reliance upon the report of KPMG, LLP, independent registered public accounting firm appearing elsewhere herein and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information with respect to Aimmune Therapeutics, Inc. 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., Room 1580, 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 consummation 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. We maintain a website at www.aimmune.com. Upon consummation of this offering, you may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The reference to our website address does not constitute incorporation by reference of the information contained on our website, and you should not consider the contents of our website in making an investment decision with respect to our common stock.
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INDEX TO FINANCIAL STATEMENTS
Unaudited Interim Condensed Financial Statements | ||||
Condensed Balance Sheets as of December 31, 2014 and March 31, 2015 |
F-19 | |||
F-20 | ||||
Condensed Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2015 |
F-21 | |||
F-22 |
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Aimmune Therapeutics, Inc.:
We have audited the accompanying balance sheets of Aimmune Therapeutics, Inc. (the Company) as of December 31, 2013 and 2014, and the related statements of operations and comprehensive loss, stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2014. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aimmune Therapeutics, Inc. as of December 31, 2013 and 2014, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
June 4, 2015, except for note 11, which is as of June 8, 2015
F-2
BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31, |
||||||||
2013 |
2014 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 11,951 | $ | 2,269 | ||||
Prepaid expenses |
120 | 106 | ||||||
|
|
|
|
|||||
Total current assets |
12,071 | 2,375 | ||||||
Property and equipment, net |
60 | 87 | ||||||
Restricted cash |
| 40 | ||||||
Other assets |
25 | 29 | ||||||
|
|
|
|
|||||
Total assets |
$ | 12,156 | $ | 2,531 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 272 | $ | 478 | ||||
Accrued liabilities |
238 | 1,259 | ||||||
Other current liabilities |
9 | 67 | ||||||
|
|
|
|
|||||
Total current liabilities |
519 | 1,804 | ||||||
Other liabilities |
| 56 | ||||||
|
|
|
|
|||||
Total liabilities |
519 | 1,860 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 4) |
||||||||
Stockholders equity: |
||||||||
Series A convertible preferred stock, par value $0.0001 per share10,071,352 shares authorized as of December 31, 2013 and 2014; 10,071,352 shares issued and outstanding as of December 31, 2013 and 2014; aggregate liquidation preference of $16,989 as of December 31, 2013 and 2014 |
16,928 | 16,928 | ||||||
Common stock, par value $0.0001 per share25,000,000 shares authorized as of December 31, 2013 and 2014; 2,222,222 and 3,228,740 shares issued and outstanding as of December 31, 2013 and 2014 (including 598,993 shares subject to repurchase, legally issued and outstanding as of December 31, 2014), respectively |
| | ||||||
Additional paid-in capital |
1,106 | 1,260 | ||||||
Accumulated deficit |
(6,397 | ) | (17,517 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
11,637 | 671 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 12,156 | $ | 2,531 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-3
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
Year Ended | ||||||||
December 31, |
||||||||
2013 |
2014 |
|||||||
Operating expenses: |
||||||||
Research and development |
$ | 3,495 | $ | 8,181 | ||||
General and administrative |
1,263 | 2,951 | ||||||
|
|
|
|
|||||
Total operating expenses |
4,758 | 11,132 | ||||||
|
|
|
|
|||||
Loss from operations |
(4,758 | ) | (11,132 | ) | ||||
Other income (expense), net |
||||||||
Interest income |
24 | 12 | ||||||
Interest expense |
(91 | ) | | |||||
|
|
|
|
|||||
Total other income (expense), net |
(67 | ) | 12 | |||||
|
|
|
|
|||||
Net loss and comprehensive loss |
$ | (4,825 | ) | $ | (11,120 | ) | ||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (2.17 | ) | $ | (5.00 | ) | ||
|
|
|
|
|||||
Weighted-average shares used in computing net loss per share, basic and diluted |
2,222,222 | 2,223,916 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted (unaudited) |
$ | (0.90 | ) | |||||
|
|
|||||||
Shares used in computing pro forma net loss per share, basic and diluted (unaudited) |
12,295,268 | |||||||
|
|
The accompanying notes are an integral part of these financial statements.
F-4
STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands, except share and per share amounts)
Series A Convertible
|
Common Stock |
Additional
Capital |
Accumulated deficit |
Total
Equity |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
Balance as of December 31, 2012 |
| $ | | 2,222,222 | $ | | $ | 1,025 | $ | (1,572 | ) | $ | (547 | ) | ||||||||||||||
Issuance of Series A convertible preferred stock for cash at $1.70 per share, net of $61 of issuance costs |
9,544,120 | 16,164 | | | | | 16,164 | |||||||||||||||||||||
Conversion of convertible promissory note at $1.45 per share of Series A convertible preferred stock |
527,232 | 764 | | | | | 764 | |||||||||||||||||||||
Stock-based compensation |
| | | | 81 | | 81 | |||||||||||||||||||||
Net loss |
| | | | | (4,825 | ) | (4,825 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance as of December 31, 2013 |
10,071,352 | $ | 16,928 | 2,222,222 | | $ | 1,106 | (6,397 | ) | $ | 11,637 | |||||||||||||||||
Issuance of common stock upon exercise of vested options |
| | 1,006,518 | | 77 | | 77 | |||||||||||||||||||||
Stock-based compensation |
| | | | 77 | | 77 | |||||||||||||||||||||
Net loss |
| | | | | (11,120 | ) | (11,120 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance as of December 31, 2014 |
10,071,352 | $ | 16,928 | 3,228,740 | $ | | $ | 1,260 | $ | (17,517 | ) | $ | 671 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-5
STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended | ||||||||
December 31, |
||||||||
2013 |
2014 |
|||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (4,825 | ) | $ | (11,120 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation |
9 | 29 | ||||||
Stock-based compensation |
81 | 77 | ||||||
Non-cash interest expense on convertible note |
90 | | ||||||
Changes in operating assets and liabilities |
||||||||
Prepaid expenses |
(117 | ) | 14 | |||||
Accounts payable |
208 | 206 | ||||||
Accrued liabilities |
208 | 1,021 | ||||||
Other |
(16 | ) | (4 | ) | ||||
|
|
|
|
|||||
Net cash used in operating activities |
$ | (4,362 | ) | $ | (9,777 | ) | ||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(69 | ) | (56 | ) | ||||
Increase in restricted cash |
| (40 | ) | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(69 | ) | (96 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Net cash proceeds from issuance of Series A convertible preferred stock, net of issuance costs |
16,164 | | ||||||
Net cash proceeds from exercise of stock options, including early exercise |
| 191 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
16,164 | 191 | ||||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
11,733 | (9,682 | ) | |||||
Cash and cash equivalents at the beginning of the period |
218 | 11,951 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at the end of the period |
$ | 11,951 | $ | 2,269 | ||||
|
|
|
|
|||||
Supplemental disclosures of non-cash financing information: |
||||||||
Conversion of convertible promissory note and accrued interest into Series A convertible preferred stock |
$ | 764 | $ | | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-6
NOTES TO THE FINANCIAL STATEMENTS
1. Organization and Description of Business
Aimmune Therapeutics, Inc. (Aimmune Therapeutics or the Company) (formerly known as Allergen Research Corporation) is a clinical-stage biopharmaceutical company focused on developing treatments to protect children with food allergies from the threatening consequences of accidental exposure. The Company is headquartered in the San Francisco Bay Area and was incorporated in the state of Delaware on June 24, 2011.
Since inception, the Company has incurred net losses and negative cash flows from operations. During the years ended December 31, 2013 and 2014, the Company incurred a net loss of $4.8 million and $11.1 million, respectively, and used $4.4 million and $9.8 million of cash in operations, respectively. At December 31, 2013 and 2014, the Company had an accumulated deficit of $6.4 million and $17.5 million, respectively, and does not expect to experience positive cash flows in the near future. The Company has financed operations to date primarily through private placements of equity securities. The Companys ability to continue to meet its obligations and to achieve its business objectives is dependent upon, amongst other things, raising additional capital, obtaining U.S. Food and Drug Administration (FDA) and European Medicines Agency (EMA) approval and commercializing in the United States and Europe, generating sufficient revenue and its ability to continue to control expenses, if necessary, to meet its obligations as they become due for the foreseeable future. Failure to obtain FDA and EMA approval, commercialize its lead product candidate, manage discretionary expenditures or raise additional financing, as required, may adversely impact the Companys ability to achieve its intended business objectives.
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United State of America (U.S. GAAP). The preparation of the accompanying financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of costs and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. The Companys actual results could differ from these estimates under different assumptions or conditions. The Company operates in one reportable segment in the United States of America.
Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in a bank high yield savings account.
Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Companys cash and cash equivalents are held primarily in one large financial institution in the United States. Management believes that this financial institution is financially sound, and accordingly, minimal credit risk exists with respect to this financial institution. The Company is exposed to credit risk in the event of default by the financial institution holding its cash and cash equivalents to the extent recorded on the balance sheets.
Fair Value Measurement The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.
F-7
Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss, if any, is reflected in operations.
The useful lives of property and equipment are as follows:
Furniture and office equipment |
4 years | |||
Computer equipment |
3 years |
Impairment of Long-Lived Assets The Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired assets. The Company has not recorded impairment of any long-lived assets in the periods presented.
Leases The Company has entered into lease agreements for its corporate headquarters and research facilities in San Mateo, California through July 2017. These leases are classified as operating leases. Rent expense is recognized on a straight-line basis over the terms of the leases and, accordingly, the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. Incentives granted under the Companys facilities leases are deferred and recognized as adjustments to rental expense on a straight-line basis over the term of the lease.
In March 2015, the Company entered into a new lease for its corporate headquarters and research facilities in Brisbane, California. In May 2015, the Company ceased use of its San Mateo facilities and moved into its new facilities. The new lease, which expires in 2019, will also be classified as an operating lease. See Note 11, Subsequent Events.
Research and Development The Company expenses research and development costs as incurred. The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials and contract manufacturing activities. These costs are a significant component of the Companys research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled and the rate of patient enrollments may vary from the Companys estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Companys accruals could materially affect the Companys results of operations.
Stock-based Compensation Stock-based awards issued to employees, including stock options, are measured at fair value on the grant date using the Black-Scholes option-pricing model and recognized as expense on a straight-line basis over the employees requisite service period (generally the vesting period). Because noncash stock compensation expense is based on awards ultimately expected to vest, it is reduced by an estimate for future forfeitures. Forfeitures are estimate at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.
F-8
Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of reported assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Companys lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.
The Company has adopted Financial Accounted Standards Board Accounting Standards Codification 740, Income Taxes, regarding how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. As of December 31, 2013 and 2014, the Company does not have any unrecognized tax benefits.
Recent Accounting Pronouncements The Company is an emerging growth company as defined in the JOBS Act of 2012. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and therefore, will be subject to the same new revised accounting standard as other public companies that are not emerging growth companies.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which provides a framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles (U.S. GAAP). The ASU provides a five-step analysis of transactions to determine when and how revenue is recognized. The ASU will require many companies to use more judgment than under current U.S. GAAP. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, for public business entities. On April 29, 2015, the FASB issued for comment a proposed ASU, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The proposed ASU would permit both public and nonpublic organizations to adopt the new revenue standard early, but not before the original public organization effective date (that is, annual periods beginning after December 15, 2017).
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. ASU 2014-10 simplifies the accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments related to the elimination of the inception-to-date information and other disclosure requirement of Topic 915 should be applied retrospectively, and are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. The Company has elected to early adopt this guidance as of January 1, 2013.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern . ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under todays guidance. ASU 2014-15 is effective for the first quarter of 2016 with early adoption permitted. We do not believe the impact of adopting ASU 2014-15 on our financial statements will be material.
F-9
3. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
Year Ended
|
||||||||
2013 |
2014 |
|||||||
Furniture and equipment |
$ | 30 | $ | 58 | ||||
Computer equipment |
39 | 67 | ||||||
|
|
|
|
|||||
Property and equipment, gross |
69 | 125 | ||||||
Less: accumulated depreciation |
(9 | ) | (38 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 60 | $ | 87 | ||||
|
|
|
|
Depreciation expense for the years ended December 31, 2013 and 2014 was $9,000 and $29,000, respectively.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Year Ended December 31, |
||||||||
2013 |
2014 |
|||||||
Compensation and benefits |
$ | 208 | $ | 645 | ||||
Research and development |
| 542 | ||||||
Professional and consulting |
30 | 71 | ||||||
Other |
| 1 | ||||||
|
|
|
|
|||||
Total |
$ | 238 | $ | 1,259 | ||||
|
|
|
|
4. Commitments and Contingencies
Facility Leases
In July 2013, the Company entered into a 48-month lease for its corporate headquarters and research facilities. In July 2014, the Company entered into a second lease that expanded the current space and is for a term of 36 months beginning in July 2014 and coterminous with the first lease. Under both leases, the Company pays base rent plus the tenants proportionate share of estimated basic operating cost as defined in the leases. The leases required a $25,000 security deposit for the duration of the leases.
Future aggregate minimum lease payments under the non-cancelable operating leases as of December 31, 2014 (in thousands):
Year Ended December 31, |
||||
2015 |
$ | 167 | ||
2016 |
170 | |||
2017 |
86 | |||
|
|
|||
Total |
$ | 423 | ||
|
|
F-10
Rent expense under operating leases was $42,000 and $131,000 for the years ended December 31, 2013 and 2014.
Purchase Commitments
The Company purchases peanut flour, the source material for AR101, from the Golden Peanut Company pursuant to a long term exclusive commercial supply agreement. Pursuant to the agreement, the Companys purchase obligation commences with the first delivery of peanut flour for commercial use, which it currently anticipates will not occur prior to 2018. Assuming the Company starts its purchase obligation of peanut flour for commercial use in 2018, which is not assured, the aggregate purchase commitment under this agreement is $1.2 million over a term of five years.
Indemnifications
The Company indemnifies each of its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Companys request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as an officer or a director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance. This insurance allows the transfer of risk associated with the Companys exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, it has not recognized any liabilities relating to these obligations for any period.
5. Common Stock
As of December 31, 2013 and 2014, the Company had authorized 25,000,000 shares of common stock. The Company has reserved sufficient shares of common stock for issuance upon conversion of the Series A convertible preferred stock and the exercise of stock options. Common stockholders are entitled to dividends if and when declared by the Board of Directors subject to the prior rights of the Series A preferred stockholders. As of December 31, 2014, no common stock dividends had been declared by the Board of Directors.
6. Convertible Preferred Stock
As of December 31, 2013 and 2014, the Company had authorized 10,071,352 shares of Series A convertible preferred stock. In February 2013, the Company issued 5,350,763 shares of Series A preferred stock, $0.0001 par value, original issue price of $1.70 in the case of cash proceeds and $1.45 in the case of an outstanding note and accrued interest converted into the Series A convertible preferred stock (see Conversion of Convertible Note Payable below). In April 2013, the Company issued an additional 4,720,589 shares of Series A convertible preferred stock, $0.0001 par value, original issue price of $1.70. As of December 31, 2013 and 2014, Series A convertible preferred stock consisted of the following (in thousands, except share amounts):
As of December 31, 2013 and 2014 |
||||||||||||||||
Convertible preferred stock |
Shares
|
Shares
|
Proceeds
|
Aggregate
|
||||||||||||
Series A |
10,071,352 | 10,071,352 | $ | 16,928 | $ | 16,989 |
Significant provisions of Series A convertible preferred stock are as follows:
Dividends Holders of Series A convertible preferred stock, in preference to common stockholders, shall be entitled to receive when, as and if declared by the Board of Directors non-cumulative cash dividends at
F-11
the rate of 8% of the original issue price per annum on each outstanding share of Series A convertible preferred stock. No Series A convertible preferred stock dividends have been declared or paid as of December 31, 2014.
Liquidation In the event of any liquidation, dissolution, or winding up of the Company, the holders of Series A convertible preferred stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to holders of common stock, an amount equal to $1.70 per share of Series A convertible preferred stock plus any declared but unpaid dividends. If upon such liquidation, dissolution, or winding up of the Company, the assets available for distribution to stockholders are insufficient to pay in full holders of Series A convertible preferred stock amounts to which they are entitled, the holders of Series A convertible preferred stock shall share ratably in any assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect to the shares held by them. Following payment in full to the holders of Series A convertible preferred stock, the remaining assets and funds of the Company, if any, shall be divided among and paid ratably to the holders of Common Stock in proportion to the number of shares held by them.
A consolidation or merger of the Company with or into any other corporation or corporations, acquisition by any other corporation or corporations, or a sale of all or substantially all of the assets or voting control of the Company in which the prior stockholders of the Company do not own a majority of the outstanding shares of the surviving corporation is deemed to be a liquidation.
Conversion Each share of Series A convertible preferred stock is convertible into shares of common stock at the option of the holder at any time. Conversion is automatic upon either the written consent of not less than 66.67% of the holders of the Series A convertible preferred stock outstanding or the effective date of a firm commitment underwritten public offering that yields net proceeds to the Company of not less than $40,000,000 at an equivalent price per share of common stock of not less than $8.50. Each share of Series A convertible preferred stock is convertible into the number of shares of which results from dividing the original issue price of the Series A convertible preferred stock by the conversion price for the Series A convertible preferred Stock that is in effect at the time of conversion. As of December 31, 2013 and 2014, the conversion price of the Series A convertible preferred stock was $1.70 and, as such, all outstanding shares of Series A convertible preferred stock had a conversion ratio of 1-to-1.
Voting Each holder of share of Series A convertible preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such shares of preferred stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the holders of common stock. The holders of Series A convertible preferred stock shall be entitled to elect two directors of the Company.
Redemption The Series A convertible preferred stock is not redeemable at the option of the holders and there is no event in which the Series A holders can require liquidation in which the common stockholders would not participate in the liquidation proceeds in accordance with their relative liquidation rights as described above.
Conversion of Convertible Note Payable
In June 2012, the Company entered into an unsecured convertible promissory note in the amount of $750,000 with an existing stockholder. The note provided for an annual interest rate of 3% and a due date of December 31, 2013, but could be extended by mutual agreement for an additional year. Under the terms of the note, under certain circumstances, the balance of the note, including any accrued interest, would convert into preferred stock upon the closing of a future preferred stock financing that met specified criteria. Such conversion would be at a 15% discount to the per share price of the preferred stock sold in the financing.
In February 2013, as part of the issuance of Series A convertible preferred stock, the note, plus $14,000 of accrued interest converted into 527,232 shares of Series A convertible preferred stock at a rate of $1.45 per
F-12
share in full payment for the note and accrued interest. The discount of $112,000 was recorded at the time of issuance of the note as an offset to the note on the balance sheet and was amortized as additional interest expense over the original term of the note. At the conversion date, the remaining unamortized discount of $88,000 was recorded as interest expense.
7. Stock-based Awards
In January 2013, the Company adopted its Stock Plan (the Plan). Under the Plan, shares of the Companys common stock have been reserved for the issuance of stock options and restricted stock to employees, directors, and consultants under terms and provisions established by the Board of Directors and approved by the Companys stockholders. At December 31, 2013 and 2014, there were 463,142 and 485,670 shares available for future grant. Under the terms of the Plan, options may be granted at an exercise price not less than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive stock options may not be less than 110% of fair market value, as determined by the Board of Directors. The terms of options granted under the Plan may not exceed ten years. All options issued to date have had a ten-year life. To date, options granted generally vest in two ways: 1) over four years at a rate of 25% upon the first anniversary of the issuance date and 1/48 th per month thereafter, and 2) over two years at a rate of 1/24 th per month. The Plan contains certain change of control provisions and the employment offer letters of certain employees provide for varied acceleration of vesting in the event of a change of control and/or termination without cause. It also contains a net exercise provision and allows for cashless exercise upon the class of shares subject to the option becoming publicly traded in an established securities market.
The Plan allows employees to exercise a stock option in exchange for stock before the requisite service is provided (e.g., before the award is vested under its original terms); however, such arrangements permit the Company to subsequently repurchase such shares at the exercise price if the vesting conditions are not satisfied. Such an exercise is not substantive for accounting purposes. Therefore, the payment received by the Company for the exercise price is recognized as an early exercise liability on the balance sheets and will be transferred to common stock and additional paid-in capital as such shares vest. At December 31, 2014, 598,993 unvested shares were legally issued and outstanding. In connection with these unvested shares, the Company has recorded an early exercise liability of $114,000, of which $58,000 is included in other current liabilities and $56,000 is included in other non-current liabilities in the Companys Balance Sheet. No options were early exercised in 2013. These shares are excluded from basic net loss per share until the Company repurchase right lapses and the shares are no longer subject to the repurchase feature.
Activity under the Plan is set forth below:
Shares
|
Number of
|
Weighted
|
Weighted
|
|||||||||||||
Initial shares authorized, January 29, 2013 |
1,013,075 | | ||||||||||||||
Additional shares authorized |
1,156,379 | | ||||||||||||||
Options granted |
(1,706,312 | ) | 1,706,312 | $ | 0.19 | |||||||||||
|
|
|
|
|||||||||||||
Balances, December 31, 2013 |
463,142 | 1,706,312 | $ | 0.19 | 9.67 | |||||||||||
Additional shares authorized |
672,532 | | ||||||||||||||
Options granted |
(1,241,975 | ) | 1,241,975 | $ | 0.19 | |||||||||||
Options exercised |
| (407,525 | ) | $ | 0.19 | |||||||||||
Options cancelled |
591,971 | (591,971 | ) | $ | 0.19 | |||||||||||
|
|
|
|
|||||||||||||
Balances, December 31, 2014 |
485,670 | 1,948,791 | $ | 0.19 | 9.19 | |||||||||||
|
|
|
|
|||||||||||||
Vested and expected to vest as of December 31, 2014 |
1,709,316 | $ | 0.19 | 9.13 | ||||||||||||
Exercisable as of December 31, 2014 |
1,349,798 | $ | 0.19 | 9.05 |
F-13
The aggregate intrinsic values of options outstanding, exercisable, and vested and expected to vest were calculated as the difference between the exercise price of the options and the estimated value of the Company common stock as determined by the Companys Board of Directors as of December 31, 2014. The Plan provides for early exercise, therefore, all the Companys outstanding stock options are exercisable. At December 31, 2013 and 2014, the exercise price of all stock options was $0.19 per share and the estimated value of the Company common stock was also $0.19 per share. Consequently, the intrinsic value for the options outstanding, exercisable, and vested was nil.
Stock Options Granted to Employees
During the years ended December 31, 2013 and 2014, the Company granted stock options to employees to purchase shares of common stock with a weighted-average grant date fair value of $0.12 and $0.11 per share, The fair value is being expensed over the vesting period of the options, which is either four years or two years on a straight-line basis as the services are being provided. No tax benefits were realized from options during the periods.
As of December 31, 2014, total unrecognized employee stock-based compensation was $120,000, which is expected to be recognized over the weighted-average remaining vesting period of 2.43 years.
The fair value of employee stock options was estimated using the Black-Scholes pricing model, with the following weighted-average assumptions:
Year Ended
|
||||||||
2013 |
2014 |
|||||||
Expected volatility |
85.52 | % | 79.62 | % | ||||
Risk-free interest rate |
1.56 | % | 1.51 | % | ||||
Dividend yield |
0.00 | % | 0.00 | % | ||||
Expected term (in years) |
4.76 | 4.65 |
Determining Fair Value of Stock Options
The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. The determination of each of these inputs is subjective and generally requires significant judgment.
Expected volatility The expected stock price volatility assumption was determined by examining the historical volatilities of a group of industry peers, as the Company did not have any trading history for the Companys common stock. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Companys common stock becomes available.
Expected term The expected term of stock options represents the weighted average period the stock options are expected to be outstanding. The Companys option grants are considered plain vanilla. Therefore, the Company has opted to use the simplified method for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average time-to-vesting and the contractual life of the options.
Expected dividend The expected dividend assumption was based on the Companys history and expectation that it will not declare dividend payout for the near future.
Risk-free interest rate The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected terms.
F-14
Fair value of common stock The fair value of the shares of common stock underlying the stock options has historically been the responsibility of and determined by the Companys board of directors. Because there has been no public market for the Companys common stock, the board of directors determined fair value of common stock at the time of grant of the option by considering a number of objective and subjective factors including independent third-party valuations of the Companys common stock, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors.
The fair value of the underlying common stock will be determined by the Companys board of directors until such time as the Companys common stock is listed on an established exchange or national market system.
Stock-based compensation expense, net of estimated forfeitures, is reflected in the statements of operations and comprehensive loss as follows (in thousands):
Year Ended
December 31, |
||||||||
2013 | 2014 | |||||||
Operating expenses: |
||||||||
Research and development |
$ | 21 | $ | 23 | ||||
General and administrative |
60 | 54 | ||||||
|
|
|
|
|||||
Total |
$ | 81 | $ | 77 | ||||
|
|
|
|
8. Income Taxes
The Company has not recorded any net tax provision in the periods presented due to net operating losses incurred and the need for a full valuation allowance on deferred tax assets.
Income tax expense in 2013 and 2014 differed from the amount expected by applying the statutory federal tax rate to the loss before taxes as summarized below (in thousands):
Year Ended
|
||||||||
2013 |
2014 |
|||||||
Federal tax benefit at statutory rate |
$ | (1,640 | ) | $ | (3,751 | ) | ||
State tax benefit, net of federal benefit |
(313 | ) | (698 | ) | ||||
Change in valuation allowance |
1,975 | 4,549 | ||||||
Research and development credits |
(53 | ) | (119 | ) | ||||
Other |
31 | 19 | ||||||
|
|
|
|
|||||
$ | | $ | | |||||
|
|
|
|
The significant components of the Companys deferred taxes are as follows (in thousands):
December 31, |
||||||||
2013 |
2014 |
|||||||
Deferred tax assets (liabilities): |
||||||||
Net operating loss carryforwards |
$ | 1,663 | $ | 4,723 | ||||
Start-up costs |
596 | 1,736 | ||||||
Tax credit carryforwards |
98 | 274 | ||||||
Accruals |
78 | 227 | ||||||
Other |
28 | 52 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
2,463 | 7012 | ||||||
|
|
|
|
|||||
Less: valuation allowance |
(2,463 | ) | (7,012 | ) | ||||
|
|
|
|
|||||
Net deferred income taxes |
$ | | $ | | ||||
|
|
|
|
F-15
The Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely than not. The valuation allowance increased by $2.0 and $4.5 million in 2013 and 2014, respectively, primarily due to the increase in net operating loss carryforwards and start-up costs.
As of December 31, 2014, the Company had $11.9 million in both federal and state net operating losses, which will begin to expire beginning in 2031 if not utilized. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize net operating loss carryforwards or other tax attribute, such as research tax credits, in any taxable year may be limited if we have experienced an ownership change. Following the issuance of the Series B convertible preferred stock in January and February 2015 (see Note 11), we performed a Section 382 analysis and believe that we experienced multiple ownership changes under Section 382 of the Code and, as a result, our federal and state net operating loss carryforwards and tax credits are subject to limitation.
Realization of net operating loss carryforwards and research and development carryforwards may be impaired or limited in certain circumstances.
The Company has adopted Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 740, Income Taxes , regarding how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. As of December 31, 2013 and 2014, the Company does not have any unrecognized tax benefits.
9. Defined Contribution Plan
The Company sponsors a 401(k) Plan which stipulates that eligible employees may contribute to the Plan subject to certain limitations. The Company may match employee contributions in amounts to be determined at the Companys sole discretion. To date, the Company has not made any matching contributions.
10. Net Loss and Pro Forma Net Loss Per Share
The following table sets forth the computation of the basic and diluted net loss per share during the years ended December 31, 2013 and 2014 (in thousands, except share and per share data):
Year ended December 31, |
||||||||
2013 |
2014 |
|||||||
Numerator: |
||||||||
Net loss |
$ | (4,825 | ) | $ | (11,120 | ) | ||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted average common shares outstanding |
2,222,222 | 2,223,916 | ||||||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (2.17 | ) | $ | (5.00 | ) | ||
|
|
|
|
The following common stock equivalents were excluded from the computation of diluted net loss per share for the periods present because including them would have been antidilutive:
Year ended December 31, |
||||||||
2013 |
2014 |
|||||||
Series A convertible preferred stock |
8,176,943 | 10,071,352 | ||||||
Stock options |
1,706,312 | 1,948,791 |
F-16
Unaudited Pro Forma
The following table sets forth the computation of the Companys unaudited pro forma basic and diluted net loss per share during the year ended December 31, 2014 (in thousands, except for share and per share amounts).
Net loss |
$ | (11,120 | ) | |
|
|
|||
Shares used in computing net loss per share basic and diluted |
2,223,916 | |||
Pro forma adjustments to reflect assumed conversion of convertible preferred stock |
10,071,352 | |||
|
|
|||
Shares used in computing pro forma net loss per share, basic and diluted |
12,295,268 | |||
|
|
|||
Pro forma net loss per share, basic and diluted |
$ | (0.90 | ) | |
|
|
11. Subsequent Events
Series B Convertible Preferred Stock
In January and February 2015, the Company authorized 10,816,667 and issued 10,666,667 shares of Series B convertible preferred stock, $0.0001 par value, original issue price of $7.50 per share, for cash proceeds of $66.9 million net of $12.9 million in repurchases of the Companys Series A convertible preferred stock and $243,000 of offering costs. The Company plans to use the net proceeds to fund the upcoming Phase 3 registration trial of the Companys AR101 product. The rights and preferences of the Series B convertible preferred stock are similar to those of the Series A convertible preferred stock.
New Facilities Lease
In March 2015, the Company signed a new facilities lease for its corporate headquarters and research facilities in Brisbane, California. In May 2015, the Company ceased use of its San Mateo facilities and accrued a liability for costs that will continue to be incurred under the San Mateo leases for the remaining terms, net of estimated sublease payments.
The new lease commenced on May 1, 2015 with an initial term of 51 months. The Company has the right to extend the lease term for an additional 3 years at the greater of the then current base rent or the then prevailing market rent, as defined by the Renewal Option contained in the lease. The agreement calls for a security deposit of $85,000. The new lease calls for future aggregate minimum noncancelable lease payments as of May 1, 2015 (the inception of the lease) as follows (in thousands):
Year ended December 31, |
||||
2015 |
$ | 190 | ||
2016 |
464 | |||
2017 |
478 | |||
2018 |
492 | |||
and after |
294 | |||
|
|
|||
Total |
$ | 1,918 | ||
|
|
The Company is responsible for operating expenses over base operating expenses as defined in the headquarters lease agreement.
F-17
In June 2015, the Company signed a new facilities lease for a manufacturing facility in Clearwater, Florida. The new lease is expected to commence in mid to late September. The initial terms of the lease are for 120 months. The agreement calls for a security deposit of $35,000. The new lease calls for future aggregate minimum lease payments as of the commencement of the lease as follows (in thousands):
Year ended December 31, |
||||
2015 |
$ | 38 | ||
2016 |
151 | |||
2017 |
156 | |||
2018 |
160 | |||
and after |
1,198 | |||
|
|
|||
Total |
$ | 1,703 | ||
|
|
The Company is responsible for operating expenses including real estate taxes as defined in the manufacturing facility lease agreement.
F-18
CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31,
|
March 31,
|
Pro forma Stockholders Equity as of March 31, 2015 |
||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 2,269 | $ | 65,313 | ||||||||
Prepaid expenses |
106 | 309 | ||||||||||
|
|
|
|
|||||||||
Total current assets |
2,375 | 65,622 | ||||||||||
Property and equipment |
87 | 120 | ||||||||||
Restricted cash |
40 | 40 | ||||||||||
Other assets |
29 | 113 | ||||||||||
|
|
|
|
|||||||||
Total Assets |
$ | 2,531 | $ | 65,895 | ||||||||
|
|
|
|
|||||||||
Liabilities and Stockholders Equity |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 478 | $ | 977 | ||||||||
Accrued liabilities |
1,259 | 458 | ||||||||||
Other current liabilities |
67 | 122 | ||||||||||
|
|
|
|
|||||||||
Total current liabilities |
1,804 | 1,557 | ||||||||||
Other liabilities |
56 | 99 | ||||||||||
|
|
|
|
|||||||||
Total liabilities |
1,860 | 1,656 | ||||||||||
|
|
|
|
|||||||||
Commitments and contingencies (Note 4) |
||||||||||||
Stockholders equity: |
||||||||||||
Series A convertible preferred stock, par value $0.0001 per share10,071,352 shares authorized, issued and outstanding as of December 31, 2014; 8,354,794 shares authorized, issued and outstanding as of March 31, 2015 (unaudited); aggregate liquidation preference of $16,989 and $14,071 as of December 31, 2014 and March 31, 2015 (unaudited), respectively; no shares authorized, issued and outstanding, pro forma (unaudited). |
16,928 | 4,054 | | |||||||||
Series B convertible preferred stock, par value $0.0001 per shareno and 10,816,667 shares authorized as of December 31, 2014 and March 31, 2015 (unaudited), respectively; no and 10,666,667 shares issued and outstanding as of December 31, 2014 and March 31, 2015 (unaudited), respectively; aggregate liquation preference of nil and $80,000 as of December 31, 2014 and March 31, 2015 (unaudited); no shares authorized, issued and outstanding, pro forma (unaudited). |
| 79,757 | | |||||||||
Common stock, par value $0.0001 per share25,000,000 and 38,000,000 shares authorized as of December 31, 2014 and March 31, 2015, respectively; 3,228,740 and 4,273,565 shares issued and outstanding as of December 31, 2014 and March 31, 2015, respectively (unaudited) (including 598,993 and 1,009,109 shares subject to repurchase, legally issued and outstanding as of December 31, 2014 and March 31, 2015) (unaudited) |
| | | |||||||||
Additional paid-in capital |
1,260 | 1,386 | 85,197 | |||||||||
Accumulated deficit |
(17,517 | ) | (20,958 | ) | (20,958 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stockholders equity |
671 | 64,239 | $ | 64,239 | ||||||||
|
|
|
|
|
|
|||||||
Total liabilities and stockholders equity |
$ | 2,531 | $ | 65,895 | ||||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-19
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
Unaudited Three Months Ended |
||||||||
March 31, |
||||||||
2014 |
2015 |
|||||||
Operating expenses: |
||||||||
Research and development |
$ | 1,199 | $ | 2,069 | ||||
General and administrative |
401 | 1,372 | ||||||
|
|
|
|
|||||
Total operating expenses |
1,600 | 3,441 | ||||||
|
|
|
|
|||||
Loss from operations |
(1,600 | ) | (3,441 | ) | ||||
Other income (expense), net |
||||||||
Interest income |
7 | | ||||||
Interest expense |
| | ||||||
|
|
|
|
|||||
Total other income (expense), net |
7 | | ||||||
|
|
|
|
|||||
Net loss and comprehensive loss |
$ | (1,593 | ) | $ | (3,441 | ) | ||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (0.72 | ) | $ | (1.06 | ) | ||
|
|
|
|
|||||
Weighted-average shares used in computing net loss per share, basic and diluted |
2,222,222 | 3,233,777 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted |
$ | (0.20 | ) | |||||
|
|
|||||||
Shares used in computing pro forma net loss per share, basic and diluted |
17,059,658 | |||||||
|
|
The accompanying notes are an integral part of these financial statements.
F-20
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited Three Months Ended |
||||||||
March 31, |
||||||||
2014 |
2015 |
|||||||
Cash flows from operating activities: |
|
|||||||
Net loss |
$ | (1,593 | ) | $ | (3,441 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
Depreciation |
5 | 11 | ||||||
Stock-based compensation |
16 | 26 | ||||||
Changes in operating assets and liabilities: |
||||||||
Prepaid expenses |
(113 | ) | (203 | ) | ||||
Other assets |
(1 | ) | (84 | ) | ||||
Accounts payable |
(236 | ) | 499 | |||||
Accrued liabilities |
(127 | ) | (801 | ) | ||||
Other |
100 | | ||||||
|
|
|
|
|||||
Net cash used in operating activities |
(1,949 | ) | (3,993 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(5 | ) | (44 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(5 | ) | (44 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Net proceeds from issuance of Series B convertible preferred stock, net of issuance costs |
| 79,757 | ||||||
Repurchase of Series A convertible preferred stock |
| (12,874 | ) | |||||
Net cash proceeds from exercise of stock options, including early exercise |
| 229 | ||||||
Repurchases of common stock subject to early exercise |
| (31 | ) | |||||
|
|
|
|
|||||
Net cash provided by financing activities |
| 67,081 | ||||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
(1,954 | ) | 63,044 | |||||
Cash and cash equivalents at the beginning of the period |
11,951 | 2,269 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at the end of the period |
$ | 9,997 | $ | 65,313 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-21
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
1. Formation and Business of the Company
Aimmune Therapeutics (the Company) is a clinical-stage biopharmaceutical company focused on developing treatments to protect children with food allergies from the threatening consequences of accidental exposure. The Company is headquartered in the San Francisco Bay Area and was incorporated in the state of Delaware on June 24, 2011.
Since inception, the Company has incurred net losses and negative cash flows from operations. During the three months ended March 31, 2015, the Company incurred a net loss of $3.4 million and used $4.0 million of cash in operations. At March 31, 2015 the Company had an accumulated deficit of $21.0 million and does not expect to experience positive cash flows in the near future. The Company has financed operations to date primarily through private placements of equity securities. The Companys ability to continue to meet its obligations and to achieve its business objectives is dependent upon, amongst other things, raising additional capital, obtaining U.S. Food and Drug Administration (FDA) and European Medicines Agency (EMA) approval and commercializing in the United States and Europe, generating sufficient revenue and its ability to continue to control expenses, if necessary, to meet its obligations as they become due for the foreseeable future. Failure to obtain FDA and EMA approval, commercialize its lead product candidate, manage discretionary expenditures or raise additional financing, as required, may adversely impact the Companys ability to achieve its intended business objectives.
2. Summary of Significant Accounting Policies
Basis of Preparation and Use of Estimates The preparation of the accompanying financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of costs and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. The Companys actual results could differ from these estimates under different assumptions or conditions.
Unaudited Interim Condensed Financial Statements The interim condensed balance sheet as of March 31, 2015 and the condensed statements of operations and comprehensive loss, and the condensed statements of cash flows for the three months ended March 31, 2014 and 2015 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Companys financial position as of March 31, 2015 and its results of operations and cash flows for the three months ended March 31, 2014 and 2015. The financial data and the other financial information disclosed in these notes to the financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015 or for any other future annual or interim period. The condensed balance sheet as of December 31, 2014 included herein was derived from the audited financial statements as of that date. These financial statements should be read in conjunction with the Companys audited financial statements included elsewhere in this prospectus.
Unaudited Pro Forma Stockholders Equity The pro forma stockholders equity as of March 31, 2015 presents the Companys stockholders equity as though all of the Companys outstanding convertible preferred stock had automatically converted into shares of common stock upon the completion of an initial public offering (IPO) of the Companys common stock.
F-22
Fair Value Measurement The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.
Research and Development The Company expenses research and development costs as incurred. The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials and contract manufacturing activities. These costs are a significant component of the Companys research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled and the rate of patient enrollments may vary from the Companys estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Companys accruals could materially affect the Companys results of operations.
Stock-Based Compensation Stock-based awards issued to employees, including stock options, are measured at fair value on the grant date using the Black-Scholes option-pricing model and recognized as expense on a straight-line basis over the employees requisite service period (generally the vesting period). Because noncash stock compensation expense is based on awards ultimately expected to vest, it is reduced by an estimate for future forfeitures. Forfeitures are estimate at the time of grant and revised, if necessary, in subsequent period if actual forfeitures differ from estimates. There were no stock options granted during the three month periods ended March 31, 2014 and 2015.
Income taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of reported assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Companys lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.
The Company has adopted Financial Accounted Standards Board Accounting Standards Codification 740, Income Taxes, regarding how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. As of December 31, 2014 and March 31, 2015, the Company does not have any unrecognized tax benefits.
Recent Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles (U.S. GAAP). The ASU provides a five-step analysis of transactions to determine when and how revenue is recognized. The ASU will require many companies to use more judgment than under current U.S. GAAP. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, for public business entities. On April 29, 2015, the FASB issued for comment a proposed ASU, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The proposed ASU would permit both public and nonpublic organizations to adopt the new revenue standard early, but not before the original public organization effective date (that is, annual periods beginning after December 15, 2017).
The Company is an emerging growth company as defined in the JOBS Act of 2012. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to
F-23
the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and therefore, will be subject to the same new revised accounting standard as other public companies that are not emerging growth companies.
3. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
December 31,
|
March 31,
|
|||||||
Compensation and benefits |
$ | 645 | $ | 95 | ||||
Research and development |
542 | 363 | ||||||
Professional and consulting |
71 | | ||||||
Other |
1 | | ||||||
|
|
|
|
|||||
Total |
$ | 1,259 | $ | 458 | ||||
|
|
|
|
4. Commitments and Contingencies
Facility Leases
In July 2013, the Company entered into a 48-month lease for its corporate headquarters and research facilities in San Mateo, California. In July 2014, the Company entered into a second lease that expanded the space and was for a term of 36 months beginning in July 2014 and coterminous with the first lease. Under both leases, the Company paid base rent plus the tenants proportionate share of estimated basic operating cost as defined in the leases. The leases required a $25,000 security deposit for the duration of the leases.
Rent expense under operating leases was $25,000 and $41,000 for the three-month periods ended March 31, 2014 and 2015.
New Facilities Lease
In March 2015, the Company signed a new facilities lease for its corporate headquarters and research facilities in Brisbane, California. In May 2015, the Company ceased use of its San Mateo facilities and accrued a liability for costs that will continue to be incurred under the San Mateo leases for the remaining terms, net of estimated sublease payments.
The new lease commenced on May 1, 2015 with an initial term of 51 months. The Company has the right to extend the lease term for an additional 3 years at the greater of the then current base rent or the then prevailing market rent, as defined by the Renewal Option contained in the lease. The agreement calls for a security deposit of $85,000. The new lease calls for future aggregate minimum noncancelable lease payments as of May 1, 2015 (the inception of the lease) as follows (in thousands):
Year Ended December 31, |
||||
2015 |
$ | 190 | ||
2016 |
464 | |||
2017 |
478 | |||
2018 |
492 | |||
and after |
294 | |||
|
|
|||
Total |
$ | 1,918 | ||
|
|
F-24
The Company is responsible for operating expenses over base operating expenses as defined in the headquarters lease agreement.
In June 2015, the Company signed a new facilities lease for a manufacturing facility in Clearwater, Florida. The new lease is expected to commence in mid to late September. The initial terms of the lease are for 120 months. The agreement calls for a security deposit of $35,000. The new lease calls for future aggregate minimum lease payments as of the commencement of the lease as follows (in thousands):
Year ended December 31, |
||||
2015 |
$ | 38 | ||
2016 |
151 | |||
2017 |
156 | |||
2018 |
160 | |||
and after |
1,198 | |||
|
|
|||
Total |
$ | 1,703 | ||
|
|
The Company is responsible for operating expenses including real estate taxes as defined in the manufacturing facility lease agreement.
Indemnifications
The Company indemnifies each of its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Companys request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as an officer or a director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance. This insurance allows the transfer of risk associated with the Companys exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, it has not recognized any liabilities relating to these obligations for any period.
5. Common Stock
As of December 31, 2014 and March 31, 2015 (unaudited), the Company had authorized 25,000,000 and 38,000,000 shares of common stock. The Company has reserved sufficient shares of common stock for issuance upon the conversion of the Series A convertible preferred stock, the conversion of the series B convertible preferred stock and the exercise of stock options. Common stockholders are entitled to dividends if and when declared by the Board of Directors subject to the prior rights of the Series A and B convertible preferred stockholders. As of December 31, 2014, no common stock dividends had been declared by the Board of Directors.
6. Convertible Preferred Stock
As of December 31, 2014 and March 31, 2015 (unaudited), the Company had authorized no and 10,816,667 shares of Series B convertible preferred stock, respectively, and 10,071,352 and 8,354,794 shares of Series A convertible preferred stock, respectively. In February 2013, the Company issued 5,350,763 shares of Series A convertible preferred stock, $0.0001 par value, original issue price of $1.70 in the case of cash proceeds and $1.45 in the case of an outstanding note and accrued interest converted into the Series A convertible preferred stock. In April 2013, the Company issued an additional 4,720,589 shares of Series A convertible
F-25
preferred stock, $0.0001 par value, original issue price of $1.70. In January and February 2015, the Company issued 10,666,667 shares of Series B convertible preferred stock, $0.0001 par value, original issue price of $7.50 per share, for gross cash proceeds of $80.0 million and, in January 2015, the Company repurchased 1,716,558 shares of Series A convertible preferred stock from certain investors. The purchase price of the Series A convertible preferred stock was $7.50 per share, the same as the issue price of the Series B convertible stock, and was at an aggregate cost of $12.9 million. The offering costs for the issuance and sale of Series B convertible preferred stock was $243,000. As of December 31, 2014 and March 31, 2015, the convertible preferred stock consisted of the following (in thousands, except share amounts):
As of December 31, 2014 |
||||||||||||||||
Convertible Preferred Stock |
Shares
|
Shares
|
Proceeds
|
Aggregate
|
||||||||||||
Series A |
10,071,352 | 10,071,352 | $ | 16,928 | $ | 16,989 |
As of March 31, 2015 |
||||||||||||||||
Convertible Preferred stock |
Shares
|
Shares
|
Proceeds
|
Aggregate
|
||||||||||||
Series A |
8,354,794 | 8,354,794 | $ | 4,054 | $ | 14,071 | ||||||||||
Series B |
10,816,667 | 10,666,667 | $ | 79,757 | $ | 80,000 |
Significant provisions of each series of convertible preferred stock are as follows:
Dividends Holders of convertible preferred stock, in preference to common stockholders, shall be entitled to receive when, as and if declared by the Board of Directors, non-cumulative cash dividends at the rate of 8% of the original issue price of such series of convertible preferred stock per annum on each outstanding share of convertible preferred stock. No convertible preferred stock dividends have been declared or paid as of March 31, 2015.
Liquidation In the event of any liquidation, dissolution, or winding up of the Company, the holders of Series B convertible preferred stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to holders of common stock, an amount equal to $7.50 per share of Series B convertible preferred stock plus any declared but unpaid dividends. In the event of any liquidation, dissolution, or winding up of the Company, the holders of Series A convertible preferred stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to holders of common stock, an amount equal to $1.70 per share of Series A convertible preferred stock plus any declared but unpaid dividends. If upon such liquidation, dissolution, or winding up of the Company, the assets available for distribution to stockholders are insufficient to pay in full holders of the convertible preferred stock amounts to which they are entitled, the holders of convertible preferred stock shall share ratably in any assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect to the shares held by them. Following payment in full to the holders of convertible preferred stock, the remaining assets and funds of the Company, if any, shall be divided among and paid ratably to the holders of Common Stock in proportion to the number of shares held by them.
A consolidation or merger of the Company with or into any other corporation or corporations, acquisition by any other corporation or corporations, or a sale of all or substantially all of the assets or voting control of the Company in which the prior stockholders of the Company do not own a majority of the outstanding shares of the surviving corporation is deemed to be a liquidation.
Conversion Each share of convertible preferred stock is convertible into shares of common stock at the option of the holder at any time. Conversion is automatic upon either (a) the written consent of not less than (i) a majority of the holders of the Series A convertible preferred stock outstanding and (ii) a majority of the
F-26
holders of the Series B convertible preferred stock outstanding or (b) the effective date of a firm commitment underwritten public offering that yields net proceeds to the Company of not less than $40,000,000 at an equivalent price per share of common stock of not less than $11.25. Each share of convertible preferred stock is convertible into the number of shares of which results from dividing the original issue price of the such series of convertible preferred stock by the conversion price for such series of convertible preferred stock that is in effect at the time of conversion. As of December 31, 2014 and March 31, 2015, the conversion price of the Series A convertible preferred stock and Series B convertible preferred stock was $1.70 and $7.50, respectively. As such, all outstanding shares of convertible preferred stock had a conversion ratio of 1-to-1.
Voting Each holder of share of convertible preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the holders of common stock. The holders of Series A convertible preferred stock shall be entitled to elect one director of the Company. The holders of Series B convertible preferred stock shall be entitled to elect two directors of the Company.
Redemption The convertible preferred stock is not redeemable at the option of the holders and there is no event in which the holders of convertible preferred stock can require liquidation in which the common shareholders would not participate in the liquidation proceeds in accordance with their relative liquidation rights as described above.
7. Net Loss Per Share and Pro Forma Net Loss Per Share
Net Loss Per Share
The following table sets forth the computation of the basic and diluted net loss per share during the three months ended March 31, 2014 and 2015 (in thousands, except share and per share data):
Three Months Ended |
||||||||
March 31, |
||||||||
2014 |
2015 |
|||||||
Numerator: |
||||||||
Net loss |
$ | (1,593 | ) | $ | (3,441 | ) | ||
|
|
|
|
|||||
Denominator |
||||||||
Weighted average common shares outstanding |
2,222,222 | 3,233,777 | ||||||
|
|
|
|
|||||
Net loss per share basic and diluted |
$ | (0.72 | ) | $ | (1.06 | ) | ||
|
|
|
|
The following common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:
Three Months Ended |
||||||||
March 31, |
||||||||
2014 |
2015 |
|||||||
Convertible preferred stock |
10,071,352 | 13,825,881 | ||||||
Stock options |
1,706,312 | 1,314,082 |
F-27
Unaudited Pro Forma Net Loss Per Share
The following table sets forth the computation of the Companys unaudited pro forma basic and diluted net loss per share during the three months ended March 31, 2015 (in thousands, except for share and per share amounts):
Net loss |
$ | (3,441 | ) | |
|
|
|||
Shares used in computing net loss per share, basic and diluted |
3,233,777 | |||
Pro forma adjustments to reflect assumed conversion of convertible preferred stock |
13,825,881 | |||
|
|
|||
Shares used in computing pro forma net loss per share, basic and diluted |
17,059,658 | |||
|
|
|||
Pro forma net loss per share, basic and diluted |
$ | (0.20 | ) | |
|
|
F-28
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 a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Shares
Common Stock
PROSPECTUS
BofA Merrill Lynch | Credit Suisse | Piper Jaffray |
, 2015
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 Securities and Exchange Commission, or SEC, registration fee, the FINRA filing fee and The NASDAQ Global Market listing fee.
Item |
Amount to
|
|||
SEC registration fee |
$ | 13,363 | ||
FINRA filing fee |
* | |||
The NASDAQ Global Market Listing fee |
* | |||
Printing and engraving expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Blue Sky, qualification fees and expenses |
* | |||
Transfer Agent fees and expenses |
* | |||
Miscellaneous expenses |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* | To be completed by amendment. |
Item 14. Indemnification of Directors and Officers.
As permitted by Section 102 of the Delaware General Corporation Law, we have adopted provisions in our amended and restated certificate of incorporation and bylaws that limit or eliminate the personal liability of our directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the corporation, directors exercise an informed business judgment based on all material information reasonably available to them. Consequently, a director will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for:
| any breach of the directors 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 act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or |
| any transaction from which the director derived an improper personal benefit. |
These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated certificate of incorporation also authorizes us to indemnify our officers, directors and other agents to the fullest extent permitted under Delaware law.
As permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws provide that:
| we may indemnify our directors, officers, and employees to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; |
II-1
| we may advance expenses to our directors, officers and employees in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and |
| the rights provided in our amended and restated bylaws are not exclusive. |
Our amended and restated certificate of incorporation, to be attached as Exhibit 3.2 hereto, and our amended and restated bylaws, to be attached as Exhibit 3.4 hereto, provide for the indemnification provisions described above and elsewhere herein. We intend to enter into separate indemnification agreements with our directors and officers which may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements generally require us, among other things, to indemnify our officers and directors against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements also generally require us to advance any expenses incurred by the directors or officers as a result of any proceeding against them as to which they could be indemnified. In addition, we have purchased a policy of directors and officers liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances. These indemnification provisions and the indemnification agreements may be sufficiently broad to permit indemnification of our officers and directors for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or the Securities Act.
The form of Underwriting Agreement, to be attached as Exhibit 1.1 hereto, provides for indemnification by the underwriters of us and our officers who sign this Registration Statement and directors for specified liabilities, including matters arising under the Securities 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. | In June 2012, we issued an unsecured convertible promissory note in the principal amount of $750,000 to one accredited investor. |
2. | In February and April 2013, we issued an aggregate of 10,071,352 shares of our Series A convertible preferred stock at a price per share of either (i) $1.70 in cash or (ii) with respect to 527,232 shares of Series A convertible preferred stock issued to Food Allergy Research & Education, Inc. in exchange for the cancellation by Food Allergy Research & Education, Inc. of a convertible promissory note issued by us, $1.45 in cancellation of indebtedness, for a total amount raised (including the cancellation of indebtedness) of $16.9 million, net of offering costs. |
3. | In January and February 2015, we issued an aggregate of 10,666,667 shares of our Series B convertible preferred stock at a price per share of $7.50 for a total amount raised of $79.8 million, net of offering costs. |
4. | We granted stock options and stock awards to employees, directors and consultants under our 2013 Stock Plan, covering an aggregate of 4,990,983 shares of common stock, at a weighted-average average exercise price of $1.7125 per share. Of these, options covering an aggregate of 591,971 shares were cancelled without being exercised and 160,815 unvested shares were repurchased concurrent with employee terminations. |
5. | We sold an aggregate of 2,265,229 shares of common stock to employees, directors and consultants for cash consideration in the aggregate amount of approximately $631,533 upon the exercise of stock options and stock awards. |
II-2
We claimed exemption from registration under the Securities Act for the sale and issuance of securities in the transactions described in paragraphs (1) through (4) by virtue of Section 4(a)(2) and/or Regulation D promulgated thereunder as transactions not involving any public offering. All of the purchasers of unregistered securities for which we relied on Section 4(a)(2) and/or Regulation D represented that they were accredited investors as defined under the Securities Act. We claimed such exemption on the basis that (a) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view to the distribution thereof and that they either received adequate information about the registrant or had access, through employment or other relationships, to such information and (b) appropriate legends were affixed to the stock certificates issued in such transactions.
We claimed exemption from registration under the Securities Act for the sales and issuances of securities in the transactions described in paragraphs (5) and (6) above under Section 4(a)(2) of the Securities Act in that such sales and issuances did not involve a public offering or under Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701.
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.
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 SEC such indemnification is against public policy as expressed in the Securities 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 of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
1. | 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. | 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. |
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.
II-3
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 Brisbane, California on July 6, 2015.
Aimmune Therapeutics, Inc. | ||
By: |
/s/ Stephen G. Dilly |
|
Stephen G. Dilly, M.B.B.S., Ph.D. President and Chief Executive Officer |
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Stephen G. Dilly, M.B.B.S., Ph.D. and Warren L. DeSouza, and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Stephen G. Dilly Stephen G. Dilly, M.B.B.S., Ph.D. |
President, Chief Executive Officer and Director (Principal Executive Officer) |
July 6, 2015 | ||
/s/ Warren L. DeSouza Warren L. DeSouza |
Chief Financial Officer (Principal Financial and Accounting Officer) |
July 6, 2015 | ||
/s/ Patrick G. Enright Patrick G. Enright |
Director | July 6, 2015 | ||
/s/ Kathryn E. Falberg Kathryn E. Falberg |
Director | July 6, 2015 | ||
/s/ Mark T. Iwicki Mark T. Iwicki |
Director | July 6, 2015 | ||
/s/ Mark D. McDade Mark D. McDade |
Director | July 6, 2015 | ||
/s/ Stacey D. Seltzer Stacey D. Seltzer |
Director | July 6, 2015 |
II-4
Exhibit Index
Incorporated by Reference |
||||||||||
Exhibit
|
Exhibit Description |
Form |
Date |
Number |
Filed
|
|||||
1.1* | Form of Underwriting Agreement. | |||||||||
3.1 | Third Amended and Restated Certificate of Incorporation, as amended, currently in effect. | X | ||||||||
3.2* | Form of Amended and Restated Certificate of Incorporation, to be in effect immediately prior to the consummation of this offering. | |||||||||
3.3 | Bylaws, currently in effect. | X | ||||||||
3.4* | Form of Amended and Restated Bylaws, to be in effect immediately prior to the consummation of this offering. | |||||||||
4.1 | Reference is made to exhibits 3.1 through 3.4. | |||||||||
4.2* | Form of Common Stock Certificate. | |||||||||
5.1* | Opinion of Latham & Watkins LLP. | |||||||||
10.1 | Amended and Restated Investors Rights Agreement, dated January 20, 2015, by and among Aimmune Therapeutics, Inc. and the investors listed therein. | X | ||||||||
10.2 | Supply Agreement, dated as of October 13, 2014, by and between the Company and Golden Peanut Company, L.L.C. | X | ||||||||
10.3 | Office Lease, dated February 23, 2015, by and between, the Company, Diamond Marina LLC and Diamond Marina II LLC. | X | ||||||||
10.4 | Manufacturing Facility Lease, dated June 8, 2015, by and between, the Company and MIDA Group, LLC. | X | ||||||||
10.5(a)# | 2013 Stock Plan. | X | ||||||||
10.5(b)# | Amendment to the 2013 Stock Plan, dated January 20, 2015. | X | ||||||||
10.5(c)# | Form of Stock Option Grant Notice and Stock Option Agreement under the 2013 Stock Plan. | X | ||||||||
10.5(d)# | Form of Restricted Stock Purchase Grant Notice and Restricted Stock Purchase Agreement under the 2013 Stock Plan. | X | ||||||||
10.6(a)#* | 2015 Equity Incentive Annual Plan. | |||||||||
10.6(b)#* | Form of Stock Option Grant Notice and Stock Option Agreement under the 2015 Equity Incentive Annual Plan. | |||||||||
10.6(c)#* | Form of Restricted Stock Award Agreement and Restricted Stock Unit Award Grant Notice under the 2015 Equity Incentive Annual Plan. | |||||||||
10.7#* | Form of Indemnification Agreement for directors and officers. | |||||||||
10.8#* | Offer Letter by and between the Company and Warren L. DeSouza. |
Incorporated by Reference |
||||||||||
Exhibit
|
Exhibit Description |
Form |
Date |
Number |
Filed
|
|||||
10.9#* | Offer Letter by and between the Company and Howard V. Raff. | |||||||||
10.10#* | Offer Letter by and between the Company and Robert M. Elfont. | |||||||||
10.11#* | Offer Letter by and between the Company and Mary M. Rozenman. | |||||||||
10.12#* | Amended and Restated Settlement Agreement by and between the Company and Bryan Walser. | |||||||||
10.13# | Consulting Agreement, dated February 9, 2015, by and between the Company and Bryan Walser. | X | ||||||||
10.14#* | Aimmune Therapeutics, Inc. Employee Stock Purchase Plan. | |||||||||
10.15#* | Non-Employee Director Compensation Program. | |||||||||
21.1 | List of Subsidiaries. | X | ||||||||
23.1 | Consent of independent registered public accounting firm. | X | ||||||||
23.2* | Consent of Latham & Watkins LLP (included in Exhibit 5.1). | |||||||||
24.1 | Power of Attorney. Reference is made to the signature page to the Registration Statement. | X |
* | To be filed by amendment. |
| Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been filed separately with the SEC. |
# | Indicates management contract or compensatory plan. |
Exhibit 3.1
CERTIFICATE OF AMENDMENT TO THE
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
ALLERGEN RESEARCH CORPORATION
Allergen Research Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the Corporation ), hereby certifies as follows:
A. The name of the Corporation is Allergen Research Corporation, and that the Corporation was originally incorporated pursuant to the General Corporation Law on June 24, 2011.
B. This amendment to the Corporations Third Amended and Restated Certificate of Incorporation herein certified was duly adopted by the Corporations Board of Directors in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware and by the Corporations stockholders by written consent in accordance with Section 228 of the General Corporation Law of the State of Delaware.
C. Article First of the Third Amended and Restated Certificate of Incorporation is amended and restated in its entirety as follows:
The name of this Corporation is Aimmune Therapeutics, Inc.
D. All other provisions of the Third Amended and Restated Certificate of Incorporation shall remain in full force and effect.
(Signature Page Follows)
IN WITNESS WHEREOF, Allergen Research Corporation has caused this Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer on this 27 th day of May, 2015.
/s/ Stephen G. Dilly |
Stephen G. Dilly, Ph.D., Chief Executive Officer |
2
CERTIFICATE OF AMENDMENT TO THE
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
ALLERGEN RESEARCH CORPORATION
Allergen Research Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the Corporation ), hereby certifies as follows:
A. The name of the Corporation is Allergen Research Corporation, and that the Corporation was originally incorporated pursuant to the General Corporation Law on June 24, 2011.
B. This amendment to the Corporations Third Amended and Restated Certificate of Incorporation herein certified was duly adopted by the Corporations Board of Directors in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware and by the Corporations stockholders by written consent in accordance with Section 228 of the General Corporation Law of the State of Delaware.
C. The first full sentence of Article FOURTH of the Third Amended and Restated Certificate of Incorporation shall be amended and restated in its entirety as follows:
The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 38,000,000 shares of Common Stock, $0.0001 par value per share ( Common Stock ) and (ii) 19,171,461 shares of Preferred Stock, $0.0001 par value per share ( Preferred Stock ) of which (A) 8,354,794 shares are designated as Series A Preferred Stock, $0.0001 par value per share ( Series A Preferred Stock ) and (B) 10,816,667 shares are designated as Series B Preferred Stock, $0.0001 par value per share ( Series B Preferred Stock ).
D. All other provisions of the Third Amended and Restated Certificate of Incorporation shall remain in full force and effect.
(Signature Page Follows)
3
IN WITNESS WHEREOF, Allergen Research Corporation has caused this Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer on this 25 th day of February, 2015.
/s/ Stephen G. Dilly |
Stephen G. Dilly, Ph.D. |
Chief Executive Officer |
4
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLERGEN RESEARCH CORPORATION
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Allergen Research Corporation, a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the General Corporation Law ),
DOES HEREBY CERTIFY:
1. That the name of this corporation is Allergen Research Corporation, and that this corporation was originally incorporated pursuant to the General Corporation Law on June 24, 2011.
2. That the Board of Directors (the Board ) duly adopted resolutions proposing to amend and restate the Amended and Restated Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED , that the Amended and Restated Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:
FIRST : The name of this corporation is Allergen Research Corporation (the Corporation ).
SECOND : The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle, Zip Code 19801. The name of its registered agent at such address is The Corporation Trust Company.
THIRD : The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
FOURTH : The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 35,000,000 shares of Common Stock, $0.0001 par value per share ( Common Stock ) and (ii) 18,071,352 shares of Preferred Stock, $0.0001 par value per share ( Preferred Stock ) of which (A) 10,071,352 shares are designated as Series A Preferred Stock, $0.0001 par value per share ( Series A Preferred Stock ) and (B) 8,000,000 shares are designated as Series B Preferred Stock, $0.0001 par value per share ( Series B Preferred Stock ).
5
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. General . The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.
2. Voting . The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
B. PREFERRED STOCK
The Preferred Stock shall have the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to sections or `subsections in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.
1. Dividends .
(a) Holders of Preferred Stock, in preference to the holders of Common Stock, shall be entitled to receive when, as and if declared by the Board, but only out of funds that are legally available therefor, non-cumulative cash dividends at the rate of eight percent (8%) of the Original Issue Price (as defined below) for such series of Preferred Stock per annum on each outstanding share of such series of Preferred Stock. The Board is under no obligation to declare dividends, and no rights shall accrue to the holders of Preferred Stock if dividends are not declared. The holders of the outstanding Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1 upon the affirmative vote or written consent of the holders of least a majority of the then outstanding shares of Preferred Stock, voting together as a single class and on an as-converted basis (the Requisite Holders ).
(b) The Original Issue Price shall be $1.70 per share for the Series A Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof) and $7.50 per share for the Series B Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof).
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(c) So long as any shares of Preferred Stock are outstanding, the Corporation shall not pay or declare any dividend, whether in cash or property, or make any other distribution on the Common Stock, or purchase, redeem or otherwise acquire for value any shares of Common Stock until all dividends as set forth in Section 1(a) above on the Preferred Stock shall have been paid, declared and set apart.
(d) In the event dividends are paid or distributions made on any share of Common Stock, whether in cash or property, the Corporation shall pay an additional dividend or make a distribution on all outstanding shares of Preferred Stock in a per share amount equal (on an as-if converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock.
(e) The provisions of Sections 1(c) and (d) above shall not apply to (i) a dividend payable solely in Common Stock, (ii) acquisitions of Common Stock by the Corporation pursuant to agreements which permit the Corporation to repurchase such shares upon termination of services to the Corporation, or (iii) acquisitions of Common Stock in exercise of the Corporations right of first refusal to repurchase such shares, in each case, that are approved by the Board.
(f) Whenever a dividend provided for in this Section 1 shall be payable in property other than cash, the value of such dividend shall be the fair market value of such distribution as determined in good faith by the Board.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .
2.1. Preferential Payments to Holders of Preferred Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share, subject to Subsection 2.3 hereof, equal to the Original Issue Price for such series of Preferred Stock, plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Preferred Stock the full amount of the Original Issue Price for Preferred Stock to which they shall be entitled under this Subsection 2.1, the holders of shares of Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
2.2. Deemed Conversion . Notwithstanding the above, for purposes of determining the amount each holder of shares of a particular series of Preferred Stock is entitled to receive with respect to such shares in connection with a voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed
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Liquidation Event, each such holder of shares of such series of Preferred Stock shall be deemed to have converted (regardless of whether such holder actually converted such holders shares of such series of Preferred Stock into shares of Common Stock immediately prior to the voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event) if, as a result of an actual conversion, such holder would receive with respect to such shares, in the aggregate, an amount greater than the amount that would be distributed to such holder with respect to such shares if such holder did not convert such shares of such series of Preferred Stock into shares of Common Stock. If any such holder shall be deemed to have converted shares of Preferred Stock into Common Stock pursuant to this paragraph, then such holder shall not be entitled to receive any distribution that would otherwise be made to holders of such series of Preferred Stock that have not converted (or have not been deemed to have converted) into shares of Common Stock. The aggregate amount which a holder of a share of Preferred Stock is entitled to receive under Subsections 2.1 and 2.2 is hereinafter referred to as the Preferred Liquidation Amount .
2.3. Distribution of Remaining Assets . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of the shares of Common Stock, pro rata based on the number of shares held by each such holder.
2.4. Deemed Liquidation Events .
2.4.1. Definition . Each of the following events shall be considered a Deemed Liquidation Event unless the Requisite Holders and the holders of at least a majority of the then outstanding shares of Series B Preferred Stock, voting as a separate series (the Required Series B Holders ), elect otherwise by written notice sent to the Corporation at least ten (10) days prior to the effective date of any such event:
(a) a merger or consolidation in which
(i) the Corporation is a constituent party or
(ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,
except (A) any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a
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wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; (B) a consolidation by the Corporation with a wholly owned subsidiary of the Corporation; or (C) a merger effected exclusively to change the domicile of the Corporation.
(b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
2.4.2. Effecting a Deemed Liquidation Event .
(a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.4.1(a)(i) unless the agreement or plan of merger or consolidation for such transaction (the Merger Agreement ) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1, 2.2 and 2.3.
(b) In the event of a Deemed Liquidation Event referred to in Subsection 2.4.1(a)(ii) or 2.4.1(b), if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within 90 days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the 90th day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (ii) to require the redemption of such shares of Preferred Stock, and (ii) if the Requisite Holders so request in a written instrument delivered to the Corporation not later than 120 days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the Available Proceeds ), on the 150th day after such Deemed Liquidation Event, to redeem all outstanding shares of Preferred Stock at a price per share equal to the applicable Preferred Liquidation Amount. Notwithstanding the foregoing, in the event of a
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redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, the Corporation shall redeem shares of Preferred Stock to the fullest extent of such Available Proceeds, and shall redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. Prior to the distribution or redemption provided for in this Subsection 2.4.2(b), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.
2.4.3. Amount Deemed Paid or Distributed . The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board.
2.4.4. Allocation of Escrow and Contingent Consideration . In the event of a Deemed Liquidation Event pursuant to Subsection 2.4.1(a)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the Additional Consideration ), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the Initial Consideration ) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1, 2.2 and 2.3 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1, 2.2 and 2.3 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.4.4, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.
3. Voting .
3.1. General . On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Fractional votes shall not be permitted, and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred
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Stock held by each holder could be converted) shall be rounded to the nearest whole number. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class.
3.2. Election of Directors . The holders of record of the shares of Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation (the Series A Director ). The holders of record of the shares of Series B Preferred Stock, exclusively and as a separate class, shall be entitled to elect two (2) directors of the Corporation (the Series B Directors , and collectively with the Series A Director, the Preferred Directors ). The holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation. Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the stockholders of the Corporation that are entitled to elect a person to fill a directorship, as set forth above, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, then any directorship not so filled shall remain vacant until such time as the specified holders elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Preferred Stock), voting together as a single class and on an as-converted basis, shall be entitled to elect the balance of the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2, a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2.
3.3. Preferred Stock Protective Provisions . At any time when at least 3,150,000 shares of Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization) are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, take any of the following actions without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the Requisite Holders, given in writing or by vote at a meeting, and any such action entered into without such consent or vote shall be null and void ab initio, and of no force or effect.
3.3.1. Any amendment, alteration or repeal of the Corporations Certificate of Incorporation or Bylaws;
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3.3.2. Any action which (i) authorizes, creates or issues any other equity security convertible into or exercisable for any equity security, or shares of any class of stock having rights, preferences, privileges or protections senior to or on parity with the any series of Preferred Stock; or (ii) authorizes, creates or issues any series of Preferred Stock which (A) has a higher liquidation preference multiple (i.e., greater than a return solely of the amount invested in such future series of Preferred Stock), or (B) shall entitle the holders of such future series of Preferred Stock to share together with the Common Stock in proceeds remaining after full distribution to the Preferred Stock of the liquidation preference to which the Preferred Stock is entitled;
3.3.3. Any action which reclassifies any outstanding shares into shares having rights, preferences, privileges or protections senior to or on parity with the any series of Preferred Stock;
3.3.4. Any increase in the authorized number of shares of Preferred Stock;
3.3.5. Any merger or consolidation of the Corporation with one or more other corporations in which the stockholders of the Corporation immediately after such merger or consolidation hold stock representing less than a majority of the voting power of the outstanding stock of the surviving corporation;
3.3.6. The sale, lease or transfer of all or substantially all of the Corporations assets;
3.3.7. The liquidation, winding up or dissolution of the Corporation;
3.3.8. The declaration or payment of a dividend on the Common Stock;
3.3.9. The repurchase or redemption by the Corporation of any shares of its capital stock, except repurchase of shares of Common Stock from employees or consultants upon termination of their employment or service pursuant to written agreements by the Corporation with such persons providing for such repurchase; and
3.3.10. Any changes in the authorized size of the Board.
The provisions of this Section 3.3 may only be amended by an amendment of the Certificate of Incorporation of the Corporation including in the approval thereof the affirmative vote of the Requisite Holders.
3.4. Series A Preferred Stock Protective Provisions . At any time when at least 1,400,000 shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization) are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of at least a
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majority of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class (the Required Series A Holders ), amend, modify or repeal any provision of the Corporations Certificate of Incorporation or Bylaws in a way that adversely affects the powers, preferences or rights of the Series A Preferred Stock, and any such action entered into without such consent or vote shall be null and void ab initio, and of no force or effect. The provisions of this Section 3.4 may only be amended by an amendment of the Certificate of Incorporation of the Corporation including in the approval thereof the affirmative vote of the Required Series A Holders. For clarity, the future issuance of a series of Preferred Stock which is pari passu or senior to the Series A Preferred Stock shall not be deemed to materially and/or adversely affect the Series A Preferred Stock.
3.5. Series B Preferred Stock Protective Provisions . At any time when at least 1,750,000 shares of Series B Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization) are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the Required Series B Holders, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, amend, modify or repeal any provision of the Corporations Certificate of Incorporation or Bylaws in a way that adversely affects the powers, preferences or rights of the Series B Preferred Stock, and any such action entered into without such consent or vote shall be null and void ab initio, and of no force or effect. The provisions of this Section 3.5 may only be amended by an amendment of the Certificate of Incorporation of the Corporation including in the approval thereof the affirmative vote of the Required Series B Holders. For clarity, the future issuance of a series of Preferred Stock which is pari passu or senior to the Series B Preferred Stock shall not be deemed to materially and/or adversely affect the Series B Preferred Stock.
4. Optional Conversion .
The holders of the Preferred Stock shall have conversion rights as follows (the Conversion Rights ):
4.1. Right to Convert .
4.1.1. Conversion Ratio . Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the applicable Original Issue Price by the applicable Conversion Price (as defined below) in effect at the time of conversion. The Conversion Price shall initially be equal to $1.70 per share for the Series A Preferred Stock and $7.50 per share for the Series B Preferred Stock. Such initial Conversion Price, and the rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.
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4.1.2. Termination of Conversion Rights . In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.
4.2. Fractional Shares . No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of each series of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
4.3. Mechanics of Conversion .
4.3.1. Notice of Conversion . In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holders name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice shall be the time of conversion (the Conversion Time ), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, (i) issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in
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Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Preferred Stock converted.
4.3.2. Reservation of Shares . The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the applicable Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted applicable Conversion Price.
4.3.3. Effect of Conversion . All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.
4.3.4. No Further Adjustment . Upon any such conversion, no adjustment to the applicable Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
4.3.5. Taxes . The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of
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shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4. Adjustments to Conversion Price for Diluting Issues .
4.4.1. Special Definitions . For purposes of this Article Fourth, the following definitions shall apply:
(a) Option shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(b) Original Issue Date shall mean the date on which the first share of Series B Preferred Stock was issued.
(c) Convertible Security shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(d) Additional Shares of Common Stock shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Original Issue Date other than the following (collectively, Excluded Securities ):
(i) Issuances of Common Stock, or Options or other rights thereto, to employees and officers and directors of, or consultants to, the Corporation pursuant to stock purchase or stock option plans or agreements or other incentive stock arrangements; and
(ii) Issuances of Common Stock, or Options or Convertible Securities or other rights thereto, for and in connection with a merger or acquisition of assets by the Corporation; and
(iii) Issuances of Common Stock or Convertible Securities issued as part of bank or other institutional lender financing transactions by the Corporation; or in connection with and as part of any equipment leasing financing or Company facilities lease transaction by the Corporation as lessee; and
(iv) Issuances of Common Stock upon conversion of the Series A Preferred Stock or Series B Preferred Stock, or as a dividend or distribution on any Preferred Stock of the Corporation; and
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(v) Securities issued by the Corporation in, or in connection with, any public offering by the Corporation of any of its securities.
4.4.2. No Adjustment of Conversion Price . No adjustment in the applicable Conversion Price of a series of Preferred Stock shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written consent from the Required Series A Holders, with respect to an adjustment to the Conversion Price of the Series A Preferred Stock, or the Required Series B Holders, with respect to an adjustment to the Conversion Price of the Series B Preferred Stock, as applicable, agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
4.4.3. Deemed Issue of Additional Shares of Common Stock .
(a) If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Excluded Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the applicable Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such applicable
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Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the applicable Conversion Price to an amount which exceeds the lower of (i) the applicable Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the applicable Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Excluded Securities), the issuance of which did not result in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4 (either because the consideration per share (determined pursuant to Subsection 4.4.5) of the Additional Shares of Common Stock subject thereto was equal to or greater than the applicable Conversion Price then in effect, or because such Option or Convertible Security was issued before the Original Issue Date), are revised after the Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3(a) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4, the applicable Conversion Price shall be readjusted to such applicable Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.
(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such
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exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the applicable Conversion Price provided for in this Subsection 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the applicable Conversion Price that would result under the terms of this Subsection 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the applicable Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
4.4.4. Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock . In the event the Corporation shall at any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3), without consideration or for a consideration per share less than the applicable Conversion Price in effect immediately prior to such issue, then the applicable Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP 2 = CP 1 * (A + B) ÷ (A + C).
For purposes of the foregoing formula, the following definitions shall apply:
(a) CP 2 shall mean the applicable Conversion Price in effect immediately after such issue of Additional Shares of Common Stock
(b) CP 1 shall mean the applicable Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;
(c) A shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
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(d) B shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP 1 ); and
(e) C shall mean the number of such Additional Shares of Common Stock issued in such transaction.
4.4.5. Determination of Consideration . For purposes of this Subsection 4.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property : Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board; and
(iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board.
(b) Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
20
(i) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
4.4.6. Multiple Closing Dates . In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the applicable Conversion Price pursuant to the terms of Subsection 4.4.4 , and such issuance dates occur within a period of no more than ninety (90) days from the first such issuance to the final such issuance, then, upon the final such issuance, the applicable Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
4.5. Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the applicable Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.6. Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the applicable Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Conversion Price then in effect by a fraction:
21
(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of the relevant series of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.
4.7. Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.
4.8. Adjustment for Merger or Reorganization, etc. Subject to the provisions of Subsection 2.4, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not one or more series of the Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of such series of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of such series of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the
22
such series of Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the applicable Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of such series of Preferred Stock. For the avoidance of doubt, nothing in this Subsection 4.8 shall be construed as preventing the holders of Preferred Stock from seeking any appraisal rights to which they are otherwise entitled under the DGCL in connection with a merger triggering an adjustment hereunder, nor shall this Subsection 4.8 be deemed conclusive evidence of the fair value of the shares of Preferred Stock in any such appraisal proceeding.
4.9. Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each relevant holder of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the applicable Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Preferred Stock.
4.10. Notice of Record Date . In the event:
(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation shall send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution,
23
liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to each series of Preferred Stock and the Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.
5. Mandatory Conversion .
5.1. Trigger Events . Upon either (a) the closing of the sale of shares of Common Stock to the public at a price of at least $11.25 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Common Stock), in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $40,000,000.00 of gross proceeds to the Corporation (a Qualified Public Offering ) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the Required Series A Holders and the Required Series B Holders (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the Mandatory Conversion Time ), (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate and (ii) such shares may not be reissued by the Corporation. At any time when at least 1,400,000 shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization) are outstanding, the Corporation shall not amend the voting threshold set forth in clause (b) of this section without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the Requisite Holders, and at any time when at least 1,750,000 shares of Series B Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization) are outstanding, the Corporation shall not amend the voting threshold set forth in clause (b) of this section without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the Required Series B Holders.
5.2. Procedural Requirements . All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account
24
of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to Subsection 5.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), shall terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender the certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Subsection 5.2. As soon as practicable after the Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.
6. Redemption . Subject to the rights set forth under Section 2.4.2(b), the Preferred Stock is not mandatorily redeemable by the Corporation.
7. Waiver . Except as otherwise set forth herein, any of the rights, powers, preferences and other terms of the Preferred Stock set forth herein may be waived on behalf of all holders of the Preferred Stock by the affirmative written consent or vote of the Requisite Holders, provided, however, a waiver of any of the rights, powers, preferences any other terms that affects only a particular series of Preferred Stock may only be waived on behalf of all holders of such series of Preferred Stock by the affirmative written consent or vote of at least a majority of the then outstanding shares of such series of Preferred Stock.
8. Notices . Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.
FIFTH: Subject to any additional vote required by the Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
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SIXTH : Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
EIGHTH : Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
NINTH : To the fullest extent permitted by law, 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. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth 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 General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
TENTH : To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.
Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.
ELEVENTH : The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An Excluded Opportunity is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, Covered Persons ), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Persons capacity as a director of the Corporation.
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TWELFTH : For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with any repurchase of shares of Common Stock permitted under this Certificate of Incorporation from employees, officers, directors or consultants of the Corporation in connection with a termination of employment or services pursuant to agreements or arrangements approved by the Board (in addition to any other consent required under this Certificate of Incorporation), such repurchase may be made without regard to any preferential dividends arrears amount or preferential rights amount (as those terms are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making any calculation under California Corporations Code Section 500 in connection with such repurchase, the amount of any preferential dividends arrears amount or preferential rights amount (as those terms are defined therein) shall be deemed to be zero.
* * *
3. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.
4. That this Third Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporations Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Third Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 16th day of January, 2015.
By: |
/s/ Stephen G. Dilly |
|
Stephen G. Dilly, Ph.D. | ||
Chief Executive Officer |
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Exhibit 3.3
AMENDED AND RESTATED
BYLAWS
OF
ALLERGEN RESEARCH CORPORATION
As Of December 2, 2011
TABLE OF CONTENTS
Page | ||||||
ARTICLE I CORPORATE OFFICES |
1 | |||||
1.1 |
Registered Office |
1 | ||||
1.2 |
Other Offices |
1 | ||||
ARTICLE II MEETINGS OF STOCKHOLDERS |
1 | |||||
2.1 |
Annual Meetings |
1 | ||||
2.2 |
Special Meetings |
1 | ||||
2.3 |
Notice Of Stockholders Meetings |
1 | ||||
2.4 |
Quorum |
2 | ||||
2.5 |
Organization; Conduct of Business |
2 | ||||
2.6 |
Proxies and Voting |
3 | ||||
2.7 |
Waiver Of Notice |
3 | ||||
2.8 |
Stockholder Action By Written Consent Without A Meeting |
4 | ||||
2.9 |
Record Date For Stockholder Notice; Voting; Giving Consents |
4 | ||||
ARTICLE III DIRECTORS |
5 | |||||
3.1 |
Number Of Directors |
5 | ||||
3.2 |
Election And Term Of Office Of Directors |
6 | ||||
3.3 |
Director Resignations; Newly Created Directors And Vacancies |
6 | ||||
3.4 |
Participation In Meetings By Conference Telephone |
7 | ||||
3.5 |
Regular Meetings |
7 | ||||
3.6 |
Special Meetings |
7 | ||||
3.7 |
Quorum |
7 | ||||
3.8 |
Waiver Of Notice |
8 | ||||
3.9 |
Conduct of Business; Board Action By Written Consent Without A Meeting |
8 | ||||
3.10 |
Compensation Of Directors |
8 | ||||
3.11 |
Approval Of Loans To Officers |
8 | ||||
3.12 |
Removal Of Directors |
9 | ||||
3.13 |
Chairman Of The Board Of Directors |
9 | ||||
ARTICLE IV COMMITTEES |
9 | |||||
4.1 |
Committees Of Directors |
9 | ||||
4.2 |
Committee Minutes |
9 | ||||
4.3 |
Conduct of Business |
9 | ||||
ARTICLE V OFFICERS |
10 | |||||
5.1 |
Officers |
10 | ||||
5.2 |
Appointment Of Officers |
10 | ||||
5.3 |
Subordinate Officers |
10 | ||||
5.4 |
Removal And Resignation Of Officers |
10 | ||||
5.5 |
Vacancies In Offices |
11 | ||||
5.6 |
Chief Executive Officer |
11 |
i
5.7 |
President |
11 | ||||
5.8 |
Vice Presidents |
11 | ||||
5.9 |
Secretary |
11 | ||||
5.10 |
Chief Financial Officer |
12 | ||||
5.11 |
Action With Respect to Securities Of Other Companies |
12 | ||||
5.12 |
Delegation of Authority |
12 | ||||
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS |
13 | |||||
6.1 |
Indemnification Of Directors And Officers |
13 | ||||
6.2 |
Indemnification Of Others |
13 | ||||
6.3 |
Payment Of Expenses In Advance |
14 | ||||
6.4 |
Indemnity Not Exclusive |
14 | ||||
6.5 |
Insurance |
14 | ||||
ARTICLE VII RECORDS AND REPORTS |
14 | |||||
7.1 |
Maintenance And Inspection Of Records |
14 | ||||
7.2 |
Inspection By Directors |
15 | ||||
ARTICLE VIII GENERAL MATTERS |
15 | |||||
8.1 |
Checks |
15 | ||||
8.2 |
Execution Of Corporate Contracts And Instruments |
15 | ||||
8.3 |
Stock Certificates |
15 | ||||
8.4 |
Special Designation On Certificates |
16 | ||||
8.5 |
Lost Certificates |
16 | ||||
8.6 |
Construction; Definitions |
16 | ||||
8.7 |
Fiscal Year |
16 | ||||
8.8 |
Seal |
17 | ||||
8.9 |
Transfers of Stock |
17 | ||||
8.10 |
Registered Stockholders |
17 | ||||
8.11 |
Facsimile Signature |
17 | ||||
ARTICLE IX RIGHT OF FIRST REFUSAL |
17 | |||||
9.1 |
Right of First Refusal; Definition Of Holders; Transfer Notice |
17 | ||||
9.2 |
Companys Right |
18 | ||||
9.3 |
Holders Right |
18 | ||||
9.4 |
Completion of Transaction |
19 | ||||
9.5 |
Agreement by Transferees |
19 | ||||
9.6 |
Termination of Right of First Refusal |
19 | ||||
9.7 |
Exceptions |
20 | ||||
ARTICLE X AMENDMENTS |
20 |
ii
AMENDED AND RESTATED
BYLAWS
OF
ALLERGEN RESEARCH CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office . The registered office of the Company shall be in the City of Dover, County of Kent, State of Delaware. The name of the registered agent of the Company at such location is Incorporating Services, Ltd.
1.2 Other Offices . The Board of Directors may at any time establish other offices at any place or places where the Company is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Annual Meetings .
(a) The annual meeting of stockholders shall be held on such date, time and place as may be designated by resolution of the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting may be held solely by means of remote communication, as permitted by Section 211 of the Delaware General Corporation Law (the DGCL). At such meetings, Directors shall be elected and any other proper business may be transacted.
2.2 Special Meetings .
Special meetings of the stockholders, other than those required by statute, may be called at any time by the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board. For purposes of these Bylaws, the term Whole Board shall mean the total number of authorized Directors whether or not there exist any vacancies in previously authorized directorships. The Board of Directors may postpone or reschedule any previously-scheduled special meeting.
2.3 Notice Of Stockholders Meetings .
(a) Notice of the place, if any, date and time of all meetings of stockholders, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present and person and vote at such meeting, 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
1
meeting, except as otherwise provided herein or required by law or the Certificate of Incorporation. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Company. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic mail or other electronic transmission, in the manner provided in Section 232 of the DGCL. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Company that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(b) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, thereof, 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 are announced at the meeting at which the adjournment is taken; provided , however that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, notice of the place, if any, date, and time 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 in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.
2.4 Quorum .
At any meeting of the stockholders, the holders of a majority of the shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, except as otherwise provided by the DGCL or by the Certificate of Incorporation. Where a separate vote by a class or classes or series is required, a majority of the shares of such class or classes or series present in person or by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, if any, date or time.
2.5 Organization; Conduct of Business .
(a) The Chief Executive Officer of the Company or, if no such officer has been appointed or in his or her absence, the President of the Company or, in his or her absence, the Chairman of the Board of Directors, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Company, the Secretary of the meeting shall be such person as the chairman of the meeting appoints.
(b) The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. The chairman shall have the power to adjourn the meeting to another place, if any, date and time. The date and time of opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
2
2.6 Proxies and Voting .
(a) At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile communication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted 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.
(b) The Company may, and to the extent required by law, 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 Company may designate one or more 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 chairman of the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. 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. Every vote taken by ballots shall be counted by a duly appointed inspector or inspectors.
(c) All elections of Directors shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively.
Unless otherwise provided in the Certificate of Incorporation, all voting on the election of Directors shall be by written ballot. Voting on other matters may be by voice vote, except if otherwise required by law or by the Certificate of Incorporation; provided , however , that a vote by written ballot shall be taken if the chairman of the meeting so elects or if so demanded by a stockholder.
The requirement, if any, of a written ballot may be satisfied by a ballot submitted by electronic transmission, provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxyholder.
2.7 Waiver Of Notice .
Whenever notice is required to be given under any provision of the DGCL or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice, or any waiver of notice by electronic transmission, unless so required by the Certificate of Incorporation or these Bylaws.
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2.8 Stockholder Action By Written Consent Without A Meeting .
Any action required to be taken at any annual or special meeting of stockholders of the Company, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is (i) signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and (ii) delivered to the Company in accordance with Section 228(a) of the DGCL.
Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days after the date the earliest dated consent is delivered to the Company, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Company in the manner prescribed in this Section 2.8. An electronic mail 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 purposes of this Section to the extent permitted by law. Any such consent shall be delivered in accordance with Section 228(d)(1) of the DGCL.
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.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing (including by electronic mail or other electronic transmission as permitted by law). If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the DGCL.
2.9 Record Date For Stockholder Notice; Voting; Giving Consents .
In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date may not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which (i) with respect
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to a stockholder meeting, shall not be not less than 10 nor more than 60 days before the date of such meeting, (ii) with respect to a consent to corporate action without a meeting, shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors or (iii) with respect to any other action, shall not be more than 60 days before such other action.
If the Board of Directors does not so fix a record date:
(a) 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.
(b) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting (i) when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent (including consent by electronic mail or other electronic transmission as permitted by law) is delivered to the Company by a stockholder of record as of the close of business on the prior business day and (ii) when prior action by the Board of Directors is required, shall be the close of business on the day the Board of Directors adopts the resolution taking such prior action.
(c) 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.
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, if such adjournment is for 30 days or less; provided , however , that the Board of Directors may fix a new record date for the adjourned meeting.
ARTICLE III
DIRECTORS
3.1 Number Of Directors .
Upon the adoption of these bylaws, the number of directors constituting the entire Board of Directors shall be one (1). Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.3 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such directors term of office expires.
Subject to the rights of the holders of any series of Preferred Stock to elect Directors under specified circumstances, this number may be changed from time to time by a resolution adopted by a majority of the Whole Board. No decrease in the number of authorized Directors shall shorten the term of any incumbent Director.
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3.2 Election And Term Of Office Of Directors .
Except as provided in Section 3.3 of these Bylaws, and unless otherwise provided in the Certificate of incorporation, Directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders. Each Director, including a Director elected to fill a vacancy, shall hold office until his or her successor is elected or until his or her earlier resignation or removal.
3.3 Director Resignations; Newly Created Directors And Vacancies .
(a) Any Director may resign at any time upon written notice to the attention of the Secretary of the Company or, if there is no Secretary in office, then to the attention of any other corporate officer or to the Board of Directors as a whole. When one or more Directors so resigns and the resignation is effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office as provided in this section in the filling of other vacancies.
(b) Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, removal from office or other cause shall, unless otherwise required by law or by resolution of the Board of Directors, be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall serve for a term expiring at the next annual meeting of stockholders or until such Directors successor shall have been duly elected.
(c) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more Directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the Directors elected by such class or classes or series thereof then in office, or by a sole remaining Director so elected.
(d) If any vacancy or newly created directorship has not been filled by Director action as provided above, it may be filled by vote of the stockholders entitled to vote on such Director, at an annual or special meeting of stockholders or by written consent of a majority of the stockholders so entitled to vote, subject to the other requirements set forth for stockholder voting at a meeting or by written consent set forth elsewhere in these Bylaws.
(e) If at any time, by reason of death or resignation or other cause, the Company should have no Directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
(f) If, at the time of filling any vacancy or any newly created directorship, the Directors then in office constitute less than a majority of the Whole Board (as constituted immediately before any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such Directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the Directors chosen by the Directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
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3.4 Participation In Meetings By Conference Telephone .
Members of the Board of Directors, or of any committee thereof, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.5 Regular Meetings .
Regular meetings of the Board of Directors may be held at such date, time and place as shall from time to time be determined by the Board. A regular meeting of the Board of Directors shall be held immediately after the conclusion of each annual meeting of stockholders.
3.6 Special Meetings .
Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, the Chief Executive Officer or by a majority of the Whole Board, and shall be held at such place, date and time as he, she or they shall fix.
Notice of the place, date and time of special meetings shall be delivered personally or by telephone to each Director or sent by first-class mail, charges prepaid, facsimile or electronic mail, addressed to each Director at that Directors address as it is shown on the records of the Company. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. If the notice is delivered personally, or by facsimile, electronic mail or telephone, it shall be delivered at least 24 hours before the time of the holding of the meeting. The notice need not specify the place of the meeting, if the meeting is to be held at the principal executive office of the Company. Any and all business may be transacted at a special meeting, unless otherwise indicated in the notice thereof.
3.7 Quorum .
At any meeting of the Board of Directors, a majority of the Whole Board shall constitute a quorum for all purposes, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall fail to attend any meeting, then a majority of the Directors present may adjourn the meeting to another place, date or time, without further notice or waiver thereof.
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A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
3.8 Waiver Of Notice .
Whenever notice of a Board of Directors meeting is required to be given under any provision of the DGCL or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors, or members of a committee of Directors, need be specified in any written waiver of notice or any waiver by electronic transmission, unless so required by the Certificate of Incorporation or these Bylaws.
3.9 Conduct of Business; Board Action By Written Consent Without A Meeting .
At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the Directors present, except as otherwise provided in these Bylaws or by law.
Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filings 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.
3.10 Compensation Of Directors .
The Board of Directors shall have the authority to fix the compensation of the Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors, or paid a stated salary or paid other compensation as Director. No such compensation shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed compensation for attending committee meetings.
3.11 Approval Of Loans To Officers .
Subject to applicable law, including Section 13(k) of the Securities Exchange Act of 1934, the Company may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Company or of its subsidiary, including any officer or
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employee who is a Director of the Company or its subsidiary, whenever, in the judgment of the Directors, such loan, guaranty or assistance may reasonably be expected to benefit the Company. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Company. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Company at common law or under any statute.
3.12 Removal Of Directors .
Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any Director or the entire Board of Directors 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.
3.13 Chairman Of The Board Of Directors .
The Company may have, at the discretion of the Board of Directors, a Chairman of the Board of Directors who shall not be considered by virtue of holding such position to be an officer of the Company.
ARTICLE IV
COMMITTEES
4.1 Committees Of Directors .
The Board of Directors may from time to time designate committees of the Board of Directors, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board of Directors and shall, for those committees and any others provided for herein, elect a Director or Directors to serve as the member or members, designating, if it desires, other Directors as alternate members who may replace any absent members at any meeting of the committee. In the absence of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent member. Any Board committee may create one or more subcommittees, each subcommittee to consist of one or more members of such committee, and delegate to the subcommittee any or all of the powers and authority of the committee.
4.2 Committee Minutes .
Each committee shall keep regular minutes of its meetings and maintain them in the Companys official minute book.
4.3 Conduct of Business .
Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or
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required by law. Adequate provision shall be made for notice to members of all meetings; one-half of the members shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
The Board of Directors may adopt rules for the governance of any committee not inconsistent with these Bylaws.
ARTICLE V
OFFICERS
5.1 Officers .
The officers of the Company shall be a Chief Executive Officer, a President, a Secretary, and a Chief Financial Officer. The Company may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers, and any such other officers as may be appointed in accordance with these Bylaws. Any number of offices may be held by the same person.
5.2 Appointment Of Officers .
The officers of the Company, except such officers as may be appointed in accordance with Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors.
5.3 Subordinate Officers .
The Board of Directors may appoint or empower the Chief Executive Officer or the President to appoint, such other officers and agents as the business of the Company may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors or such other officer may from time to time determine. The Board of Directors may empower the Chief Executive Officer or the President to define the authority and duties of such subordinate officers.
5.4 Removal And Resignation Of Officers .
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Secretary of the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later
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time specified in that notice (unless the officer is removed before such later time); and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.
5.5 Vacancies In Offices .
Any vacancy occurring in any office of the Company shall be filled in the manner prescribed in these Bylaws for regular appointments to that office.
5.6 Chief Executive Officer .
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if any, the Chief Executive Officer of the Company (if such an officer is appointed) shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Company. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors, shall have the general powers and duties of management usually vested in the office of Chief Executive Officer of a Company and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
5.7 President .
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there is one, or to the Chief Executive Officer, if such an officer is appointed, the President shall be the principal executive officer of the Company and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and other officers of the Company. He or she shall have the general powers and duties of management usually vested in the office of President of a Company and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
5.8 Vice Presidents .
In the absence or disability of the Chief Executive Officer and President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively (in order of priority) by the Board of Directors, the Chief Executive Officer or the President.
5.9 Secretary .
The Secretary shall keep or cause to be kept, at the principal executive office of the Company or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of Directors, committees of Directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at Directors meetings or committee meetings, the number of shares present or represented at stockholders meetings and the proceedings thereof.
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The Secretary shall keep, or cause to be kept, at the principal executive office of the. Company or at such other place as may be designated by the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the Company, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors, by custom or by these Bylaws.
5.10 Chief Financial Officer .
The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Company, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares.
The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Company with such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Company as may be ordered by the Board of Directors, shall render to the President, the Chief Executive Officer, or the Directors, upon request, an account of all his or her transactions as Chief Financial Officer and of the financial condition of the Company, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors, by custom or by these Bylaws.
5.11 Action With Respect to Securities Of Other Companies .
Unless otherwise directed by the Board of Directors, the Chief Executive Officer, the President or any officer of the Company authorized by the Chief Executive Officer or the President is authorized to vote and otherwise act on behalf of the Company, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other Company in which the Company may hold securities and otherwise to exercise any and all rights and powers which the Company may possess by reason of its ownership of securities in such other Company.
5.12 Delegation of Authority .
Notwithstanding any other provision in these Bylaws, the Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 Indemnification Of Directors And Officers .
Each person who was or is made a party to or is threatened to be made a party to, witness or other participant in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding), by reason of the fact that he or she is or was a Director or officer of the Company (an Indemnitee), whether the basis of the Proceeding is alleged action in an official capacity as a Director or officer or in any other capacity while serving as a Director or officer, shall be indemnified and held harmless by the Company to the fullest extent authorized by the DGCL or other applicable state law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide before such amendment), against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by Indemnitee in connection therewith; provided , however , the Company shall not indemnify any such Indemnitee in connection with a Proceeding (or part thereof) (i) initiated by such Indemnitee against the Company or any Director or officer of the Company unless the Company has joined in or consented to the initiation of such Proceeding or (ii) made on account of Indemnitees conduct which constitutes a breach of Indemnitees duty of loyalty to the Company or its stockholders, or is an act or omission not in good faith which involves intentional misconduct or a knowing violation of the law. For purposes of this Section 6.1, a Director or officer of the Company includes any person who (i) is or was a Director or officer of the Company, (ii) is or was serving at the request of the Company as a Director or officer of another Company, partnership, joint venture, trust or other enterprise, or (iii) was a Director or officer of a company that was a predecessor company of the Company or of another enterprise at the request of such predecessor company.
6.2 Indemnification Of Others .
The Company shall have the power, to the maximum extent and in the manner permitted by the DGCL or other applicable state law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide before such amendment), to indemnify each of its employees and agents against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such employees and agents in connection therewith; provided , however , the Company shall not indemnify any such employee or agent in connection with a Proceeding (or part thereof) (i) initiated by such employee or agent against the Company or any Director or officer of the Company unless the Company has joined in or consented to the initiation of such Proceeding or (ii) made on account of such employees or agents conduct which constitutes a breach of such employees or agents duty of loyalty to the Company or its stockholders, or is an act or omission not in good faith which involves intentional misconduct or a knowing violation of the law. For
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purposes of this Section 6.2, an employee or agent of the Company includes any person other than a Director or officer who (i) is or was an employee or agent of the Company, (ii) is or was serving at the request of the Company as an employee or agent of another company, partnership, joint venture, trust or other enterprise, or (iii) was an employee or agent of a company that was a predecessor company of the Company or of another enterprise at the request of such predecessor company.
6.3 Payment Of Expenses In Advance .
Expenses incurred in defending any Proceeding for which indemnification is required pursuant to Section 6.1 shall be, or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors may be, paid by the Company in advance of the final disposition of such Proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
6.4 Indemnity Not Exclusive .
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office.
6.5 Insurance .
The Company may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a Director, officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the provisions of the DGCL.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance And Inspection Of Records .
The Company shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Companys stock ledger, a list of its stockholders,
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and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such persons interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Company at its registered office in Delaware or at its principal place of business.
A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in each such stockholders name, shall be open to the examination of any such stockholder for a period of at least 10 days before the meeting to the extent and in the manner provided by law. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This 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.
7.2 Inspection By Directors .
Any Director shall have the right to examine the Companys stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a Director.
ARTICLE VIII
GENERAL MATTERS
8.1 Checks .
From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Company, and only the persons so authorized shall sign or endorse those instruments.
8.2 Execution Of Corporate Contracts And Instruments .
The Board of Directors may, except as otherwise provided in these Bylaws, authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Company; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Company by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates .
The shares of the Company shall be represented by certificates. Every stockholder shall be entitled to have a certificate signed by, or in the name of the Company by the chairman or Vice-Chairman of the Board of Directors, or the President or Vice President, and
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by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
No stock certificates will be issued in bearer form.
8.4 Special Designation On Certificates .
If the Company is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to represent such class or series of stock; provided , however , that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock a statement that the Company will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates .
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The Company may issue a new certificate of stock in the place of any certificate previously issued by it, alleged to have been lost, stolen, mutilated or destroyed, and the Company may require the owner of the lost, stolen, mutilated or destroyed certificate, or the owners legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft, mutilation or destruction of any such certificate or the issuance of such new certificate.
8.6 Construction; Definitions .
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term person includes both a company (or other entity) and a natural person.
8.7 Fiscal Year .
The fiscal year of the Company shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
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8.8 Seal .
The Company may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.
8.9 Transfers of Stock .
Transfers of stock shall be made only upon the transfer books of the Company kept at an office of the Company or by transfer agents designated to transfer shares of the stock of the Company.
8.10 Registered Stockholders .
The Company shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
8.11 Facsimile Signature .
In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Company may be used whenever and as authorized by the Board of Directors or a committee thereof.
ARTICLE IX
RIGHT OF FIRST REFUSAL
9.1 Right of First Refusal; Definition Of Holders; Transfer Notice .
If any stockholder of the Company proposes to sell, pledge or otherwise transfer any shares of the Common Stock or Preferred Stock of the Company (Stock), which term includes all stock subscription rights, liquidating dividends, stock dividends, stock splits, new, substituted or additional securities of any type whatsoever, or any other property which the stockholder is or may be entitled to receive as a result of the stockholders ownership of such shares of Stock), the Company in the first instance, and then the relevant holders of the Companys outstanding voting stock (the Holders), as provided in this Section 9.1, will have a right of first refusal (the Right of First Refusal) with respect to such shares of Stock. If the stockholder proposes to transfer Common Stock of the Company, then the Holders, for purposes of this Article IX, will be deemed to include the holders of Common Stock and of Preferred Stock of the Company. If the stockholder proposes to transfer any shares of Preferred Stock of the Company, then the Holders, for purposes of this Article IX, will be deemed to include only the holders of Preferred Stock of the Company. Before effecting any proposed transfer, the stockholder will give written notice (the Transfer Notice) to the Company describing fully the proposed transfer, including the number of shares of the Stock proposed to be transferred, the proposed bona fide transfer price and the name and address of the proposed transferee. In the
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case of a proposed gift transfer, the bona fide transfer price for purposes of this Right of First Refusal will be determined in good faith by the Board of Directors promptly upon the Companys receipt of, and as of the date of, the Transfer Notice.
9.2 Companys Right .
The Company will have the right, for a period of thirty (30) days after the date the Transfer Notice is delivered to the Company, to purchase all, but not less than all, of such shares of Stock on the terms set forth in the Transfer Notice by delivery to the stockholder of a notice of exercise of the Companys Right of First Refusal. The Companys rights under this Section 9.2 will not be assignable.
9.3 Holders Right .
If the Company fails to timely exercise its Right of First Refusal, or determines not to exercise such right, the Company will immediately notify all Holders in writing of the terms of the proposed transfer and the number of shares of the Stock available for purchase by the Holders upon exercise by them of their Right of First Refusal. The Holders will have the right for a period of thirty (30) days from the date of such notice as a group, to purchase all, but not less than all, of the Stock so available, each Holder having the right to purchase such Holders pro rata portion of such shares of Stock on the terms set forth in the Companys notice, by delivery to the Company and the proposed transferring stockholder of a notice of exercise of the Holders Right of First Refusal. Each Holders pro rata portion will be equal to the total of the number of shares of Common Stock of the Company held by such Holder plus the number of shares of Common Stock of the Company into which any shares of Preferred Stock held by the Holder are convertible on the date of the Transfer Notice, as a percentage of the total number of shares of Common Stock of the Company held by all Holders plus the number of shares of Common Stock of the Company into which all shares of Preferred Stock held by all Holders are convertible on the date of the Transfer Notice. A Holders rights under this Section 9.3 will be assignable to any person controlling, controlled by, or under common control with such Holder. Each Holder may, in its notice of exercise of such Holders Right of First Refusal, subscribe for any number of shares of Stock of the Company subject to the Right of First Refusal. Any shares of Stock of the Company subject to the Right of First Refusal which are not purchased by a Holder exercising such Holders pro rata Right of First Refusal may be purchased by any Holders (Oversubscribing Holders) who indicated the desire to purchase more (specifying the number of shares) than their pro rata share of such Stock in their respective notices of exercise (Oversubscription Right). If not enough shares of Stock of the stockholder are offered for sale to satisfy all properly exercised Oversubscription Rights, the offered Stock will be sold to and purchased by Holders exercising Oversubscription Rights pro rata , as next determined. For the purpose of Oversubscription Rights each Oversubscribing Holders pro rata portion will be equal to the total of the number of shares of Common Stock of the Company held by such Oversubscribing Holder plus the number of shares of Common Stock of the Company into which all shares of Preferred Stock held by such Oversubscribing Holder are convertible on the date of the Transfer Notice, as a percentage of the total number of shares of Common Stock of the Company held by all Oversubscribing Holders plus the number of shares of Common Stock of the Company into which all shares of Preferred Stock held by all Oversubscribing Holders are convertible on the date of the Transfer Notice.
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9.4 Completion of Transaction .
If the Company and the Holders fail to give notice of exercise of their respective Rights of First Refusal within a total of sixty (60) days after the date the Transfer Notice is delivered to the Company (the Expiration Date), subject to the terms and conditions of the Stockholders Agreement, dated as of [12/2], 2011, by and among the Company and the other parties thereto, including without limitation the Right of Co-Sale provided for in Article III thereof, then the stockholder proposing to sell, pledge or otherwise transfer the Stock may, not later than one hundred twenty (120) days following delivery to the Company of the Transfer Notice, conclude a transfer of the shares of Stock subject to the Transfer Notice which have not been purchased by the Company or the Holders pursuant to the exercise of a Right of First Refusal on the terms and conditions described in the Transfer Notice. Any proposed transfer on the terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the stockholder, will again be subject to the Right of First. Refusal and will require compliance by the stockholder with the procedure described in this Article IX. If the Company or the Holders exercise the Right of First Refusal, the parties will consummate the sale of shares of Stock on the terms set forth in the Transfer Notice within ninety (90) days after delivery of the Transfer Notice to the Company; provided , however , that if the Transfer Notice provides for the payment for the shares of Stock other than in cash, the Company or the Holders (as the case may be) will have the option of paying for the shares of Stock by the discounted cash equivalent of the consideration described in the Transfer Notice, as the discounted cash equivalent is reasonably determined by the Board of Directors.
9.5 Agreement by Transferees .
All transferees of shares of Stock or any interest therein will be required as a condition of such transfer to agree in writing (in a form reasonably satisfactory to the Company) that they will receive and hold such shares of Stock or interest subject to the provisions of this Right of First Refusal. Any sale or other transfer of any shares of Stock by any stockholder will be void unless the provisions of this Article IX are met.
9.6 Termination of Right of First Refusal .
The Right of First Refusal, as to both the Company and the Holders, will terminate at such time as a public market exists for the Companys Common Stock (or any other stock issued by the Company or any successor, in exchange for the Common Stock of the Company), or upon a merger of the Company in which the Company is not the surviving Company, or upon a sale of all or substantially all of the assets of the Company. For purposes hereof, a public market will be deemed to exist if (a) there has been consummated a public offering of such Stock registered under the Securities Act of 1933, or (b) such Stock is listed on a national securities exchange (as that term is used in the Securities Exchange Act of 1934), or (c) such Stock is traded on the over-the-counter market and prices therefor are published daily and regularly on business days in a recognized financial journal.
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9.7 Exceptions .
The Right of First Refusal will not apply (a) to a transfer to the stockholders ancestors (including step-parents), descendants (including step-children), spouse or to a trustee for the benefit of such ancestors, descendants or spouse, or (b) to a transfer to any transferee of Preferred Stock (or of the Common Stock into which such Preferred Stock is converted) who is controlled by, controlling or under common control with the transferor of such Preferred Stock or Common Stock into which converted, or (c) to any transfer by any institutional investor, such as but not limited to a venture capital fund, to such investors limited partners, other general partners or to any other person or entity directly or indirectly controlling, controlled by or under common control (each within the meaning of the federal securities laws of the United States of America) with such institutional investor; provided that in each case each such transferee will take such Stock subject to all of the provisions of this Right of First Refusal, or (d) to any repurchase by the Company or its assignees of shares of Common Stock or Preferred Stock from Directors, officers or employees of, or consultants or advisors to, the Company pursuant to written agreements under which the Company and/or its assignees has the option to repurchase such shares upon the termination of employment with, or service to, the Company for any reason.
ARTICLE X
AMENDMENTS
The Bylaws of the Company may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that no bylaw may be adopted, amended or repealed by the stockholders except by the vote or written consent of at least a majority of the voting power of the Company. The Company may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the Board of Directors. The fact that such power has been so conferred upon the Board of Directors shall not divest the stockholders of the power, nor limit their power, to adopt, amend or repeal Bylaws as set forth in this Article X.
[END]
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Exhibit 10.1
AMENDED AND RESTATED
INVESTORS RIGHTS AGREEMENT
This Amended and Restated Investors Rights Agreement is made as of January 20, 2015 (the Effective Date ) by and among Allergen Research Corporation, a Delaware corporation (the Company ), each of the investors listed on Annex A attached hereto, each of which is referred to in this Agreement as an Investor and any additional Investor (as defined in the Purchase Agreement, as hereinafter defined) that becomes a party to this Agreement in accordance with Section 6.9 hereof.
RECITALS
WHEREAS , the Company and certain of the Investors are parties to that certain Series B Preferred Stock Purchase Agreement of even date herewith (as may be amended from time to time, the Purchase Agreement ), pursuant to which such Investors are purchasing shares of Series B Preferred Stock.
WHEREAS , the Company and certain of the Investors (the Prior Investors ) have previously entered into that certain Investors Rights Agreement dated as of February 8, 2013, as amended on April 11, 2013 (the Prior Agreement ), for the purpose of granting certain registration and other rights to such Prior Investors.
WHEREAS , in order to induce the Company to enter into the Purchase Agreement and to induce certain of the Investors to invest funds in the Company pursuant to the Purchase Agreement, the Investors and the Company are entering into this Agreement to grant certain registration and other rights to the Investors and to amend, restate and otherwise supersede in its entirety the Prior Agreement as set forth herein.
WHEREAS , any term of the Prior Agreement may be amended and the observance of any term thereof may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the holders of at least a majority of the Registrable Securities (as defined in the Prior Agreement) outstanding.
WHEREAS , the Company has executed this Agreement, and the Prior Investors who are signatories to this Agreement hold at least that number of shares necessary to effect an amendment of the Prior Agreement. The Prior Agreement is superseded and replaced by this Agreement, including with respect to those Prior Investors who are not signatories to this Agreement.
NOW, THEREFORE , the parties hereby agree as follows:
1. Definitions . For purposes of this Agreement:
1.1 Affiliate means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
1.2 Common Stock means shares of the Companys Common Stock, par value $0.0001 per share.
1.3 Competitor means a Person engaged, directly or indirectly (including through any partnership, limited liability company, corporation, joint venture or similar arrangement (whether now existing or formed hereafter)), in the development and/or commercialization of oral immunotherapy treatments or diagnostics for the management of food allergy, but will not include any financial investment firm or collective investment vehicle that, together with its Affiliates, holds less than 20% of the outstanding equity of any Competitor and does not, nor do any of its Affiliates, have a right to designate any members of the Board of any Competitor.
1.4 Damages means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) 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.
1.5 Derivative Securities means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.
1.6 Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
1.7 Excluded Registration means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
1.8 Form S-1 means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
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1.9 Form S-3 means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.
1.10 GAAP means generally accepted accounting principles in the United States.
1.11 Holder means any holder of Registrable Securities who is a party to this Agreement.
1.12 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.
1.13 Initiating Holders means, collectively, Holders who properly initiate a registration request under this Agreement.
1.14 IPO means the Companys first underwritten public offering of its Common Stock under the Securities Act.
1.15 Key Employee means any executive-level employee (including division director and vice president-level positions) as well as any employee who, either alone or in concert with others, develops, invents, programs, or designs any Company Intellectual Property (as defined in the Purchase Agreement).
1.16 Major Investor means any Investor that, individually or together with such Investors Affiliates, holds at least 600,000 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof).
1.17 New Securities means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities, except for (i) Excluded Securities, as defined in the Companys Third Amended and Restated Certificate of Incorporation, as amended and (ii) equity securities issued pursuant to the Purchase Agreement.
1.18 Person means any individual, corporation, partnership, trust, limited liability company, association or other entity.
1.19 P referred Stock means the Series A Preferred Stock and the Series B Preferred Stock.
1.20 Registrable Securities means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock; (ii) any Common Stock, or any Common Stock
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issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors after the date hereof; and (iii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Section 6.1, and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Section 2.13 of this Agreement.
1.21 Registrable Securities then outstanding means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.
1.22 Restated Certificate means the Companys Third Amended and Restated Certificate of Incorporation, as amended.
1.23 Restricted Securities means the securities of the Company required to bear the legend set forth in Section 2.12(b) hereof.
1.24 SEC means the Securities and Exchange Commission.
1.25 SEC Rule 144 means Rule 144 promulgated by the SEC under the Securities Act.
1.26 SEC Rule 145 means Rule 145 promulgated by the SEC under the Securities Act.
1.27 Securities Ac t means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
1.28 S elling Expenses means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Section 2.6.
1.29 Series A Director means the director of the Company that the holders of record of the Series A Preferred Stock are entitled to elect pursuant to the Restated Certificate.
1.30 Series B Directors means the directors of the Company that the holders of record of the Series B Preferred Stock are entitled to elect pursuant to the Restated Certificate.
1.31 Series A Preferred Stock means shares of the Companys Series A Preferred Stock, par value $0.0001 per share.
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1.32 Series B Preferred Stock means shares of the Companys Series B Preferred Stock, par value $0.0001 per share.
2. Registration Rights .
2.1 Demand Registration .
(a) Form S-l Demand . If at any time after the earlier of (i) five (5) years after the date of this Agreement or (ii) one (1) year after the effective date of the registration statement for the IPO, the Company receives a request from Holders of fifty percent (50%) of the Registrable Securities then outstanding that the Company file a Form S-l registration statement with respect to the Registrable Securities then outstanding and if the anticipated aggregate offering price is at least $3,000,000.00, then the Company will (x) within ten (10) days after the date such request is given, give notice thereof (the Demand Notice ) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.
(b) Form S-3 Demand . If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least twenty-five (25%) of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $1,000,000.00, then the Company will (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.
(c) Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 2.1 a certificate signed by the Companys chief executive officer stating that in the good faith judgment of the Companys Board it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or
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other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company will have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof will be tolled correspondingly, for a period of not more than one hundred eighty (180) days after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than once in any twelve (12) month period; and provided further that the Company will not register any securities for its own account or that of any other stockholder during such one hundred eighty (180) day period other than an Excluded Registration.
(d) The Company will not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(a)(i) during the period that is ninety (90) days before the Companys good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected two registrations pursuant to Section 2.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.1(b). The Company will not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(b)(i) during the period that is thirty (30) days before the Companys good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Section 2.1(b) within the twelve (12) month period immediately preceding the date of such request. A registration will not be counted as effected for purposes of this Section 2(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Section 2.6, in which case such withdrawn registration statement will be counted as effected for purposes of this Section 2.1(d).
2.2 Company Registration . If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its securities under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company will, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company will, subject to the provisions of Section 2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be
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included in such registration. The Company will have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration will be borne by the Company in accordance with Section 2.6.
2.3 Underwriting Requirements.
(a) If, pursuant to Section 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they will so advise the Company as a part of their request made pursuant to Section 2.1, and the Company will include such information in the Demand Notice. The underwriter(s) will be selected by a majority in interest of the Initiating Holders and will be reasonably acceptable to the Company. In such event, the right of any Holder to include such Holders Registrable Securities in such registration will be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting will (together with the Company as provided in Section 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section 2.3. if the underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders will so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting will be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as will mutually be agreed to by all such selling Holders; provided, however , that the number of Registrable Securities held by the Holders to be included in such underwriting will not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares.
(b) In connection with any offering involving an underwriting of shares of the Companys capital stock pursuant to Section 2.2, the Company will not be required to include any of the Holders Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company will be required to include in the
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offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering will be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as will mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. Notwithstanding the foregoing, in no event will (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering or (ii) the number of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholders securities are included in such offering For purposes of the provision in this Section 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, will be deemed to be a single selling Holder, and any pro rata reduction with respect to such selling Holder will be based upon the aggregate number of Registrable Securities owned by all Persons included in such selling Holder, as defined in this sentence.
(c) For purposes of Section 2.1, a registration will not be counted as effected if, as a result of an exercise of the underwriters cutback provisions in Section 2.3(a), fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.
2.4 Obligations of the Company . Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company will, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such one hundred twenty (120) day period will be extended for a period of time equal to the period
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the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period will be extended for up to sixty (60) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;
(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;
(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;
(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as will be reasonably requested by the selling Holders; provided that the Company will not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(h) promptly make available for inspection by the selling Holders, any underwriter(s) 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 Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the
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Companys officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;
(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and
(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.
In addition, the Company will ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act will have become effective, its insider trading policy will provide that the Companys directors may implement a trading program under Rule 10b5-l of the Exchange Act.
2.5 Furnish Information . It will be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder will furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holders Registrable Securities.
2.6 Expenses of Registration . All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2. including all registration, filing, and qualification fees; printers and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, together not to exceed $25,000.00, of one counsel for the selling Holders ( Selling Holder Counsel ), will be borne and paid by the Company; provided , however , that the Company will not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders will bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Section 2.1(a) or Section 2.1(b), as the case may be; provided further that if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Subsection 2.1(a) or Subsection 2.1(b) . All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 will be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
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2.7 Delay of Registration . No Holder will have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
2.8 Indemnification . If any Registrable Securities are included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Section 2.8(a) will not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent will not be unreasonably withheld, nor will the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.
(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Section 2.8(b) will not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without
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the consent of the Holder, which consent will not be unreasonably withheld; and provided further that in no event will the aggregate amounts payable by any Holder by way of indemnity or contribution under Sections 2.8(b) and 2.8(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, give the indemnifying party notice of the commencement thereof. The indemnifying party will have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) will have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action will relieve such indemnifying party of any liability to the indemnified party under this Section 2.8 to the extent that such failure materially prejudices the indemnifying partys ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8.
(d) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 2.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party will be determined by reference to, among other things,
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whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided , however , that, in any such case, (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event will a Holders liability pursuant to this Section 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Section 2.8(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.
(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 will control.
(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.8 will survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise will survive the termination of this Agreement.
2.9 Reports Under Exchange Act . With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company will:
(a) make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;
(b) use commercially reasonable efforts to file with the SEC 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 the Company has become subject to such reporting requirements); and
(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such
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reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).
2.10 Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company will not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would provide to such holder the right to include securities in any registration on other than either a pro rata basis with respect to the Registrable Securities or on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable Securities that they wish to so include; provided that this limitation will not apply to any additional Investor who becomes a party to this Agreement in accordance with Section 6.9.
2.11 Market Stand-off Agreement . Each Holder will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company for its own behalf of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement on Form S-l, and ending on the date specified by the Company and the managing underwriter (such period not to exceed (x) one hundred eighty (180) days, or such other period as may be required to accommodate regulatory restrictions on (1) the publication or other distribution of research reports and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto, (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement on Form S-1 for the IPO or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Section 2.11 will apply only to the IPO, will not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, or the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the immediate family of the Holder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer will not involve a disposition for value, and will be applicable to the Holders only if all officers, directors and all stockholders individually owning more than one percent (1%)
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of the Companys outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock) are subject to the same restrictions. The underwriters in connection with such registration are intended third-party beneficiaries of this Section 2.11 and will have the right, power, and authority to enforce the provisions hereof as though they were a party hereto. Each Holder will execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 2.11 or that are necessary to give further effect thereto.
2.12 Restrictions on Transfer .
(a) The Preferred Stock and the Registrable Securities will not be sold, pledged, or otherwise transferred, and the Company will not recognize and will issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.
(b) Each certificate or instrument representing (i) the Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, will (unless otherwise permitted by the provisions of Section 2.12(c)) be stamped or otherwise imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section 2.12.
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(c) The holder of each certificate representing Restricted Securities, by acceptance thereof, will comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof will give notice to the Company of such Holders intention to effect such sale, pledge, or transfer. Each such notice will describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, will be accompanied at such Holders expense by either (i) a written opinion of legal counsel who will, and whose legal opinion will, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a no action letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities will be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or no action letter (x) in any transaction in compliance with SEC Rule 144 or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee agrees in writing to be subject to the terms of this Section 2.12. Each certificate or instrument evidencing the Restricted Securities transferred as above provided will bear, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section 2.12(b), except that such certificate will not bear such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.
2.13 Termination of Registration Rights . The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section 2.1 or Section 2.2 will terminate upon the earliest to occur of:
(a) the closing of a Deemed Liquidation Event, as such term is defined in the Restated Certificate;
(b) such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holders shares without limitation during a three-month period without registration; and
(c) the fifth anniversary of the IPO.
3. Information and Observer Rights .
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3.1 Delivery of Financial Statements . The Company will deliver to each Major Investor, unless the Board has determined in good faith that such Major Investor is a Competitor:
(a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year and (iii) a statement of stockholders equity as of the end of such year, all such financial statements audited and certified by independent public accountants selected by the Company;
(b) as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(c) as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows for such month, and an unaudited balance sheet and statement of stockholders equity as of the end of such month, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year- end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(d) prior to the beginning of each fiscal year, a copy of the annual budget for the Company as approved by the Board, and as soon as practicable, any substantive amendments to such budget during the relevant year as approved by the Board.
If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections will be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date sixty (60) days before the Companys good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Companys covenants under this Section 3.1 will 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.
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3.2 Inspection . The Company will permit each Major Investor or an authorized representative of such Major Investor (provided that the Board has not reasonably determined that such Major Investor is a Competitor), at such Major Investors expense, to visit and inspect the Companys properties; examine its books of account and records; and discuss the Companys affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided , however , that the Company will not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
3.3 Observer Rights . As long as Food Allergy Research & Education, Inc. owns at least 588,235 shares of Common Stock of the Company (including shares of Common Stock issued or issuable upon conversion of Preferred Stock), which number is subject to appropriate adjustment for all stock splits, dividends, combinations, recapitalizations and the like, if Food Allergy Research & Education, Inc. does not have a designee on the Board, the Company will invite a representative of Food Allergy Research & Education, Inc. to attend all meetings of its Board in a nonvoting observer capacity and, in this respect, will give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors; provided , however , that such representative will 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 information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets or a conflict of interest, or if such Investor or its representative is a Competitor of the Company. As long as Longitude Venture Partners II, L.P. (together with its affiliated entities, Longitude ) owns at least 588,235 shares of Common Stock of the Company (including shares of Common Stock issued or issuable upon conversion of Preferred Stock), which number is subject to appropriate adjustment for all stock splits, dividends, combinations, recapitalizations and the like, the Company will invite a representative of Longitude to attend all meetings of its Board in a nonvoting observer capacity and, in this respect, will give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors; provided , however , that such representative will 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 information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets or a conflict of interest, or if such Investor or its representative is a Competitor of the Company. As long as Foresite Capital Fund II, L.P. (together with its affiliated entities, Foresite ) owns at least 720,000 shares of Common Stock of the Company (including shares of Common Stock issued or issuable upon conversion of Preferred Stock), which number is subject to appropriate adjustment for all stock splits, dividends, combinations, recapitalizations and
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the like, the Company will invite a representative of Foresite to attend all meetings of its Board in a nonvoting observer capacity and, in this respect, will give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors; provided , however , that such representative will 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 information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets or a conflict of interest, or if such Investor or its representative is a Competitor of the Company.
3.4 Termination of Information and Observer Rights . The covenants set forth in Section 3.1, Section 3.2 and Section 3.3 will terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.
3.5 Confidentiality . Each Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Companys intention to file a registration statement), 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 3.5 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Companys confidential information, or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided , however , that an Investor 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; (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Section 3.5; (iii) to any Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, provided that the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
4. Rights to Future Stock Issuances .
4.1 Right of First Offer . Subject to the terms and conditions of this Section 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company will first offer such New Securities to each Investor. An Investor will be entitled to apportion the right of first offer hereby granted to it, in such proportions as it deems appropriate, among itself and its Affiliates.
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(a) The Company will give notice (the Offer Notice ) to each Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.
(b) By notification to the Company within twenty (20) days after the Offer Notice is given, each Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Investor bears to the total Common Stock of the Company then outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and other Derivative Securities). At the expiration of such twenty (20) day period, the Company will promptly notify each Investor that elects to purchase or acquire all the shares available to it (each, a Fully Exercising Investor ) of any other Investors failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Investors were entitled to subscribe but that were not subscribed for by the Investors which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Section 4.1(b) will occur within the later of ninety (90) days of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Section 4.1(c).
(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Section 4.1(b), the Company may, during the ninety (90) day period following the expiration of the periods provided in Section 4.1(b) offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price at least, and upon terms no more favorable to the offered than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder will be deemed to be revived and such New Securities will not be offered unless first reoffered to the Investors in accordance with this Section 4.1.
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(d) The right of first offer in this Section 4.1 will not be applicable to (i) Excluded Securities (as defined in the Restated Certificate); (ii) shares of Common Stock issued in the IPO; (iii) the issuance of shares of Preferred Stock to additional purchasers pursuant to the Purchase Agreement; and (iv) any New Securities which the Board exempts from the right of first offer in this Section 4.1 and reserves to be offered to and subscribed by third parties as new investors in the Company.
(e) The right of first offer set forth in this Section 4.1 will terminate with respect to any Investor who fails to purchase, in any Qualified Financing subject to this Section 4.1, that portion of the New Securities which equals (i) the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Investor bears to the total Common Stock of the Company then outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and other Derivative Securities). For purposes of this Agreement, a Qualified Financing shall mean the issuance and sale by the Company of a newly-authorized series of Preferred Stock to investors for aggregate gross proceeds to the Company of not less than $10 million in a round of equity financing led by an institutional investor.
4.2 Termination . The covenants set forth in Section 4.1 will terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, or (iv) upon the completion of a transaction in which any shares of Preferred Stock are converted into any other property or security other than Common Stock, whichever event occurs first and, as to each Investor, in accordance with Section 4.1(e).
5. Additional Covenants .
5.1 Insurance . To the extent such insurance is not already in force, the Company will use its commercially reasonable efforts to obtain, within ninety (90) days of the date hereof, from financially sound and reputable insurers Directors and Officers liability insurance and term key-person insurance on each employee and officer deemed necessary by the Board, in an amount and on terms and conditions satisfactory to the Board and will use commercially reasonable efforts to cause such insurance policies to be maintained until such time as the Board determines that such insurance should be discontinued. The key-person policy will name the Company as loss payee, and neither policy will be cancelable by the Company without prior approval by the Board. The Company has no key man insurance or Directors and Officers liability insurance in place as Of the Effective Date.
5.2 Service Provider Agreements . The Company will cause each person now or hereafter employed by it or by a subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement.
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5.3 Service Provider Stock . Unless otherwise approved by the Board, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Companys capital stock after the date hereof will be required to execute restricted stock or option agreements, as applicable, providing for vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty- six (36) months of service.
5.4 Matters Requiring Investor Director Approval . So long as the holders of Preferred Stock are entitled to elect the Series A Director and at least one (1) Series B Director, the Company will not, without approval of the Board, by the affirmative vote of at least a majority of the then serving members of the Board and including in such majority the affirmative vote of the Series A Director and at least one (1) Series B Director (the Required Board Approval ):
(a) Any actions set forth in Section 3.3 of Part B of Article FOURTH of the Restated Certificate;
(b) All Company budgets and operating plans;
(c) All preclinical trial and clinical trial plans;
(d) Any amendments, including any increase or decrease in the share reserve thereunder, of the Companys then-current equity incentive plan, and the creation of and reservation of shares under, and any amendments to, all other Company equity incentive plans;
(e) The issuance of any Excluded Securities;
(f) Any New Securities which the Board exempts from the right of first offer in Section 4.1;
(g) Any license of all or substantially all of the intellectual property assets of the Company; or
(h) Take any action for the Company to:
(i) Make any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company, or the disposition of subsidiary stock or all or substantially all of any subsidiary assets;
(ii) Make any loan or advance to any person, including, any employee or director, except advances and similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board;
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(iii) Guarantee any indebtedness except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;
(iv) Make any investment other than in accordance with the investment policy approved by the Board;
(v) Make any single expenditure that is not included in the budget and is in excess of a threshold amount to be determined by the Board;
(vi) Incur any aggregate indebtedness not already included in a budget that has been approved by the Required Director Approval that is in excess of $100,000.00;
(vii) Exceed the expenses contemplated in the Board- approved budget for such year that is in excess of a threshold amount to be determined by the Board;
(viii) Approve any material revisions to the then-current Business Plan of the Company;
(ix) Enter into or be a party to any material transaction with any affiliate of the Company or any director, officer or employee of the Company or any associate (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended) of any such person;
(x) Hire, fire, or change the compensation of the executive officers of the Company, including approving any option grants;
(xi) Change the principal business of the Company, or make any material change in the Companys then-current line(s) of business or business model, or enter any new line(s) of business, or exit any then-current line of business;
(xii) Sell, transfer, assign, license, pledge or encumber technology or intellectual property of the Company, other than licenses granted in the ordinary course of business;
(xiii) Make any material (greater than 20% ownership) investment into, or enter into any joint venture with, or acquire, any third party, or acquire all or substantially all of any third partys assets, or otherwise enter into any corporate strategic relationship involving the payment, contribution or assignment by the Company or to the Company of assets greater than $100,000.00; or
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(xiv) Prepare or file for an initial public offering by the Company.
5.5 Board Matters . Unless otherwise determined by a Required Director Approval, the Board will meet at least quarterly. The Company will reimburse the nonemployee directors and representatives of Investors invited to attend meetings of the Board in a nonvoting observer capacity for all reasonable out-of-pocket travel expenses incurred (consistent with the Companys travel policy) in connection with attending meetings of the Board. Any committee of the Board will consist of the Series A Director and at least one (1) Series B Director, unless otherwise agreed by such affected director. Each of the Series B Director nominated by Foresite and the Series B Director nominated by Aisling Capital III, LP ( Aisling ) has the right to be on any committee.
5.6 Successor Indemnification . If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision will be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately before such transaction, whether such obligations are contained in the Companys Bylaws, its Restated Certificate, or elsewhere, as the case may be.
5.7 Termination of Covenants . The covenants set forth in this Section 5, except for Section 5.6, will terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act; or (iii) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.
5.8 Use of Proceeds from Sale of Series B Preferred Stock . The Company shall use an aggregate of not less than $7,500,000 of the proceeds from the sale of Series B Preferred Stock pursuant to the Purchase Agreement to repurchase shares of outstanding Series A Preferred Stock.
6. Miscellaneous .
6.1 Successors and Assigns . The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; (ii) is a Holders Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holders Immediate Family Members; or (iii) after such transfer, holds at least ten percent (10%) of the total outstanding shares of Registrable Securities previously held by the Holder; if (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Section 2.11. For the purposes
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of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holders Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holders Immediate Family Member will be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights will have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
6.2 Governing Law . This Agreement will be governed by the internal laws of the State of California, without regard to conflict of laws principles.
6.3 Counterparts . This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf) or other transmission method and any counterpart so delivered will be deemed to have been duly and validly delivered and be valid and effective for all purposes.
6.4 Titles and Subtitles . The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.
6.5 Notices . All notices and other communications given or made pursuant to this Agreement will be in writing and will be deemed effectively given upon the earliest of (a) personal delivery to the party to be notified, including delivery by a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt, or (b) when sent, if sent during normal business hours of the recipient, and if not sent during normal business hours, then on the recipients next business day, by electronic mail, or by facsimile if the party to whom such notice is sent shows a facsimile number below its signature hereon or if such party notifies all of the other parties, subsequent to the Effective Date, in the manner specified herein, of a facsimile number for such party, and in each case without failure of transmission. Notices hereunder may not be sent by mail . All communications will be sent to the respective parties at their address as set forth below their signature on the signature page hereof, or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 6.5. If notice is given to the Company, a copy will also be sent to Patrick A. Pohlen and Brian J. Cuneo, Latham & Watkins LLP, 140 Scott Drive, Menlo Park, CA 94025, facsimile [***], email [***] and [***].
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6.6 Amendments and Waivers . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the holders of at least a majority of the Registrable Securities then outstanding; provided that Section 5.4 and Section 5.5 may be amended or waived with written consent of each of Longitude, Foresite and Aisling (for so long as such Investor has designated a director to the Board); provided further that the Company may in its sole discretion waive compliance with Section 2.12(c) (and the Companys failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section 2.12(c) will be deemed to be a waiver); and provided further that any provision hereof may be waived by any waiving party on such partys own behalf, without the consent of any other party. Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction will be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction). The Company will give prompt 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 6.6 will be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, will be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
6.7 Severability . In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability will not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision will be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
6.8 Aggregation of Stock . All shares of Registrable Securities held or acquired by Affiliates will be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.
6.9 Additional Investors . Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of Preferred Stock after the date hereof, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter will be deemed an Investor for all purposes hereunder. No action or consent by the Investors will be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an Investor hereunder.
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6.10 Entire Agreement . This Agreement (including all Annexes hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties, or among certain of the parties, including without limitation the Prior Agreement, is expressly canceled as of the Effective Date.
6.11 Dispute Resolution . The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of California and to the jurisdiction of the United States District Court for the District of Northern California for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of California or the United States District Court for the District of Northern California, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above- named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER. HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL- ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL
6.12 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, will impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor will 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 will 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, will be cumulative and not alternative.
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6.13 Acknowledgment . The Company acknowledges that the Investors are in the business of venture capital investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises which may have products or services which compete directly or indirectly with those of the Company. Nothing in this Agreement will preclude or in any way restrict the Investors from investing or participating in any particular enterprise whether or not such enterprise has products or services which compete with those of the Company.
6.14 Counting Of Time . Whenever days are to be counted under this Agreement, the first day will not be counted and the last day will be counted, provided that if any day on which a period specified in this Agreement would otherwise terminate falls on a weekend or on a federal or Delaware or California State holiday, then that day will be ignored for purposes of counting time hereunder.
6.15 Several Liability . The obligations of the Investors will be several and not joint.
(Signature page follows)
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
ALLERGEN RESEARCH CORPORATION | INVESTORS : | |||||||
By: |
/s/ Stephen G. Dilly, Ph.D. |
FOOD ALLERGY RESEARCH & EDUCATION, INC. |
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Name: | Stephen G. Dilly, Ph.D. | |||||||
Title: | Chief Executive Officer | By: | /s/ James R. Baker, Jr. MD | |||||
Address: | 2000 Alameda de las Pulgas, | James R. Baker, Jr., MD | ||||||
Suite 161 | Chief Executive Officer | |||||||
San Mateo, CA 94403 | Address: Attention: James R. Baker, Jr., MD | |||||||
Facsimile: [***] |
515 Madison Avenue |
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Email: [***] |
Suite 1912 |
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New York, NY 10022 |
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Facsimile: [***] | ||||||||
Email: [***] | ||||||||
SUNSHINE CHARITABLE FOUNDATION | ||||||||
By: |
/s/ David R. Popovich |
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Name: David R. Popovich | ||||||||
Title: Director | ||||||||
Address: 225 East Deerpath Road | ||||||||
Suite 210 | ||||||||
Lake Forest, IL 60045 | ||||||||
Facsimile: [***] | ||||||||
Email: [***] | ||||||||
WINCHESTER PARTNERS, LP | ||||||||
By: |
/s/ Michael Sacks |
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Name: Michael Sacks | ||||||||
Title: Managing Member of Winchester Managers LLC, General Partner of Winchester Partners, LP | ||||||||
Address: 1850 Second Street | ||||||||
Suite 201 | ||||||||
Highland Park, IL 60035 | ||||||||
Facsimile: [***] Email: [***] |
JOHN J. HANNAN FAMILY TRUST | ||||||||
By: |
/s/ Judith Hannan |
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Name: Judith Hannan | ||||||||
Title: Trustee | ||||||||
Address: 1133 Fifth Avenue | ||||||||
New York, NY 10128 | ||||||||
Facsimile: [***] Email [***] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||||||||
LONGITUDE VENTURE PARTNERS II, L.P., A Delaware limited partnership |
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By: Longitude Capital Partners II, LLC, a Delaware limited liability company Its General Partner | ||||||||
By: |
/s/ Patrick Enright |
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Name: Patrick Enright | ||||||||
Title: Managing Member | ||||||||
800 El Camino Real, Suite 220 Menlo Park, CA 94025
Phone: [***] FAX: [***]
[***] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||||||||
EXPLORE HOLDINGS LLC | ||||||||
By: |
/s/ Paul Dauber |
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Name: Paul Dauber | ||||||||
Title: Manager | ||||||||
Address: Attention: Erica Derout | ||||||||
PO Box 94314 Seattle, WA 98124 Email: [***] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||||||||
FORESITE CAPITAL FUND II, L.P. | ||||||||
By: | Foresite Capital Management II, LLC, | |||||||
Its: | General Partner | |||||||
By: |
/s/ Dennis D. Ryan |
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Name: Dennis D. Ryan Title: CFO |
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Address: |
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Facsimile: [***] Email: [***] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||
AISLING CAPITAL III, LP | ||
By: |
/s/ Lloyd Appel |
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Name: Lloyd Appel Title: CFO |
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Aisling Capital III, L.P. 888 Seventh Avenue, 30 th Floor New York, NY 10106 Attn: Andrew Schiff Fax: [***]
and
Aisling Capital III, L.P. 888 Seventh Avenue, 30 th Floor New York, NY 10106 Attn: Chief Financial Officer Fax: [***]
with required copy to:
McDermott Will & Emery LLP 340 Madison Avenue New York, NY 10173-1922 Attn: Todd Finger Fax: [***] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||
PALO ALTO PE MASTER FUND, LP | ||
By: |
/s/ Joon Yun |
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Name: Joon Yun Title: General Partner |
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Address: |
Palo Alto Investors, LLC 470 University Ave |
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Facsimile: [***] Email: [***] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||
ADAGE CAPITAL PARTNERS, LP | ||
By: |
/s/ [illegible] |
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Name: |
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Title: |
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Address: |
200 Clarendon St., 52 nd Floor Boston, MA 02116 Attn: Dan Lehan, COO |
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Facsimile: |
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Email: | djl@adagecapital.com |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||
LEERINK HOLDINGS LLC | ||
By: |
/s/ Joseph R. Gentile |
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Name: Joseph R. Gentile Title: CAO |
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Address: |
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Facsimile: | [***] | |
Email: | [***] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||
LEERINK SWANN CO-INVESTMENT FUND, LLC | ||
By: |
/s/ Joseph R. Gentile |
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Name: Joseph R. Gentile Title: Manager |
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Address: |
1 Federal Street Boston, MA 02110 |
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Facsimile: |
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Email: |
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||
RA CAPITAL HEALTHCARE FUND, LP | ||
By: |
/s/ Peter Kolchinsky |
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Name: | Peter Kolchinsky | |
Title: | Manager | |
Address: |
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Facsimile: | [***] | |
Email: | [***] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||
FIDELITY SELECT PORTFOLIOS: | ||
BIOTECHNOLOGY PORTFOLIO | ||
By: |
/s/ Christopher Maher |
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Name: | Christopher Maher | |
Title: | Assistance Treasurer | |
Address: |
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Facsimile: |
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Email: |
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SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
INVESTORS : | ||
FIDELITY ADVISOR SERIES VII: FIDELITY ADVISOR BIOTECHNOLOGY FUND |
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By: |
/s/ Christopher Maher |
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Name: | Christopher Maher | |
Title: | Assistance Treasurer | |
Address: |
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Facsimile: |
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Email: |
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SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
ANNEX A
INVESTORS
Food Allergy Research & Education, Inc.
Sunshine Charitable Foundation
Winchester Partners, LP
John J. Hannan Family Trust
DFI 2012 Growth Partnership, L.P.
Adam Miller
Longitude Venture Partners II, L.P.
Explore Holdings LLC
Yap Finley Family Trust
Foresite Capital Fund II, L.P.
Fidelity Select Portfolios: Biotechnology Portfolio (Mag & Co.)
Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund (Bangle & Co.)
Aisling Capital III, LP
Palo Alto PE Master Fund, LP
Adage Capital Partners, LP
RA Capital Healthcare Fund, LP
Leerink Holdings LLC
Leerink Swann Co-Investment Fund, LLC
Exhibit 10.2
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
SUPPLY AGREEMENT
This Supply Agreement (the Agreement ) is entered into as of October 13, 2014 (the Effective Date ) by and between Allergen Research Corporation, a California corporation, having its principal place of business at 2000 Alameda de las Pulgas, Suite 161, San Mateo, California 94403 ( ARC ) and the Golden Peanut Company, LLC, a Georgia corporation, having its principal place of business at 100 North Point Center East, Suite 400, Alpharetta, Georgia 30022 (together with its Affiliates and subsidiaries, collectively Supplier ) . ARC and Supplier are referred to collectively as the Parties and individually as a Party .
RECITALS
WHEREAS ARC is engaged in the research and development of immunotherapy treatments directed at peanut allergies;
WHEREAS Supplier is in the business of supplying food-grade peanut flour; and
WHEREAS ARC desires to engage Supplier to supply quantities of Product, as defined below, to be incorporated into ARCs oral immunotherapy treatment for peanut allergies, and Supplier desires to provide such supply, pursuant to the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the above premises and the mutual covenants contained herein, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties hereto mutually agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS
When used in this Agreement, each of the following terms shall have the respective meanings provided below:
Section 1.1 Affiliate means any corporation, firm, partnership, or other entity that controls, is controlled by, or is under common control with a Party. For purposes of this definition, control shall mean the ownership of at least fifty percent (50%) of the voting share capital of such entity or any other comparable equity or ownership interest.
Section 1.2 Agreement Term shall have the meaning set forth in Section 5.1.
Section 1.3 Applicable Law means all laws, ordinances, rules, and regulations within the countries of the Territory applicable to the processing and supply of Product.
Section 1.4 Confidential Information has the meaning set forth in Section 7. below.
Section 1.5 Contract Year each individual year within the Supply Term.
Section 1.6 FDA means the U.S. Food and Drug Administration, or any successor thereto.
Section 1.7 Field means oral immunotherapy treatment for peanut allergy.
Section 1.8 First Delivery Date has the meaning set forth in Section 2.1 below.
Section 1.9 Force Majeure Event has the meaning set forth in Section 8.5 below.
Section 1.10 Initial Supply Term means the time period commencing upon the First Delivery Date and continuing in effect for a period of five (5) years.
Section 1.11 Minimum Annual Volume Commitment or MAV Commitment has the meaning set forth in Section 2.4 below.
Section 1.12 Product means food-grade peanut flour designated by Suppliers product code [***] , which [***] , or any equivalent thereof that ARC requests Supplier to supply.
Section 1.13 Purchase Order has the meaning set forth in Section 2.2 below.
Section 1.14 Renewal Term has the meaning set forth in Section 5.1 below.
Section 1.15 Specifications means the specifications for Product, attached hereto as Exhibit B, as may be amended from time to time by mutual agreement of the Parties.
Section 1.16 Supply Term means the time period commencing upon the first day of the Initial Supply Term and either ending upon the expiration of the Initial Supply Term or, if ARC exercises its option to renew the Agreement pursuant to Section 5.1 herein, ending upon the expiration of the Renewal Term.
Section 1.17 Territory means the United States of America, Canada, Mexico, the European Union (which shall include the member states of the European Union as of the Effective Date), and Japan, and any other country the Parties agree in writing to add to this definition of Territory in an amendment to this Agreement, along with any and all possessions and territories of the foregoing countries.
Section 1.18 Treatment means ARCs oral immunotherapy treatment for peanut allergies.
ARTICLE II
FORECASTS AND PURCHASING
Section 2.1 On or about ninety (90) days prior to ARCs requested date for its first delivery of Product for commercial use (the First Delivery Date), ARC shall provide Supplier with a forecast of its monthly anticipated quantities of Product for the twelve (12) month period commencing upon the First Delivery Date. The parties agree that the First Delivery Date is intended
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
to occur approximately one year prior to the date that ARC, in its good faith judgment, expects to receive approval of the Treatment from the FDA. Thereafter, by the end of each calendar quarter, ARC shall update this forecast to cover the twelve (12) month period beginning with the next calendar quarter. For each forecast, the Product quantities set forth for the first quarter (three (3) calendar months) of the forecast period shall be binding and the Product quantities set forth for the remaining nine months of the forecast period shall be non-binding but shall represent ARCs best estimate of such Product quantities, using commercially reasonable efforts. For the first forecast only, the time from the First Delivery Date to the end of the then-current calendar quarter shall be added to and considered part of the first full calendar quarter of the first forecast and shall be binding. For clarity, if ARC reasonably expects to receive FDA approval of the Treatment on May 10,2017, (i) the First Delivery Date shall be May 10, 2016, (ii) ARC shall provide the first forecast to Supplier on or about February 10, 2016, (iii) the first quarter of the first forecast shall begin on May 10, 2016 and end on September 30, 2016, (iv) the second quarter of the first forecast shall begin on October 1, 2016, and (v) the first twelve (12) month forecast period shall end on June 30, 2017. For the avoidance of doubt, prior to the First Delivery Date, ARC may order small quantities of Product from Supplier for non-commercial use (including but not limited to conducting clinical trials), and in no event shall the date of any such order or the delivery date of any such order be considered the First Delivery Date.
Section 2.2 Together with the submission of each forecast, ARC shall submit a purchase order specifying the requested delivery dates for the quantities of Product ARC is committing to order in the first quarter of such forecast (each, a Purchase Order ) . Supplier shall accept all Purchase Orders for a given calendar quarter that are submitted in compliance with this Agreement. At ARCs discretion, ARC may purchase additional quantities of Product in excess of the quantities in the forecast for such quarter.
Section 2.3 ARC agrees to purchase from Supplier its total requirements for Product during the Agreement Term, provided that Supplier continues to (i) supply ARC with Product conforming to the Specifications, and (ii) deliver Product conforming to the Specifications to ARC in such quantities and at such times as required by ARC. In the event that Supplier does not, or is unable to, meet its obligations as set forth in (i) and (ii) above, ARC shall be free to purchase Product from third parties, in amounts sufficient to meet ARCs requirements, until such time as Supplier resumes supply of Product to ARC meeting such obligations.
Section 2.4 ARC hereby agrees to purchase the following minimum annual volumes of Product conforming to the Specifications during the Supply Term ( Minimum Annual Volume Commitment or MAV Commitment ) :
Contract Year |
Minimum Annual Volume | |
[***] |
[***] |
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
ARTICLE III
SUPPLY AND DELIVERY
Section 3.1 During the Agreement Term, Supplier shall supply to ARC Product conforming to the Specifications, and produced in accordance with Applicable Law and with the terms and conditions of this Agreement, at the prices set forth in Article IV herein.
Section 3.2 Supplier shall maintain sufficient inventories of Product conforming to the Specifications to meet ARCs requirements therefor.
Section 3.3 Subject to ARCs satisfying the conditions set forth in Section 2.3 and Section 2.4 above, Supplier hereby agrees that it shall cease any and all sales of Product to third parties in the Territory who Supplier knows or has reason to know will use the Product within the Field, and shall not sell Product to any such third party in the Territory during the Agreement Term. In the event that Supplier becomes aware, whether by notification from ARC or otherwise, that a third party to which Supplier has been supplying Product intends to use such Product within the Field, Supplier shall immediately cease all sales of Product to such Third Party and shall not resume such sales for the remainder of the Agreement Term.
Section 3.4 Supplier shall ship the Product FOB (lncoterms 2010) Blakely, Georgia. Title in the Product shall pass to ARC when the Product is loaded on the first transportation carrier.
Section 3.5 In the event that Supplier either (a) delivers Product that fails to conform to the Specifications, or (b) fails to ship Product to ARC within thirty (30) days of the applicable delivery date specified on a Purchase Order accepted by Supplier, ARC shall have the right, in its sole discretion, to require either (a) a refund of the purchase price paid for the non-conforming or undelivered Product, as applicable, or (b) the prompt replacement or delivery of such non- conforming or undelivered Product.
ARTICLE IV
PRICING AND PAYMENT TERMS
Section 4.1 The price for Product conforming to the Specifications shall be equal to [***] percent ( [***] %) of [ ***] price for such Product, attached hereto as Exhibit A. The Product price does not include any applicable excise, sales, use, withholding, luxury, turnover (value added), purchase, or similar tax of any kind. ARC shall be liable for payment of all such taxes, fees, and charges.
Section 4.2 ARC hereby acknowledges that Supplier may, from time to time, make changes to its [ ***] price for Product; provided, however, that (i) any such price changes shall not go into effect until January 1 of the following year and shall apply only to Purchase Orders submitted after that date, and (ii) in no event shall Supplier make any changes to the price of Product after November 1 of any year during the Supply Term. The foregoing shall not apply to Section 4.4 herein.
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
Section 4.3 Supplier shall invoice ARC for amounts due promptly after each delivery. All invoices shall be due and payable thirty (30) days from the date of the applicable invoice;
provided, however, that Supplier may change the foregoing time period upon advance written notice to ARC in the event that ARCs credit or financial responsibility has become, in Suppliers discretion, unsatisfactory. In the event any payments become past due, such overdue amounts shall be subject to interest accrued at an annual rate equal to the maximum interest rate permitted by law.
Section 4.4 In the event that ARC fails to satisfy the applicable MAV Commitment in a given Contract Year, Supplier shall (i) be relieved of the obligations set forth in Section 3.3 herein, and (ii) have the option to renegotiate the Product pricing applicable to ARC.
ARTICLE V
TERM AND TERMINATION
Section 5.1 The term of the Agreement will commence as of the Effective Date and, unless earlier terminated pursuant to this Article 5, shall continue until the expiration of the Initial Supply Term ( Agreement Term ) . Upon expiration of the Initial Supply Term, ARC shall have the option to renew the Agreement for an additional term of five (5) years by written notice to Supplier provided prior to the expiration of the Initial Supply Term (the Renewal Term ) , in which case the Agreement Term shall continue until expiration of the Renewal Term, unless earlier terminated pursuant to this Article 5, provided that ARCs option for a Renewal Term shall be void if ARC has not complied with the terms and conditions set forth in this Agreement, including but not limited to ARCs satisfaction of the MAV Commitments set forth in Section 2.4.
Section 5.2 ARC may terminate the Agreement at will at any time, for any reason, upon sixty (60) days advance written notice to Supplier.
Section 5.3 Supplier may terminate this Agreement in its entirety upon sixty (60) days advance written advance in the event that ARC fails to satisfy the applicable MAV Commitment in a given Contract Year in any material respect, unless ARC pays to Supplier at any time prior to the expiration of such sixty (60) day period, an amount equal to the difference between the volume of Product that would have been purchased if ARC met the MAV Commitment in such Contract Year, and the volume of Product actually purchased by ARC in such Contract Year, multiplied by Suppliers [***] price for Product.
Section 5.4 This Agreement may be terminated in its entirety by either Party immediately upon written notice upon the occurrence of any of the following events:
(a) A Partys material breach of any representation, warranty, covenant, or obligation contained in this Agreement (other than with respect to the MAV Commitment) that is not excused by a Force Majeure Event and is not cured within thirty (30) days of receiving written notice from the non-breaching Party setting forth the details of such breach;
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
(b) Due to a Force Majeure Event, a Party fails to fulfill any of its obligations under this Agreement for a continuous period of ninety (90) days or more; or
(c) The other Party (i) becomes insolvent, (ii) makes an assignment for the benefit of creditors, (iii) files a voluntary petition in bankruptcy, (iv) an involuntary petition inbankruptcy filed against it and is not dismissed within ninety (90) days of filing, or (v) has a receiver appointed for a substantial portion of its assets.
Section 5.5 Upon termination or expiration of this Agreement, Supplier shall (i) fulfill any Purchase Orders accepted prior to such termination or expiration, if such termination is not due to ARCs material breach or failure to meet the MAV Commitment, (ii) cease any ongoing production of Product intended for fulfillment of any subsequent purchase orders expected pursuant to forecasts received prior to such termination or expiration, and (iii) limit further expenses associated with such ongoing production. Following any termination or expiration of this Agreement, ARC shall be liable for the following (as invoiced by Supplier): (i) all orders produced or in production on behalf of ARC pursuant to a Purchase Order, (ii) all expenses incurred or committed by Supplier on ARCs behalf.
Section 5.6 Expiration or termination of this Agreement shall be without prejudice to any rights or obligations that accrued to the benefit of either Party prior to such expiration or termination, including without limitation ARCs payment obligations to Supplier. Termination of this Agreement for any reason shall not affect any obligations which, from the context hereof, are intended to survive termination of this Agreement.
ARTICLE VI
REPRESENTATIONS, WARRANTIES, AND COVENANTS
Section 6.1 Supplier represents, warrants, and covenants as follows:
(a) All Product delivered hereunder shall, at the time of shipment, be free and clear of any liens or encumbrances, and shall conform to the Specifications;
(b) All Product delivered hereunder shall be produced in compliance with all Applicable Laws, including without limitation the Fair Labor Standards Act of 1938, as amended; and
(c) To Suppliers knowledge, the manufacture, use and sale of the Product does not and will not infringe upon any third partys intellectual property.
Section 6.2 ARC represents, warrants and covenants that the Product will be used by it in a manner that complies with the laws, rules, and regulations of any governmental regulatory authority within the Territory involved in regulating any aspect of the development, manufacture, market approval, sale, distribution, packaging, or use of drug products, including, but not limited to, the FDA, the Canadian Health Products and Food Branch, and The European Agency for the Evaluation of Medicinal Products.
Section 6.3 Each Party represents, warrants, and covenants that, as of the Effective Date, it:
(a) is a corporation duly organized and validly existing and in good standing under the laws of its jurisdiction of the organization;
(b) is qualified or licensed to do business and in good standing in every jurisdiction where such qualification or licensing is required;
(c) has the corporate power and authority to negotiate, execute, deliver, and perform its obligations under this Agreement;
(d) has no obligations or commitments to third parties inconsistent or in conflict with this Agreement and, during the Agreement Term, will not enter into any obligations or commitments to third parties inconsistent with or in conflict with this Agreement; and
(e) has secured all consents and authorizations necessary to enter into this Agreement and proceed with the undertakings required herein and the execution, delivery and performance of this Agreement have been duly and validly authorized.
Section 6.4 For the avoidance of doubt, it is ARCs sole responsibility to determine the suitability of the Product for use in the Field and Supplier shall have no responsibilities in relation thereto hereunder.
Section 6.5 EXCEPT AS EXPRESSLY PROVIDED HEREIN, SUPPLIER EXPRESSLY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED, OR STATUTORY, AS TO ANY GOODS DELIVERED IN CONNECTION WITH THIS AGREEMENT, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE VII
CONFIDENTIALITY
Section 7.1 The terms of this Agreement and any confidential or proprietary information or trade secrets disclosed by either Party to the other prior to or during the Agreement Term (collectively, the Confidential Information ) shall be treated as confidential.
Section 7.2 Except as expressly permitted under this Agreement, each Party agrees that, during the Agreement Term, and for a period of five (5) years thereafter, it shall:
(a) Use the Confidential Information only for the purpose of satisfying its obligations under this Agreement; and
(b) Not disclose the Confidential Information to any third party.
Section 7.3 The restrictions in this Article VII shall not apply to any Confidential Information the receiving Party can demonstrate:
(a) is or has become publicly available through no fault of the receiving Party or its employees;
(b) is received from a third party lawfully in possession of such information and lawfully empowered to disclose such information;
(c) was rightfully in the possession of the receiving Party prior to its disclosure by the disclosing Party, as evidenced by written records of the receiving Party; or
(d) is independently developed by employees or consultants of the receiving Pa1ty without use of Confidential Information of the disclosing Party, as evidenced by written records of the receiving Party.
Section 7.4 Notwithstanding the foregoing, each Party may disclose the other Partys Confidential Information to any of its Affiliates, officers, directors, employees, agents, and representatives, that (i) need to know such Confidential Information for the purpose of performing under this Agreement, (b) are advised of the contents of this Article, and (c) are bound by confidentiality and non-use obligations equivalent to those in this Article VII. Additionally, each Party may disclose the other Partys Confidential Information to the extent the other Party provides its written consent to such disclosure, such consent not to be unreasonably withheld.
Section 7.5 Notwithstanding the foregoing, the receiving Party may disclose Confidential Information pursuant to the lawful requirement or request of a governmental agency or otherwise required to be disclosed by law, rule, regulation, or rules of a securities exchange, provided that where available, reasonable measures are taken to obtain confidential treatment thereof and to guard against further disclosure, and further provided that where practicable, reasonable written notice is provided to the disclosing Party to enable the disclosing Party to seek protection of the confidentiality of such Confidential Information, with which the receiving Party shall assist in any reasonable way.
Section 7.6 Upon termination or expiration of this Agreement, the receiving Party shall cease all use of the Confidential Information of the disclosing Party (except as otherwise provided in this Agreement) and, upon request, shall either (a) promptly return within thirty (30) days all such Confidential Information, including any copies thereof, or (b) promptly destroy all such Confidential Information and certify such destruction to the disclosing Party; provided, however, that the receiving Party may retain a single copy thereof for the sole purpose of determining the scope of the obligations incurred under this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Assignment or Transfer . Neither Party may assign this Agreement or any of its rights and obligations thereunder without the prior written consent of the other Party, which consent shall not be unreasonably withheld; provided, however, that either Party may assign its rights and obligations under the Agreement to an Affiliate or subsidiary of such Party, and further provided that either party may assign this Agreement to any party that acquires either all or substantially all of the stock of such party or such partys assets and operations related to the purpose of this Agreement. Any assignments or transfers in violation of this Section 8.1 shall be void. This Agreement shall be binding on any successors or assignees authorized by this Section 8.1.
Section 8.2 Indemnification; Limitations of Liability . Each Party shall indemnify, defend, and hold harmless the other party from and against any loss, liability, claim, or action (whether or not meritorious), to persons, property, or third parties (Loss), to the extent that such Loss (a) arises out of the breach of any of the warranties set forth in this Agreement; or (b) was caused by the negligence or intentional wrongdoing of the indemnifying party or its agents, subcontractors, or Affiliates. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY UNDER THIS AGREEMENT FOR ANY INDIRECT, CONSEQUENTIAL, PUNITIVE, SPECIAL, OR INCIDENTAL DAMAGES.
Section 8.3 Insurance . During the Agreement Term, each Party shall maintain workers compensation insurance with limits of not less than two million ($2,000,000) dollars per occurrence and two million ($2,000,000) dollars in the aggregate, and commercial general liability insurance with limits of not less than one million ($1,000,000) dollars per occurrence and two million ($2,000,000) dollars in the aggregate.
Section 8.4 Expenses . Each Party shall be responsible for any costs and expenses, including professional fees, that such Party incurs in connection with performing its obligations under this Agreement.
Section 8.5 Force Majeure . If a Party is delayed in fulfilling any of the terms and conditions hereunder due to acts of God, war, prohibitions on exports or imports, fires, floods, strikes, sabotage, civil commotion or riots, earthquakes, or any other cause beyond such Partys reasonable control (each a Force Majeure Event ), time for such performance by such Party shall be extended by the period of time equal to that caused by such delay in performance. Once the Force Majeure Event ceases to exist, all terms and conditions of this Agreement will again prevail. The foregoing is subject to the right of termination set forth in Section 5.4(b) herein.
Section 8.6 Nature of Relationship . Nothing in this Agreement shall be deemed or construed to constitute or create between the Parties hereto a partnership, joint venture or agency. Neither ARC nor Supplier shall engage in any conduct that might create the impression or inference that ARC or Supplier, as applicable, is a partner, joint venturer, or officer of the other. Supplier hereby certifies that it is engaged in an independent business and will perform its obligations under this Agreement as an independent contractor and not as the agent or employee of ARC.
Section 8.7 Separability of Clauses . Any provision or provisions of this Agreement that in any way contravene the law of any state or country in which this Agreement is effective shall, in such state or country, to the extent of such contravention of law, be deemed separable and shall not affect any other provisions hereof or the validity hereof.
Section 8.8 Notices . All notices and other communications hereunder shall be in writing and sent to the applicable address set forth below, or to another address if specified by
Zlike notice, and shall be deemed given when, as applicable: (a) delivered personally; (b) delivered by facsimile transmission (receipt verified); or (c) received or refused, if mailed by registered or certified mail (return receipt requested), postage prepaid, or reliable overnight courier service; provided, however, that notices of a change of address shall be effective only upon receipt thereof:
If to ARC: | Allergen Research Corporation | |
2000 Alameda de las Pulgas, Suite 161 | ||
San Mateo, CA 94403 | ||
Attn: Howard V. Raff, Ph.D. | ||
Fax: (650) 393-5471 | ||
If to Supplier: | Golden Peanut Company, LLC, | |
100 North Point Center East, Suite 400 | ||
Alpharetta, GA 30022 | ||
Attn: President | ||
Fax: (770) 752-8209 |
Section 8.9 Entire Agreement . This Agreement, together with all attachments hereto, sets forth the entire agreement and understanding between the Parties on the subject matter thereof, and merges all prior discussions and negotiations between them. Neither of the Parties shall be bound by any conditions, definitions, representations, or warranties with respect to the subject matter of this Agreement other than as expressly provided herein or as duly set forth on or subsequent to the date hereof in a writing signed by duly authorized representatives of both Parties. This Agreement cannot be modified or amended through statements appearing on any Purchase Order or invoice.
Section 8.10 Governing Law . This Agreement and its formation, operation, and performance shall be governed, construed, performed, and enforced in accordance with the substantive laws of the State of Illinois, without regard to its conflict of laws principles. Exclusive jurisdiction for litigation of any dispute, controversy, or claim arising out of or in connection with this Agreement, or breach thereof shall be only in the Federal or State court with competent jurisdiction located in Cook County, Chicago, Illinois.
Section 8.11 Paragraph Headings . Paragraph headings have been inserted solely for the convenience of the Parties and shall not be considered a part of this Agreement for interpretation or construction.
Section 8.12 Publicity . Neither Party shall use the other Partys name or trademarks in any advertising, promotional efforts, or publicity of any kind without the prior written permission of such Party, except as required under Applicable Law, in which case the Party required to make the press release or public disclosure shall use commercially reasonable efforts to obtain the approval of the other Party as to the form, nature, and extent of the press release or public disclosure prior to issuing the press release or making the public disclosure.
Section 8.13 Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. Any photocopy, facsimile or electronic reproduction of the executed Agreement shall constitute an original.
Section 8.14 Waiver . No waiver of any provision of this Agreement or any right or obligation of a Party shall be effective unless in writing and signed by the Parties. The failure of either Party to enforce a right shall not constitute a waiver.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date.
SUPPLIER: | ARC: | |||||||
By: |
/s/ Kris Luft |
By: |
/s/ Stephen Dilly |
|||||
Name: | Kris Luft | Name: | Stephen Dilly | |||||
Title: | President | Title: | C.E.O. |
EXHIBIT A
Pricing
See Section 4.1
Exhibit A-1
SPECIALTY PRODUCTS
PRICE LIST
[***] PEANUT FLOUR [***]
Product Codes: [ *** ]
VOLUME: |
PER POUND |
|||
[***] | $[***] |
PACKAGING: | 50 lb. (22.68 kilo) multiwall paper bags 40 bags (2,000 lbs.) / pallet | |||
FREIGHT CONDITIONS: | Freight collect. F.O.B. Blakely, GA 39823 | |||
TERMS: | Net 30 days with approved credit | |||
SAMPLE SIZE: | 1 lb. {0.45 kg) | |||
[***] | 01 /14 |
|
100 North Point Center East Suite 400 Alpharetta, Georgia 30022 (770) 752-8190 (770) 752-8209 Fax www.goldenpeanut.com |
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
EXHIBIT B
Product Specifications
SPECIALTY PRODUCTS
[***] PEANUT FLOUR [***]
Product Code [***]
DESCRIPTION:
[***] Peanut Flour is made from high oleic raw peanuts, which have been cleaned, blanched, and electronically sorted to select the highest quality peanuts. The nuts are then roasted and processed through a natural process to obtain a peanut flour with a controlled fat content. Peanut flour is gluten-free. High oleic peanuts are much more stable than traditional peanuts resulting in a more stable peanut flour.
|
100 North Point Center East Suite 400 Alpharetta, Georgia 30022 (770) 752-8190 (770) 752-8209 Fax www.goldenpeanut.com |
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
Exhibit 10.3
OFFICE LEASE
by and between
Diamond Marina LLC, a California limited liability company,
and Diamond Marina II LLC, a California limited liability
company
as Landlord
and
Allergen Research Corporation, a Delaware Corporation, as Tenant
8000 Marina Boulevard
Brisbane, California 94065
February 23, 2015
OFFICE LEASE
THIS LEASE is entered into as of February 23, 2015 (the Effective Date ) by and between DIAMOND MARINA LLC, a California limited liability company, and DIAMOND MARINA II LLC, a California limited liability company (collectively Landlord), and Allergen Research Corporation, a Delaware Corporation (Tenant).
1. BASIC LEASE INFORMATION. The following is a summary of basic lease information. Each item in this Article 1 incorporates all of the terms set forth in this Lease pertaining to such item and to the extent there is any conflict between the provisions of this Article 1 and any other provisions of this Lease, the other provisions shall control. Any capitalized term not defined in this Lease shall have the meaning set forth in the Glossary that appears at the end of this Lease.
Building: | 8000 Marina Boulevard | |
Brisbane, California 94005 | ||
Premises and Rentable Area: | Suite 300, located on a portion of the Third Floor of the Building, consisting of approximately 11,665 square feet of Rentable Area. A Floor Plan of the Premises is included with this Lease and attached hereto as Exhibit A. | |
Term: | The Term is Fifty-One (51) Months, or as extended under Tenants Renewal Option (Section 4.4) | |
Scheduled Date for Delivery of the Premises: | May 1, 2015. | |
Commencement Date: | The Lease shall commence upon the later of (i) Landlords substantial completion of the Tenant Improvement Work and delivery of the Premises to Tenant {which date must be a Business Day), or ii) the Scheduled Date for Delivery of the Premises. | |
Expiration Date: | The Expiration Date is the last day of the Term, or as extended under Tenants Renewal Option (Section 4.4). | |
Tenant Improvements: | Pursuant to Section 9.1, Landlord at Landlords expense shall perform Tenant Improvement Work pursuant to the terms of the Work Letter attached hereto as Exhibit E. |
Base Rent Rate Schedule: | The Rent Commencement Date is the Commencement Date, and the Base Rent shall be paid by Tenant based on the following schedule: |
Period |
Monthly Base
Rent Rate |
Monthly Base
Rent |
||||||
Months 1-12 |
$ | 3.25 | $ | 37,911 | ||||
Months 13-24 |
$ | 3.35 | $ | 39,078 | ||||
Months 25-36 |
$ | 3.45 | $ | 40,244 | ||||
Months 37-48 |
$ | 3.55 | $ | 41,411 | ||||
Months 49-51 |
$ | 3.66 | $ | 42,694 |
Abated Rent: | The first three (3) months of Base Rent shall be fully abated. | |
Tenants Pro Rata Share: | The Premises contains approximately 5.8% of the Rentable Area of the Building. | |
Base Year: | Calendar Year 2015 | |
Security Deposit: | $85,388 | |
Parking: | That number of parking spaces available for Tenants use is determined by multiplying Tenants Pro Rata Share by the total number of parking spaces then available upon the Property available on an unassigned and unreserved basis, which is thirty-eight (38) parking spaces as of the Effective Date. That number shall not be reduced unless it is by a pro rata amount affecting all tenants proportionately. | |
Use: | General office and administrative uses consistent with Class A office buildings. | |
Normal Business Hours: | 7:00 a.m. to 6:00 p.m. on each Business Day. | |
Addresses for Notice: | ||
Landlord: |
Diamond Marina LLC & Diamond Marina II LLC | |
2000 Sierra Point Parkway, Suite 100 | ||
Brisbane, CA 94005 | ||
Attention: Stephen P. Diamond |
with a copy to: |
Kent Mitchell, Esq. | |
Law Office of Mitchell Herzog | ||
550 Hamilton Avenue, Suite 230 | ||
Palo Alto, CA 94301 | ||
Tenant: |
On and after the Commencement Date, notices shall be sent to Tenant at the Premises. Prior to the Commencement Date, notices shall be sent to Tenant at the following address: | |
Allergen Research Corporation | ||
2000 Alameda de las Pulgas, Suite 161 | ||
San Mateo, CA 94403 | ||
Attention: Howard Raff | ||
Brokers: | Newmark Cornish & Carey (Landlords Broker) | |
CBRE (Tenants Broker) | ||
Rent (defined in Section 5.2) is payable to the order of Landlord at the following address: | ||
2000 Sierra Point Parkway, Suite 100 | ||
Brisbane, CA 94005 | ||
Or wire funds to: | ||
[***] | ||
ABA Routing #: [***] | ||
Account #: [***] | ||
Credit: [***] |
2. PREMISES
2.1. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord for Tenants own use in the conduct of Tenants business and not for purposes of speculating in real estate, for the Term and upon the terms and subject to the conditions of this Lease, that certain interior space described in Article 1 as the Premises, reserving and excepting to Landlord (a) such access as may be required (including but not limited to elevator access) by Landlord to the Building roof and heating, ventilating, air conditioning, ducting, cabling systems, and other Building Systems, (b) the right to place additional vertical penetrations in the Premises as needed for heating, ventilating, air conditioning, ducting, cabling, and other Building Systems, and (c) the right to access the Premises for the management of the Property and fulfillment of Landlords duties and obligations under this Lease. Tenants lease of the Premises, together with the appurtenant right to use the Common Areas as described in Paragraph 2.2 below, shall be conditioned upon and be subject to the continuing compliance by Tenant with (i) all the terms and conditions of this Lease, (ii) all Applicable Laws governing the use of the Premises and the Property, (iii) all private restrictions, easements and other matters now of public record respecting the use of the Premises and Property, and (iv) all reasonable rules and regulations from time to time established by Landlord. The building in which the Premises is located is sometimes referred to herein as the Building.
2.2. Common Area. Landlord hereby grants to Tenant and its employees, agents, contractors and invitees (collectively, Tenants Agents) a non-exclusive license to use the public areas, sidewalks, driveways, parking areas and other public amenities (the Common Area) associated with the Premises during the Term. Together, the Premises, the Building and the Common Area are sometimes referred to in this Lease as the Property. Tenants rights to the Common Area shall be subject to the Rules and Regulations described in Section 23.1 and to Landlords reserved rights described in Article 16.
2.3. Parking. Throughout the Term of this Lease, and any extensions thereof, Tenant shall have the right to use the number of parking spaces specified in Article 1, at no additional cost to Tenant. Tenants license shall not be assigned, sublet or otherwise transferred separately from the Premises. Tenant agrees that neither Tenant nor Tenants Agents shall use parking spaces in excess of the number of spaces allocated to Tenant or in areas designated for other uses. Landlord shall have the right, at Landlords sole discretion, to specifically designate the location of Tenants parking spaces within the parking areas of the Common Area, and Tenants designated parking spaces (if any) may be relocated by Landlord from time to time upon written notice. Tenant shall not at any time park, or permit the parking of the trucks or vehicles of Tenant or Tenants Agents in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park nor permit to be parked any inoperative vehicles or store any materials or equipment on any portion of the parking area or other areas of the Common Area. Tenant agrees to assume responsibility for compliance by Tenants Agents with the parking provisions contained in this Section. Tenant hereby authorizes Landlord at Tenants expense to attach violation stickers or notices to such vehicles not parked in compliance with this Section and to tow away any such vehicles. In addition, Landlord may set a specific section of the parking area aside for visitor or specially assigned parking for the Property.
2.4. Fitness Center. Tenants employees may use the existing fitness center facilities located in 2000 Sierra Point Parkway (Fitness Center) on a non-exclusive basis at no charge during the Term, subject to the Rules and Regulations, so long as Landlord operates the Fitness Center as part of the Common Area.
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2.5. Conference Center. Subject to Landlords reserved rights described in Article 16, Tenant may utilize the Conference Center in 2000 Sierra Point Parkway subject to the Rules and Regulations for Landlords standard charge, so long as Landlord operates the Conference Center as part of the Common Area.
3. ACCEPTANCE
Except for the Tenant Improvement Work pursuant to Section 9.1 and Exhibit E, Tenant accepts the Premises as furnished by Landlord, which consist of the improvements as they exist as of the Effective Date in their existing as-is condition, and Landlord shall have no obligation for construction work or improvements on or to the Premises, the Building or the Common Area. Prior to entering into this Lease, Tenant has made a thorough and independent examination of the Property and all matters related to Tenants decision to enter into this Lease. Tenant is thoroughly familiar with all aspects of the Property and is satisfied that it is in an acceptable condition and meet Tenants needs. Tenant does not rely on, and Landlord does not make, any express or implied representations or warranties as to any matters including, without limitation, (a) the physical condition of the Property, the Building Structure, or the Building Systems, (including, without limitation, indoor air quality), (b) the existence, quality, adequacy or availability of utilities serving the Property, (c) the use, habitability, merchantability, fitness or suitability of the Premises for Tenants intended use, {d) the likelihood of deriving business from Tenants location or the economic feasibility of Tenants business, (e) Hazardous Materials in the Premises, or on, in under or around the Property, (f) zoning, entitlements or any laws, ordinances or regulations which may apply to Tenants use of the Premises or business operations, or (g) any other matter. Tenant has satisfied itself as to such suitability and other pertinent matters by Tenants own inquiries and tests into all matters relevant in determining whether to enter into this Lease. Tenant shall, by entering into and occupying the Premises, be deemed to have accepted the Premises and to have acknowledged that the same are in good order, condition and repair. Upon the Commencement Date, Tenant shall execute and deliver to Landlord the Acceptance Form attached hereto as Exhibit D.
4. TERM
4.1. Term. The Premises are leased for a term (the Term) commencing on the Commencement Date and expiring upon the completion of the Term, or such earlier date on which this Lease terminates pursuant to its terms. The date upon which this Lease actually terminates, whether by expiration of the Term or earlier termination pursuant to the terms of this Lease, is sometimes referred to in this Lease as the Termination Date. Upon delivery of possession, Landlord shall specify in a written notice to Tenant, substantially in the form of Exhibit B , the Commencement Date, Rent Commencement Date and Expiration Date of this Lease. Such notice shall be delivered promptly after all of the information set forth in the notice has been determined; provided that Landlords failure to do so shall not in any way affect either partys rights or obligations under this Lease.
4.2. Failure to Deliver Possession. If for any reason Landlord cannot deliver possession of the Premises or any part thereof to Tenant on or prior to the Scheduled Date for Delivery of the Premises, then the validity of this Lease and the obligations of Tenant under this
Lease shall not be affected and Tenant shall have no claim against Landlord arising out of Landlords failure to deliver possession of the Premises on the Scheduled Date for Delivery of the Premises. In the event Landlord has not delivered the Premises or any part thereof to Tenant with the Tenant Improvement Work substantially complete within ninety (90) days after the Scheduled Date for Delivery of the Premises, and provided that said failure to deliver is not due to action or inaction by Tenant, Tenant shall have the right to terminate this Lease solely with respect that that part of the Premises not Delivered by delivery to Landlord of a termination notice (the Termination Notice) which shall be effective ninety (90) days after receipt by Landlord, unless within such 90-day period the Premises are delivered to Tenant. In the event Tenant elects to terminate this Lease, Tenant must deliver the Termination Notice to Landlord prior to the date the Premises or the part thereof are delivered to Tenant. Upon such termination, neither party shall have any further obligation or liability to the other under this Lease with respect to that part of the Premises.
4.3. Early Possession. Provided that Tenant shall not interfere with Landlords construction of Tenant Improvements, Tenant shall have at least fourteen (14) days prior to the delivery of the Premises to furnish the Premises with its furniture, fixtures, and equipment. Such early possession shall be subject to the terms and conditions of this Lease, provided that Tenant shall not be obligated to pay Rent (defined in Section 5.2.) except for the cost of services requested by Tenant (e.g. HVAC use).
4.4. Renewal Option. Tenant shall have one (1) option (the Renewal Option) to extend the Term of the Lease for the entire Premises then being leased to Tenant. The Renewal Option shall be for a three-year term (the Renewal Term). The Renewal Term shall commence on the day after the Expiration Date. The Renewal Option shall be void if a default by Tenant exists, either at the time of exercise of the Renewal Option or the time of commencement of a Renewal Term. The Renewal Option must be exercised, if at all, by written notice from Tenant to Landlord given not more than twelve (12) months and not less than nine (9) months prior to the expiration of the Term. The Renewal Term shall be upon the same terms and conditions as the original Term, except that (a) the Base Rent payable pursuant to Section 4.1 with respect to the Renewal Term shall be equal to the greater of (i) the then current Base Monthly Rent, or ii) Prevailing Market Rent as of the commencement of the Renewal Term, as determined pursuant to Exhibit C; (b) the Base Rent shall escalate over the Renewal Term annually thereafter by 3% per annum; (c) Tenant shall not be entitled to any tenant improvement allowance during the Renewal Term; and (d) from and after the exercise of the Renewal Option, (i) all references to Expiration Date shall be deemed to refer to the last day of the Renewal Term, and (ii) all references to Term shall be deemed to include the Renewal Term. The Renewal Option is personal to Tenant and shall be inapplicable and null and void if Tenant assigns or sublets at least 50% of its interest under this Lease or if the Tenant is not occupying at least 50% of the Premises.
4.5. Substitution of Space.
(a) Landlord reserves the right upon one hundred twenty (120) days written notice to Tenant to substitute other premises (the Substituted Premises) for the Premises, solely for the purpose to relocate Tenant for a transaction that is equal to or greater than 100,000 rentable square feet.
(b) The Substituted Premises shall consist of any other comparable space in the Building or at 2000 Sierra Point Parkway, Brisbane, provided that the Substituted Premises is substantially similar in size to the Premises, is located on the 3rd floor or higher of
the building, and the Tenant can accommodate Tenants intended use and headcount, with a similar number of private offices and other rooms. The monthly Base Rent for the Substituted Premises shall be at the per rentable square foot rental rate set forth in Section 1 times the rentable area of the Substituted Premises, but in no event will the monthly Base Rent exceed $37,911, as escalated through the term. All other provisions of this Lease shall remain in full force and effect with respect to the Substituted Premises.
(c) Landlord shall pay all costs and expenses of Tenant incidental to the relocation of Tenant to such Substituted Premises, including but not limited to, the moving expenses and all reasonable costs associated with reinstallation of Tenants furniture, telephones, computers and related IT equipment/infrastructure, and security equipment/infrastructure; provided, however, that Tenant shall not be entitled to any compensation for damages for any interference with or interruption of its business during or resulting from such relocation. There shall be no abatement of rent payable hereunder or on account of Tenants relocation or any recovery for inconvenience or business loss caused to Tenant thereby.
(d) Tenant shall have the right to refuse to relocate to the Substituted Premises meeting the foregoing requirements by providing written notice to Landlord within thirty (30) days of receiving Landlords notice to substitute the Premises; in such event, Landlord shall have the right to terminate this Lease upon written notice to Tenant, and the new Lease expiration date shall the later of i) that date that the relocation out of the current Premises was to be completed under Landlords original notice to Tenant, or ii) one hundred and twenty (120) days from Landlords notice to terminate the Lease.
5. RENT
5.1. Base Rent. Commencing upon the Rent Commencement Date, and thereafter during the Term, Tenant shall pay to Landlord the monthly Base Rent specified in Article 1 on or before the first day of each month, in advance, at the address specified for Landlord in Article 1, or at such other place as Landlord designates in writing, without any prior notice or demand and without any deductions or setoff whatsoever (except as otherwise expressly provided in this Lease). Tenant shall pay the first months rent in advance, upon execution of this Lease. If the Rent Commencement Date occurs on a day other than the first day of a calendar month, or the Termination Date occurs on a day other than the last day of a calendar month, then the Base Rent for such fractional month will be prorated on the basis of the actual number of days in such month. The Rentable Area of the Premises shall be conclusively presumed to be as stated in Article 1, and shall not be subject to adjustment by either Landlord or Tenant during the Term.
5.2. Additional Rent. All sums due from Tenant to Landlord or to any third party under the terms of this Lease (other than Base Rent) shall be additional rent (Additional Rent), including without limitation the charges for Tenants Pro Rata Share of Operating Expenses {described in Article 7) and all sums incurred by Landlord due to Tenants failure to perform its obligations under this Lease. All Additional Rent that is payable to Landlord shall be paid at the time and place that Base Rent is paid. Landlord will have the same remedies for a default in the payment of any Additional Rent as for a default in the payment of Base Rent. Together, Base Rent and Additional Rent are sometimes referred to in this Lease as Rent.
5.3. Late Payment. Any unpaid Rent shall bear interest from the date due until paid at the lesser of the published prime interest rate (that rate quoted by Wells Fargo Bank from time to time as its prime rate) plus six (6) percent (6%) per annum or the then maximum interest rate allowed by law (the Interest Rate). In addition, Tenant recognizes that late payment of any Rent will result in administrative expense to Landlord, the extent of which expense is difficult and economically impracticable to determine. Therefore, Tenant agrees that if Tenant fails to pay any Rent within five (5) days after its due date, an additional late charge of five percent (5%) of the sums so overdue shall become immediately due and payable; provided, however, that such late charge shall not be assessed upon Tenants first (1 st ) late payment. Tenant agrees that the late payment charge is a reasonable estimate of the additional administrative costs and detriment that will be incurred by Landlord as a result of such failure by Tenant. In the event of nonpayment of interest or late charges on overdue Rent, Landlord shall have, in addition to all other rights and remedies, the rights and remedies provided in this Lease and by law for nonpayment of Rent.
5.4. Security Deposit. Concurrently with the execution of this Lease, Tenant shall deliver to Landlord the cash payment to fulfill the Security Deposit requirement described in Article 1. The Security Deposit shall be held by Landlord as security for the faithful performance of this Lease by Tenant of all of the terms, covenants and conditions of this Lease. If there is an Event of Default by Tenant with respect to any provisions of this Lease (including but not limited to the payment of Rent); if Tenant files a petition in bankruptcy, insolvency, reorganization, dissolution or liquidation under any law; makes an assignment for the benefit of its creditors; consents to or acquiesces in the appointment of a receiver of itself or the Premises, or if a court of competent jurisdiction enters an order or judgment appointing a receiver of Tenant or the Premises; or if a court of competent jurisdiction enters an order or judgment approving a petition filed against Tenant under any bankruptcy, insolvency or liquidation law, then in any such case Landlord may, without waiving any of Landlords other rights or remedies under this Lease, apply the Security Deposit in whole or in part to remedy any failure by Tenant to pay any sums due under this Lease, to repair or maintain the Premises, to perform any other terms, covenants or conditions contained in this Lease, to compensate Landlord for any loss or damages which Landlord may suffer as a result thereof, including without limitation any lost rent to which Landlord is entitled in the event the Lease terminates or is rejected as a result of any of the foregoing. Should Landlord so apply any portion of the Security Deposit, Tenant shall replenish the Security Deposit to the original amount within fifteen (15) days after written demand by Landlord. Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit.
6. USE OF PREMISES AND CONDUCT OF BUSINESS
6.1. Permitted Use. Tenant may use and occupy the Premises during the Term solely for the uses specified and permitted in Article 1 and for no other purpose without the prior written consent of Landlord, such consent to be granted or withheld in Landlords sole and unfettered discretion. Tenants use of the Property shall in all respects comply with all Applicable Laws (as defined in Section 11.1).
6.2. Prohibited Uses. Tenant shall not use the Premises or allow the Premises to be used for any illegal or immoral purpose, or so as to create waste, or constitute a private or public nuisance. Tenant shall not place any loads upon the floors, walls, or ceiling that endanger the structure, or place any Hazardous Material in the drainage system of the Premises, or overload existing electrical or other mechanical systems. The maximum headcount that Tenant may have in the Premises is one (1) person per one hundred and fifty
(150) rentable square feet. Tenant shall not use any machinery or equipment that causes any substantial noise or vibration. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the Premises except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the Premises where approved by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises or on any portion of the Common Area unless otherwise approved by Landlord in its sole discretion. No loudspeaker or other device, system, or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. No explosives or firearms shall be brought into the Premises.
7. BUILDING SERVICES; OPERATING EXPENSES
7.1. Building Services.
(a) Landlord agrees to furnish Tenant with the following services: (1) Water service for use in the lavatories on each floor on which the Premises are located; (2) Heat and air conditioning in season during Normal Business Hours, at such temperatures and in such amounts as are standard for comparable buildings or as required by governmental authority. Tenant, upon such advance notice as is reasonably required by Landlord, shall have the right to receive HVAC service during hours other than Normal Business Hours. Tenant shall pay Landlord the standard charge for the additional service as reasonably determined by Landlord from time to time (which amount as of the Effective Date is $75.00 per hour per floor); (3) Maintenance and repair of the Property as described in Section 8.1; (4) Janitor service on Business Days. If Tenants use, floor covering or other improvements require special services in excess of the standard services for the Building, Tenant shall pay the additional cost attributable to the special services; (5) Elevator service; (6) Electricity to the Premises for general office use; and (7) such other services as Landlord reasonably determines are necessary or appropriate for the Property.
(b) Tenant shall have access to the Premises 24 hours per day, 7 days per week.
(c) Landlords failure to furnish, or any interruption or termination of, services due to the application of Applicable Laws, the failure of any equipment, the performance of repairs, improvements or alterations, or the occurrence of any event or cause beyond the reasonable control of Landlord shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement, subject only to the provisions of Section 17.1.
7.2. Operating Expenses. Operating Expenses means the total costs and expenses paid or incurred by Landlord in connection with the ownership, management, operation, maintenance, repair and replacement of the Property, including, without limitation, all costs of:
(a) taxes, assessments and charges levied upon or with respect to the Property or any personal property of Landlord used in the operation of the Property, or on Landlords interest in the Property or its personal property (Real Estate Taxes). Real Estate Taxes shall include, without limitation, all general real property taxes and general and special assessments, charges, fees, or assessments for transit, housing, police, fire, or other
governmental services or purported benefits to the Property or the occupants thereof, service payments in lieu of taxes that are now or hereafter levied or assessed against Landlord by the United States of America, the State of California or any political subdivision thereof, or any other political or public entity, and shall also include any other tax, assessment or fee, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Real Estate Taxes, whether or not now customary or in the contemplation of the parties as of the Effective Date. Real Estate Taxes shall also include reasonable legal fees, costs, and disbursements incurred in connection with proceedings to contest, determine, or reduce Real Estate Taxes. Real Estate Taxes shall not include franchise, transfer, succession, gift, inheritance, gross receipts or capital stock taxes or income taxes measured by the net income of Landlord unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, or as an addition to, in whole or in part, any other tax that would otherwise constitute a Real Estate Tax;
(b) repair, maintenance, replacement and supply of air conditioning, electricity, steam, water, heating, ventilating, mechanical, escalator and elevator systems, sanitary and storm drainage systems and all other utilities and mechanical systems (the Building Systems);
(c) landscaping and gardening of the Common Area;
(d) lighting, repaving, repairing, maintaining and restriping of parking areas and sidewalks; provided, however, the cost of any capital improvements shall only be included in Operating Expenses to the extent provided in Section 7.2(n) below;
(e) lighting, repairs and maintenance to the Common Area;
(f) repair, maintenance and replacement of any security systems and fire protection systems installed in the Premises; provided, however, the cost of any capital improvements shall only be included in Operating Expenses to the extent provided in Section 7.2(n) below;
(g) general maintenance, janitorial services, trash removal, cleaning and service contracts and the cost of all supplies, tools and equipment required in connection therewith;
(h) all premiums and costs for insurance carried by Landlord on the Premises, the Common Area and the Property, or in connection with the use or occupancy thereof (including all amounts paid as a result of loss sustained that would be covered by such policies but for deductibles or self-insurance provisions), including, but not limited to, the premiums and costs of fire and extended coverage, earthquake, vandalism and malicious mischief, public liability and property damage, workers compensation insurance, rental income insurance and any other insurance commonly carried by prudent owners of comparable buildings, provided, however, that the Landlord may, but shall not be obligated to carry earthquake insurance;
(i) wages, salaries, payroll taxes and other labor costs and employee benefits for all persons engaged in the operation, management, maintenance and security of the Property;
(j) management fees at commercially reasonable rates (whether or not Landlord employs a third party managing agent);
(k) fees, charges and other costs of all independent contractors engaged by Landlord;
(I) license, permit and inspection fees;
(m) the cost of supplies, tools, machines, materials and equipment used in operation and maintenance of the Common Area;
(n) any capital improvements to the Property; provided that the cost of any such capital improvements shall be amortized over the useful life of the improvement in question (determined in accordance with GAAP), together with interest on the unamortized balance at the Interest Rate;
(o) the cost of contesting the validity or applicability of any governmental enactments that may affect Operating Expenses, including, without limitation, the costs of audits by certified public accountants of Operating Expense records;
(p) audit and bookkeeping fees, legal fees and expenses incurred in connection with the operation or management of the Property;
(q) legal and accounting services for the Property; and
(r) any other expenses of any kind whatsoever reasonably incurred in connection with the management, operation, maintenance, repair and replacement of the Property.
Notwithstanding anything in the definition of Operating Expenses to the contrary, Operating Expenses shall not include the following:
(i) Costs actually reimbursed to Landlord by insurance proceeds for the repair of damage to the Property;
(ii) Financing and refinancing costs, interest, principal, points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Property;
(iii) legal fees, leasing commissions, cash allowances, buy-out amounts, advertising expenses, promotional expenses, and other costs of a similar nature incurred in the leasing of space at the Property;
(iv) ground rent or any other payments paid under any present or future ground or overriding or underlying lease and/or grant affecting the Property and/or the Premises (other than payments which, independent of such lease, would constitute an Operating Expense hereunder); and
(v) costs incurred due to a violation of the provisions of this Lease by Landlord; and
(vi) costs arising from the presence of any Hazardous Materials or violation of Environmental Laws as of or prior to the Commencement Date or caused solely by Landlord or its agents.
7.3. Occupancy Assumption. If the Building is not at least 100% occupied during any calendar year or if Landlord is not supplying services to at least 100% of the total Rentable Area of the Building at any time during a calendar year, Operating Expenses shall, at Landlords option, be determined as if the Building had been 100% occupied and Landlord had been supplying services to 100% of the Rentable Area of the Building during that calendar year. If Tenant pays for its Pro Rata Share of Operating Expenses based on increases over a Base Year and Operating Expenses for a calendar year are determined as provided in the prior sentence, Operating Expenses for the Base Year shall also be determined as if the Building had been 100% occupied and Landlord had been supplying services to 100% of the Rentable Area of the Building. The extrapolation of Operating Expenses under this Section shall be performed by appropriately adjusting the cost of those components of Operating Expenses that are impacted by changes in the occupancy of the Building.
7.4. Payment of Operating Expenses. Tenant shall pay to Landlord, as Additional Rent, Tenants Pro Rata Share of the amount, if any, by which Operating Expenses for each calendar year during the Term exceed Operating Expenses for the Base Year (Expense Excess). Tenant shall pay one twelfth of Tenants Pro Rata Share of the Expense Excess in advance, on or before the first day of each month in an amount estimated by Landlord as stated in a written notice to Tenant. Landlord may by written notice to Tenant revise such estimates from time to time and Tenant shall thereafter make payments on the basis of such revised estimates. With reasonable promptness after the expiration of each calendar year, Landlord will furnish Tenant with a statement (Landlords Expense Statement) setting forth in reasonable detail the actual Operating Expenses for the prior calendar year and the amount of Tenants Pro Rata Share of the Expense Excess. If Tenants Pro Rata Share of the actual Expense Excess for such year exceed the estimated amounts paid by Tenant for such year, Tenant shall pay to Landlord (whether or not this Lease has terminated) the difference between the amount of estimated Tenants Pro Rata Share of Expense Excess paid by Tenant and the actual Tenants Pro Rata Share of Expense Excess within thirty (30) days after the receipt of Landlords Expense Statement. If the total amount paid by Tenant for any year exceeds the actual amount due from Tenant for that year, the excess shall be credited against the next installments of Additional Rent due from Tenant to Landlord, or, if after the Termination Date, the excess shall first be credited against any unpaid Rent and any remaining excess shall be refunded promptly to Tenant. The tenant reserves the right to audit such operating expenses before an increase in the Operating Expenses is charged to the tenant.
7.5. Proration. If either the Rent Commencement Date or the Termination Date occurs on a date other than the first or last day, respectively, of a calendar year, Tenants Pro Rata Share of Expense Excess for the year in which the Rent Commencement Date or Termination Date occurs shall be prorated based on a 365-day year.
7.6. Utility Costs. Landlord shall arrange for the following utilities furnished to or used at the Premises: water, gas, electricity, sewer service and non-hazardous waste pick-up. The costs of such utilities shall be included in Operating Expenses. Tenant shall be responsible for arranging for telephone and other electronic communications services, at the Premises and shall pay the costs of such utilities directly. Landlord will work in good faith with Tenant to provide access to a cable or satellite TV feed to the Premises, subject to agreement of the parties with respect to allocation of costs of installation and ongoing monthly service costs.
7.7. Taxes on Tenants Property and Business. Tenant shall pay prior to delinquency all taxes levied or assessed by any local, state or federal authority upon the conduct of Tenants business in the Premises or upon Tenants Property (as defined in Section 9.5) and shall deliver satisfactory evidence of such payment to Landlord. If the assessed value of the Property is increased by the inclusion of a value placed upon Tenants Property, Tenant shall pay to Landlord, upon written demand, the taxes so levied against Landlord, or the portion of Landlords taxes resulting from said increase in assessment, as determined from time to time by Landlord.
7.8. Electricity Reimbursement for Tenants Special Systems. Landlord shall have the right to require that Tenant reimburse Landlord for the electricity use of Tenants Special Systems which utilize a large amount of electricity, which may include but are not limited to Tenants Server Room Computers, Server Room Cooling Systems, or other systems not typical for general office use (Tenants Special Systems). Landlord may require Tenant to measure such electricity use using E-Mon D-Mon kWh Meters, and the electricity reimbursement shall be calculated by Landlord based on the actual electric rates paid by the Property.
7.9. Energy and Resource Consumption. Landlord may voluntarily cooperate in a reasonable manner with the efforts of governmental agencies and/or utility suppliers in reducing energy or other resource consumption within the Property. Tenant shall not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of such compliance or cooperation. Tenant agrees at all times to cooperate fully with Landlord and to abide by all reasonable rules established by Landlord (i) in order to maximize the efficient operation of the electrical, heating, ventilating and air conditioning systems and all other energy or other resource consumption systems with the Property and/or (ii) in order to comply with the requirements and recommendations of utility suppliers and governmental agencies regulating the consumption of energy and/or other resources.
8. REPAIRS, MAINTENANCE AND SERVICES
8.1. Landlords Obligations. Except as specifically provided in this Lease, Landlord shall not be required to furnish any services, facilities or utilities to the Premises or to Tenant, and Tenant assumes full responsibility for obtaining and paying for all services, facilities and utilities to the Premises. Landlord will repair, replace and maintain the Building Systems, the Common Area, and the structural portions of the Building and Premises, including, without limitation, the foundation, floor/ceiling slabs, roof, curtain wall, exterior glass and mullions, columns, beams, shafts (including elevator shafts), Common Area stairs, Building standard stairwells (but not stairs or stairwells installed by the Tenant or any former tenant) and elevators (collectively, the Building Structure). Landlord shall also provide the Premises with interior and exterior window washing services and janitorial service and shall provide the Common Areas with landscaping services. Tenant shall notify Landlord in writing when it becomes aware of the need for any repair, replacement or maintenance that is Landlords responsibility under this Section of which it becomes aware. The costs of such repair, replacement and maintenance shall be included in Operating Expenses to the extent provided in Article 7; provided that, subject to Section 13.5, Tenant _ shall reimburse Landlord in full and within fifteen
(15) days after written demand for the cost of any repair to the Property, Building Structure or Building Systems which is attributable to misuse by Tenant or Tenants Agents. The reimbursement shall be Additional Rent. Tenant hereby waives and releases any right it may have under any law, statute or ordinance now or hereafter in effect to make any repairs that are Landlords obligation under this Section.
8.2. Tenants Obligations. Except as provided in Section 8.1, Tenant assumes full responsibility for the repair, replacement and maintenance of the Premises, including, without limitation, all mechanical and other systems and equipment (including but not limited to any server cooling system(s) and kitchenette(s)) installed within the Premises (Tenant Systems). Tenant shall take good care of the Premises and the Tenant Systems and keep the Premises and the Tenant Systems in good working order and in a clean, safe and sanitary condition. All repairs and replacements by Tenant for which Tenant is responsible are collectively referred to as the Tenant Obligations and shall be made and performed: (a) at Tenants cost and expense, and at such time and in such manner as Landlord may designate, (b) by contractors or mechanics approved by Landlord in accordance with Section 9.3, (c) so that same shall be at least equal in quality, value and utility to the original work or installation, (d) in a manner and using equipment and materials that will not impair the operation of or damage the Building Systems, and (e) in accordance with Article 9 (if applicable}, and all Applicable Laws. Tenant shall cooperate fully and in good faith with Landlord and Landlords property manager in the performance of all such repairs and replacements by Tenant, and shall perform all such work and activities diligently and expeditiously to completion, and in a manner consistent with Class A office buildings located in San Mateo County, California. Tenant shall reimburse Landlord within fifteen (15) days after written demand as Additional Rent for any out-of-pocket expenses incurred by Landlord in connection with any repairs or replacements required to be made by Tenant, including, without limitation, any reasonable fees charged by Landlords contractors to review plans and specifications prepared by Tenant.
8.3. Security. Tenant shall be solely responsible for the security of the Premises and Tenants Agents while in or about the Premises. Any security services provided to the Property by Landlord shall be at Landlords sole discretion and Landlord shall not be liable to Tenant or Tenants Agents for any failure to provide security services or any loss, injury or damage suffered as a result of a failure to provide security services.
8.4. Landlords Right To Cure Defaults. In the event Tenant fails to perform or adequately perform any of Tenants Obligations as reasonably determined by Landlord, Landlord, in its sole and absolute discretion, and upon fifteen (15) days written notice to Tenant, may terminate Tenants right to perform Tenants Obligations, and Landlord shall then assume for itself or assign to Landlords property manager all responsibility for the performance of all such Tenants Obligations for the remainder of the Term, the cost of which shall be included within the definition of Operating Expenses.
8.5. Special Services. If Tenant requests any services from Landlord other than those for which Landlord is obligated under this Lease, Tenant shall make its request in writing and Landlord may elect in its sole discretion whether to provide the requested services. If Landlord provides any special services to Tenant, Landlord shall charge Tenant for such services at the prevailing rate being charged for such services by other property owners and property managers of comparable buildings in the area of the Property, and Tenant shall pay the cost of such services as Additional Rent within fifteen (15) days after receipt of Landlords invoice.
9. TENANT IMPROVEMENT WORK; ALTERATIONS
9.1. Tenant Improvements. Landlord shall Deliver the Premises to Tenant with existing improvements in its as-is condition and Landlord shall have no other obligation to improve the Premises, with the sole exception of the Tenant Improvement Work which shall be performed by Landlord at Landlords expense pursuant to the terms of the Work Letter attached hereto as Exhibit E.
9.2. Alterations by Tenant. Tenant shall not make or permit any alterations to the Building Systems, and shall not make or permit any alterations, installations, additions or improvements, structural or otherwise (collectively, Alterations ) in or to the Premises or the Building without Landlords prior written consent, which Landlord shall not unreasonably withhold, condition or delay. Landlord shall respond to any request by Tenant to make any Alteration within fifteen (15) days after receipt of such request for consent from Tenant. Notwithstanding the foregoing, Landlords consent shall not be required (a) in the case of interior, cosmetic non-structural Alterations that do not require a permit, or affect the Building Systems, or affect the entryways or elevators or any other premises in the Building, or (b) in the case of other Alterations that do not exceed a total price of Twenty-Five Fifty Thousand Dollars ($25,000) per project and do not affect the Building Systems or the structural integrity of the Building. All Alterations shall be done at Tenants sole cost and expense, including without limitation the cost and expense of obtaining all permits and approvals required for any Alterations. Tenant shall reimburse Landlord within fifteen (15) days after written demand as Additional Rent for any out-of-pocket expenses incurred by Landlord in connection with Alterations elected to be made and/or any repairs or replacements required to be made by Tenant, including, without limitation, any reasonable fees charged by Landlords contractors and/or consultants to review plans and specifications prepared by Tenant.
9.3. Project Requirements. The provisions of this Section 9.3 shall apply to all Alterations, whether or not requiring Landlords approval (unless otherwise noted):
(a) Prior to entering into a contract for any Alterations requiring Landlords approval, Tenant shall obtain Landlords written approval, which approval shall not be unreasonably withheld, conditioned or delayed, of the identity of each of the design architect and the general contractor.
(b) Before commencing the construction of any Alterations, Tenant shall procure or cause to be procured the insurance coverage described below and provide Landlord with certificates of such insurance in form reasonably satisfactory to Landlord. All such insurance shall comply with the following requirements of this Section and of Section 13.2.
(i) During the course of construction, to the extent not covered by property insurance maintained by Tenant pursuant to Section 13.2, comprehensive all risk builders risk insurance, including vandalism and malicious mischief, excluding earthquake and flood, covering all improvements in place on the Premises, all materials and equipment stored at the site and furnished under contract, and all materials and equipment that are in the process of fabrication at the premises of any third party or that have been placed in transit to the Premises when such fabrication or transit is at the risk of, or when title to or an insurable interest in such materials or equipment has passed to, Tenant or its construction manager, contractors or subcontractors (excluding any contractors, subcontractors and construction managers tools and equipment, and property owned by the employees of the construction manager, any contractor or any subcontractor), such insurance to be written on a completed value basis in an amount not less than the full estimated replacement value of Alterations.
(ii) Commercial general liability insurance covering Tenant, Landlord and each construction manager, contractor and subcontractor engaged in any work on the Premises, which insurance may be effected by endorsement, if obtainable, on the policy required to be carried pursuant to Section 13.2, including insurance for completed operations, elevators, owners, construction managers and contractors protective liability, products completed operations for one (1) year after the date of acceptance of the work by Tenant, broad form blanket contractual liability, broad form property damage and full form personal injury (including but not limited to bodily injury), covering the performance of all work at or from the Premises by Tenant, its construction manager, contractors and subcontractors, and in a liability amount not less than the amount at the time carried by prudent owners of comparable construction projects, but in any event not less than Three Million Dollars ($3,000,000) combined single limit, which policy shall include for the mutual benefit of Landlord and Tenant, bodily injury liability and property damage liability, and automobile insurance on any non-owned, hired or leased automotive equipment used in the construction of any work.
(iii) Workers Compensation Insurance approved by the State of California, in the amounts and coverages required under workers compensation, disability and similar employee benefit laws applicable to the Premises, and Employers Liability Insurance with limits not less than One Million Dollars ($1,000,000) or such higher amounts as may be required by law.
(c) All construction and other work in connection with any Alterations shall be done at Tenants sole cost and expense and in a prudent and first class manner. Tenant shall construct the Alterations in accordance with all Applicable Laws, and with plans and specifications that are in accordance with the provisions of this Article 9 and all other provisions of this Lease.
(d) Prior to the commencement of any Alteration, Landlord shall have the right to post in a conspicuous location on the Premises and to record in the public records a notice of Landlords nonresponsibility. Tenant covenants and agrees to give Landlord at least ten (10) days prior written notice of the commencement of the Tenant Improvement Work and any such Alteration in order that Landlord shall have sufficient time to post such notice.
(e) Tenant shall take all necessary safety precautions during any construction.
(f) With regards to any work to be performed to or needed by the Building Systems and subsystems, Tenant shall use those subcontractors that regularly maintain and manage such systems, and such work will include design, components, distribution, and installation to meet Landlords specifications for the operations of the Building.
(g) With regard to any Alterations in excess of Twenty-Five Thousand Dollars ($25,000), Tenant shall prepare and maintain (i) on a current basis during construction, annotated plans and specifications showing clearly all changes, revisions and substitutions during construction, and (ii) upon completion of construction of the Alterations, as-built drawings showing clearly all changes, revisions and substitutions during construction, including, without limitation, field changes and the final location of all mechanical equipment, utility lines, ducts, outlets, structural members, walls, partitions and other significant features. These as-built
drawings and annotated plans and specifications shall be kept at the Premises and Tenant shall update them as often as necessary to keep them current. The as-built drawings and annotated plans and specifications shall be made available for copying and inspection by Landlord at all reasonable times. Within sixty (60) days after the Alterations have been substantially completed, Tenant shall, at its cost, make a copy of the as-built drawings and annotated plans and specifications and deliver the same to Landlord.
(h) Upon completion of the construction of any Alterations in excess of Twenty-Five Thousand Dollars ($25,000) during the Term, Tenant shall file for recordation, or cause to be filed for recordation, a notice of completion and shall deliver to Landlord evidence satisfactory to Landlord of payment of all costs, expenses, liabilities and liens arising out of or in any way connected with such construction (except for liens that are contested in the manner provided herein).
9.4. Ownership of Improvements. Except as provided in Section 9.5, all Tenant Improvement Work, Alterations, and any other appurtenances, fixtures, improvements, equipment, additions and property permanently attached to or installed in the Premises at the commencement of or during the Term, shall at the end of the Term become Landlords property without compensation to Tenant, or be removed in accordance with this Section. Upon written request by Tenant, Landlord shall notify Tenant in writing at the time of Landlords approval of the Alterations, whether or not the proposed Alterations will be required to be removed by Tenant at the end of the Term and Tenant shall have no obligation to remove any Alterations that Landlord has not designated in writing for removal. Tenant shall repair or pay the cost of repairing any damage to the Property caused by the removal of Alterations. If Tenant fails to perform its repair obligations, without limiting any other right or remedy, Landlord may on five (5) Business Days prior written notice to Tenant perform such obligations at Tenants expense and Tenant shall reimburse Landlord within thirty (30) days after demand for all out-of-pocket costs and expenses incurred by Landlord in connection with such repair. Tenants obligations under this Section shall survive the termination of this Lease.
9.5. Tenants Personal Property. All furniture, trade fixtures, furnishings, equipment and articles of movable personal property installed in the Premises by or for the account of Tenant (except for ceiling and related fixtures, built-in cabinetry and appliances, HVAC equipment and floor coverings, which shall become the property of Landlord at the end of the Term), and which can be removed without structural or other material damage to the Property (collectively, Tenants Property) shall be and remain the property of Tenant and may be removed by it at any time during the Term. Tenant shall remove from the Premises all Tenants Property on or before the Termination Date, except such items as the parties have agreed pursuant to the provisions of this Lease or by separate agreement are to remain and to become the property of Landlord. Upon the direction of Landlord, Tenant shall remove its data cabling and related fixtures, remove and/or repair any other tenant finishes, and return the Premises similar to its original condition. Tenant shall repair or pay the cost of repairing any damage to the Property resulting from such removal, and the provisions of Section 9.5 above shall apply in the event Tenant fails to do so. Any items of Tenants Property which remain in the Premises after the Termination Date may, on five (5) Business Days prior written notice to Tenant, at the option of Landlord, be deemed abandoned and in such case may either be retained by Landlord as its property or be disposed of, without accountability, at Tenants expense in such manner as Landlord may see fit.
10. LIENS
Tenant shall keep the Premises free from any liens arising out of any work performed, material furnished or obligations incurred by or for Tenant. If Tenant shall not, within ten (10) Business Days following notice of the imposition of any such lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided in this Lease and by law, the right but not the obligation to cause any such lien to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith (including, without limitation, reasonable counsel fees) shall be payable to Landlord by Tenant upon demand with interest from the date incurred at the Interest Rate. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law or that Landlord shall deem proper for the protection of Landlord, the Premises and the Property from mechanics and materialmens liens, as more specifically provided in Section 9.4(d).
11. COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS
11.1. Applicable Laws. Tenant, at Tenants cost and expense, shall comply with all applicable laws, statutes, codes, ordinances, orders, rules, regulations, conditions of approval, and requirements, of all federal, state, county, municipal and other governmental authorities and the departments, commissions, boards, bureaus, instrumentalities, and officers thereof, and all administrative or judicial orders or decrees and all permits, licenses, approvals and other entitlements issued by governmental entities, and rules of common law, relating to or affecting the Premises or the use, operation or occupancy of the Premises, whether now existing or hereafter enacted (collectively, Applicable Laws). Without limiting the foregoing, but specifically excluding the Tenant Improvement Work to be performed by Landlord, Tenant shall be solely responsible for compliance with and shall make or cause to be made all such improvements and alterations to the Premises (including, without limitation, removing barriers and providing alternative services) as shall be required to comply with all applicable building codes, laws and ordinances relating to public accommodations, including the Americans with Disabilities Act of 1990, 42 U.S.C. §§ 12111 et seq. (the ADA), and the ADA Accessibility Guidelines promulgated by the Architectural and Transportation Barriers Compliance Board, the public accommodations title of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000a et. seq., the Architectural Barriers Act of 1968, 42 U.S.C. §§ 4151 et. seq., as amended, Title V of the Rehabilitation Act of 1973, 29 U.S.C. §§ 790 et. seq., the Minimum Guidelines and Requirements for Accessible Design, 36 C.F.R. Part 1190, the Uniform Federal Accessibility Standards, and Title 24 of the California Code of Regulations, as the same may be amended from time to time, or any similar or successor laws, ordinances and regulations, now or hereafter adopted. Tenants liability shall be primary and Tenant shall indemnify Landlord in accordance with Section 13.1 in the event of any failure or alleged failure of Tenant to comply with Applicable Laws. Any work or installations made or performed by or on behalf of Tenant or any person or entity claiming through or under Tenant pursuant to the provisions of this Section shall be made in conformity with and subject to the provisions of Article 9.
11.2. Insurance Requirements. Tenant shall not do anything, or permit anything to be done, in or about the Premises that would: (a) invalidate or be in conflict with the provisions of or cause any increase in the applicable rates for any fire or other insurance policies covering the Property or any property located therein (unless Tenant pays for such increased costs), or (b) result in a refusal by fire insurance companies of good standing to insure the Property or any such property in amounts reasonably satisfactory to Landlord (which amounts shall be comparable to the amounts required by comparable landlords of comparable buildings, or (c) subject Landlord to any liability or responsibility for injury to any person or
property by reason of any business operation being conducted in the Premises. Tenant, at Tenants expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body that shall hereafter perform the function of such Association, to the extent specifically pertaining to the Premises.
12. HAZARDOUS MATERIALS
12.1. Definitions. As used in this Lease, the following terms shall have the following meanings:
(a) Environmental Activity means any use, treatment, keeping, storage, holding, release, emission, discharge, manufacturing, generation, processing, abatement, removal, disposition, handling, transportation, deposit, leaking, spilling, injecting, dumping or disposing of any Hazardous Materials from, into, on or under the Property, and shall include the exacerbation of any pre-existing contamination by Tenant or any of Tenants Agents.
(b) Environmental Laws mean all Applicable Laws, now or hereafter in effect, relating to environmental conditions, industrial hygiene or Hazardous Materials on, under or about the Property, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Solid Waste Disposal Act, 42 U.S.C. Section 6901, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. Sections 300f through 300j, and any similar state and local laws and ordinances and the regulations now or hereafter adopted and published and/or promulgated pursuant thereto.
(c) Hazardous Material means any chemical, substance, medical or other waste, living organism or combination thereof which is or may be hazardous to the environment or human or animal health or safety due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytotoxicity, infectiousness or other harmful or potentially harmful properties or effects. Hazardous Materials shall include, without limitation, petroleum hydrocarbons, including MTBE, crude oil or any fraction thereof, asbestos, radon, polychlorinated biphenyls (PCBs), methane, lead, urea, formaldehyde foam insulation, microbial matter (including mold) and all substances which now or in the future may be defined as hazardous substances, hazardous wastes, extremely hazardous wastes, hazardous materials, toxic substances, infectious wastes, biohazardous wastes, medical wastes, radioactive wastes or which are otherwise listed, defined or regulated in any manner pursuant to any Environmental Laws.
(d) Tenants Hazardous Materials means any Hazardous Materials resulting from the Environmental Activity by Tenant or any of Tenants Agents.
12.2. Environmental Release. Landlord hereby informs Tenant that detectable amounts of Hazardous Materials may have come to be located on, beneath and/or in the vicinity of the Premises, and copies of Landlords Phase I Environmental Report shall be provided to Tenant at its request. Tenant has made such investigations and inquiries as it deems appropriate to ascertain the effects, if any, of such substances and contaminants on its operations and persons using the Property. Landlord makes no representation or warranty with regard to the environmental condition of the Property. Tenant hereby releases Landlord and
Landlords officers, directors, trustees, agents and employees from any and all claims, demands, debts, liabilities, and causes of action of whatever kind or nature, whether known or unknown or suspected or unsuspected which Tenant or any of Tenants Agents may have, claim to have, or which may hereafter accrue against the released parties or any of them, arising out of or relating to or in any way connected with Hazardous Materials presently in, on or under, or now or hereafter emanating from or migrating onto the Property. In connection with such release, Tenant hereby waives any and all rights conferred upon it by the provisions of Section 1542 of the California Civil Code, which reads as follows:
A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.
12.3. Use of Hazardous Materials. Tenant shall not cause or permit any Hazardous Materials to be used, stored, discharged, released or disposed of in the Premises or cause any Hazardous Materials to be used, stored, discharged, released or disposed of in, from, under or about, the Property, or any other land or improvements in the vicinity of the Property, excepting only the types and minor quantities of Hazardous Materials which are normally used in connection with general office uses and then only in strict accordance with all Applicable Laws, including all Environmental Laws. As of the Commencement Date, Tenant shall provide Landlord a complete list of all Hazardous Materials (including MSDS sheets for all such Hazardous Materials} used or stored by Tenant or any of Tenants Agents or subtenants at the Premises, excluding standard janitorial and office products. Throughout the Term, Tenant shall continue to update this list so that it remains current. Without limiting the foregoing, Tenant shall, at its own expense, procure, maintain in effect and comply with all conditions of any and all permits, licenses, and other governmental and regulatory approvals required for Tenants use of Hazardous Materials at the Premises, including, without limitation, discharge of appropriately treated materials or wastes into or through any sanitary sewer serving the Premises. Tenant shall in all respects handle, treat, deal with and manage any and all Tenants Hazardous Materials in total conformity with all Environmental Laws and prudent industry practices regarding management of such Hazardous Materials.
12.4. Remediation of Hazardous Materials. Tenant shall, upon demand of Landlord, and at Tenants sole cost and expense, promptly take all actions to remediate the Property from the effects of any Tenants Hazardous Materials. Such actions shall include, but not be limited to, the investigation of the environmental condition of the Property, the preparation of any feasibility studies, reports or remedial plans, and the performance of any cleanup, remediation, containment, operation, maintenance, monitoring or restoration work, whether on or off of the Property. Tenant shall take all actions necessary to remediate the Property from the effects of such Tenants Hazardous Materials to a condition allowing unrestricted use of the Property (i.e. to a level that will allow any future use of the Property, including residential, hospital, or day care, without any engineering controls or deed restrictions), notwithstanding any lesser standard of remediation allowable under Applicable Laws. All work shall be performed by one or more contractors selected by Tenant and reasonably approved in advance and in writing by Landlord. Tenant shall proceed continuously and diligently with such investigatory and remedial actions, provided that in all cases such actions shall be in accordance with all Applicable Laws. Any such actions shall be performed in a good, safe and workmanlike manner. Tenant shall pay all costs in connection with such investigatory and remedial activities, including but not limited to all power and utility costs, and any and all taxes or fees that may be applicable to such activities. Tenant shall promptly
provide to Landlord copies of testing results and reports that are generated in connection with the above activities and any that are submitted to any governmental entity. Promptly upon completion of such investigation and remediation, Tenant shall permanently seal or cap all monitoring wells and test holes in accordance with sound engineering practice and in compliance with Applicable Laws, remove all associated equipment, and restore the Property to the maximum extent possible, which shall include, without limitation, the repair of any surface damage, including paving, caused by such investigation or remediation.
12.5. Indemnity. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord and Landlords trustees, directors, officers, agents and employees and their respective successors and assigns (collectively, Landlords Agents), free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including reasonable attorneys and consultants fees and oversight and response costs) to the extent arising from (a) Environmental Activity by Tenant or Tenants Agents; or (b) failure of Tenant or Tenants Agents to comply with any Environmental Law with respect to Tenants Environmental Activity; or (c) Tenants failure to remove Tenants Hazardous Materials as required in Section 12.4. Tenants obligations hereunder shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings (with counsel reasonably approved by Landlord), even if such claims, suits or proceedings are groundless, false or fraudulent; conducting all negotiations of any description; and promptly paying and discharging when due any and all judgments, penalties, fines or other sums due against or from Landlord or the Premises. Prior to retaining counsel to defend such claims, suits or proceedings, Tenant shall obtain Landlords written approval of the identity of such counsel, which approval shall not be unreasonably withheld, conditioned or delayed. In the event Tenants failure to surrender the Premises at the expiration or earlier termination of this Lease free of Tenants Hazardous Materials prevents Landlord from reletting the Premises, or reduces the fair market and/or rental value of the Premises or any portion thereof, Tenants indemnity obligations shall include all losses to Landlord arising therefrom.
12.6. No Lien. Tenant shall not suffer any lien to be recorded against the Property as a consequence of any Tenants Hazardous Materials, including any so-called state, federal or local super fund lien related to the remediation of any Tenants Hazardous Materials in or about the Property.
12.7. Investigation. Landlord shall have the right to enter and conduct an inspection of the Premises or the Property, including invasive tests, at any reasonable time and upon reasonable advance notice, to determine whether Tenant is complying with the terms of this Lease, including but not limited to the compliance of the Property and the Premises and the activities thereon with Environmental Laws (the Environmental Investigation ). Landlord shall have the right, but not the obligation, to retain at its expense an independent professional consultant to enter the Property and/or the Premises to conduct such an inspection, and to review any report prepared by or for Tenant concerning such compliance. In the event the Environmental Investigation identifies any deficiencies in the compliance of the Property and/or the Premises with Environmental Laws due to any Environmental Activity by Tenant or Tenants Agents, Tenant shall promptly correct any such deficiencies identified in the Environmental Investigation, and document to Landlord that corrective action has been taken. In such event, Tenant shall also reimburse Landlord for the reasonable cost of the Environmental Investigation. If the Environmental Investigation identifies any such deficiency in compliance of the Property and/or the Premises with Environmental Laws due to any Environmental Activity by Tenant or Tenants Agents, then, within nine (9) months of the date of the Environmental Investigation, Landlord may request a detailed review of the status of such violation by a consultant selected
by Landlord (the Supplemental Investigation). Tenant shall pay for the reasonable cost of any Supplemental Investigation. A copy of the Supplemental Investigation shall be promptly supplied to Landlord and Tenant when it becomes available.
12.8. Right to Remediate. Should Tenant fail to perform or observe any of its obligations or agreements pertaining to Hazardous Materials or Environmental Laws, then Landlord shall have the right, but not the obligation, without limitation of any other rights of Landlord hereunder, to enter the Premises personally or through Landlords agents, employees and contractors and perform the same. Tenant agrees to indemnify Landlord for the costs thereof and liabilities therefrom as set forth above in this Article 12.
12.9. Notices. Tenant shall immediately notify Landlord of any inquiry, test, claim, investigation or enforcement proceeding by or against Tenant or the Premises or the Property known to Tenant concerning any Hazardous Materials. Tenant shall immediately notify Landlord of any release or discharge of Hazardous Materials on, in under or about the Property. Tenant acknowledges that Landlord, as the owner of the Property, shall have the sole right at its election and at Tenants expense, to negotiate, defend, approve and appeal any action taken or order issued with regard to Tenants Hazardous Materials by any applicable governmental authority.
12.10. Surrender. Tenant shall surrender the Property and the Premises to Landlord, upon the expiration or earlier termination of the Lease, free of Tenants Hazardous Materials in accordance with the provisions of this Article 12.
12.11. Survival; Insurance. The provisions of this Article 12 shall survive the expiration or earlier termination of this Lease. The provisions of Article 13 (Insurance) shall not limit in any way Tenants obligations under this Article 12.
13. INDEMNITY; INSURANCE
13.1. Indemnity. Tenant shall indemnify, protect, defend and save and hold Landlord and Landlords Agents harmless from and against any and all losses, costs, liabilities, claims, judgments, liens, damages (including consequential damages) and expenses, including, without limitation, reasonable attorneys fees and costs and reasonable investigation costs, incurred in connection with or arising from: (a) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenants part to be observed or performed, or (b) the use or occupancy or manner of use or occupancy of the Property by Tenant and Tenants Agents, (c) the condition of the Premises, and any occurrence in the Premises (including injury to or death of any person, or damage to property) from any cause whatsoever, except to the extent caused by the negligence or willful misconduct of Landlord, and (d) any acts or omissions or negligence of Tenant or of Tenants Agents, in, on or about the Property. In case any action or proceeding be brought, made or initiated against Landlord relating to any matter covered by Tenants indemnification obligations under this Section or under Section 12.5, Tenant, upon notice from Landlord, shall at its sole cost and expense, resist or defend such claim, action or proceeding by counsel approved by Landlord. Notwithstanding the foregoing, Landlord may retain its own counsel to defend or assist in defending any claim, action or proceeding involving potential liability of Five Million Dollars ($5,000,000) or more. Tenants obligations under this Section shall survive the expiration or earlier termination of this Lease.
13.2. Insurance. Tenant shall procure at its sole cost and expense and keep in effect during the Term:
(a) commercial general liability insurance covering Tenants operations in the Premises and the use and occupancy of the Premises and the Property and any part thereof by Tenant. Such insurance shall include broad form contractual liability insurance coverage insuring Tenants obligations under this Lease. Such coverage shall be written on an occurrence form and shall have a minimum combined single limit of liability of not less than three million dollars ($3,000,000.00). Tenants policy shall be written to apply to all bodily injury, property damage, personal injury and other covered loss (however occasioned) occurring during the policy term, with at least the following endorsements to the extent such endorsements are generally available: (i) deleting any employee exclusion on personal injury coverage, (ii) including employees as additional insureds, (iii) providing broad form property damage coverage and products completed operations coverage (where applicable), and (iv) deleting any liquor liability exclusions. Such insurance shall name Landlord and any other party designated by Landlord as an additional insured, shall specifically include the liability assumed hereunder by Tenant, shall provide that it is primary insurance, shall provide for severability of interests, shall further provide that an act or omission of one of the named insureds which would void or otherwise reduce coverage shall not reduce or void the coverage as to any insured, shall afford coverage for claims based on acts, omissions, injury or damage which occurred or arose (or the onset of which occurred or arose in whole or in part during the policy period), and shall provide that Landlord will receive thirty (30) days written notice from the insurer prior to any cancellation or material change of coverage;
(b) commercial property insurance, including sprinkler leakages, vandalism and malicious mischief and plate glass damage covering all the items specified as Tenants Property and all other property of every description including stock-in-trade, furniture, fittings, installations, alterations, additions, partitions and fixtures or anything in the nature of a leasehold improvement made or installed by or on behalf of the Tenant in the Premises in an amount of not less than one hundred percent (100%) of the full replacement cost thereof as shall from time to time be determined by Tenant in form reasonably satisfactory to Landlord;
(c) Workers Compensation Insurance in the amounts and coverages required under workers compensation, disability and similar employee benefit laws applicable to Tenant and/or the Premises from time to time, and Employers Liability Insurance, with limits of not less than one million dollars ($1,000,000) or such higher amounts as may be required by law;
(d) business income insurance with extra expense insurance in an amount sufficient to insure payment of Rent for a period of not less than twelve (12) months during any interruption of Tenants business by reason of the Premises or Tenants Property being damaged by casualty; and
(e) any other form or forms of insurance as Landlord may reasonably require from time to time in amounts and for insurable risks against which a prudent tenant would protect itself to the extent landlords of comparable buildings in the vicinity of the in the Property require their tenants to carry such other form(s) of insurance.
13.3. Policies. All policies of insurance required of Tenant shall be issued by insurance companies with general policyholders rating of not less than A, as rated in the most current available Bests Insurance Reports, and not prohibited from doing business in the
State of California, and shall, with the exception of Workers Compensation Insurance, include as additional insureds Landlord, and such other persons or entities as Landlord specifies from time to time. Such policies, with the exception of Workers Compensation Insurance, shall be for the mutual and joint benefit and protection of Landlord, Tenant and others specified by Landlord. Executed copies of Tenants policies of insurance or certificates thereof shall be delivered to Landlord within ten (10) days prior to the delivery of possession of the Premises to Tenant and thereafter within thirty (30) days prior to the expiration of the term of each such policy. All commercial general liability and property damage policies shall contain a provision that Landlord and any other additional insured, although named as additional insureds, shall nevertheless be entitled to recover under said policies for a covered loss occasioned by it, its servants, agents and employees, by reason of Tenants negligence. As often as any policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All such policies of insurance shall provide that the company writing said policy will give to Landlord thirty (30) days notice in writing in advance of any cancellation or lapse or of the effective date of any reduction in the amounts of insurance. All commercial general liability, property damage and other casualty policies shall be written on an occurrence basis. Landlords coverage shall not be contributory. No policy shall have a deductible in excess of $5,000 for any one occurrence.
13.4. Landlords Rights. Should Tenant fail to take out and keep in force each insurance policy required under this Article 13, or should such insurance not be approved by Landlord and should the Tenant not rectify the situation within two (2) Business Days after written notice from Landlord to Tenant, Landlord shall have the right, without assuming any obligation in connection therewith, to purchase such insurance at the sole cost of Tenant, and all costs incurred by Landlord shall be payable to Landlord by Tenant within thirty (30) days after demand as Additional Rent and without prejudice to any other rights and remedies of Landlord under this Lease.
13.5. Waiver of Subrogation. Notwithstanding anything to the contrary contained herein, to the extent permitted by their respective policies of insurance and to the extent of insurance proceeds received (or which would have been received had the party carried the insurance required by this Lease) with respect to the loss, Landlord and Tenant each hereby waive any right of recovery against the other party and against any other party maintaining a policy of insurance with respect to the Property or any portion thereof or the contents of the Premises or the Building for any loss or damage sustained by such other party with respect to the Premises, the Building or the Property, or any portion thereof, or the contents of the same or any operation therein, whether or not such loss is caused by the fault or negligence of such other party. Either party shall notify the other party if the policy of insurance carried by it does not permit the foregoing waiver.
13.6. No Liability. No approval by Landlord of any insurer, or the terms or conditions of any policy, or any coverage or amount of insurance, or any deductible amount shall be construed as a representation by Landlord of the solvency of the insurer or the sufficiency of any policy or any coverage or amount of insurance or deductible and Tenant assumes full risk and responsibility for any inadequacy of insurance coverage or any failure of insurers.
14. ASSIGNMENT AND SUBLETTING
14.1. Consent Required. Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or
any part of its interest in or rights with respect to the Premises or its leasehold estate (collectively, Assignment), or permit all or any portion of the Premises to be occupied by anyone other than itself or sublet all or any portion of the Premises (collectively, Sublease ) without Landlords prior written consent, such consent not to be unreasonably withheld (subject to Landlords rights as described in Sections 14.5). Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold its consent in the following instances:
(a) the use of the Premises would not comply with the provisions of this Lease;
(b) Tenant is in default of any obligation of Tenant under this Lease, or Tenant has defaulted under this Lease on two or more occasions within the prior year;
(c) the assignment or sublease is for a portion of the Premises or would result in the dividing or sub-demising of the Premises;
(d) the proposed assignee or sublessee is a governmental agency;
(e) in Landlords reasonable judgment, the use of the Premises by the proposed assignee or sublessee would involve occupancy by other than for a Permitted Use, would entail any alterations which would lessen the value of the leasehold improvements in the Premises, or would require increased services by Landlord;
(f) in Landlords reasonable judgment, the financial worth of the proposed assignee or sublessee does not meet the credit standards applied by Landlord;
(g) the proposed assignee or sublessee (or any of its affiliates) has been in material default under a lease, has been in litigation with a previous landlord, or in the ten years prior to the assignment or sublease has filed for bankruptcy protection, has been the subject of an involuntary bankruptcy, or has been adjudged insolvent;
(h) Landlord has experienced a previous default by or is in litigation with the proposed assignee or sublessee;
(i) in Landlords reasonable judgment, the Premises or any part of the Building, will be used in a manner that will violate any negative covenant as to use contained in this Lease; the use of the Premises by the proposed assignee or sublessee will violate any applicable law, ordinance, or regulation;
(j) the proposed assignee or sublessee is a tenant in the Building or 2000 Sierra Point Parkway, Brisbane, either as of the date of this Lease or at the time of Notice, or has within the prior three (3) months been offered to Lease other office space in the Building or 2000 Sierra Point Parkway, Brisbane, by Landlord; or
(k) the proposed assignment or sublease fails to include all of the terms and provisions required to be included therein pursuant to this Article 14.
14.2. Notice. If Tenant desires to enter into a Sublease of all or any portion of the Premises or Assignment of this Lease (except as provided in Section 14.7), it shall give written notice (the Transfer Notice) to Landlord of its intention to do so, which notice shall contain (a) the name and address of the proposed assignee, subtenant or occupant (the
Transferee), (b) the nature of the proposed Transferees business to be carried on in the Premises, (c) the terms and provisions of the proposed Assignment or Sublease, and (d) such financial information as Landlord may reasonably request concerning the proposed Transferee (hereafter the Complete Transfer Notice).
14.3. Terms of Approval. Landlord shall endeavor to respond to Tenants request for approval within fifteen (15) days after receipt of the Complete Transfer Notice; however, Landlords failure to respond shall not result in a deemed approval. If Landlord approves the proposed Assignment or Sublease, Tenant may, not later than thirty (30) days thereafter, enter into the Assignment or Sublease with the proposed Transferee upon the terms and conditions set forth in the Transfer Notice.
14.4. Excess Rent. For any Assignment or Sublease (other than a Permitted Transfer under Section 14.7), fifty percent (50%) of the Excess Rent received by Tenant shall be paid to Landlord as and when received by Tenant. Excess Rent means the gross revenue received from the Transferee during the Sublease term or with respect to the Assignment, less (a) the gross revenue received by Landlord from Tenant during the period of the Sublease term or concurrently with or after the Assignment; (b) any reasonably documented tenant improvement allowance or other economic concession (planning allowance, moving expenses, etc.), paid by Tenant to or on behalf of the Transferee; (d) customary and reasonable external brokers commissions to the extent paid and documented; (e) reasonable attorneys fees; and (f) reasonable costs of advertising the space for Sublease or Assignment (collectively, Transfer Costs). Tenant shall not be required to pay to Landlord any Excess Rent until Tenant has recovered its Transfer Costs.
14.5. Landlord Right of First Refusal. Except for Permitted Transfers, Tenants Transfer Notice shall also include a written offer that includes all of the substantial business terms that Tenant has offered to a Transferee and shall offer to Transfer to Landlord, Tenants interest in the portion of the Premises offered to the Transferee on such terms and conditions (the Offer). Landlord shall have fifteen (15) days from Landlords receipt of the Offer to accept the Offer by written notice to Tenant or to approve or disapprove the Transfer as provided in Section 14.3. If Landlord accepts the Offer, Landlord and Tenant shall consummate the Transfer within fifteen (15) days after Landlords written notice of acceptance. The Transfer shall be consummated by Tenants delivery to Landlord of a good and sufficient assignment of lease or sublease, which shall grant Landlord the right to re-lease the Premises to new tenants on a direct basis. If Landlord does not accept the Offer, but approves the Transfer, then in the event the terms of the Transfer are materially changed during subsequent negotiations to be more favorable to the Transferee, Tenant shall again deliver to Landlord an Offer in accordance with this Section, offering the interest to Landlord on such more favorable terms. Landlord shall then have another period of fifteen (15) days after receipt of such Offer to accept such Offer.
14.6. No Release. No Sublease or Assignment by Tenant nor any consent by Landlord thereto shall relieve Tenant of any obligation to be performed by Tenant under this Lease. Any Sublease or Assignment that is not in compliance with this Article shall be null and void and, at the option of Landlord, shall constitute an Event of Default by Tenant under this Lease, and Landlord shall be entitled to pursue any right or remedy available to Landlord under the terms of this Lease or under the laws of the State of California. The acceptance of any Rent or other payments by Landlord from a proposed Transferee shall not constitute consent to such Sublease or Assignment by Landlord or a recognition of any Transferee, or a waiver by Landlord of any failure of Tenant or other Transferor to comply with this Article.
14.7. Permitted Transfers. Notwithstanding anything in this Article 14 to the contrary, but subject to the provisions of Section 14.8 below, Landlords prior written consent shall not be required for any assignment of this Lease or sublease to any of the following (each a Permitted Transferee): (a) a successor entity related to Tenant by merger, consolidation, or non-bankruptcy reorganization, or (b) a transferee of substantially all of Tenants assets (collectively, Permitted Transfers); provided that after such assignment or transfer the operation of the business conducted in the Premises shall be in the manner required by this Lease and the Transferee shall have a net worth and credit quality equal to the greater of the Tenants net worth and credit quality at the Commencement Date or the net worth and credit quality of the Tenant immediately prior to the consummation of the Assignment or sublease.
14.8. Assumption of Obligations. Any Transferee shall, from and after the effective date of the Assignment, assume all obligations of Tenant under this Lease with respect to the Transferred Space and shall be and remain liable jointly and severally with Tenant for the payment of Base Rent and Additional Rent, and for the performance of all of the terms, covenants, conditions and agreements herein contained on Tenants part to be performed for the Term. No Assignment shall be binding on Landlord unless Tenant delivers to Landlord a counterpart of the Assignment and an instrument that contains a covenant of assumption reasonably satisfactory in substance and form to Landlord, and consistent with the requirements of this Section.
14.9. Landlords Costs. Tenant shall reimburse Landlord for its reasonable third-party costs (including, without limitation, the fees of Landlords counsel), incurred in connection with Landlords review and processing of documents regarding any proposed assignment or sublease.
15. DEFAULT
15.1. Event of Default. The occurrence of any of the following shall be an Event of Default on the part of Tenant:
(a) Failure to pay any part of the Base Rent or Additional Rent, or any other sums of money that Tenant is required to pay under this Lease where such failure continues for a period of three (3) Business Days after written notice of default from Landlord to Tenant. Landlords notice to Tenant pursuant to this subsection shall be deemed to be the notice required under California Code of Civil Procedure Section 1161.
(b) Failure to perform any other covenant, condition or requirement of this Lease when such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of the default is such that more than thirty (30) days are reasonably required for its cure, then an Event of Default shall not be deemed to have occurred if Tenant shall commence such cure within said thirty (30) day period and thereafter diligently and continuously prosecute such cure to completion. Landlords notice to Tenant pursuant to this subsection shall be deemed to be the notice required under California Code of Civil Procedure Section 1161.
(c) The abandonment or vacating for more than one (1) month of the Premises by Tenant.
(d) Tenant shall admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy, insolvency, reorganization, dissolution or
liquidation under any law or statute of any government or any subdivision thereof either now or hereafter in effect, or Tenant shall make an assignment for the benefit of its creditors, consent to or acquiesce in the appointment of a receiver of itself or of the whole or any substantial part of the Premises.
(e) A court of competent jurisdiction shall enter an order, judgment or decree appointing a receiver of Tenant or of the whole or any substantial part of the Premises and such order, judgment or decree shall not be vacated, set aside or stayed within thirty (30) days after the date of entry of such order, judgment, or decree, or a stay thereof shall be thereafter set aside.
(f) A court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against Tenant under any bankruptcy, insolvency, reorganization, dissolution or liquidation law or statute of the federal or state government or any subdivision of either now or hereafter in effect, and such order, judgment or decree shall not be vacated, set aside or stayed within thirty (30) days from the date of entry of such order, judgment or decree, or a stay thereof shall be thereafter set aside.
15.2. Remedies. Upon the occurrence of an Event of Default, Landlord shall have the following rights and remedies:
(a) The right to terminate this Lease upon written notice to Tenant, in which event Tenant shall immediately surrender possession of the Premises in accordance with Article 20.
(b) The right to bring a summary action for possession of the Premises.
(c) The rights and remedies described in California Civil Code Section 1951.2, pursuant to which Landlord may recover from Tenant upon a termination of the Lease, (i) the worth at the time of award of the unpaid rent which has been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenants failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom. The worth at the time of award of the amounts referred to in (i) and (ii) above is computed by allowing interest at the rate of ten percent (10%) per annum. The worth at the time of award of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). The detriment proximately caused by Tenants failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom includes, without limitation, (1) the unamortized portion of any brokerage or real estate agents commissions paid in connection with the execution of this Lease, (2) any direct costs or expenses incurred by Landlord in recovering possession of the Premises, maintaining or preserving the Premises after such default, (3) preparing the Premises for reletting to a new tenant, (4) any repairs or alterations to the Premises for such reletting, (5) leasing commissions, architects fees and any other costs necessary or appropriate either to relet the Premises or, if reasonably necessary in order to relet
the Premises, to adapt them to another beneficial use by Landlord and (6) such amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Laws to the extent that such payment would not result in a duplicative recovery.
(d) The rights and remedies described in California Civil Code Section 1951.4 which allow Landlord to continue this Lease in effect and to enforce all of Landlords rights and remedies under this Lease, including the right to recover Base Rent, Additional Rent and other charges payable hereunder as they become due. Acts of maintenance or preservation, efforts to relet the Premises or the appointment of a receiver upon Landlords initiative to protect its interest under this Lease shall not constitute a termination of Tenants right to possession.
(e) The right and power, as attorney-in-fact for Tenant, to sublet the Premises, to collect rents from all subtenants and to provide or arrange for the provision of all services and fulfill all obligations of Tenant under any permitted subleases. Landlord is hereby authorized on behalf of Tenant, but shall have absolutely no obligation, to provide such services and fulfill such obligations and to incur all such expenses and costs as Landlord deems necessary. Landlord is hereby authorized, but not obligated, to relet the Premises or any part thereof on behalf of Tenant, to incur such expenses as may be necessary to effect a relet and make said relet for such term or terms, upon such conditions and at such rental as Landlord in its reasonable discretion may deem proper. Tenant shall be liable immediately to Landlord for all costs and expenses Landlord incurs in reletting the Premises including, without limitation, brokers commissions, expenses of remodeling the Premises required by the reletting, and the cost of collecting rents and fulfilling the obligations of Tenant to any subtenant. If Landlord relets the Premises or any portion thereof, such reletting shall not relieve Tenant of any obligation hereunder, except that Landlord shall apply the rent or other proceeds actually collected by it as a result of such reletting against any amounts due from Tenant hereunder to the extent that such rent or other proceeds compensate Landlord for the nonperformance of any obligation of Tenant hereunder. Such payments by Tenant shall be due at such times as are provided elsewhere in this Lease, and Landlord need not wait until the termination of this Lease, by expiration of the Term or otherwise, to recover them by legal action or in any other manner. Landlord may execute any sublease made pursuant to this Section in its own name, and the tenant thereunder shall be under no obligation to see to the application by Landlord of any rent or other proceeds, nor shall Tenant have any right to collect any such rent or other proceeds. Landlord shall not by any reentry or other act be deemed to have accepted any surrender by Tenant of the Premises or Tenants interest therein, or be deemed to have otherwise terminated this Lease, or to have relieved Tenant of any obligation hereunder, unless Landlord shall have given Tenant express written notice of Landlords election to do so as set forth herein.
(f) The right to enjoin, and any other remedy or right now or hereafter available to a Landlord against a defaulting tenant under the laws of the State of California or the equitable powers of its courts, and not otherwise specifically reserved herein.
(g) If this Lease provides for a postponement of deferral of any Rent, or for commencement of payment of Rent to a date later than the Commencement Date, or for a period of free Rent or any other Rent concession (collectively, Abated Rent), the right upon an Event of Default to demand immediate payment of the value of the Abated Rent.
15.3. Cumulative Remedies. The various rights and remedies reserved to Landlord, including those not specifically described herein, shall, to the extent that the exercise of such right and/or remedy does not result in a duplicative recovery, be cumulative and shall
be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity and the exercise of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity shall not preclude the simultaneous or later exercise by Landlord of any or all other rights and remedies.
15.4. Waiver of Redemption by Tenant. Tenant hereby waives any right to relief against forfeiture of this Lease pursuant to California Code of Civil Procedure Section 1179.
15.5. Landlords Right to Cure. If Tenant shall fail or neglect to do or perform any covenant or condition required under this Lease and such failure shall not be cured within any applicable grace period, Landlord may, on five (5) days notice to Tenant, but shall not be required to, make any payment payable by Tenant hereunder, discharge any lien, take out, pay for and maintain any insurance required hereunder, or do or perform or cause to be done or performed any such other act or thing (entering upon the Premises for such purposes, if Landlord shall so elect), and Landlord shall not be or be held liable or in any way responsible for any loss, disturbance, inconvenience, annoyance or damage resulting to Tenant on account thereof. Tenant shall repay to Landlord within fifteen (15) days after demand the entire out-of-pocket cost and expense incurred by Landlord in connection with the cure, including, without limitation, compensation to the agents, consultants and contractors of Landlord and reasonable attorneys fees and expenses. Landlord may act upon shorter notice or no notice at all if necessary in Landlords reasonable judgment to meet an emergency situation or governmental or municipal time limitation or to protect Landlords interest in the Premises. Landlord shall not be required to inquire into the correctness of the amount of validity or any tax or lien that may be paid by Landlord and Landlord shall be duly protected in paying the amount of any such tax or lien claimed and in such event Landlord also shall have the full authority, in Landlords sole judgment and discretion and without prior notice to or approval by Tenant, to settle or compromise any such lien or tax. Any act or thing done by Landlord pursuant to the provisions of this Section shall not be or be construed as a waiver of any such failure by Tenant, or as a waiver of any term, covenant, agreement or condition herein contained or of the performance thereof.
15.6. Landlords Default. Landlord shall be in default under this Lease if Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlords obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. Tenant shall be entitled to actual (but not consequential) damages in the event of an uncured default by Landlord, but the provisions of Article 17 shall apply to any Landlord default and Tenant shall not have the right to terminate this Lease as a result of a Landlord default.
16. LANDLORDS RESERVED RIGHTS
16.1. Control of Common Area. Landlord reserves the right, at any time and from time to time, to make alterations, additions, repairs, replacements or improvements to all or any part of the Building (including the Building Structure and Building Systems), the Common Area and the Property. Landlord may make changes at any time and from time to time in the size, shape, location, use and extent of the Common Area, and no such change shall entitle
Tenant to any abatement of rent or damages. Landlord shall at all times during the Term have the sole and exclusive control of the Building Structure and the Common Area, and may at any time and from time to time during the Term restrain any use or occupancy of the Common Area except as authorized by this Lease. With respect to those specific Common Areas provided inside 2000 Sierra Point Parkway, the office building adjacent to the Building, Landlord reserves the right to alter, reconfigure, replace, diminish, expand, cease access to, or remove all or any part. Landlord may temporarily or permanently close any portion of the Common Area for repairs, maintenance, replacements or alterations, to prevent a dedication or the accrual of prescriptive rights, or for any other reasonable purpose; provided, however, that Landlord shall use reasonable efforts not to materially adversely affect Tenants use of the Premises. Tenants rights in and to the Common Area shall at all times be subject to the rights of Landlord and Tenant shall keep the Common Area free and clear of any obstructions created or permitted by Tenant or resulting from Tenants operations.
16.2. Access. Landlord reserves (for itself and its agents, consultants, contractors and employees) the right to enter the Premises at all reasonable times and, except in cases of emergency, after giving Tenant reasonable notice, to inspect the Premises (including, without limitation, environmental testing); to supply any service to be provided by Landlord hereunder; to show the Premises to prospective purchasers or mortgagees; to show the Premises to prospective tenants during the last year of the Term; to post notices of non-responsibility; and to repair or maintain the Premises and the Building as required or permitted by the terms of this Lease, without abatement of Rent, and may for that purpose erect, use and maintain necessary structures in and through the Premises and the Building where reasonably required by the character of the work to be performed. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenants business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned thereby, except to the extent caused by the gross negligence or willful misconduct of Landlord in the exercise of its rights and provided that Landlord shall use reasonable efforts not to materially adversely affect Tenants use of the Premises. All locks for all of the doors in, upon and about the Premises, excluding Tenants vaults and safes or special security areas (designated in advance in writing by Tenant) shall at all times be keyed to a master system and Landlord shall at all times have and retain a key with which to unlock all of said doors. Landlord shall have the right to use any and all means that Landlord may deem necessary or proper to open said doors in an emergency in order to obtain entry to any portion of the Premises, and any such entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof.
16.3. Easements. Landlord reserves the right to grant or relocate all easements and rights of way which Landlord in its sole discretion may deem necessary or appropriate; provided that Tenants rights to use the Property is not materially impeded.
16.4. Use of Additional Areas. Landlord reserves the exclusive right to use any air space above the Property, and the land beneath the Premises; provided that such use shall not materially impede Tenants use of and access to the Premises.
16.5. Subordination. This Lease shall be subject and subordinate at all times to: (a) all reciprocal easement agreements, and any ground leases or underlying leases which may now exist or hereafter be executed affecting the Property, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the
Property, or any ground leases or underlying leases, or Landlords interest or estate in any of said items, is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated to this Lease any of the items referred to in clause (a) or (b) above, subject to compliance with the condition precedent set forth below. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, (i) no person or entity which as a result of the foregoing succeeds to the interest of Landlord under this Lease (a Successor) shall be liable for any default by Landlord or any other matter that occurred prior to the date the Successor succeeded to Landlords interest in this Lease, and (ii) Tenant shall, notwithstanding any subordination, attorn to and become the tenant of the Successor, at the option of the Successor. Tenant covenants and agrees, however, to execute and deliver, upon demand by Landlord and in the form reasonably requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases, underlying leases, reciprocal easement agreements or similar documents or instruments, or with respect to the lien of any such mortgage or deed of trust and Tenants failure to execute and deliver any such document within fifteen (15) days after such demand by Landlord shall constitute an Event of Default without further notice.
17. LIMITATION OF LANDLORDS LIABILITY
17.1. Limitation. Landlord shall not be responsible for or liable to Tenant and Tenant hereby releases Landlord, waives all claims against Landlord and assumes the risk for any injury, loss or damage to any person or property in or about the Property by or from any cause whatsoever (other than Landlords gross negligence or willful misconduct) including, without limitation, (a) acts or omissions of persons occupying adjoining premises, (b) theft or vandalism, (c) burst, stopped or leaking water, gas, sewer or steam pipes, (d) loss of utility service, (e) accident, fire or casualty, (f) nuisance, and (g) work done by Landlord in the Property. There shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenants business arising from the making of any repairs, alterations or improvements to any portion of the Property or to fixtures, appurtenances and equipment in the Property; provided, however, that in the event Landlord fails to perform its obligations to make repairs, alterations or improvements or performs such obligations in a negligent manner in each case which results in Tenant being unable to operate its business at the Premises for a period of more than five (5) consecutive Business Days, then Tenant shall be entitled to an abatement of Rent commencing on the sixth business day Tenant is unable to operate and continuing until the Premises are again available for operation of Tenants business. Such Rent abatement shall be Tenants only remedy in the event of a negligent interference with Tenants business and Tenant shall not be entitled to damages or to termination of this Lease arising from Landlords repairs, alterations or improvements. No interference with Tenants operations in the Premises shall constitute a constructive or other eviction of Tenant. Tenant hereby waives and releases any right it may have to make repairs at Landlords expense under Sections 1941 and 1942 of the California Civil Code, or under any similar law, statute or ordinance now or hereafter in effect.
17.2. Sale of Property. It is agreed that Landlord may at any time sell, assign or transfer its interest as landlord in and to this Lease, and may at any time sell, assign or transfer its interest in and to the Property. In the event of any transfer of Landlords interest in this Lease or in the Property, the transferor shall be automatically relieved of any and all of Landlords obligations and liabilities accruing from and after the date of such transfer; provided
that the transferee assumes all of Landlords obligations under this Lease. Tenant hereby agrees to attorn to Landlords assignee, transferee, or purchaser from and after the date of notice to Tenant of such assignment, transfer or sale, in the same manner and with the same force and effect as though this Lease were made in the first instance by and between Tenant and the assignee, transferee or purchaser.
17.3. No Personal Liability. In the event of any default by Landlord hereunder, Tenant shall look only to Landlords interest in the Property and rents therefrom and any available insurance proceeds for the satisfaction of Tenants remedies, and no other property or assets of Landlord or any trustee, partner, member, officer or director thereof, disclosed or undisclosed, shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenants remedies under or with respect to this Lease.
18. DESTRUCTION
18.1. Landlords Repair Obligation. If the Property or any portion thereof is damaged by fire or other casualty, Landlord shall repair the same (including the Tenant Improvement Work, but not any Tenants Alterations); provided that (a) such repairs can be made under the laws and regulations of the federal, state and local governmental authorities having jurisdiction within twelve (12) months after the date of such damage (or in the case of damage occurring during the last twelve (12) months of the Term, provided that such repairs can be made within ninety (90) days after the date of such damage), (b) such repairs are fully covered (except for any deductible) by the proceeds of insurance maintained by Landlord, and (c) the damage does not affect more than fifty percent (50%) of the assessed value of the Building.
18.2. Notice. Landlord shall notify Tenant within sixty (60) days after the date of damage whether or not the requirements for reconstruction and repair described in Section 18.1 are met. If such requirements are not met, Landlord shall have the option, exercisable within sixty (60) days after the date of such damage either to: (a) notify Tenant of Landlords intention to repair such damage, in which event this Lease shall continue in full force and effect (unless terminated by Tenant pursuant to Section 18.3 below), or (b) notify Tenant of Landlords election to terminate this Lease as of the date of the damage. If such notice to terminate is given by Landlord, this Lease shall terminate as of the date of such damage. If within ten (10) days after receipt of a notice from Landlord electing to terminate this Lease because of the unavailability of insurance proceeds, Tenant sends Landlord a notice electing to reimburse Landlord for the cost of such repairs that are in excess of five percent (5%) of the replacement cost of the Building (as determined as of the day prior to any such damage), this Lease shall not terminate, and Landlord shall complete such repairs.
18.3. Termination by Tenant. If Landlord elects to repair or is required to repair the damage and any such repair (a) is not commenced by Landlord within one hundred twenty (120) days after the occurrence of such damage or destruction, or (b) is not or cannot practicably be substantially completed by Landlord within twelve (12) months after the occurrence of such damage or destruction (or in the case of damage occurring in the last twelve (12) months of the Term, within ninety (90) days), then in either such event Tenant may, at its option, upon written notice to Landlord to be delivered within fifteen (15) days after receipt of Landlords notice or the expiration of the 120-day commencement period, elect to terminate this Lease as of the date of the occurrence of such damage or destruction.
18.4. Rent Adjustment. In case of termination pursuant to Sections 18.2 or 18.3 above, the Base Rent and Operating Expenses shall be reduced by a proportionate amount based upon the extent to which such damage interfered with the business carried on by Tenant in the Premises, and Tenant shall pay such reduced Base Rent and Operating Expenses up to the date of vacation of the Premises. If Landlord is required or elects to make repairs, and Tenant does not terminate this Lease pursuant to Section 18.3, this Lease shall remain in full force and effect except that Tenant shall be entitled to a proportionate reduction of Base Rent and Operating Expenses from the date of such casualty and during the period such repairs are being made by a proportionate amount based upon the extent of interference with Tenants operations in the Premises. The full amount of Base Rent and Operating Expenses shall again become payable immediately upon the completion of such work of repair, reconstruction or restoration. The repairs to be made by Landlord under this Article shall not include, and Landlord shall not be required to repair, any casualty damage to Tenants Property or any Alterations.
18.5. Tenant Obligations. If Landlord elects or is required to repair, reconstruct or restore the Premises after any damage or destruction, Tenant shall be responsible at its own expense for the repair and replacement of any of Tenants Property and any Alterations that Tenant elects to replace.
18.6. No Claim. Tenant shall have no interest in or claim to any portion of the proceeds of any property insurance or self-insurance maintained by Landlord in connection with the damage. If Landlord is entitled and elects not to rebuild the Premises, Landlord shall relinquish to Tenant such claim as Landlord may have for any part of the proceeds of any insurance maintained by Tenant under Section 13.2 of this Lease.
18.7. No Damages. If Landlord is required or elects to make any repairs, reconstruction or restoration of any damage or destruction to the Premises under any of the provisions of this Article 18, Tenant shall not be entitled to any damages by reason of any inconvenience or loss sustained by Tenant as a result thereof. Except as expressly provided in Section 18.4, there shall be no reduction, change or abatement of any rental or other charge payable by Tenant to Landlord hereunder, or in the method of computing, accounting for or paying the same. Tenant hereby waives the provisions of Section 1932(2) and Section 1933(4) of the California Civil Code, or any other statute or law that may be in effect at the time of a casualty under which a lease is automatically terminated or a tenant is given the right to terminate a lease due to a casualty.
19. EMINENT DOMAIN
19.1. Taking. If all or any part of the Premises shall be taken as a result of the exercise of the power of eminent domain or any transfer in lieu thereof, this Lease shall terminate as to the part so taken as of the date of taking or as of the date of final judgment, whichever is earlier, and, in the case of a partial taking of at least twenty-five percent (25%) of the Rentable Area of the Premises, either Landlord or Tenant shall have the right to terminate this Lease as to the balance of the Premises by written notice to the other within thirty (30) days after such date, provided, however, that a condition to the exercise by Tenant of such right to terminate shall be that the portion of the Premises taken shall be of such extent and nature as substantially to handicap, impede or impair Tenants use of the balance of the Premises. If any material part of the Common Area shall be taken as a result of the exercise of the power of eminent domain or any transfer in lieu thereof, whether or not the Premises are affected, Landlord shall have the right to terminate this Lease by written notice to Tenant within thirty (30)
days of the date of taking. If any material part of the Common Area shall be taken as a result of the exercise of the power of eminent domain or any transfer in lieu thereof, such that Tenants access to or use of the Premises is materially adversely affected, Tenant shall have the right to terminate this Lease by written notice to Landlord within thirty (30) days of the date of taking.
19.2. Award. In the event of any taking, Landlord shall be entitled to any and all compensation, damages, income, rent, awards, or any interest therein whatsoever which may be paid or made in connection therewith, and Tenant shall assign to Landlord any right to compensation or damages for the condemnation of its leasehold interest; provided that Tenant may file a claim for (a) Tenants relocation expenses, and (b) the taking of Tenants Property.
19.3. Partial Taking. In the event of a partial taking of the Premises which does not result in a termination of this Lease, the Base Rent and Operating Expenses shall be adjusted as follows:
(a) In the event of a partial taking, if this Lease is not terminated pursuant to this Article 19, Landlord shall repair, restore or reconstruct the Premises to a useable state; provided that Landlord shall not be required to expend any sums other than those received pursuant to Section 19.2.
(b) During the period between the date of the partial taking and the completion of any necessary repairs, reconstruction or restoration, Tenant shall be entitled to a reduction of Base Rent and Operating Expenses by a proportionate amount based upon the extent of interference with Tenants operations in the Premises; and
(c) Upon completion of said repairs, reconstruction or restoration, and thereafter throughout the remainder of the Term, the Base Rent and Operating Expenses shall be recalculated based on the remaining total number of square feet of Rentable Area of the Premises.
19.4. Temporary Taking. Notwithstanding any other provision of this Article, if a taking occurs with respect to all or any portion of the Premises for a period of twelve (12) months or less, this Lease shall remain unaffected thereby and Tenant shall continue to pay Base Rent and Additional Rent and to perform all of the terms, conditions and covenants of this Lease, provided that Tenant shall have the right to terminate this Lease if the taking continues beyond twelve (12) months. In the event of any such temporary taking, and if this Lease is not terminated, Tenant shall be entitled to receive that portion of any award which represents compensation for the use or occupancy of the Premises during the Term up to the total Base Rent and Additional Rent owing by Tenant for the period of the taking, and Landlord shall be entitled to receive the balance of any award.
19.5. Sale in Lieu of Condemnation. A voluntary sale by Landlord of all or any part of the Property to any public or quasi-public body, agency or person, corporate or otherwise, having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed to be a taking under the power of eminent domain for the purposes of this Article.
19.6. Waiver. Except as provided in this Article, Tenant hereby waives and releases any right it may have under any Applicable Law to terminate this Lease as a result of a taking, including without limitation Sections 1265.120 and 1265.130 of the California Code of Civil Procedure, or any similar law, statute or ordinance now or hereafter in effect.
20. SURRENDER
20.1. Surrender. Upon the Termination Date, Tenant shall surrender the Premises to Landlord in as good order and repair as on the Commencement Date, reasonable wear and tear and damage by casualty excepted, free and clear of all letting and occupancies and free of Hazardous Materials as required pursuant to Article 12. Subject to Article 9, upon any termination of this Lease all improvements, except for Tenants Property, shall automatically and without further act by Landlord or Tenant, become the property of Landlord, free and clear of any claim or interest therein by Tenant, and without payment therefore by Landlord.
20.2. Holding Over. Any holding over after the expiration of the Term with the consent of Landlord shall be construed to automatically extend the Term on a month-to-month basis at a Base Rent equal to the greater of (a) one and one-half (1.5) times the then-current Base Rent, and (b) the Rent rate at which Landlord is then offering space in Building, and shall otherwise be on the terms and conditions of this Lease to the extent applicable. Any holding over without Landlords consent shall entitle Landlord to exercise any or all of its remedies provided in Article 15, notwithstanding that Landlord may elect to accept one or more payments of Base Rent and Operating Expenses from Tenant.
20.3. Quitclaim. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the Property.
21. FINANCIAL STATEMENTS
Tenant shall tender to Landlord within fifteen (15) days after receipt of a written request any information reasonably requested by Landlord regarding the financial stability, credit worthiness or ability of Tenant to pay the Rent due under this Lease. Landlord shall be entitled to rely upon the information provided in determining whether or not to enter into this Lease or for the purpose of any financing or other transaction subsequently undertaken by Landlord. Tenant hereby represents and warrants to Landlord the following: (a) that all documents provided by Tenant to Landlord in connection with the negotiation of this Lease are true and correct copies of the originals, (b) Tenant has not withheld any information from Landlord that is material to Tenants credit worthiness, financial condition or ability to perform its obligations hereunder, (c) all information supplied by Tenant to Landlord is true, correct and accurate, and (d) no part of the information supplied by Tenant to Landlord contains any misleading or fraudulent statements. A default under this Article shall be a non-curable default by Tenant and Landlord shall be entitled to pursue any right or remedy available to Landlord under the terms of this Lease or available to Landlord under the laws of the State of California. Landlord shall a be entitled to disclose Tenants financial information to (1) its agents, employees and consultants, (2) potential purchasers of an interest in the Property, and (3) lenders contemplating making a loan to the Landlord to be secured by the Property, provided that such recipients are advised of the confidential nature of such information and agree to maintain such confidentiality.
22. TENANT CERTIFICATES
Tenant, at any time and from time to time within fifteen (15) days after receipt of written notice from Landlord, shall execute, acknowledge and deliver to Landlord or to any party
designated by Landlord (including prospective lenders, purchasers, ground lessees and others similarly situated), a certificate of Tenant stating, to the best of Tenants knowledge: (a) that Tenant has accepted the Premises, (b) the Commencement Date, the Rent Commencement Date and Expiration Date of this Lease, (c) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that same is in full force and effect as modified and stating the modifications), (d) whether or not there are then existing any defenses against the enforcement of any of the obligations of Tenant under this Lease (and, if so, specifying same), (e) whether or not there are then existing any defaults by Landlord in the performance of its obligations under this Lease (and, if so, specifying same), (f) the dates, if any, to which the Base Rent and Operating Expenses have been paid, and (g) any other factual information relating to the rights and obligations under this Lease that may reasonably be required by any of such persons. Failure to deliver such certificate when due shall constitute an Event of Default. At the request of Tenant, Landlord shall execute, acknowledge and deliver to Tenant a certificate with similar types of information and in the time period set forth above. Failure by either Landlord or Tenant to execute, acknowledge and deliver such certificate shall be conclusive evidence that this Lease is in full force and effect and has not been modified except as may be represented by the requesting party.
23. RULES AND REGULATIONS; SIGNS
23.1. Rules and Regulations. Tenant shall faithfully observe and comply with all rules and regulations and all reasonable modifications thereof and additions thereto from time to time put into effect by Landlord (the Rules and Regulations). Landlord shall not enforce such Rules and Regulations in an unreasonable or discriminatory manner. In the event of any conflict between the terms of this Lease and the terms, covenants, agreements and conditions of the Rules and Regulations, this Lease shall control.
23.2. Signs. Landlord shall enter Tenants name in the Building directory located in the main lobby of the Building and on the monument signs at the entry to the Property. Tenant shall have the right to install signage adjacent to the entrance doors to Tenants Premises identifying Tenant, subject to Landlords reasonable consent.
24. INABILITY TO PERFORM
Except as provided in Section 18, if Landlord is unable to fulfill or is delayed in fulfilling any of Landlords obligations under this Lease, by reason of acts of God, accidents, breakage, repairs, strikes, lockouts, other labor disputes, inability to obtain utilities or materials or by any other reason beyond Landlords reasonable control, then no such inability or delay by Landlord shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Base Rent or Additional Rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or Landlords Agents by reason of inconvenience, annoyance, interruption, injury or loss to or interference with Tenants business or use and occupancy or quiet enjoyment of the Premises or any loss or damage occasioned thereby. If Tenant is unable to fulfill or is delayed in fulfilling any of Tenants obligations under this Lease (other than the payment of Rent), by reason of acts of God, accidents, breakage, repairs, strikes, lockouts, other labor disputes, inability to obtain utilities or materials or by any other reason beyond Tenants reasonable control, then such inability or delay by Tenant shall excuse the performance of Tenant for a period equal to the duration of such prevention, delay or stoppage. Tenant hereby waives and releases any right to terminate this Lease under Section 1932(1) of the California Civil Code, or any similar law, statute or ordinance now or hereafter in effect.
25. NOTICES
Notices or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by certified mail with a return receipt requested, or delivered in person or by reputable overnight courier (e.g., Federal Express, UPS, etc.): (a) to Tenant at Tenants address set forth in Article 1; or (b) to Landlord at Landlords address set forth in Article 1; or (c) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Article. Any such notice or other communication shall be deemed to have been rendered or given five (5) days after the date mailed, if sent by certified mail, or upon the date of delivery in person or by courier, or when delivery is attempted but refused.
26. QUIET ENJOYMENT
Landlord covenants that so long as an Event of Default by Tenant is not in existence, upon paying the Base Rent and Additional Rent and performing all of its obligations under this Lease, Tenant shall peaceably and quietly enjoy the Premises, subject to the terms and provisions of this Lease.
27. AUTHORITY
If Tenant is a corporation, limited liability company or a partnership, Tenant represents and warrants as follows: Tenant is an entity as identified in Article 1, duly formed and validly existing and in good standing under the laws of the state of organization specified in Article 1 and qualified to do business in the State of California. Tenant has the power, legal capacity and authority to enter into and perform its obligations under this Lease and no approval or consent of any person is required in connection with the execution and performance hereof. The execution and performance of Tenants obligations under this Lease will not result in or constitute any default or event that would be, or with notice or the lapse of time would be, a default, breach or violation of the organizational instruments governing Tenant or any agreement or any order or decree of any court or other governmental authority to which Tenant is a party or to which it is subject. Tenant has taken all necessary action to authorize the execution, delivery and performance of this Lease and this Lease constitutes the legal, valid and binding obligation of Tenant. Upon Landlords request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing representations and warranties.
Landlord represents and warrants as follows: Landlord has the power, legal capacity and authority to enter into and perform its obligations under this Lease and no approval or consent of any person is required in connection with the execution and performance hereof. The execution and performance of Landlords obligations under this Lease will not result in or constitute any default or event that would be, or with notice or the lapse of time would be, a default, breach or violation of the organizational instruments governing Landlord or any agreement or any order or decree of any court or other governmental authority to which Landlord is a party or to which it is subject. Landlord has taken all necessary action to authorize the execution, delivery and performance of this Lease and this Lease constitutes the legal, valid and binding obligation of Landlord.
28. BROKERS
Tenant and Landlord warrant that they have had dealings with only the real estate brokers or agents listed in Article 1 in connection with the negotiation of this Lease and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Landlord shall pay the brokerage commission earned in connection with this transaction pursuant to separate agreement. Tenant and Landlord shall indemnify, defend and hold the other harmless from and against all liabilities arising from any other claims of brokerage commissions or finders fees based on Tenants or Landlords, as applicable, dealings or contacts with brokers or agents other than those listed in Article 1.
29. MISCELLANEOUS
29.1. Entire Agreement. This Lease, including the exhibits that are incorporated herein and made a part of this Lease, contains the entire agreement between the parties and all prior negotiations and agreements are merged herein. Tenant hereby acknowledges that neither Landlord nor Landlords Agents have made any representations or warranties with respect to the Premises, the Property, or this Lease except as expressly set forth herein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth herein.
29.2. No Waiver. No failure by Landlord or Tenant to insist upon the strict performance of any obligation of Tenant or Landlord under this Lease or to exercise any right, power or remedy consequent upon a breach thereof, no acceptance of full or partial Base Rent or Additional Rent during the continuance of any such breach by Landlord, or payment of Base Rent or Additional Rent by Tenant to Landlord, and no acceptance of the keys to or possession of the Premises prior to the expiration of the Term by any employee or agent of Landlord shall constitute a waiver of any such breach or of such term, covenant or condition or operate as a surrender of this Lease. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant and condition of this Lease shall continue in full force and effect with respect to any other then-existing or subsequent breach thereof. The consent of Landlord or Tenant given in any instance under the terms of this Lease shall not relieve Tenant or Landlord, as applicable, of any obligation to secure the consent of the other in any other or future instance under the terms of this Lease.
29.3. Modification. Neither this Lease nor any term or provisions hereof may be changed, waived, discharged or terminated orally, and no breach thereof shall be waived, altered or modified, except by a written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought.
29.4. Successors and Assigns. The terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and, except as otherwise provided or limited herein, their respective personal representatives and successors and assigns.
29.5. Validity. If any provision of this Lease or the application thereof to any person, entity or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons, entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the full extent permitted by law.
29.6. Jurisdiction. This Lease shall be construed and enforced in accordance with the laws of the State of California. Any action that in any way involves the rights, duties
and obligations of the parties under this Lease may (and if against Landlord, shall) be brought in the courts of the State of California or the United States District Court for the District of California, and the parties hereto hereby submit to the personal jurisdiction of said courts.
29.7. Attorneys Fees. In the event that either Landlord or Tenant fails to perform any of its obligations under this Lease or in the event a dispute arises concerning the meaning or interpretation of any provision of this Lease, the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party in enforcing or establishing its rights hereunder, including, without limitation, court costs, costs of arbitration and reasonable attorneys fees.
29.8. Waiver of Jury Trial. Landlord and Tenant each hereby voluntarily and knowingly waive and relinquish their right to a trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord with Tenant, or Tenants use or occupancy of the Premises, including any claim of injury or damage, and any emergency and other statutory remedy with respect thereto.
29.9. No Counterclaim by Tenant. In the event Landlord commence any proceedings for nonpayment of rent or other charges payable by Tenant under this Lease, Tenant will not interpose any counterclaim of whatever nature or description in any such proceedings. This shall not, however, be construed as a waiver of the Tenants right to assert such claims in any separate action or actions brought by the Tenant.
29.10. Light and Air. Tenant covenants and agrees that no diminution of light, air or view by any structure that may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of the Base Rent or Additional Rent under this Lease, result in any liability of Landlord to Tenant, or in any other way affect this Lease or Tenants obligations hereunder.
29.11. Lease Memorandum. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other.
29.12. Confidentiality. The parties agree that neither of them shall make public the terms and conditions of this Lease or the fact that they have entered into this Lease to any person other than a partys accountants, attorneys, lenders, brokers, prospective ground lessees, investors, consultants or financial advisors without first obtaining the written permission from the other party, except to the extent otherwise required by Applicable Law.
29.13. Terms. The term Premises includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The words Landlord and Tenant as used herein shall include the plural as well as the singular. If there is more than one Tenant or Landlord, the obligations under this Lease imposed on Tenant or Landlord shall be joint and several. The captions preceding the articles of this Lease have been inserted solely as a matter of convenience and such captions in no way define or limit the scope or intent of any provision of this Lease.
29.14. Review and Approval. The review, approval, inspection or examination by Landlord of any item to be reviewed, approved, inspected or examined by Landlord under the terms of this Lease or the exhibits attached hereto shall not constitute the assumption of any responsibility by Landlord for either the accuracy or sufficiency of any such item or the quality of
suitability of such item for its intended use. Any such review, approval, inspection or examination by Landlord is for the sole purpose of protecting Landlords interests in the Property and under this Lease, and no third parties, including, without limitation, Tenant or any person or entity claiming through or under Tenant, or the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person or entity, shall have any rights hereunder with respect to such review, approval, inspection or examination by Landlord.
29.15. No Beneficiaries. This Lease shall not confer or be deemed to confer upon any person or entity other than the parties hereto, any right or interest, including without limitation, any third party status or any right to enforce any provision of this Lease.
29.16. Time of the Essence. Time is of the essence in respect of all provisions of this Lease in which a definite time for performance is specified.
29.17. Modification of Lease. In the event of any ruling or threat by the Internal Revenue Service, or opinion of counsel, that all or part of the Rent paid or to be paid to Landlord under this Lease will be subject to the income tax or unrelated business taxable income, Tenant agrees to modify this Lease to avoid such tax; provided that such modifications will not result in any increase in Rent, or any increased obligations of Tenant under this Lease. Landlord will pay all Tenants reasonable costs incurred in reviewing and negotiating any such lease modification, including reasonable attorneys and accountants fees.
29.18. Construction. This Lease has been negotiated extensively by Landlord and Tenant with and upon the advice of their respective legal counsel, all of whom have participated in the drafting hereof. Consequently, Landlord and Tenant agree that no party shall be deemed to be the drafter of this Lease and in the event this Lease is ever construed by a court of law, such court shall not construe this Lease or any provision of this Lease against any party as the drafter of the Lease.
29.19. Survival. The obligations of this Lease shall survive the expiration of the Term to the extent necessary to implement any requirement for the performance of obligations or forbearance of an act by either party hereto which has not been completed prior to the termination of this Lease. Such survival shall be to the extent reasonably necessary to fulfill the intent thereof, or if specified, to the extent of such specification, as same is reasonably necessary to perform the obligations and/or forbearance of an act set forth in such term, covenant or condition. Notwithstanding the foregoing, in the event a specific term, covenant or condition is expressly provided for in such a clear fashion as to indicate that such performance of an obligation or forbearance of an act is no longer required, then the specific shall govern over this general provisions of this Lease.
29.20. Counterparts. This Lease may be executed in counterparts, each of which shall be an original, and all of which together shall constitute one original of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the Effective Date.
LANDLORD: | ||||
Diamond Marina LLC | ||||
a California limited liability company | ||||
By: |
/s/ Stephen P. Diamond |
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Name: |
Stephen P. Diamond |
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Its: |
Manager |
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Diamond Marina II LLC | ||||
a California limited liability company | ||||
By: |
/s/ Andrew Diamond |
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Name: |
Andrew Diamond |
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Its: |
Manager |
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TENANT: | ||||
Allergen Research Corporation, | ||||
a Delaware Corporation | ||||
By: |
/s/ Stephen G. Dilly |
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Name: |
Stephen G. Dilly |
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Its: |
Chief Executive Officer |
GLOSSARY
As used in this Lease, the following terms shall have the following meanings, applicable, as appropriate, to both the singular and plural form of the terms defined below:
Abated Rent is defined in Section 15.2(g).
ADA is defined in Section 11.1.
Additional Rent is defined in Section 5.2. Alterations is as defined in Section 9.2.
Applicable Laws are defined in Section 11.1.
Assignment is defined in Section 14.1.
Base Rent means the amount stated in Article 1, to be adjusted and payable in accordance with Article 5.
Building is defined in Section 2.1.
Building Structure is defined in Section 8.1.
Building Systems are defined in Section 7.2(b).
Business Days means Monday through Friday, excluding Saturdays, Sundays and federal and state legal holidays.
Common Area is defined in Section 2.2.
Commencement Date means the date specified in Article 1.
Complete Transfer Notice is defined in Section 14.2.
Effective Date is defined in the introductory paragraph of this Lease.
Environmental Activity is defined in Section 12.1(a).
Environmental Investigation is defined in Section 12.7.
Environmental Laws are defined in Section 12.1(b).
Event of Default is defined in Section 15.1.
Excess Rent is defined in Section 14.4.
Expiration Date means the date specified in Article 1.
Hazardous Material is defined in Section 12.1(c).
Initial Base Rent is defined in Article 1.
Interest Rate is defined in Section 5.3.
Landlord is defined in the introductory paragraph to this Lease.
Landlords Agents is defined in Section 12.5.
Landlords Expense Statement is defined in Section 7.4.
Offer is defined in Section 14.5.
Operating Expenses are defined in Section 7.2.
Permitted Transferee is defined in Section 14.7.
Permitted Transfers is defined in Section 14.7.
Premises is defined in Section 2.1.
Prevailing Market Rent is defined in Exhibit C.
Property is defined in Section 2.2.
Real Estate Taxes are defined in Section 7.2(a).
Renewal Option is defined in Section 4.4.
Renewal Term is defined in Section 4.4.
Rent means Base Rent, Additional Rent, and all other sums due from Tenant under this Lease.
Rent Commencement Date is defined in Article 1.
Rules and Regulations is defined in Section 23.1.
Scheduled Date for Delivery of the Premises is specified in Article 1.
Security Deposit is defined in Article 1 and Section 5.4.
Sublease is defined in Section 14.1.
Substituted Premises is defined in Section 4.5.
Successor is defined in Section 16.5.
Supplemental Investigation is defined in Section 12.7.
Tenant is defined in the introductory paragraph to this Lease.
Tenant Improvement Work is defined in Section 9.1.
Tenant Obligations is defined in Section 8.2.
Tenant Relocation Allowance is defined in Section 9.6.
Tenant Systems is defined in Section 8.2.
Tenants Agents is defined in Section 2.2.
Tenants Hazardous Materials is defined in Section 12.1(d).
Tenants Property is defined in Section 9.5.
Tenants Special Systems is defined in Section 7.8.
Term is defined in Article 1 and Section 4.1.
Termination Date is defined in Section 4.1.
Termination Notice is defined in Section 4.2.
Transfer Costs is defined in Section 14.4.
Transfer Notice is defined in Section 14.2.
Transferee is defined in Section 14.2.
Work Letter is defined in Section 9.1 and attached hereto as Exhibit E.
EXHIBIT A
FLOOR PLAN OF THE PREMISES AS OF THE EFFECTIVE DATE
EXHIBIT B
NOTICE OF COMMENCEMENT DATE, RENT COMMENCEMENT
DATE, EXPIRATION DATE, BASE RENT AND RENTABLE AREA
(Letterhead of Landlord)
(Date)
Attention: |
|
Re: Lease between Diamond Marina LLC and Diamond Marina II LLC (Landlord), and Allergan Research Corporation (Tenant), for Premises located at 8000 Marina Boulevard, Brisbane, California
Gentlemen/Ladies:
This letter will confirm the following for all purposes under the Lease:
The Commencement Date is |
The Rent Commencement Date is |
The Expiration Date is |
The Rentable Area of the Premises is |
The Initial Base Rent is |
Please acknowledge your acceptance of this letter by signing and returning two copies of this letter.
Very truly yours,
DIAMOND MARINA LLC | DIAMOND MARINA II LLC | |||||||
By: |
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By: |
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Name: |
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Name: |
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Its: |
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Its: |
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Accepted and Agreed: | ||||||||
ALLERGEN RESEARCH CORPORATION | ||||||||
By: |
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|||||||
Its: |
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|||||||
Name: |
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Dated: |
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EXHIBIT C
DETERMINATION OF PREVAILING MARKET RENT
The term Prevailing Market Rent means the base monthly rent per rentable square foot, full service, for direct leases from the landlord (as opposed to subleases) of space of comparable size to the Premises and in Class A office buildings located in North San Mateo County similar in quality to the Premises for a comparable term, taking into account any additional rent and all other payments or escalations then being charged and allowances and economic concessions being given for such comparable space over a comparable term. The Prevailing Market Rent shall be determined by Landlord and Landlord shall give Tenant written notice of such determination not later than thirty (30) days after delivery by Tenant of Tenants notice of exercise of the Renewal Option. If Tenant disputes Landlords determination of the Prevailing Market Rent, Tenant shall so notify Landlord within fifteen (15) days following Landlords notice to Tenant of Landlords determination and, in such case, the Prevailing Market Rent shall be determined as follows:
(a) Within thirty (30) days following Tenants notice to Landlord that it disputes Landlords determination of the Prevailing Market Rent, Landlord and Tenant shall meet no less than two (2) times, at a mutually agreeable time and place, to attempt to agree upon the Prevailing Market Rent.
(b) If within this 30-day period Landlord and Tenant cannot reach agreement as to the Prevailing Market Rent, they shall each select one appraiser to determine the Prevailing Market Rent. Each such appraiser shall arrive at a determination of the Prevailing Market Rent and submit his or her conclusions to Landlord and Tenant within thirty (30) days after the expiration of the 30-day consultation period described in (a) above.
(c) If only one appraisal is submitted within the requisite time period, it shall be deemed to be the Prevailing Market Rent. If both appraisals are submitted within such time period, and if the two appraisals so submitted differ by less than ten (10) percent of the higher of the two, the average of the two shall be the Prevailing Market Rent. If the two appraisals differ by more than ten (10) percent of the higher of the two, then the two appraisers shall immediately select a third appraiser who will within thirty (30) days of his or her selection make a determination of the Prevailing Market Rent and submit such determination to Landlord and Tenant. This third appraisal will then be averaged with the closer of the previous two appraisals and the result shall be the Prevailing Market Rent.
(d) All appraisers specified pursuant hereto shall be members of the American Institute of Real Estate Appraisers with not less than five (5) years experience appraising office, research and development and industrial properties in the San Francisco/Peninsula/Silicon Valley area. Each party shall pay the cost of the appraiser selected by such party and one-half of the cost of the third appraiser plus one-half of any other costs incurred in the determination.
EXHIBIT D
ACCEPTANCE FORM
This Acceptance form is executed with reference to that certain Lease dated as of February 23, 2015 by and between DIAMOND MARINA LLC and DIAMOND MARINA 11 LLC, (Landlord), and ALLERGEN RESEARCH CORPORATION (Tenant). Terms defined in the Lease and the exhibits thereto shall have the same meaning when used herein.
Tenant hereby certifies to Landlord that Tenant has inspected the Premises as of (the Date of Inspection). Tenant further acknowledges that Tenant hereby accepts the Premises in its existing condition, subject to the provisions of the Lease.
The person executing this Acceptance Form on behalf of Tenant represents and warrants to Landlord that such person is duly authorized to execute this Acceptance Form and that this Acceptance Form has been duly authorized, executed and delivered on behalf of Tenant.
THIS ACCEPTANCE FORM is executed by Tenant as of the Date of Inspection.
TENANT: | ||||
ALLERGEN RESEARCH CORPORATION | ||||
By: |
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Name: |
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Its: |
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EXHIBIT E
TENANT IMPROVEMENT WORK WORK
LETTER
Tenant Improvement Work . Landlord at Landlords expense shall Deliver the Premises to Tenant having completed the following Tenant Improvement Work at its sole cost and expense:
1) | Consistent with the Plan attached hereto as Exhibit E-1, Landlord shall construct new interior improvements consisting of ten offices, a board room, a reception area, an IT closet. |
2) | With the construction of new walls, Landlord shall also perform related as-needed modifications to the lighting fixture and switch layout, HVAC System distribution, and Fire Life Safety & Sprinkler distribution. |
3) | Electrical: there shall be at least 2 electric outlets per office, j-boxes for Tenants workstations, and miscellaneous electric outlets for Tenants printers, appliances, board room AV equipment, network equipment, and other typical standard office needs. |
4) | The new rooms shall be constructed with full-height doors, frames, and glass sidelights, consistent with the finishes for the pre-existing offices. |
5) | All new building standard carpet tiles shall be installed throughout the office area. The reception area flooring shall be polished concrete. |
6) | Walls shall primarily be painted white, with an accent wall color for selected walls. In the conference rooms, selected walls shall have Dry Erase Paint. |
7) | The existing ceiling lighting, grid and tiles shall remain, with the cleaning, repair, or replacement of any damaged or stained ceiling tiles so that the ceiling grid looks in good condition. |
8) | The existing exterior window blinds shall remain, with the cleaning, repair, or replacement of any damaged or stained window blinds so that the window blinds look in good condition. |
Tenants Construction Contact . Tenants Construction Contact, who shall be empowered by Tenant to make decisions and respond to questions raised by Landlord during the construction of Tenant Improvement Work, shall be: Howard Raff, [***]
Special Conditions. All of Landlords work shall be performed in a good and workmanlike manner, using materials of good quality and in accordance with law. Landlord shall bear responsibility to construct all improvements consistent with any applicable building codes and laws. Tenant agrees that Landlord has the right to modify the Tenant Improvement Work as required by law. Tenant agrees to promptly respond to any inquiry or question of Landlord for the construction of these improvements. Following Delivery of the Premises, Landlord shall have no further responsibility to perform improvements to the Premises, subject to a Punch List of minor items to be completed following Delivery and otherwise subject to the terms of the Lease.
Exclusions . For avoidance of doubt, the following is excluded from the Landlords Tenant Improvement Work: furniture, fixtures, equipment, network cabling, TV cabling and service, AV systems, office signage, specialty finishes, cabinetry, special power systems, security systems, break room appliances (excl. dishwasher and garbage disposal), moving & relocation, server room set-up, or any other items not included above.
EXHIBIT E-1
RECONFIGURED FLOOR PLAN
Exhibit 10.4
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
LEASE
THIS LEASE, made and entered into this 8th day of June , 2015, by and between MID A GROUP, LLC, a Florida limited liability company (hereinafter the Landlord) and ALLERGEN RESEARCH CORPORATION, a California corporation (hereinafter the Tenant),
W I T N E S S E T H :
1. Premises . The Landlord is the owner of certain real property located at 5733 Myerlake Circle, Clearwater, Florida, which is legally described on Exhibit A attached hereto (the Property). There is a building on the Property containing approximately 40,000 square feet (the Building). The entire Property, including the Building and the parking, retention and landscaping areas appurtenant thereto are reflected on a reduced copy of the survey attached hereto as Exhibit B, and shall, for convenience, hereinafter be referred to as the Project. On the Term Commencement Date (as defined below), Landlord leases to Tenant and Tenant leases from Landlord the west 20,000 square foot portion of the Building as outlined in green on Exhibit B attached hereto, together with the rights of the Tenant and the other tenant(s) in the Building and those doing business with them to use the Common Areas (as defined below) appurtenant to the Building (the Premises).
2. Term . The initial term of this Lease (Initial Term) shall be for ten (10) years, commencing upon substantial completion of Landlords Work as outlined in Exhibit E attached hereto (the Term Commencement Date) and ending one hundred and twenty months (120) months thereafter. The parties shall execute and deliver the Commencement Date Certificate in the form set forth in Exhibit C attached hereto in order to confirm and memorialize the Commencement Date. The first Lease Year of this Lease shall be deemed to commence on the Term Commencement Date and shall end on the first annual anniversary of such date. Each subsequent Lease Year of this Lease shall commence on the annual anniversary of the Term Commencement Date thereafter.
3. Base Rent .
(a) Tenant shall pay to Landlord as rent during the term of this Lease (Base Rent) the amount set forth on Exhibit D attached hereto.
(b) All monthly installments of Base Rent will be due on the 1 st day of the month until the term of this Lease expires and shall be paid at the Landlords address set forth herein (or at such address as Landlord from time to time directs in a written notice) beginning on the Term Commencement Date, without set off, counterclaim or demand. Wherever it is provided in this Lease that the Tenant is required, except as otherwise provided herein, to make any additional payment to Landlord, such payment will be deemed to be additional rent for the Premises (Additional Rent) and all remedies for the non-payment of Base Rent will be applicable thereto.
(c) If Tenant fails to pay, within ten (10) days after the same is due and payable, any Base Rent or any Additional Rent, or any other amounts or charges payable by Tenant under this Lease, such unpaid amounts will be increased by a late charge equal to five percent (5%) of the unpaid amount.
(d) Tenant will pay to Landlord all sales, excise, use and/or rental tax imposed by the State of Florida, the county or municipal government, or any other governmental agency with respect to the Base Rent, Additional Rent and all other charges and payments payable by Tenant to or for the account of Landlord pursuant to the terms of this Lease.
(e) Simultaneous with the execution of this Lease, Tenant shall pay Landlord the sum of Thirty-Four Thousand Five Hundred Fifty-Two and 09/100 ($34,552.09) Dollars representing the following:
First months rent |
$ | 12,500.00 | ||
First months property operating costs |
3,916.67 | |||
Last months rent |
15,875.00 | |||
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Subtotal |
32,291.67 | |||
Sales tax (7%) |
2,260.42 | |||
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Total |
$ | 34,552.09 |
4. Landlords and Tenants Work . Upon issuance of a permit for Landlords Work, Landlord shall commence the work as set forth in Exhibit E attached hereto, and shall have ninety (90) days to complete the work.
After Landlords ninety (90) day period, Tenant and Tenants contractor (Contractor) may commence their work as per plans and specifications approved by Landlord. Tenants Work must be permitted by a licensed, bonded, and insured contractor approved by Landlord. Contractor must issue a hold harmless agreement for the benefit of the Landlord. During Landlords ninety (90) day period, Contractor shall be permitted access to the Premises upon twenty-four hours prior notice and accompanied by Landlords representative, for the purpose of planning for Tenants Work, but not for commencing any of Tenants Work.
5. Utilities . Effective at the Term Commencement Date, Tenant will, at its own expense, pay and discharge all costs and charges for water, electricity, gas, telephone and garbage collection (including dumpster) to be furnished in connection with or for the use of the Premises, or any part thereof, including the making of deposits with the proper authorities or persons in order to secure such services. At the time of the Term Commencement Date, if any of the aforesaid services are being furnished to the Premises from accounts that are in the name of the Landlord, Tenant agrees to immediately change such sendee accounts with the proper authorities or persons into the name of the Tenant and the Landlord agrees to cooperate in all reasonable respects with the Tenant to accomplish same. In the event the Tenant fails to change such accounts into Tenants name within ten (10) days alter the Term Commencement Date, Landlord shall have the right, after providing ten (10) days written notice to Tenant, to notify the proper authorities or persons to terminate the furnishing of such services to the Premises without incurring any liability to Tenant on account of such termination.
6. Taxes . During the term of this Lease, Tenant agrees to pay all real estate and personal property taxes assessed against the Premises. Real estate taxes for any portion of a calendar year shall be prorated according to Tenants occupancy during such year. Real estate taxes shall include ad valorem taxes, general and special assessments and, with Tenants written consent, any fees, expenses or costs (including reasonable attorneys fees, expert fees and the like) incurred by Landlord in protesting or contesting any assessment levied, tax valuation or tax rate. The obligations hereunder are to be paid in accordance with paragraph 35 herein. If the real estate taxes assessed against the Premises are included within a total assessment of the Project as reflected on Exhibit B and legally described on page 1 hereof, the portion of such total real estate taxes which are attributable to the Premises shall be the percentage figure determined by dividing the square footage of the Premises in the Building by the total square footage of the Building of which the Premises are a part. It is acknowledged that such percentage is in the amount of fifty percent (50%).
7. Tenant Improvements . Tenant will not make any improvements, installations, alterations or additions in or to the improvements to the Premises without the written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Any such improvements shall be installed at Tenants expense in accordance with plans approved by Landlord and only by such contractor as Landlord may approve, provided, however, that consent to such plans and the contractor selected by Tenant shall not be unreasonably withheld, conditioned or delayed. If Landlord consents to such improvements, alterations, or additions, Tenant agrees to permit Landlord access to the Premises while such work is being performed in order for Landlord to verify that such improvements, alterations or additions are being done in accordance with the plans approved by Landlord.
8. Liens and Charges . The Tenant shall have no authority to incur, create or permit, and shall not incur, create or permit, any lien for labor or materials or services to attach to the interest or estate of either the Landlord or the Tenant in the Premises; and neither the Tenant, nor anyone claiming by, through or under the Tenant, shall have any right to file or place any labor or material lien of any kind or character whatsoever or any mechanics lien or other lien of any kind, upon the Premises so as to encumber or affect the title of the Landlord, and all persons contracting with the Tenant directly or indirectly, or with any person who in turn is contracting with the Tenant, for the erection, construction, installation, alteration or repair of the Premises or any improvements therein or thereon, including fixtures and equipment, and all material-men, contractors, mechanics, laborers, architects, engineers, and others are hereby charged with notice that as and from the date of this instrument, they and each of them must look to the Tenant only to secure the payment of any bills or charges or claims for work done, or materials furnished, or services rendered or performed during the term hereby demised.
9. Use . Tenant shall have the right to use the Premises for office, warehouse and light manufacturing and any purposes reasonably related thereto. Landlord represents that Tenants intended use will not violate any local zoning or land use regulations. Tenant will not use the Premises for any illegal trade or business, including uses or purposes in violation of local zoning or land use regulations.
10. Assignment, Subletting . Tenant shall have the right to assign or sublet all or a portion of the Premises, but only with the Landlords prior written consent. Such consent by Landlord shall not be unreasonably withheld, conditioned or delayed. Any attempted transfer, assignment or subletting without Landlords written consent shall be void and confer no rights upon any third person. No assignment or subletting will relieve Tenant of any obligations under this Lease. The
consent by Landlord to any transfer, assignment or subletting will not be deemed to be a waiver on the part of the Landlord of any prohibition against any future transfer, assignment or subletting. If Landlord consents to any transfer, assignment or subletting, such consent will not be effective unless and until Tenant gives notice of the assignment and a copy of the assignment agreement or sublease to Landlord, and the transferee, assignee or sublessee delivers to Landlord a written agreement in form and substance satisfactory to the Landlord, pursuant to which such transferee, assignee or sublessee assumes all of the obligations and liabilities of the Tenant under the Lease. Tenant may assign the Lease to a wholly owned subsidiary without the Landlords permission.
11. Landlords Rights of Access and Inspection . Tenant will permit the Landlord to enter upon said Premises upon twenty four (24) hours notice during the usual business hours under Tenant supervision and complying with Tenants requirements for proper gowning and other clean-room procedures for the purpose of making inspections or repairs, for the purposes of obeying any laws or orders of any duly constituted governmental or municipal authorities, and/or for the purpose of exhibiting the Premises to prospective tenants or purchasers within four (4) months of the expiration of the Lease, provided Landlord does not unreasonably or unnecessarily interfere with the operation of Tenants business. In making such inspections or repairs, Landlord shall observe all security regulations of Tenant and Landlord and its agents shall hold in confidence any information concerning business or products of Tenant which they, or any of them, may discover while present on said Premises.
12. Damage or Destruction . The parties hereto agree, if by virtue of fire, storm or cause other than a negligent or deliberate act of the Tenant, the Premises become partly or wholly untenantable, then and in that event, the rent shall abate in proportion to the amount of untenantability of said Premises tor so long as they are untenantable. In the event the Premises are not totally destroyed, the Landlord agrees to rebuild the Premises with all possible dispatch
and deliver the same to the Tenant within a period of thirty (30) days after the event causing the destruction. In the event the Premises are greater than seventy-five (75%) percent destroyed, then Tenant or Landlord shall have the option to terminate this Lease within a period of ten (10) days after the said destruction. In the event this Lease is not thus terminated, the Landlord agrees to rebuild the Premises with all possible dispatch and deliver the same to the Tenant within a period of not more than thirty (30) days after an event causing total destruction. However, in no event shall Landlord be obligated to do any rebuilding if the remaining term of this Lease shall have less than one (1) year to run following the expected completion of such rebuilding and Landlord notifies Tenant of its intention not to rebuild within a period of ten (10) days after said destruction. Such an election by Landlord not to rebuild shall constitute a termination of this Lease effective as of the date of the event causing the damage or destruction.
13. Condemnation . If any substantial portion of the Premises shall be taken by eminent domain, Tenant shall have the right to terminate this Lease as of the date of taking by giving written notice of such termination to the Landlord within fifteen (15) days following the date of such taking, and in the event of such termination, rent shall cease as of the date of such termination (or if earlier, the date the condemning authority takes possession of the Premises) and any rent paid beyond that date shall be refunded to the Tenant. Whether or not the Tenant shall exercise such right, the Landlord and Tenant shall have and retain their respective rights to compensation from the condemning authority in connection with and following a taking by eminent domain. If Tenant does not terminate this Lease following a substantial taking by eminent domain or if the portion of the Premises taken is not substantial, the rent payable under this Lease for the remainder of the term shall be reduced as of the date of taking in the proportion that the area of the part taken bears to the total area of the Premises just prior to such taking (or, if earlier, the date the condemning authority takes possession of the Premises affected by the condemnation) and Landlord shall make any necessary repairs to the remaining Improvements affected by the condemnation. Substantial, as used herein, shall refer to the ability of Tenant to carry on its normal business.
14. Insurance . Tenant shall, as of the date of execution of this Lease, and during the full term of this Lease, including renewals, and its own expense, carry Broad Form Comprehensive General Liability Insurance, including, but not limited to, coverage for personal injuries with limits of not less than $2,000,000.00 combined single limit for death, personal injury and property damage, per occurrence, and Contractual Liability.
Landlord shall pay for and maintain, subject to reimbursement by Tenant as hereinafter provided, during the full term of this Lease, including any renewal, the following policies of insurance covering the Project;
(a) All Risk Property Insurance. Upon all Improvements and alterations, including, but not limited to, fire and extended coverage, vandalism, malicious mischief and sprinkler leakage in the amount of one hundred percent (100%) of full replacement costs.
(b) Flood Insurance. Landlord will purchase flood insurance coverage for the Project, if Landlord advises Tenant that the Project is in an insurance flood zone, in an amount per the appraised value of the building.
It is acknowledged that the foregoing insurance to be maintained by Landlord shall be part of a master policy covering the Building and the Common Areas reflected on Exhibit B attached hereto. Tenant shall reimburse Landlord for fifty percent (50%) of the premiums paid by Landlord in connection with the above-referenced insurance. Such costs shall be prorated for any portion of the term which commences after the effective date of such policy(ies) or for the period of such policy(ies) which extends beyond the term so as to account for Tenants proportionate share thereof. Each of the parties shall furnish certificates that the insurance required to be carried by each party pursuant to the terms of this paragraph is in force and reflecting each of the parties as the named insured under said insurance policies and the Landlords mortgagee as an
additional insured. All of the aforesaid insurance certificates shall further provide that the insurance policies may not be canceled until after thirty (30) days written notice to Landlord and Tenant and Landlords Mortgagee, if any. The obligations hereunder are to be paid in accordance with paragraph 35 herein.
15. Common Area . The term common area is defined for all purposes of this Lease as that part of the Project intended for the common use of all tenants, including among other facilities, roof, parking lot, landscaping, fire sprinkler system, fire alarm monitoring, association fees, and the like. Landlord reserves the right to change from time to time the dimensions and locations of the Common Area. Tenant, and its employees and customers, and when duly authorized pursuant to the provisions of this Lease, its subtenants, licensees and concessionaires, shall have the non-exclusive right to use the Common Area as constituted from time to time, such use to be in common with Landlord, other tenants in the Building, subject to the rights of governmental authorities, easements, other restrictions of record, and such reasonable rules and regulations governing use as Landlord may from time to time prescribe. For example, and without limiting the generality of Landlords ability to establish rules and regulations governing all aspects of the Common Area, Tenant agrees as follows:
(a) Tenant shall have fifty (50) dedicated parking spaces within the Project to be used by Tenants employees or guests. Landlord may from time to time designate specific areas within the Project in which automobiles owned by tenants in the Building, their employees, subtenants, licensees and concessionaires shall be parked.
(b) Landlord may temporarily close any part of the Common Area for such periods of time as may be necessary to make repairs or alterations.
Landlord shall be responsible for the operation, management and maintenance of the Common Area, the manner of maintenance and the expenditures therefore to be in the sole discretion of the Landlord. Landlord shall be the sole determinant of the type and amount of
security services to be provided, if any. Landlord shall not be liable to Tenant and Tenant hereby waives any claim against Landlord provided Landlords negligence or willful misconduct is not a significant contributing factor for (i) any unauthorized or criminal entry of third parties onto the Project, (ii) any damage to persons or property, or (iii) any loss of property in and about the Premises from any unauthorized or criminal acts of third parties.
16. Maintenance and Repairs . Landlord shall maintain roof, foundation and structural load bearing walls of the Building except for plate glass, windows, doors and other exterior openings, window and door frames, molding, closure devices, locks and hardware. Any penetrations or structural alterations to the roof by Tenant that may cause damage to the roof shall be repaired at Tenants expense. Landlord shall also maintain the Common Area as defined in paragraph 15 above provided, however, Tenant shall reimburse, on a monthly basis, Landlord for fifty percent (50%) of Landlords costs of maintaining the Common Area together with remitting Landlord a reasonable management fee. Subject to the foregoing, Tenant agrees to maintain the entire Premises at Tenants expense including, but not limited to, pest control, the maintenance, repair and replacement of all lighting, heating, air conditioning, plumbing and other electrical, mechanical and electromotive installations, equipment and fixtures. Tenant shall, at its own expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing the heating and air conditioning systems and equipment within the Premises. Tenant shall, at the termination of the Lease, by lapse of time or otherwise, surrender up said Premises in good order and condition, reasonable use and ordinary wear and tear excepted.
17. Absolute Net Lease . It is the purpose and intent of the Landlord and the Tenant that except as otherwise specifically provided in this Lease, the rent shall be absolutely net to Landlord, so that the Lease shall yield, net, to Landlord, the rent specified in paragraph 3 hereof and each month during the term of the Lease, and that, except as aforesaid, all costs, expenses and
obligations set forth herein relating to Tenants occupancy of the Premises which may arise or become due during or with respect to the term of this Lease, shall be paid by the Tenant, in accordance with the terms hereof. The provisions of this paragraph shall in no way be construed to require Tenant to make any mortgage payments which Landlord may owe in connection with the Premises.
18. Signs . Tenant shall not be permitted to install, construct, inscribe, paint, affix or display any sign, advertisement, or logo visible from the exterior of the Premises without Landlords prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.
The exact size, design, configuration and placement of all signs, advertisements and logos shall be subject to the reasonable approval of Landlord and any applicable governmental authorities. Under no circumstances may any sign, advertisement or logo violate any ordinance, rule or regulation of any governmental authority. Tenant hereby agrees to seek and obtain any and all governmental approvals, permits or licenses necessary for the lawful operation and placement of any signs, advertisements, or logos approved by Landlord.
All costs of installation, construction, erection, illumination (where appropriate), maintenance, repair and removal of any of the above-referenced items shall be the obligation of Tenant. Before erecting or placing any signs, advertisements, or logos or beginning any construction pursuant to preparation for logos or beginning any construction pursuant to preparation for the erection or placement thereof, Tenant shall submit to Landlord, for Landlords reasonable review and approval, detailed plans and specifications for all work to be performed. After obtaining Landlords approval of said plans and specifications, the signs, advertisements, or logos are to be constructed pursuant to the plans and specifications without any deviation therefrom whatsoever.
Upon vacating the Premises, Tenant shall remove all signs, advertisements or logos and repair all damage caused by such removal. Tenants obligation to observe or perform this covenant shall survive the expiration or termination of this Lease.
Tenant hereby agrees to indemnify and hold Landlord harmless from and against any and all loss, cost, damage, claims, suits, actions for any damage or injury to any person or property caused by the installation, construction, erection, maintenance, repair or removal of any of said signs, advertisements, or logos.
19. Subordination . Tenant agrees to execute and deliver an instrument in standard form subordinating this Lease to the lien of any Mortgage within thirty (30) days after receiving a written request from Landlord. Provided, however, in the instrument the Mortgagee must agree that, so long as Tenant is not in default under the provisions of this Lease: (a) this Lease shall remain in full force and effect, (b) the possession of the Premises by Tenant shall not be disturbed, and (c) in the event of a foreclosure or other suit instituted pursuant to the mortgage, the suit shall not affect the rights of Tenant under this Lease, but any purchaser of the Project as a result of such suit shall take the Project subject to this Lease and shall be bound by all of its terms. In the event of a foreclosure of any mortgage encumbering the Project, Tenant agrees to attorn to the mortgagee or its successors in interest and recognize such party as Landlord under this Lease, provided Tenant receives in return a nondisturbance agreement from the foreclosing mortgagee or its successor in interest as set forth immediately above.
20. Estoppel Certificates by Tenant . Tenant shall, within thirty (30) days after receiving a written request from Landlord, make a statement in writing in standard form certifying:
(a) That the term of this Lease has commenced, setting forth the date of such commencement;
(b) That this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease is in full force and effect as modified, stating the modification);
(c) Whether or not there are then existing any known offsets or defenses against the enforcement of any of Tenants covenants hereunder (and if so, specifying them);
(d) The dates to which rent and other amounts have been paid in advance, if any, and
(e) Whether or not Tenant has executed a leasehold mortgage or otherwise made any transfer or assignment of any part of the leasehold estate.
Such statements shall be given with reasonable frequency and may be relied upon by any prospective purchaser of the fee simple interest in the Premises or by any Mortgagee or its assignee.
21. Tenants Property . Tenant agrees that all property belonging to or in the name of, custody or control of the Tenant or any occupant of the Premises which is in or on the Premises shall be there at the risk of the Tenant or such occupant only, and Landlord shall not be liable to Tenant for any injury thereto or loss or destruction thereof except to the extent caused by Landlord, its agents or employees, or as otherwise provided in this Lease. Except to the extent caused by the negligence of the Landlord, or its agents or employees, or as otherwise provided in this Lease, Tenant further agrees that Landlord shall not be liable to the Tenant for any injury, loss or damage to property on the Premises or on the common areas appurtenant thereto. Provided, however, that this paragraph shall not excuse any liability of Landlord in the event the damage or injury is caused by a breach of any of Landlords warranties as to the Premises.
22. Attorneys Fees . If either party becomes a party to any litigation concerning this Lease, or the Project, solely by reason of any act or omission of the other party or its authorized representatives, and through no fault of its own, the party that causes the other party to become involved in the litigation shall be liable to that party for reasonable attorneys fees and court costs incurred by it in the litigation.
If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys fees and costs of suit.
23. Default . Default provisions:
A. Unless excused pursuant to Section 24 of this Lease, the happening of any one or more of the following events shall, at the option of Landlord, constitute a breach of this Lease on the part of Tenant and Landlord shall have such remedies as are herein provided.
(1) If Tenant defaults in the payment of any rents payable to Landlord hereunder and such default shall continue for five (5) days after receipt by Tenant of written notice of such default; or
(2) If Tenant petitions or applies to any tribunal for the appointment of a trustee or receiver of Tenant or any substantial part of the assets of Tenant or commences any proceedings with respect to Tenant under any bankruptcy, reorganization, arrangements, insolvency, readjustment, dissolution or liquidation law of any jurisdiction; or
(3) If any such petition or application of the type described in subparagraph (2) above is filed or any proceedings are commenced against Tenant and Tenant, by any act, indicates its approval thereof, consents thereto or acquiesces therein, or an order is entered appointing such trustee or receiver, or adjudicating Tenant bankrupt or insolvent, or approving the petition in any such proceedings, and such order remains in effect for more than ninety (90) days; or
(4) If Tenant fails to fully and promptly perform any material act, term or provision required of it in the performance of this Lease. If a default is claimed under this subparagraph, written notice specifically specifying the nature of such claimed default shall be mailed to Tenant and Tenant shall have thirty (30) days after receipt of such notice to cure said default or such longer time as may reasonably be necessary due to the nature of said default, so long as Tenant commences to cure such failure within such thirty (30) day period and pursues such cure with due diligence.
B. Upon the happening of any of the above events of default, Landlord may, at Landlords option:
(1) Terminate and end this Lease and reenter upon the Premises and at Landlords option, all of Tenants right, title and interest under this Lease shall end and Tenant shall become a tenant at sufferance; or
(2) Except to the extent Landlord is able to mitigate its damages after taking all reasonable actions to do so, elect to declare the entire rent for the balance of the term due and payable forthwith, and may proceed to collect its actual remaining damages by distress or otherwise; or
(3) Take possession of the Premises and rent the same for the account of Tenant.
The exercise of any of the above options shall not be deemed to be the exclusive remedy of Landlord. In addition thereto, Landlord shall have the right of any of the provisions of the laws of the State of Florida governing default by Tenant, and, in any event of default by Tenant.
24. Force Majeure . Landlord and Tenant shall be excused for the period of any delay in the performance of any of the obligations hereunder when prevented from so doing by cause or causes beyond Landlords or Tenants reasonable control (other than financial causes) which shall include, without limitation, all labor disputes, civil commotion, war, war-like operations, terrorism, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, fire or other casualty, inability to obtain any material or services (after diligent efforts), or through acts of God.
25. Notice . The rent payable under the terms of this Lease and any notices to the Landlord shall be mailed to:
MIDA GROUP, LLC
3071 118 th Avenue North
St Petersburg, FL 33716
or such other addresses as the Landlord may designate in writing.
Any notices to the Tenant shall be mailed to Tenant at the Premises or such other address as the Tenant may designate in writing.
26. Waiver . No assent, expressed or implied, by either party to any breach of any of the others covenants or agreements shall be deemed a waiver of any succeeding breach of the same covenant or agreement. No delay or omission on the part of Landlord or Tenant in exercising any right or remedy shall operate as a waiver thereof or the exercise of any other right or remedy.
27. Surrender or Abandonment . If Tenant shall abandon or surrender the Premises, or be dispossessed by process of law or otherwise, any personal property belonging to Tenant and left on the Premises for a period of fifteen (15) days after such abandonment or surrender shall be deemed to be abandoned, at the option of the Landlord. Provided, however, the provisions regarding abandonment shall not be effective if Tenant is not in default under the terms of this Lease.
28. Partial Invalidity . If any provision of this Lease is deemed invalid or unenforceable by a court of competent jurisdiction, such provision shall be ineffective to the extent of such invalidity or unenforceability only, without invalidating the remainder of such provision or of the remaining provisions of this Lease.
29. Binding Effect . This Lease contains all of the agreements, covenants and conditions between the parties hereto with respect to the subject matter hereof and may not be altered or modified orally or in any other manner, except by an agreement in writing signed by all of the parties hereto, or by their respective successors in interest. The covenants and agreements herein contained shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. This Lease constitutes a Florida contract and shall be construed according to the laws of that state. The parties agree that the venue for any litigation arising hereunder shall be in a Pinellas County court of competent jurisdiction.
30. Radon Disclosure . Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. Landlord has no knowledge that the radon levels on the Premises have or do currently exceed federal or state guidelines.
31. (a) Hazardous Waste . Tenant shall not use, generate, manufacture, store or dispose of on, under or about the Project or transport to or from the Project any flammable explosives, radioactive materials, hazardous wastes, toxic substances defined as or included in the definition of hazardous substances, hazardous wastes, hazardous materials, or toxic substances under any applicable federal or state laws or regulations, unless any such substances are used by Tenant in the ordinary course of its business in accordance with applicable federal and state laws and regulations.
(b) Tenant shall indemnify the Landlord and hold the Landlord harmless from any cost, liability or expense imposed upon the Landlord under any local, state or federal law, ordinance, statute, rule, regulation, or judicial or administrative order because of or arising out of any environmental contamination of the Project or any contamination of groundwater or surrounding lands because of or arising out of contamination of the Project due to the actions of Tenant or its agents, contractors or employees,
(c) Landlord shall indemnify Tenant and hold the Tenant harmless from any cost, liability or expense imposed upon the Tenant undo: any local, state or federal law, ordinance, statute, rule, regulation or judicial or administrative order because of or arising out of any environmental contamination of the Project or any contamination of groundwater or surrounding lands because of or arising out of contamination of the Project to the extent that it v/as not caused by the actions of Tenant or its agents, contractors or employees.
32. Cautions . The captions, section numbers and article numbers appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of such sections or articles of this Lease, nor in any way affect this Lease.
33. Quiet Enjoyment . Landlord covenants, promises and agrees with the Tenant, that the Tenant, on paying the said rent above hereby reserved, and observing, performing and keeping all and singular the covenants and agreements herein contained, shall and may lawfully, peacefully and quietly have, hold, use, occupy and enjoy the Premises.
34. Intentionally Omitted .
35. Monthly Payment of Taxes, Insurance and Other Expenses . The expenses for real estate taxes, insurance, Common Area maintenance, management fee and Building common expenses pursuant to the provisions of paragraphs 6, 14 and 16 respectively of this Lease are hereby, for convenience, referred to as Property Operating Costs. As Additional Rental hereunder, Tenant shall pay to Landlord, monthly, in advance, the Property Operating Costs. Prior to the commencement of each year of the lease term, or as soon thereafter as is practical, Landlord shall give Tenant written notice of its estimate of the amounts payable under this paragraph 35 for the ensuing year of the lease term, which estimate shall be based upon Property Operating Costs for the prior lease year. Provided, however, the amounts payable during the first year of the lease term shall be based on the Landlords good faith estimate. Landlords estimate of Property Operating Costs during the first year of the lease term is in the amount of $47,000.00. If at any time or times it appears to Landlord that the amounts payable under this paragraph 35 for the ensuing year will vary from its estimate by more than five percent (5%), Landlord may, by written notice to Tenant, revise its estimate for such year, and subsequent payments by Tenant, shall be based upon such revised estimate. On the date each monthly rental payment is due as
provided in paragraph 3 of this Lease, Tenant shall also pay to Landlord one- twelfth (1/12) of such estimated amounts, provided, if such notice is not given on or before the commencement date of each year of the said lease term, Tenant shall continue to pay on the basis of the prior years estimate until the month after such notice is given. Within ninety (90) days after the close of each calendar year of the lease term, or as soon after such ninety (90) day period as is practical, Landlord shall deliver to Tenant a statement of the amount payable under this paragraph 35 for such year certified by Landlord. If such statement shows an amount owing by Tenant that is less than the estimated payments for such year previously made by Tenant, it should be accompanied by a refund of the excess by Landlord to Tenant. If such statement shows an amount owing by Tenant that is more than the estimated payments for such year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement. If Tenant shall dispute any such statement, it shall have the right during business hours and at Landlords place of business to examine Landlords books and records with respect to such statement and dispute on not Less than three (3) days prior written notice to Landlord. Said examination shall take place within a sixty (60) day period after Landlord has submitted such statement to Tenant. If Tenant has not disputed such statement, Tenant shall, as aforesaid, pay any amount due Landlord within thirty (30) days after delivery of the statement.
36. [*** ] . Landlord does hereby [***] and upon the terms and conditions as set forth in this paragraph as follows:
(a) [***]
(b) [***]
(c) [***]
(d) [***]
(e) [***]
(f) [***]
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
(g) [***]
(h) [***]
(i) [***]
37. Contingency . The parties hereto acknowledge that Landlord does not presently own the Project. This Lease is contingent upon Landlord acquiring title to the Project on or before July 1, 2015. In the event Landlord fails to acquire the Project by such a date, this Lease shall become null and void and neither party shall have any liability to the other pursuant to the terms of this Lease.
[SIGNATURE PAGE TO FOLLOW]
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
IN WITNESS WHEREOF, the parties have caused these presents to be executed as of the day and year first above written.
Signed, Sealed and Delivered in the Presence of: |
MIDA GROUP, LLC, a Florida limited liability company |
|||||
|
By: |
/s/ Judy K. Humbarger Judy K. Humbarger, Manager Landlord |
||||
(As to Landlord) |
||||||
ALLERGEN RESEARCH CORPORATION, a California corporation |
||||||
/s/ Howard V. Raff |
By: |
/s/ S.C. Dilly |
Howard V. Raff (As to Tenant) |
Printed Name: | S.C. Dilly | ||||||
Title: | CEO | |||||||
Tenant |
EXHIBIT A
Legal Description
A portion of Lot 13, RUBIN ICOT CENTER, as recorded in Plat Book 88, Pages 79 through 85, of the Public Records of Pinellas County, Florida, lying in Section 4, Township 30 South, Range 16 East, Pinellas County, Florida, and being more particularly described as follows:
Commence at the Southeast corner of Lot 1.3 of said RUBIN ICOT CENTER for a Point of Beginning; thence N.89°4116W., and along the South line of said Lot 13, 404.64 feet; thence N.00°2629E., 385.17 feet to a Point on the South right-of-way line of Myerlake Circle; thence S.89°3331E. and along said rlght-of-way line, 202.00 feet to a curve concave to the Southwest and having a radius of 200.00 feet; thence along said curve 311.32 feet through a central angle of 89°1113 (chord bearing S.44°5755E., 280.83 feet); thence S.00°2218E., 187.11 feet to the Point of Beginning.
EXHIBIT C
COMMENCEMENT DATE CERTIFICATE
This Commencement Date Certificate is made as of this day of , 2015, between MID A GROUP, LLC (Landlord), and ALLERGEN RESEARCH CORPORATION, (Tenant).
WHEREAS, the parties entered into a lease dated . (Lease), attached hereto and incorporated by reference, in which Landlord leased to Tenant 20,000 square feet (Premises) in that certain Project situated at 5733 Myerlake Circle, Largo, Florida,
WHEREAS, Landlord and Tenant desire to confirm the Commencement Date and certain other facts concerning the Lease.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and further good and valuable consideration, then parties hereto incorporate the following into the terms of their existing Lease:
1. | The actual rentable square footage of the Project is 40,000 square feet. The Premises contains 20,000 square feet The Tenants Pro-Rata share is fifty percent (50%). |
2. | Landlords Work was complete according to the terms of the Lease on . and the Tenant assumed possession of the Premises on such date. Other key dates are as follows: |
a) | The Commencement Date of the Lease is . |
b) | The Expiration Date of the Lease is . |
3. | Except for the specific modifications to the Lease contained in this Commencement Date Certificate, all terms of the Lease shall remain unchanged, and are hereby ratified, republished and reaffirmed and are incorporated into this Agreement |
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties have caused these presents to be executed as of the day and year first above written.
(As to Tenant) |
Printed Name: |
|
Title: |
|
|||||
Tenant |
EXHIBIT D
Base Rent for Initial Term
Year |
Monthly Amount | |||
Year 1 |
$ | 12,500.00 | ||
Year 2 |
$ | 12,875.00 | ||
Year 3 |
$ | 13,250.00 | ||
Year 4 |
$ | 13,625.00 | ||
Year 5 |
$ | 14,000.00 | ||
Year 6 |
$ | 14,375.00 | ||
Year 7 |
$ | 14,750.00 | ||
Year 8 |
$ | 15,125.00 | ||
Year 9 |
$ | 15,500.00 | ||
Year 10 |
$ | 15,875.00 |
EXHIBIT E
Landlords Work
WORK TO PREMISES
| Demo all walls creating one large open space to deck |
| Service and provide industry standard A/C and rework duct |
| Leave three offices towards the front, paint and carpet |
WORK TO PROJECT
| Rework fire sprinkler system and alarm |
| Upgrade landscaping |
| Paint exterior |
| Seal and stripe the parking lot |
| Sub-Meter for power |
| Roof upgrades |
Exhibit 10.5(a)
ALLERGEN RESEARCH CORPORATION
AMENDED AND RESTATED
2013 STOCK PLAN
TABLE OF CONTENTS
Page | ||||||||
1. |
Establishment, Purpose and Term of Plan |
1 | ||||||
1.1 |
Establishment |
1 | ||||||
1.2 |
Purpose |
1 | ||||||
1.3 |
Term of Plan |
1 | ||||||
2. |
Definitions and Construction |
1 | ||||||
2.1 |
Definitions |
1 | ||||||
2.2 |
Construction |
6 | ||||||
3. |
Administration |
6 | ||||||
3.1 |
Administration by the Board |
6 | ||||||
3.2 |
Authority of Officers |
6 | ||||||
3.3 |
Powers of the Board |
6 | ||||||
3.4 |
Administration with Respect to Insiders |
7 | ||||||
3.5 |
Indemnification |
8 | ||||||
4. |
Shares Subject to Plan |
8 | ||||||
4.1 |
Maximum Number of Shares Issuable |
8 | ||||||
4.2 |
Share Counting |
8 | ||||||
4.3 |
Adjustments for Changes in Capital Structure |
9 | ||||||
4.4 |
Assumption or Substitution of Awards |
9 | ||||||
5. |
Eligibility, Participation and Option Limitations |
9 | ||||||
5.1 |
Persons Eligible for Awards |
9 | ||||||
5.2 |
Participation in the Plan |
9 | ||||||
5.3 |
Incentive Stock Option Limitations |
10 | ||||||
6. |
Stock Options |
10 | ||||||
6.1 |
Exercise Price |
10 | ||||||
6.2 |
Exercisability and Term of Options |
11 | ||||||
6.3 |
Payment of Exercise Price |
11 | ||||||
6.4 |
Effect of Termination of Service |
12 | ||||||
6.5 |
Transferability of Options |
13 |
-i-
TABLE OF CONTENTS
(continued)
Page | ||||||||
7. |
Restricted Stock Awards |
13 | ||||||
7.1 |
Types of Restricted Stock Awards Authorized |
13 | ||||||
7.2 |
Purchase Price |
14 | ||||||
7.3 |
Purchase Period |
14 | ||||||
7.4 |
Payment of Purchase Price |
14 | ||||||
7.5 |
Vesting and Restrictions on Transfer |
14 | ||||||
7.6 |
Voting Rights; Dividends and Distributions |
15 | ||||||
7.7 |
Effect of Termination of Service |
15 | ||||||
7.8 |
Nontransferability of Restricted Stock Award Rights |
15 | ||||||
8. |
Standard Forms of Award Agreements |
15 | ||||||
8.1 |
Award Agreements |
15 | ||||||
8.2 |
Authority to Vary Terms |
16 | ||||||
9. |
Change in Control |
16 | ||||||
9.1 |
Effect of Change in Control on Awards |
16 | ||||||
9.2 |
Federal Excise Tax Under Section 4999 of the Code |
17 | ||||||
10. |
Tax Withholding |
18 | ||||||
10.1 |
Tax Withholding in General |
18 | ||||||
10.2 |
Withholding in or Directed Sale of Shares |
18 | ||||||
11. |
Compliance with Section 409A |
18 | ||||||
11.1 |
In General |
18 | ||||||
11.2 |
Certain Limitations |
18 | ||||||
12. |
Compliance with Securities Law |
19 | ||||||
13. |
Amendment or Termination of Plan |
20 | ||||||
14. |
Miscellaneous Provisions |
20 | ||||||
14.1 |
Restrictions on Transfer of Shares |
20 | ||||||
14.2 |
Forfeiture Events |
21 | ||||||
14.3 |
Provision of Information |
21 | ||||||
14.4 |
Rights as Employee, Consultant or Director |
22 | ||||||
14.5 |
Rights as a Stockholder |
22 | ||||||
14.6 |
Delivery of Title to Shares |
22 | ||||||
14.7 |
Fractional Shares |
22 | ||||||
14.8 |
Retirement and Welfare Plans |
22 |
-ii-
TABLE OF CONTENTS
(continued)
Page | ||||||||
14.9 |
Severability |
22 | ||||||
14.10 |
No Constraint on Corporate Action |
22 | ||||||
14.11 |
Choice of Law |
23 | ||||||
14.12 |
Stockholder Approval |
23 |
-iii-
ALLERGEN RESEARCH CORPORATION
2013 STOCK PLAN
1. | E STABLISHMENT , P URPOSE AND T ERM OF P LAN . |
1.1 Establishment. The Allergen Research Corporation 2013 Stock Plan (the Plan ) is hereby established effective as of January 29, 2013 (the Effective Date ).
1.2 Purpose . The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. The Plan seeks to achieve this purpose by providing for Awards in the form of Options and Restricted Stock Awards.
1.3 Term of Plan. The Plan shall continue in effect until its termination by the Board; provided, however, that all Awards shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the stockholders of the Company.
2. | D EFINITIONS AND C ONSTRUCTION . |
2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) Award means an Option, Restricted Stock Purchase Right or Restricted Stock Bonus granted under the Plan.
(b) Award Agreement means a written or electronic agreement between the Company and a Participant setting forth the terms, conditions and restrictions applicable to an Award.
(c) Board means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, Board also means such Committee(s).
(d) Cause means, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between a Participant and a Participating Company applicable to an Award, any of the following: (i) the Participants theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (ii) the Participants material failure to abide by a Participating Companys code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) the Participants unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participants improper use or disclosure of a Participating Companys confidential
1
or proprietary information); (iv) any intentional act by the Participant which has a material detrimental effect on a Participating Companys reputation or business; (v) the Participants repeated failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (vi) any material breach by the Participant of any employment or service agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participants conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participants ability to perform his or her duties with a Participating Company.
(e) Change in Control means, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between the Participant and a Participating Company applicable to an Award, the occurrence of any one or a combination of the following:
(i) an Ownership Change Event or a series of related Ownership Change Events (collectively, a Transaction ) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of Directors or, in the case of an Ownership Change Event described in Section 2.1(u)(iii), the entity to which the assets of the Company were transferred (the Transferee ), as the case may be; or
(ii) a date specified by the Board following approval by the stockholders of a plan of complete liquidation or dissolution of the Company;
provided, however, that a Change in Control shall not include a transaction described in subsection (i) of this Section 2.1(e) in which a majority of the members of the board of directors of the continuing, surviving or successor entity, or parent thereof, immediately after such transaction is comprised of Incumbent Directors.
For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall determine whether multiple events described in subsections (i) and (ii) of this Section 2.1(e) are related and to be treated in the aggregate as a single Change in Control, and its determination shall be final, binding and conclusive.
(f) Code means the Internal Revenue Code of 1986, as amended, and any applicable regulations and administrative guidelines promulgated thereunder.
(g) Committee means the compensation committee or other committee or subcommittee of the Board duly appointed to administer the Plan and having such powers as specified by the Board. Unless the powers of the 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 law.
2
(h) Company means Allergen Research Corporation, a Delaware corporation, and any successor thereto.
(i) Consultant means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on either the exemption from registration provided by Rule 701 under the Securities Act or, if the Company is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act, registration on a Form S-8 Registration Statement under the Securities Act.
(j) Director means a member of the Board.
(k) Disability means the inability of the Participant, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Participants position with the Participating Company Group because of the sickness or injury of the Participant.
(l) Employee means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a directors fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individuals employment or termination of employment, as the case may be. For purposes of an individuals rights, if any, under the terms of the Plan as of the time of the Companys determination of whether or not the individual is an Employee, all such determinations by the Company shall be final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination as to such individuals status as an Employee.
(m) Exchange Act means the Securities Exchange Act of 1934, as amended.
(n) Fair Market Value means, as of any date, the value of a share of Stock or other property as determined by the Board, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
(i) If, on such date, the Stock is listed or quoted on a national or regional securities exchange or quotation system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock as quoted on the national or regional securities exchange or quotation system constituting the primary market for the Stock, as reported in The
3
Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or quotation system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded or quoted prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its discretion.
(ii) If, on such date, the Stock is not listed or quoted on a national or regional securities exchange or quotation system, the Fair Market Value of a share of Stock shall be as determined by the Board in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse, and in a manner consistent with the requirements of Section 409A.
(o) Incentive Stock Option means an Option intended to be (as set forth in the Award Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.
(p) Incumbent Director means a director who either (i) is a member of the Board as of the Effective Date or (ii) is elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but excluding a director who was elected or nominated in connection with an actual or threatened proxy contest relating to the election of directors of the Company).
(q) Insider means an Officer, a Director or other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
(r) Nonstatutory Stock Option means an Option not intended to be (as set forth in the Award Agreement) or which does not qualify as an incentive stock option within the meaning of Section 422(b) of the Code.
(s) Officer means any person designated by the Board as an officer of the Company.
(t) Option means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
(u) Ownership Change Event means the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of securities of the Company representing more than fifty percent (50%) of the total combined voting power of the Companys then outstanding securities entitled to vote generally in the election of Directors; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).
(v) Parent Corporation means any present or future parent corporation of the Company, as defined in Section 424(e) of the Code.
4
(w) Participant means any eligible person who has been granted one or more Awards.
(x) Participating Company means the Company or any Parent Corporation or Subsidiary Corporation.
(y) Participating Company Group means, at any point in time, all entities collectively which are then Participating Companies.
(z) Restricted Stock Award means an Award in the form of a Restricted Stock Bonus or a Restricted Stock Purchase Right.
(aa) Restricted Stock Bonus means Stock granted to a Participant pursuant to Section 7.
(bb) Restricted Stock Purchase Right means a right to purchase Stock granted to a Participant pursuant to Section 7.
(cc) Rule 16b-3 means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
(dd) Section 409A means Section 409A of the Code.
(ee) Securities Act means the Securities Act of 1933, as amended.
(ff) Service means a Participants employment or service with the Participating Company Group, whether as an Employee, a Director or a Consultant. Unless otherwise provided by the Board, a Participants Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders Service or a change in the Participating Company for which the Participant renders Service, provided that there is no interruption or termination of the Participants Service. Furthermore, a Participants Service shall not be deemed to have been interrupted or terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. However, unless otherwise provided by the Board, if any such leave taken by a Participant exceeds ninety (90) days, then on the ninety-first (91st) day following the commencement of such leave the Participants Service shall be deemed to have terminated, unless the Participants right to return to Service is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, an unpaid leave of absence shall not be treated as Service for purposes of determining vesting under the Participants Award Agreement. A Participants Service shall be deemed to have terminated either upon an actual termination of Service or upon the business entity for which the Participant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Participants Service has terminated and the effective date of and reason for such termination.
(gg) Stock means the common stock of the Company, as adjusted from time to time in accordance with Section 4.3.
5
(hh) Subsidiary Corporation means any present or future subsidiary corporation of the Company, as defined in Section 424(f) of the Code.
(ii) Ten Percent Stockholder means a person who, at the time an Award is granted to such person, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code.
(jj) Trading Compliance Policy means the written policy of the Company pertaining to the purchase, sale, transfer or other disposition of the Companys equity securities by Directors, Officers, Employees or other service providers who may possess material, nonpublic information regarding the Company or its securities.
(kk) Vesting Conditions mean those conditions established in accordance with the Plan prior to the satisfaction of which an Award or shares subject to an Award remain subject to forfeiture or a repurchase option in favor of the Company exercisable for the Participants monetary purchase price, if any, for such shares upon the Participants termination of Service or failure of a performance condition to be satisfied.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term or is not intended to be exclusive, unless the context clearly requires otherwise.
3. | A DMINISTRATION . |
3.1 Administration by the Board. The Plan shall be administered by the Board. All questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement or other document employed by the Company in the administration of the Plan or of any Award shall be determined by the Board, and such determinations shall be final, binding and conclusive upon all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Board in the exercise of its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest therein. All expenses incurred in connection with the administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election that is the responsibility of or that is allocated to the Company herein, provided that the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
3.3 Powers of the Board . In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock to be subject to each Award;
6
(b) to determine the type of Award granted;
(c) to determine the Fair Market Value of shares of Stock or other property;
(d) to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with any Award, including by the withholding or delivery of shares of Stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired pursuant thereto, (v) the time of expiration of any Award, (vi) the effect of any Participants termination of Service on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Award Agreement;
(f) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto;
(g) to reprice or otherwise adjust the exercise price of any Option, or to grant in substitution for any Option a new Award covering the same or different number of shares of Stock;
(h) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participants termination of Service;
(i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or 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, accounting principles or custom of, foreign jurisdictions whose residents may be granted Awards; and
(j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Board may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.
3.4 Administration with Respect to Insiders. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.
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3.5 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or as officers or employees of the Participating Company Group, to the extent permitted by applicable law, members of the Board and any officers or employees of the Participating Company Group 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 them 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. | S HARES S UBJECT TO P LAN . |
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2 and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be One Million Thirteen Thousand Seventy Five (1,013,075) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. Notwithstanding the foregoing, at any such time as the offer and sale of securities pursuant to the Plan is subject to compliance with Section 260.140.45 of Title 10 of the California Code of Regulations ( Section 260.140.45 ), the total number of shares of Stock issuable upon the exercise of all outstanding Awards (together with options outstanding under any other stock plan of the Company) and the total number of shares provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent (30%) (or such other higher percentage limitation as may be approved by the stockholders of the Company pursuant to Section 260.140.45) of the then outstanding shares of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45.
4.2 Share Counting. If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company for an amount not greater than the Participants exercise or purchase price, the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan. Shares of Stock shall not be deemed to have been issued pursuant to the Plan (a) with respect to any portion of an Award that is settled in cash or (b) to the extent such shares are withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to Section 10.2. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net Exercise, the number of shares available for issuance under the Plan shall be reduced by the net number of shares issued upon the exercise of the Option.
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4.3 Adjustments for Changes in Capital Structure . Subject to any required action by the stockholders of the Company and the requirements of Sections 409A and 424 of the Code to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting regular, periodic cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and kind of shares subject to the Plan and to any outstanding Awards, in the ISO Share Limit set forth in Section 5.3(a), and in the exercise or purchase price per share under any outstanding Awards in order to prevent dilution or enlargement of Participants rights under the Plan. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as effected without receipt of consideration by the Company. If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the New Shares ), the Board may unilaterally amend the outstanding Awards to provide that such Awards are for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise or purchase price per share of, the outstanding Awards shall be adjusted in a fair and equitable manner as determined by the Board, in its discretion. Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number, and the exercise or purchase price per share shall be rounded up to the nearest whole cent. In no event may the exercise or purchase price, if any, under any Award be decreased to an amount less than the par value, if any, of the stock subject to the Award. Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive.
4.4 Assumption or Substitution of Awards. The Board may, without affecting the number of shares of Stock available pursuant to Section 4.1, authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with Section 409A and any other applicable provisions of the Code.
5. | E LIGIBILITY , P ARTICIPATION AND O PTION L IMITATIONS . |
5.1 Persons Eligible for Awards . Awards may be granted only to Employees, Consultants and Directors.
5.2 Participation in the Plan. Awards are granted solely at the discretion of the Board. Eligible persons may be granted more than one Award. However, eligibility in accordance with this Section shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.
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5.3 Incentive Stock Option Limitations.
(a) Maximum Number of Shares Issuable Pursuant to Incentive Stock Options. Subject to Section 4.1 and adjustment as provided in Sections 4.2 and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to the exercise of Incentive Stock Options shall not exceed One Million Thirteen Thousand Seventy Five (1,013,075) shares (the ISO Share Limit ). The maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to all Awards other than Incentive Stock Options shall be the number of shares determined in accordance with Section 4.1, subject to adjustment as provided in Sections 4.2 and 4.3.
(b) Persons Eligible. An Incentive Stock Option may be granted only to a person who, on the effective date of grant, is an Employee. Any person who is not an Employee on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option.
(c) Fair Market Value Limitation . To the extent that options designated as Incentive Stock Options (granted under all stock plans of the Participating Company Group, including the Plan) become exercisable by a Participant for the first time during any calendar year for stock having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a limitation different from that set forth in this Section, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section, the Participant may designate which portion of such Option the Participant is exercising. In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Upon exercise of the Option, shares issued pursuant to each such portion shall be separately identified.
6. | S TOCK O PTIONS . |
Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall establish. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
6.1 Exercise Price . The exercise price for each Option shall be established in the discretion of the Board; provided, however, that (a) the exercise price per share for an Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no Incentive Stock Option granted to a Ten Percent Stockholder shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an
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Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner that would qualify under the provisions of Section 409A or Section 424(a) of the Code, as applicable.
6.2 Exercisability and Term of Options . Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Board and set forth in the Award Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Stockholder shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable until at least six (6) months following the date of grant of such Option (except in the event of such Employees death, disability or retirement, upon a Change in Control, or as otherwise permitted by the Worker Economic Opportunity Act). Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, each Option shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or in cash equivalent, (ii) if permitted by the Company and subject to the limitations contained in Section 6.3(b), by means of (1) a Stock Tender Exercise, (2) a Cashless Exercise or (3) a Net Exercise; (iii) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (iv) by any combination thereof. The Board may at any time or from time to time grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.
(b) Limitations on Forms of Consideration .
(i) Stock Tender Exercise. A Stock Tender Exercise means the delivery of a properly executed exercise notice accompanied by a Participants tender to the Company, or attestation to the ownership, in a form acceptable to the Company of whole shares of Stock having a Fair Market Value that does not exceed the aggregate exercise price for the shares with respect to which the Option is exercised. A Stock Tender Exercise shall not be permitted if it would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Companys stock. If required by the Company, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for a period of time required by the Company (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
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(ii) Cashless Exercise. A Cashless Exercise shall be permitted only upon the class of shares subject to the Option becoming publicly traded in an established securities market. A Cashless Exercise means the delivery of a properly executed exercise notice together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Companys sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise, including with respect to one or more Participants specified by the Company notwithstanding that such program or procedures may be available to other Participants.
(iii) Net Exercise. A Net Exercise means the delivery of a properly executed exercise notice followed by a procedure pursuant to which (1) the Company will reduce the number of shares otherwise issuable to a Participant upon the exercise of an Option by the largest whole number of shares having a Fair Market Value that does not exceed the aggregate exercise price for the shares with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in cash the remaining balance of such aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued.
6.4 Effect of Termination of Service.
(a) Option Exercisability . Subject to earlier termination of the Option as otherwise provided by this Plan and unless a longer exercise period is provided by the Board, an Option shall terminate immediately upon the Participants termination of Service to the extent that it is then unvested and shall be exercisable after the Participants termination of Service to the extent it is then vested only during the applicable time period determined in accordance with this Section and thereafter shall terminate:
(i) Disability. If the Participants Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participants Service terminated, may be exercised by the Participant (or the Participants guardian or legal representative) at any time prior to the expiration twelve (12) months (or such longer or shorter period (but not less than six (6) months) provided by the Award Agreement) after the date on which the Participants Service terminated, but in any event no later than the date of expiration of the Options term as set forth in the Award Agreement evidencing such Option (the Option Expiration Date ).
(ii) Death. If the Participants Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participants Service terminated, may be exercised by the Participants legal representative or other person who acquired the right to exercise the Option by reason of the Participants death at any time prior to the expiration of twelve (12) months (or such longer or shorter period (but not less than six (6) months) provided by the Award Agreement) after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date. The Participants Service shall be deemed to have terminated on account of death if the Participant dies within thirty (30) days (or such longer period provided by the Board) after the Participants termination of Service.
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(iii) Termination for Cause. Notwithstanding any other provision of the Plan to the contrary, if the Participants Service is terminated for Cause, the Option shall terminate in its entirety and cease to be exercisable immediately upon such termination of Service.
(iv) Other Termination of Service. If the Participants Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participants Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months (or such longer or shorter period (but not less than thirty (30) days) provided by the Award Agreement) after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law . Notwithstanding the foregoing other than termination of Service for Cause, if the exercise of an Option within the applicable time periods set forth in Section 6.4(a) is prevented by the provisions of Section 11 below, the Option shall remain exercisable until the later of (i) thirty (30) days after the date such exercise first would no longer be prevented by such provisions or (ii) the end of the applicable time period under Section 6.4(a), but in any event no later than the Option Expiration Date.
6.5 Transferability of Options. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participants guardian or legal representative. An Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution; provided, however, that to the extent permitted by the Board, in its discretion, and set forth in the Award Agreement evidencing such Option, an Option shall be assignable or transferable subject to the applicable limitations, if any, described in Rule 701 under the Securities Act and the General Instructions to Form S-8 Registration Statement under the Securities Act or, in the case of an Incentive Stock Option, only as permitted by applicable regulations under Section 421 of the Code in a manner that does not disqualify such Option as an Incentive Stock Option. Notwithstanding the foregoing, for so long as the Company is relying on the exemption provided by Rule 12h-1(f) under the Exchange Act, no Option or, prior to its exercise, the shares to be issued upon the exercise of the Option, shall be transferred except in compliance with the restrictions on transfer under Rule 12h-1(f) (including the requirement under such rule that any permitted transferee may not further transfer the Option) or be made subject to any short position, put equivalent position or call equivalent position by the Participant, as such terms are defined in Rule 16a-1 of the Exchange Act.
7. | R ESTRICTED S TOCK A WARDS . |
Restricted Stock Awards shall be evidenced by Award Agreements specifying whether the Award is a Restricted Stock Bonus or a Restricted Stock Purchase Right and the number of shares of Stock subject to the Award, in such form as the Board shall establish. Such Award Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
7.1 Types of Restricted Stock Awards Authorized. Restricted Stock Awards may be granted in the form of either a Restricted Stock Bonus or a Restricted Stock Purchase Right. Restricted Stock Awards may be granted upon such conditions as the Board shall determine, including, without limitation, upon the attainment of one or more performance goals.
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7.2 Purchase Price. The purchase price for shares of Stock issuable under each Restricted Stock Purchase Right shall be established by the Board in its discretion. No monetary payment (other than applicable tax withholding) shall be required as a condition of receiving shares of Stock pursuant to a Restricted Stock Bonus, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock subject to a Restricted Stock Award.
7.3 Purchase Period. A Restricted Stock Purchase Right shall be exercisable within a period established by the Board, which shall in no event exceed thirty (30) days from the effective date of the grant of the Restricted Stock Purchase Right.
7.4 Payment of Purchase Price. Except as otherwise provided below, payment of the purchase price for the number of shares of Stock being purchased pursuant to any Restricted Stock Purchase Right shall be made (a) in cash, by check or in cash equivalent, (b) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (c) by any combination thereof.
7.5 Vesting and Restrictions on Transfer. Shares issued pursuant to any Restricted Stock Award may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, as shall be established by the Board and set forth in the Award Agreement evidencing such Award. During any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an Ownership Change Event or as provided in Section 7.8. The Board, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to such Restricted Stock Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Trading Compliance Policy, then satisfaction of the Vesting Conditions automatically shall be determined on the next trading day on which the sale of such shares would not violate the Trading Compliance Policy. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
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7.6 Voting Rights; Dividends and Distributions. Except as provided in this Section, Section 7.5 and any Award Agreement, during any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares; provided, however, that if so determined by the Board and provided by the Award Agreement, such dividends and distributions shall be subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid, and otherwise shall be paid no later than the end of the calendar year in which such dividends or distributions are paid to stockholders (or, if later, the 15th day of the third month following the date such dividends or distributions are paid to stockholders). In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.3, any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant is entitled by reason of the Participants Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.
7.7 Effect of Termination of Service. Unless otherwise provided by the Board in the Award Agreement evidencing a Restricted Stock Award, if a Participants Service terminates for any reason, whether voluntary or involuntary (including the Participants death or disability), then (a) the Company shall have the option to repurchase for the purchase price paid by the Participant any shares acquired by the Participant pursuant to a Restricted Stock Purchase Right which remain subject to Vesting Conditions as of the date of the Participants termination of Service and (b) the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to a Restricted Stock Bonus which remain subject to Vesting Conditions as of the date of the Participants termination of Service. 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.
7.8 Nontransferability of Restricted Stock Award Rights. Rights to acquire shares of Stock pursuant to a Restricted Stock Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or the laws of descent and distribution. All rights with respect to a Restricted Stock Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participants guardian or legal representative.
8. | S TANDARD F ORMS OF A WARD A GREEMENTS . |
8.1 Award Agreements. Each Award shall comply with and be subject to the terms and conditions set forth in the appropriate form of Award Agreement approved by the Board and as amended from time to time. No Award or purported Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement, which execution may be evidenced by electronic means.
8.2 Authority to Vary Terms . The Board shall have the authority from time to time to vary the terms of any standard form of Award Agreement either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Award Agreement are not inconsistent with the terms of the Plan.
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9. | C HANGE IN C ONTROL . |
9.1 Effect of Change in Control on Awards . Subject to the requirements and limitations of Section 409A, if applicable, the Board may provide for any one or more of the following:
(a) Accelerated Vesting . In its discretion, the Board may provide in the grant of any Award or at any other time may take action it deems appropriate to provide for acceleration of the exercisability and/or vesting in connection with a Change in Control of each or any outstanding Award or portion thereof and shares acquired pursuant thereto upon such conditions, including termination of the Participants Service prior to, upon, or following the Change in Control, and to such extent as the Board determines.
(b) Assumption, Continuation or Substitution of Awards . In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the Acquiror ), may, without the consent of any Participant, assume or continue the Companys rights and obligations under each or any Award or portion thereof outstanding immediately prior to the Change in Control or substitute for each or any such outstanding Award or portion thereof a substantially equivalent award with respect to the Acquirors stock. For purposes of this Section, if so determined by the Board, in its discretion, an Award or any portion thereof shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and the applicable Award Agreement, for each share of Stock subject to such portion of the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled (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 Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Board may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise of the Award, for each share of Stock subject to the Award, solely common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. If any portion of such consideration may be received by holders of Stock pursuant to the Change in Control on a contingent or delayed basis, the Board may, in its discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Boards good faith estimate of the present value of the probable future payment of such consideration. Any Award or portion thereof which is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of an Award prior to the Change
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in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of the Award Agreement evidencing such Award except as otherwise provided in such Award Agreement.
(c) Cash-Out of Outstanding Awards. The Board may, in its discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Award or portion thereof outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested share (and each unvested share, if so determined by the Board) of Stock subject to such canceled Award in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control, reduced (but not below zero) by the exercise or purchase price per share, if any, under such Award. If any portion of such consideration may be received by holders of Stock pursuant to the Change in Control on a contingent or delayed basis, the Board may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Boards good faith estimate of the present value of the probable amount of future payment of such consideration. In the event such determination is made by the Board, an Award having an exercise or purchase price per share equal to or greater than the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control may be canceled without payment of consideration to the holder thereof. Payment pursuant to this Section (reduced by applicable withholding taxes, if any) shall be made to Participants in respect of the vested portions of their canceled Awards as soon as practicable following the date of the Change in Control and in respect of the unvested portions of their canceled Awards in accordance with the vesting schedules applicable to such Awards.
9.2 Federal Excise Tax Under Section 4999 of the Code.
(a) Excess Parachute Payment. If any acceleration of vesting pursuant to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an excess parachute payment under Section 280G of the Code, then, provided such election would not subject the Participant to taxation under Section 409A, the Participant may elect to reduce the amount of any acceleration of vesting called for under the Award in order to avoid such characterization.
(b) Determination by Tax Firm. To aid the Participant in making any election called for under Section 9.2(a), no later than the date of the occurrence of any event that might reasonably be anticipated to result in an excess parachute payment to the Participant as described in Section 9.2(a), the Company shall request a determination in writing by the professional firm engaged by the Company for general tax purposes, or, if the tax firm so engaged by the Company is serving as accountant or auditor for the Acquiror, the Company will appoint a nationally recognized tax firm to make the determinations required by this Section. (the Tax Firm ). As soon as practicable thereafter, the Tax Firm shall determine and report to the Company and the Participant the amount of such acceleration of vesting, payments and benefits
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which would produce the greatest after-tax benefit to the Participant. For the purposes of such determination, the Tax Firm may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Tax Firm such information and documents as the Tax Firm may reasonably request in order to make its required determination. The Company shall bear all fees and expenses the Tax Firm charge in connection with its services contemplated by this Section.
10. | T AX W ITHHOLDING . |
10.1 Tax Withholding in General. The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes (including social insurance), if any, required by law to be withheld by any Participating Company with respect to an Award or the shares acquired pursuant thereto. The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to an Award Agreement until the Participating Company Groups tax withholding obligations have been satisfied by the Participant.
10.2 Withholding in or Directed Sale of Shares. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or vesting of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of any Participating Company. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates. The Company may require a Participant to direct a broker, upon the vesting or exercise of an Award, to sell a portion of the shares subject to the Award determined by the Company in its discretion to be sufficient to cover the tax withholding obligations of any Participating Company and to remit an amount equal to such tax withholding obligations to the Participating Company in cash.
11. | C OMPLIANCE WITH S ECTION 409A . |
11.1 In General. The Plan and all Awards granted hereunder are intended to comply with, or otherwise be exempt from, Section 409A. The Plan and all Awards granted under the Plan shall be administered, interpreted, and construed in a manner consistent with Section 409A, as determined by the Company in good faith, to the extent necessary to avoid the imposition of additional taxes under Section 409A(a)(1)(B) of the Code. It is intended that any election, payment or benefit which is made or provided pursuant to or in connection with any Award that may result in deferred compensation within the meaning of Section 409A shall comply in all respects with the applicable requirements of Section 409A.
11.2 Certain Limitations. With respect to any Award that is subject to Section 409A, the following shall apply, as applicable:
(a) Notwithstanding anything to the contrary in the Plan or any Award Agreement, to the extent required to avoid tax penalties under Section 409A, amounts that would
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otherwise be payable and benefits that would otherwise be provided pursuant to the Plan on account of, and during the six (6) month period immediately following, the Participants termination of Service shall instead be paid on the first payroll date after the six-month anniversary of the Participants separation from service (or the Participants death, if earlier).
(b) Neither any Participant nor the Company shall take any action to accelerate or delay the payment of any amount or benefits under an Award in any manner which would not be in compliance with Section 409A.
(c) Notwithstanding anything to the contrary in the Plan or any Award Agreement, to the extent that any amount constituting deferred compensation subject to Section 409A would become payable under the Plan by reason of a Change in Control, such amount shall become payable only if the event constituting the Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A. Any Award which constitutes deferred compensation subject to Section 409A and which would vest and otherwise become payable upon a Change in Control as a result of the failure of the Acquiror to assume, continue or substitute for such Award in accordance with Section 9.1(b) shall vest to the extent provided by such Award but shall be converted automatically at the effective time of such Change in Control into a right to receive, in cash on the date or dates such award would have been settled in accordance with its then existing settlement schedule, an amount or amounts equal in the aggregate to the intrinsic value of the Award at the time of the Change in Control.
(d) Should any provision of the Plan, any Award Agreement, or any other agreement or arrangement contemplated by the Plan be found not to comply with, or otherwise be exempt from, the provisions of Section 409A, such provision shall be modified and given effect (retroactively if necessary), in the sole discretion of the Board, and without the consent of the holder of the Award, in such manner as the Board determines to be necessary or appropriate to comply with, or to effectuate an exemption from, Section 409A.
(e) Notwithstanding the foregoing, neither the Company nor the Board shall have any obligation to take any action to prevent the assessment of any tax or penalty on any Participant under Section 409A, and neither the Company nor the Board will have any liability to any Participant for such tax or penalty.
12. | C OMPLIANCE WITH S ECURITIES L AW . |
The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. Except as otherwise determined by the Board,
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the Company intends that securities issued pursuant to the Plan be exempt from requirements of registration and qualification of such securities pursuant the exemptions afforded by Rule 701 promulgated under the Securities Act and Section 25102(o) of the of the California Corporations Code or any other applicable exemptions, and the Plan shall be so construed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Companys legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
13. | A MENDMENT OR T ERMINATION OF P LAN . |
The Board may amend, suspend or terminate the Plan at any time. However, without the approval of the Companys stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Sections 4.2 and 4.3), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Companys stockholders under any applicable law, regulation or rule, including the rules of any stock exchange or quotation system upon which the Stock may then be listed or quoted. No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Board. Except as provided by the next sentence, no amendment, suspension or termination of the Plan may have a materially adverse effect on any then outstanding Award without the consent of the Participant. Notwithstanding any other provision of the Plan or any Award Agreement to the contrary, the Board may, in its sole and absolute discretion and without the consent of any Participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A.
14. | M ISCELLANEOUS P ROVISIONS . |
14.1 Restrictions on Transfer of Shares .
(a) Shares issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board in its discretion at the time the Award is granted. 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 Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
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(b) Notwithstanding the provisions of any Award Agreement to the contrary, at any time prior to the date on which the Stock is listed on a national securities exchange (as such term is used in the Exchange Act) or is traded on the over-the-counter market and prices therefore are published daily on business days in a recognized financial journal, the Board may prohibit any Participant who acquires shares of Stock pursuant to the Plan or any transferee of such Participant from selling, transferring, assigning, pledging, or otherwise disposing of or encumbering any such shares (each, a Transfer ) without the prior written consent of the Board. The Board may withhold consent to any Transfer for any reason, including without limitation any Transfer (i) to any individual or entity identified by the Company as a potential competitor or considered by the Company to be unfriendly, or (ii) if such Transfer increases the risk of the Company having a class of security held of record by such number of persons as would require the Company to register any class of securities under the Exchange Act; or (iii) if such Transfer would result in the loss of any federal or state securities law exemption relied upon by the Company in connection with the initial issuance of such shares or the issuance of any other securities; or (iv if such Transfer is facilitated in any manner by any public posting, message board, trading portal, Internet site, or similar method of communication, including without limitation any trading portal or Internet site intended to facilitate secondary transfers of securities; or (v) if such Transfer is to be effected in a brokered transaction; or (vi) if such Transfer would be of less than all of the shares of Stock then held by the stockholder and its affiliates or is to be made to more than a single transferee.
14.2 Forfeiture Events. The Board may determine that the Participants rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, termination of Service for Cause, any act by a Participant, whether before or after termination of Service, that would constitute Cause for termination of Service, or any accounting restatement due to material noncompliance of the Company with any financial reporting requirements of securities laws as a result of which, and to the extent that, such reduction, cancellation, forfeiture, or recoupment is required by applicable securities laws.
14.3 Provision of Information. At least annually, copies of the Companys balance sheet and income statement for the just completed fiscal year shall be made available to each Participant and purchaser of shares of Stock upon the exercise of an Award; provided, however, that this requirement shall not apply if all offers and sales of securities pursuant to the Plan comply with all applicable conditions of Rule 701 under the Securities Act. The Company shall not be required to provide such information to key persons whose duties in connection with the Company assure them access to equivalent information. The Company shall deliver to each Participant such disclosures as are required in accordance with Rule 701 under the Securities Act. Notwithstanding the foregoing, at any time the Company is relying on the exemption provided by Rule 12h-1(f) under the Exchange Act, the Company shall provide to the applicable Participants the information described in Securities Act Rules 701(e)(3), (4) and (5) by a method allowed under Rule 12h-1(f)(1)(vi) and in accordance with the requirements of Rule 12h-1(f)(1)(vi), provided that the Participant agrees to keep the information confidential until the Company becomes subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act.
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14.4 Rights as Employee, Consultant or Director. No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee, Consultant or Director or interfere with or limit in any way any right of a Participating Company to terminate the Participants Service at any time. To the extent that an Employee of a Participating Company other than the Company receives an Award under the Plan, that Award shall in no event be understood or interpreted to mean that the Company is the Employees employer or that the Employee has an employment relationship with the Company.
14.5 Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.3 or another provision of the Plan.
14.6 Delivery of Title to Shares. Subject to any governing rules or regulations, the Company shall issue or cause to be issued the shares of Stock acquired pursuant to an Award and shall deliver such shares to or for the benefit of the Participant by means of one or more of the following: (a) by delivering to the Participant evidence of book entry shares of Stock credited to the account of the Participant, (b) by depositing such shares of Stock for the benefit of the Participant with any broker with which the Participant has an account relationship, or (c) by delivering such shares of Stock to the Participant in certificate form.
14.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.
14.8 Retirement and Welfare Plans. Neither Awards made under this Plan nor shares of Stock or cash paid pursuant to such Awards may be included as compensation for purposes of computing the benefits payable to any Participant under any Participating Companys retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a Participants benefits.
14.9 Severability . If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.
14.10 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Companys or another Participating Companys right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (b) limit the right or power of the Company or another Participating Company to take any action which such entity deems to be necessary or appropriate.
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14.11 Choice of Law. Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan and each Award Agreement shall be governed by the laws of the State of California, without regard to its conflict of law rules.
14.12 Stockholder Approval. The Plan or any increase in the maximum aggregate number of shares of Stock issuable thereunder as provided in Section 4.1 (the Authorized Shares ) shall be approved by a majority of the outstanding securities of the Company entitled to vote by the later of (a) a period beginning twelve (12) months before and ending twelve (12) months after the date of adoption thereof by the Board or (b) the first issuance of any security pursuant to the Plan in the State of California (within the meaning of Section 25008 of the California Corporations Code). Awards granted prior to security holder approval of the Plan or in excess of the Authorized Shares previously approved by the security holders shall become exercisable no earlier than the date of security holder approval of the Plan or such increase in the Authorized Shares, as the case may be, and such Awards shall be rescinded if such security holder approval is not received in the manner described in the preceding sentence.
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PLAN HISTORY
January 29, 2013 | Board adopts Plan, with an initial reserve of One Million Thirteen Thousand Seventy Five (1,013,075) shares. | |
January 29, 2013 | Stockholders of the Company approve Plan. | |
April 8, 2013 | Board approves 1,156,379 share increase in the Plan reserve. | |
April 8, 2013 | Stockholders of the Company approve the 1,156,379 share increase in the Plan Reserve. | |
September 30, 2014 | Board approves 672,532 share increase in the Plan reserve. | |
Stockholders of the Company approve the 672,532 share increase in the Plan Reserve. |
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Exhibit 10.5(b)
AMENDMENT TO THE
ALLERGEN RESEARCH CORPORATION
2013 STOCK PLAN
Effective January 20, 2015
This Amendment to the Allergen Research Corporation 2013 Stock Plan (as amended, the Plan ) is effective as of the date first set forth above, such amendment having been approved by the Board of Directors of Allergen Research Corporation, a Delaware corporation (the Company ), on January 16, 2015, and approved by the holders of a majority of the Companys outstanding shares of voting capital stock on January 16, 2015, in each case in accordance with Section 13 of the Plan. Capitalized but undefined terms shall have the meanings provided in the Plan.
As of result of the foregoing approvals, the Plan is hereby amended as follows:
1. Section 4.1 of the Plan is hereby amended and restated in its entirety to read as follows:
4.1. STOCK SUBJECT TO THE PLAN . Maximum Number of Shares Issuable . Subject to adjustment as provided in Sections 4.2 and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be Four Million Five Hundred Forty-One Thousand Nine Hundred Eighty-Six (4,541,986) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. Notwithstanding the foregoing, at any such time as the offer and sale of securities pursuant to the Plan is subject to compliance with Section 260.140.45 of Title 10 of the California Code of Regulations ( Section 260.140.45 ), the total number of shares of Stock issuable upon the exercise of all outstanding Awards (together with options outstanding under any other stock plan of the Company) and the total number of shares provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent (30%) (or such other higher percentage limitation as may be approved by the stockholders of the Company pursuant to Section 260.140.45) of the then outstanding shares of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45.
[Signature Page Follows]
The undersigned, being the duly elected and acting Secretary of the Company, hereby certifies that the foregoing amendment was duly approved and adopted by the Board of Directors and the Stockholders of the Company effective as of the date first referenced above.
By: |
/s/ Rodney Young |
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Rodney Young, Secretary |
Signature Page to Amendment to
Allergen Research Corporation 2013 Stock Plan
Exhibit 10.5(c)
ALLERGEN RESEARCH CORPORATION
NOTICE OF GRANT OF STOCK OPTION
(IMMEDIATELY EXERCISABLE)
The Participant has been granted an option (the Option ) to purchase certain shares of Stock of Allergen Research Corporation pursuant to the Allergen Research Corporation 2013 Stock Plan (the Plan ), as follows:
Participant: |
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Date of Grant: |
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Number of Option Shares: |
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subject to adjustment as provided by the Option Agreement. | ||||||||
Exercise Price: | $ |
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Initial Vesting Date: | The date one (1) year after [vesting commencement date] | |||||||
Option Expiration Date: | The date [ten (10)] [five (5)] years after the Date of Grant | |||||||
Tax Status of Option: |
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Stock Option. (Enter Incentive or Nonstatutory. If blank, this Option will be a Nonstatutory Stock Option.) | ||||||||
Vested Shares: | Except as provided in the Stock Option Agreement, the number of Vested Shares (disregarding any resulting fractional share) as of any date is determined by multiplying the Number of Option Shares by the Vested Ratio determined as of such date as follows: | |||||||
Vested Ratio |
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Prior to Initial Vesting Date | 0 | |||||||
On Initial Vesting Date, provided the Participants Service has not terminated prior to such date | 1/4 | |||||||
Plus | ||||||||
For each additional full month of the Participants continuous Service from Initial Vesting Date until the Vested Ratio equals 1/1, an additional | 1/48 |
The Exercise Price represents an amount the Company believes to be no less than the fair market value of a share of Stock as of the Date of Grant, determined in good faith in compliance with the requirements of Section 409A of the Code. However, there is no guarantee that the Internal Revenue Service will agree with the Companys determination. A subsequent IRS determination that the Exercise Price is less than such fair market value could result in adverse tax consequences to the Participant. By signing below, the Participant agrees that the Company, its directors, officers and shareholders shall not be held liable for any tax, penalty, interest or cost incurred by the Participant as a result of such determination by the IRS. The Participant is urged to consult with his or her own tax advisor regarding the tax consequences of the Option, including the application of Section 409A.
By their signatures below, the Company and the Participant agree that the Option is governed by this Grant Notice and by the provisions of the Plan and the Stock Option Agreement, both of which are attached to and made a part of this document. The Participant acknowledges receipt of copies of the Plan and the Stock Option Agreement, represents that the Participant has read and is familiar with their provisions, and hereby accepts the Option subject to all of their terms and conditions.
ALLERGEN RESEARCH CORPORATION | PARTICIPANT | |||||||
By: |
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Signature | ||||||||
Its: |
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Date | ||||||||
Address: | 309 University Drive |
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Menlo Park, CA 94025 | ||||||||
Address | ||||||||
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ATTACHMENTS: | 2013 Stock Plan, as amended to the Date of Grant; Stock Option Agreement (Immediately Exercisable), Exercise Notice and Assignment Separate from Certificate |
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
ALLERGEN RESEARCH CORPORATION
STOCK OPTION AGREEMENT
(Immediately Exercisable)
Allergen Research Corporation has granted to the Participant named in the Notice of Grant of Stock Option (the Grant Notice ) to which this Stock Option Agreement (the Option Agreement ) is attached an option (the Option ) to purchase certain shares of Stock upon the terms and conditions set forth in the Grant Notice and this Option Agreement. The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Allergen Research Corporation 2013 Stock Plan (the Plan ), as amended to the Date of Grant, the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of, and represents that the Participant has read and is familiar with, the Grant Notice, this Option Agreement and the Plan, (b) accepts the Option subject to all of the terms and conditions of the Grant Notice, this Option Agreement and the Plan, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Grant Notice, this Option Agreement or the Plan.
1. | D EFINITIONS AND C ONSTRUCTION . |
1.1 Definitions . Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Grant Notice or the Plan.
1.2 Construction . Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term or is not intended to be exclusive, unless the context clearly requires otherwise.
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2. | T AX C ONSEQUENCES . |
2.1 Tax Status of Option . This Option is intended to have the tax status designated in the Grant Notice.
(a) Incentive Stock Option . If the Grant Notice so designates, this Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code, but the Company does not represent or warrant that this Option qualifies as such. The Participant should consult with the Participants own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. (NOTE TO PARTICIPANT: If the Option is exercised more than three (3) months after the date on which you cease to be an Employee (other than by reason of your death or permanent and total disability as defined in Section 22(e)(3) of the Code), the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code.)
(b) Nonstatutory Stock Option. If the Grant Notice so designates, this Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code.
2.2 Election under Section 83(b) of the Code. If the Participant exercises this Option to purchase shares of Stock that are both nontransferable and subject to a substantial risk of forfeiture, the Participant understands that the Participant should consult with the Participants tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date on which the Participant exercises the Option. Shares acquired upon exercise of the Option are nontransferable and subject to a substantial risk of forfeiture if they are unvested and are subject to a right of the Company to repurchase such shares at the Participants original purchase price if the Participants Service terminates. Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Participant. However, an election under Section 83(b) may, under certain circumstances, result in adverse tax consequences to the Participant. The Participant acknowledges that the Participant has been advised to consult with a tax advisor prior to the exercise of the Option regarding the tax consequences to the Participant of the exercise of the Option and the effect of filing or not filing an election under Section 83(b). AN ELECTION UNDER SECTION 83(b) MUST BE FILED, IF AT ALL, WITHIN 30 DAYS AFTER THE DATE ON WHICH THE PARTICIPANT PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE PARTICIPANT ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION, IF APPROPRIATE, IS THE PARTICIPANTS SOLE RESPONSIBILITY, EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
2.3 Notice to Company. The Participant will notify the Company in writing if the Participant files an election pursuant to Section 83(b) of the Code. The Company intends, in the event it does not receive from the Participant evidence of such filing, to claim a tax deduction for any amount which would otherwise be taxable to the Participant in the absence of such an election.
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2.4 ISO Fair Market Value Limitation. If the Grant Notice designates this Option as an Incentive Stock Option , then to the extent that the Option (together with all Incentive Stock Options granted to the Participant under all stock option plans of the Participating Company Group, including the Plan) becomes exercisable for the first time during any calendar year for shares having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount will be treated as Nonstatutory Stock Options. For purposes of this Section, options designated as Incentive Stock Options are taken into account in the order in which they were granted, and the Fair Market Value of stock is determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section, such different limitation shall be deemed incorporated herein effective as of the date required or permitted by such amendment to the Code. If the Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section, the Participant may designate which portion of such Option the Participant is exercising. In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. (NOTE TO PARTICIPANT: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options you hold (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than $100,000, you should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.)
3. | A DMINISTRATION . |
All questions of interpretation concerning the Grant Notice, this Option Agreement, the Plan or any other form of agreement or other document employed by the Company in the administration of the Plan or the Option shall be determined by the Board. All such determinations by the Board shall be final, binding and conclusive upon all persons having an interest in the Option, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Board in the exercise of its discretion pursuant to the Plan or the Option or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest in the Option. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
4. | E XERCISE OF THE O PTION . |
4.1 Right to Exercise . Except as otherwise provided herein, the Option shall be exercisable on and after the Date of Grant and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the total Number of Option Shares less the number of shares previously acquired upon exercise of the Option, subject to the Companys repurchase rights set forth in Sections 11 and 12. In no event shall the Option be exercisable for more shares than the Number of Option Shares, as adjusted pursuant to Section 9.
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4.2 Method of Exercise . Exercise of the Option shall be by means of electronic or written notice (the Exercise Notice ) in a form authorized by the Company. An electronic Exercise Notice must be digitally signed or authenticated by the Participant in such manner as required by the notice and transmitted to the Company or an authorized representative of the Company (including a third-party administrator designated by the Company). In the event that the Participant is not authorized or is unable to provide an electronic Exercise Notice, the Option shall be exercised by a written Exercise Notice addressed to the Company, which shall be signed by the Participant and delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Company, or an authorized representative of the Company (including a third-party administrator designated by the Company). Each Exercise Notice, whether electronic or written, must state the Participants election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Participants investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. Further, each Exercise Notice must be received by the Company prior to the termination of the Option as set forth in Section 6 and must be accompanied by (a) full payment of the aggregate Exercise Price for the number of shares of Stock being purchased and (b) if the Option is exercised with respect to any Unvested Shares (as defined in Section 11.1), an Assignment Separate from Certificate duly endorsed (with date and number of shares blank) in the form attached to the Grant Notice. The Option shall be deemed to be exercised upon receipt by the Company of such electronic or written Exercise Notice, the aggregate Exercise Price and, if required hereby, such duly endorsed Assignment Separate from Certificate.
4.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized . Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check or in cash equivalent, (ii) if permitted by the Company and subject to the limitations contained in Section 4.3(b), by means of (1) a Stock Tender Exercise, (2) a Cashless Exercise or (3) a Net-Exercise; or (iii) by any combination of the foregoing.
(b) Limitations on Forms of Consideration . The Company reserves, at any and all times, the right, in the Companys sole and absolute discretion, to establish, decline to approve or terminate any program or procedure providing for payment of the Exercise Price through any of the means described below, including with respect to the Participant notwithstanding that such program or procedures may be available to others.
(i) Stock Tender Exercise. A Stock Tender Exercise means the delivery of a properly executed Exercise Notice accompanied by (1) the Participants tender to the Company, or attestation to the ownership, in a form acceptable to the Company of whole shares of Stock having a Fair Market Value that does not exceed the aggregate Exercise Price for the shares with respect to which the Option is exercised, and (2) the Participants
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payment to the Company in cash of the remaining balance of such aggregate Exercise Price not satisfied by such shares Fair Market Value. A Stock Tender Exercise shall not be permitted if it would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Companys stock. If required by the Company, the Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for a period of time required by the Company (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
(ii) Cashless Exercise. A Cashless Exercise shall be permitted only upon the class of shares subject to the Option becoming publicly traded in an established securities market. A Cashless Exercise means the delivery of a properly executed Exercise Notice together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to shares of Stock acquired upon the exercise of the Option in an amount not less than the aggregate Exercise Price for such shares (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System).
(iii) Net-Exercise. A Net-Exercise means the delivery of a properly executed Exercise Notice electing a procedure pursuant to which (1) the Company will reduce the number of shares otherwise issuable to the Participant upon the exercise of the Option by the largest whole number of shares having a Fair Market Value that does not exceed the aggregate Exercise Price for the shares with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in cash the remaining balance of such aggregate Exercise Price not satisfied by such reduction in the number of whole shares to be issued. Following a Net-Exercise, the number of shares remaining subject to the Option, if any, shall be reduced by the sum of (1) the net number of shares issued to the Participant upon such exercise, and (2) the number of shares deducted by the Company for payment of the aggregate Exercise Price.
4.4 Tax Withholding .
(a) In General. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by a Participating Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for any sums required to satisfy the federal, state, local and foreign tax (including any social insurance) withholding obligations of the Participating Company Group, if any, which arise in connection with the Option. The Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Participating Company Group have been satisfied by the Participant.
(b) Withholding in or Directed Sale of Shares . The Company shall have the right, but not the obligation, to require the Participant to satisfy all or any portion of a Participating Companys tax withholding obligations upon exercise of the Option by deducting from the shares of Stock otherwise issuable to the Participant upon such exercise a number of whole shares having a fair market value, as determined by the Company as of the date of exercise, not in excess of the amount of such tax withholding obligations determined by the
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applicable minimum statutory withholding rates. The Company may require the Participant to direct a broker, upon the exercise of the Option, to sell a portion of the shares subject to the Option determined by the Company in its discretion to be sufficient to cover the tax withholding obligations of any Participating Company and to remit an amount equal to such tax withholding obligations to the Company in cash.
4.5 Beneficial Ownership of Shares; Certificate Registration . The Participant hereby authorizes the Company, in its sole discretion, to deposit the shares acquired pursuant to the exercise of the Option with the Companys transfer agent, including any successor transfer agent, to be held in book entry form during the term of the Escrow pursuant to Section 14. Furthermore, the Participant hereby authorizes the Company, in its sole discretion, to deposit, following the term of the Escrow, for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice any or all such shares which are no longer subject to the Escrow. Except as provided by the foregoing, a certificate for the shares shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
4.6 Restrictions on Grant of the Option and Issuance of Shares . The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Companys legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option 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 Option, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
4.7 Fractional Shares . The Company shall not be required to issue fractional shares upon the exercise of the Option.
5. | N ONTRANSFERABILITY OF THE O PTION . |
During the lifetime of the Participant, the Option shall be exercisable only by the Participant or the Participants guardian or legal representative. The Option shall not be subject
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in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. Following the death of the Participant, the Option, to the extent provided in Section 7, may be exercised by the Participants legal representative or by any person empowered to do so under the deceased Participants will or under the then applicable laws of descent and distribution. Notwithstanding the foregoing, for so long as the Company is relying on the exemption provided by Rule 12h-1(f) under the Exchange Act, the Option and, prior to its exercise, the shares to be issued upon the exercise of the Option, shall not be transferred except in compliance with the restrictions on transfer under Rule 12h-1(f) (including the requirement under such rule that any permitted transferee may not further transfer the Option) or be made subject to any short position, put equivalent position or call equivalent position by the Participant, as such terms are defined in Rule 16a-1 of the Exchange Act.
6. | T ERMINATION OF THE O PTION . |
The Option shall terminate and may no longer be exercised after the first to occur of (a) the close of business on the Option Expiration Date, (b) the close of business on the last date for exercising the Option following termination of the Participants Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8.
7. | E FFECT OF T ERMINATION OF S ERVICE . |
7.1 Option Exercisability. The Option shall terminate immediately upon the Participants termination of Service to the extent that it is then unvested and shall be exercisable after the Participants termination of Service to the extent it is then vested only during the applicable time period as determined below and thereafter shall terminate.
(a) Disability . If the Participants Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable for Vested Shares on the date on which the Participants Service terminated, may be exercised by the Participant (or the Participants guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date.
(b) Death . If the Participants Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable for Vested Shares on the date on which the Participants Service terminated, may be exercised by the Participants legal representative or other person who acquired the right to exercise the Option by reason of the Participants death at any time prior to the expiration of twelve (12) months after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date. The Participants Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participants termination of Service.
(c) Termination for Cause. Notwithstanding any other provision of this Option Agreement, if the Participants Service is terminated for Cause, the Option shall terminate in its entirety and cease to be exercisable immediately upon such termination of Service.
(d) Other Termination of Service . If the Participants Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable for Vested Shares by the Participant on the date on which the Participants Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date.
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7.2 Extension if Exercise Prevented by Law . Notwithstanding the foregoing other than termination of the Participants Service for Cause, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until the later of (a) thirty (30) days after the date such exercise first would no longer be prevented by such provisions or (b) the end of the applicable time period under Section 7.1, but in any event no later than the Option Expiration Date.
8. | E FFECT OF C HANGE IN C ONTROL . |
In the event of a Change in Control, except to the extent that the Board determines to settle the Option in accordance with Section 9.1(c) of the Plan, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the Acquiror ), may, without the consent of the Participant, assume or continue in full force and effect the Companys rights and obligations under all or any portion of the Option or substitute for all or any portion of the Option a substantially equivalent option for the Acquirors stock. For purposes of this Section, the Option or any portion thereof shall be deemed assumed if, following the Change in Control, the Option confers the right to receive, subject to the terms and conditions of the Plan and this Option Agreement, for each share of Stock subject to such portion of the Option immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled (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 Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Board may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise of the Option for each share of Stock to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. If any portion of such consideration may be received by holders of Stock pursuant to the Change in Control on a contingent or delayed basis, the Board may, in its discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Boards good faith estimate of the present value of the probable future payment of such consideration. The Option shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control to the extent that the Option is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised as of the time of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein.
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9. | A DJUSTMENTS FOR C HANGES IN C APITAL S TRUCTURE . |
Subject to any required action by the stockholders of the Company and the requirements of Sections 409A and 424 of the Code to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number, Exercise Price and kind of shares subject to the Option, in order to prevent dilution or enlargement of the Participants rights under the Option. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as effected without receipt of consideration by the Company. Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number, and the Exercise Price shall be rounded up to the nearest whole cent. In no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive.
10. | R IGHTS AS A S TOCKHOLDER , D IRECTOR , E MPLOYEE OR C ONSULTANT . |
The Participant shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date the shares are issued, except as provided in Section 9. If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participants employment is at will and is for no specified term. Nothing in this Option Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participants Service as a Director, an Employee or Consultant, as the case may be, at any time.
11. | U NVESTED S HARE R EPURCHASE O PTION . |
11.1 Grant of Unvested Share Repurchase Option . In the event the Participants Service is terminated for any reason or no reason, with or without cause, or, if the Participant, the Participants legal representative, or other holder of shares acquired pursuant to this Agreement, attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event) any Unvested Shares, as defined in Section 11.2 below (the Unvested Shares ), the Company shall have the right to repurchase the Unvested Shares under the terms and subject to the conditions set forth in this Section 11 (the Unvested Share Repurchase Option ).
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11.2 Unvested Shares Defined . The Unvested Shares shall mean, on any given date, the number of shares of Stock acquired upon exercise of the Option which exceed the Vested Shares determined as of such date.
11.3 Exercise of Unvested Share Repurchase Option . The Company may exercise the Unvested Share Repurchase Option by written notice to the Participant within sixty (60) days after (a) termination of the Participants Service or (b) the Company has received notice of the attempted disposition of Unvested Shares. If the Company fails to give notice within such sixty (60) day period, the Unvested Share Repurchase Option shall terminate unless the Company and the Participant have extended the time for the exercise of the Unvested Share Repurchase Option. Notwithstanding the preceding sentence, the period during which the Company may exercise the Unvested Share Repurchase Option shall terminate no sooner than the completion of a period of eight (8) months following the date on which the Participant acquired the Unvested Shares upon exercise of the Option. The Unvested Share Repurchase Option must be exercised, if at all, for all of the Unvested Shares, except as the Company and the Participant otherwise agree.
11.4 Payment for Shares and Return of Shares to Company . The purchase price per share being repurchased by the Company (the Repurchase Price ) shall be an amount equal to the Participants original cost per share, as adjusted pursuant to Section 9. The Company shall pay the aggregate Repurchase Price to the Participant in cash within thirty (30) days after the date of the written notice to the Participant of the Companys exercise of the Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of any purchase money indebtedness of the Participant to any Participating Company for the shares shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled. The shares being repurchased shall be delivered to the Company by the Participant at the same time as the delivery of the Repurchase Price to the Participant.
11.5 Assignment of Unvested Share Repurchase Option . The Company shall have the right to assign the Unvested Share Repurchase Option at any time, whether or not such option is then exercisable, to one or more persons as may be selected by the Company.
11.6 Ownership Change Event . Upon the occurrence of an Ownership Change Event, any and all new, substituted or additional securities or other property to which the Participant is entitled by reason of the Participants ownership of Unvested Shares shall be immediately subject to the Unvested Share Repurchase Option and included in the terms Stock and Unvested Shares for all purposes of the Unvested Share Repurchase Option with the same force and effect as the Unvested Shares immediately prior to the Ownership Change Event. While the aggregate Repurchase Price shall remain the same after such Ownership Change Event, the Repurchase Price per Unvested Share upon exercise of the Unvested Share Repurchase Option following such Ownership Change Event shall be adjusted as appropriate.
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12. | R IGHT OF F IRST R EFUSAL . |
12.1 Grant of Right of First Refusal . Except as provided in Section 12.7 and Section 18 below, in the event the Participant, the Participants legal representative, or other holder of shares acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the Transfer Shares ) to any person or entity, including, without limitation, any stockholder of a Participating Company, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 12 (the Right of First Refusal ).
12.2 Notice of Proposed Transfer . Prior to any proposed transfer of the Transfer Shares, the Participant 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, as determined by the Board in good faith. If the Participant proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee. The Transfer Notice shall be signed by both the Participant and the Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal.
12.3 Bona Fide Transfer . If the Company determines that the information provided by the Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Participant written notice of the Participants failure to comply with the procedure described in this Section 12, and the Participant shall have no right to transfer the Transfer Shares without first complying with the procedure described in this Section 12. The Participant shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide.
12.4 Exercise of Right of First Refusal . If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Participant otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Participant of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company. The Companys 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 Companys 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 Participant or issued by a person other than the Participant with respect to a proposed transfer to the same Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the Participant 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
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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 Participant to any Participating Company shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled. Notwithstanding anything contained in this Section to the contrary, the period during which the Company may exercise the Right of First Refusal and consummate the purchase of the Transfer Shares from the Participant shall terminate no sooner than the completion of a period of eight (8) months following the date on which the Participant acquired the Transfer Shares upon exercise of the Option.
12.5 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 Participant otherwise agree) within the period specified in Section 12.4 above, the Participant 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 or, if applicable, following the end of the period described in the last sentence of Section 12.4. The Company shall have the right to demand further assurances from the Participant 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 Participant, shall again be subject to the Right of First Refusal and shall require compliance by the Participant with the procedure described in this Section 12.
12.6 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 this Option Agreement, including this Section 12 providing for the Right of First Refusal with respect to any subsequent transfer. Any sale or transfer of any shares acquired upon exercise of the Option shall be void unless the provisions of this Section 12 are met.
12.7 Transfers Not Subject to Right of First Refusal . The Right of First Refusal shall not apply to any transfer or exchange of the shares acquired upon exercise of the Option if such transfer or exchange is in connection with an Ownership Change Event. If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration shall remain subject to the Right of First Refusal unless the provisions of Section 12.9 below result in a termination of the Right of First Refusal.
12.8 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.
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12.9 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 Change in Control, unless the Acquiror assumes the Companys rights and obligations under the Option or substitutes a substantially equivalent option for the Acquirors stock for the Option, 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 Exchange Act) 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.
13. | S TOCK D ISTRIBUTIONS S UBJECT TO O PTION A GREEMENT . |
If, from time to time, there is any stock dividend, stock split or other change, as described in Section 9, 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 Participant is entitled by reason of the Participants ownership of the shares acquired upon exercise of the Option shall be immediately subject to the Unvested Share Repurchase Option and the Right of First Refusal with the same force and effect as the shares subject to the Unvested Share Repurchase Option and the Right of First Refusal immediately before such event.
14. | E SCROW . |
14.1 Appointment of Agent. To ensure that shares subject to the Unvested Share Repurchase Option will be available for repurchase, the Participant and the Company hereby appoint the Secretary of the Company, or any other person designated by the Company, as their agent and as attorney-in-fact for the Participant (the Agent ) to hold any and all Unvested Shares and to sell, assign and transfer to the Company any such Unvested Shares repurchased by the Company pursuant to the Unvested Share Repurchase Option. The Participant understands that appointment of the Agent is a material inducement to make this Agreement and that such appointment is coupled with an interest and is irrevocable. The Agent shall not be personally liable for any act the Agent may do or omit to do hereunder as escrow agent, agent for the Company, or attorney in fact for the Participant while acting in good faith and in the exercise of the Agents own good judgment, and any act done or omitted by the Agent pursuant to the advice of the Agents own attorneys shall be conclusive evidence of such good faith. The Agent may rely upon any letter, notice or other document executed by any signature purporting to be genuine and may resign at any time.
14.2 Establishment of Escrow . The Participant authorizes the Company to deposit the Unvested Shares with the Companys transfer agent to be held in book entry form, as provided by Section 4.5, and the Participant agrees to deliver to and deposit with the Agent each certificate, if any, evidencing the Unvested Shares and an Assignment Separate from Certificate with respect to such book entry shares and each such certificate duly endorsed (with date and number of shares blank) in the form attached to this Agreement, to be held by the Agent under the terms and conditions of this Section (the Escrow ). Upon the occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock or other property (other than regular, periodic dividends paid on Stock pursuant to the
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Companys dividend policy), or any other adjustment upon a change in the capital structure of the Company, as described in Section 9, any and all new, substituted or additional securities or other property to which the Participant is entitled by reason of his or her ownership of the shares that remain, following such Ownership Change Event, dividend, distribution or change described in Section 9, subject to the Unvested Share Repurchase Option shall be immediately subject to the Escrow to the same extent as the shares immediately before such event. The Company shall bear the expenses of the Escrow.
14.3 Delivery of Shares to Participant . The Escrow shall continue with respect to any shares for so long as such shares remain subject to the Unvested Share Repurchase Option. Upon termination of the Unvested Share Repurchase Option with respect to shares, the Company shall so notify the Agent and direct the Agent to deliver such number of shares to the Participant. As soon as practicable after receipt of such notice, the Agent shall cause to be delivered to the Participant the shares specified by such notice, and the Escrow shall terminate with respect to such shares.
14.4 Notices and Payments . In the event the shares and any other property held in escrow are subject to the Companys exercise of the Unvested Share Repurchase Option or the Right of First Refusal, the notices required to be given to the Participant shall be given to the Agent, and any payment required to be given to the Participant shall be given to the Agent. Within thirty (30) days after payment by the Company, the Agent shall deliver the shares and any other property which the Company has purchased to the Company and shall deliver the payment received from the Company to the Participant.
15. | N OTICE OF S ALES U PON D ISQUALIFYING D ISPOSITION . |
The Participant shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, if the Grant Notice designates this Option as an Incentive Stock Option, the Participant shall (a) promptly notify the Chief Financial Officer of the Company if the Participant disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Participant exercises all or part of the Option or within two (2) years after the Date of Grant and (b) provide the Company with a description of the circumstances of such disposition. Until such time as the Participant disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Participant shall hold all shares acquired pursuant to the Option in the Participants name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Companys stock to notify the Company of any such transfers. The obligation of the Participant to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence.
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16. | L EGENDS . |
The Company may at any time place legends referencing the Unvested Share Repurchase Option, the Right of First Refusal and any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:
16.1 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
16.2 THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDERS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.
16.3 THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (ISO). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR [INSERT DISQUALIFYING DISPOSITION DATE HERE]. SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDERS NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE.
17. | L OCK -U P A GREEMENT . |
The Participant hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Participant shall not offer, sell,
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contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time shall not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public offering; provided, further, however, that such one hundred eighty (180) day period may be extended for an additional period, not to exceed twenty (20) days, upon the request of the Company or the underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto). The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act. The Participant hereby agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing within a reasonable timeframe if so requested by the Company.
18. | R ESTRICTIONS ON T RANSFER OF S HARES . |
At any time prior to the existence of a public market for the Stock, the Board may prohibit the Participant and any transferee of such Participant from selling, transferring, assigning, pledging, or otherwise disposing of or encumbering any shares acquired pursuant to the Option (each, a Transfer ) without the prior written consent of the Board. The Board may withhold consent for any reason, including without limitation any Transfer (i) to any individual or entity identified by the Company as a potential competitor or considered by the Company to be unfriendly, or (ii) if such Transfer increases the risk of the Company having a class of security held of record by such number of persons as would require the Company to register any class of securities under the Exchange Act; or (iii) if such Transfer would result in the loss of any federal or state securities law exemption relied upon by the Company in connection with the initial issuance of such shares or the issuance of any other securities; or (iv) if such Transfer is facilitated in any manner by any public posting, message board, trading portal, Internet site, or similar method of communication, including without limitation any trading portal or Internet site intended to facilitate secondary transfers of securities; or (v) if such Transfer is to be effected in a brokered transaction; or (vi) if such Transfer would be of less than all of the shares of Stock then held by the stockholder and its affiliates or is to be made to more than a single transferee. No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Participant), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law in any manner which violates any of the provisions of this Option Agreement, and, except pursuant to an Ownership Change Event, until the date on which such shares become Vested Shares, and any such attempted disposition shall be 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.
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19. | M ISCELLANEOUS P ROVISIONS . |
19.1 Termination or Amendment. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Participant unless such termination or amendment is necessary to comply with any applicable law or government regulation, including, but not limited to Section 409A of the Code. No amendment or addition to this Option Agreement shall be effective unless in writing.
19.2 Compliance with Section 409A . The Company intends that income realized by the Participant pursuant to the Plan and this Option Agreement will not be subject to taxation under Section 409A of the Code. The provisions of the Plan and this Option Agreement shall be interpreted and construed in favor of satisfying any applicable requirements of Section 409A of the Code. The Company, in its reasonable discretion, may amend (including retroactively) the Plan and this Agreement in order to conform to the applicable requirements of Section 409A of the Code, including amendments to facilitate the Participants ability to avoid taxation under Section 409A of the Code. However, the preceding provisions shall not be construed as a guarantee by the Company of any particular tax result for income realized by the Participant pursuant to the Plan or this Option Agreement. In any event, and except for the responsibilities of the Company set forth in Section 4.4, no Participating Company shall be responsible for the payment of any applicable taxes incurred by the Participant on income realized by the Participant pursuant to the Plan or this Option Agreement.
19.3 Further Instruments. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Option Agreement.
19.4 Binding Effect. This Option Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participants heirs, executors, administrators, successors and assigns.
19.5 Delivery of Documents and Notices. Any document relating to participation in the Plan, or any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address, if any, provided for the Participant by a Participating Company, or, upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally recognized overnight courier service, with postage and fees prepaid, addressed to the other party at the address of such party set forth in the Grant Notice or at such other address as such party may designate in writing from time to time to the other party.
(a) Description of Electronic Delivery . The Plan documents, which may include but do not necessarily include: the Plan, the Grant Notice, this Option Agreement, and any reports of the Company provided generally to the Companys stockholders, may be delivered to the Participant electronically. In addition, if permitted by the Company, the
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Participant may deliver electronically the Grant Notice and Exercise Notice called for by Section 4.2 to the Company or to such third party involved in administering the Plan as the Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other means of electronic delivery specified by the Company.
(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has read Section 19.5(a) of this Option Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the Company, the delivery of the Grant Notice, Exercise Notice and notices in connection with the Escrow, as described in Section 19.5(a). The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of documents described in Section 19.5(a) or may change the electronic mail address to which such documents are to be delivered (if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents described in Section 19.5(a).
19.6 Integrated Agreement. The Grant Notice, this Option Agreement and the Plan, together with any employment, service or other agreement with the Participant and a Participating Company referring to the Option, shall constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein or therein and supersede any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, the Option Agreement and the Plan shall survive any exercise of the Option and shall remain in full force and effect.
19.7 Applicable Law. This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California.
19.8 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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¨ | Incentive Stock Option | Participant: |
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¨ | Nonstatutory Stock Option | |||||
Date: |
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STOCK OPTION EXERCISE NOTICE
(Immediately Exercisable)
Allergen Research Corporation
Attention: Chief Financial Officer
309 University Drive
Menlo Park, CA 94025
Ladies and Gentlemen:
1. Option . I was granted an option (the Option ) to purchase shares of the common stock (the Shares ) of Allergen Research Corporation (the Company ) pursuant to the Companys 2013 Stock Plan (the Plan ), my Notice of Grant of Stock Option (the Grant Notice ) and my Stock Option Agreement (the Option Agreement ) as follows:
Date of Grant: |
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Number of Option Shares: |
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Exercise Price per Share: |
$ | |||||
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2. Exercise of Option . I hereby elect to exercise the Option to purchase the following number of Shares, in accordance with the Grant Notice and the Option Agreement:
Vested Shares: |
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Unvested Shares: |
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Total Shares Purchased: |
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Total Exercise Price (Total Shares X Price per Share) |
$ |
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3. Payments . I enclose payment in full of the total exercise price for the Shares in the following form(s), as authorized by my Option Agreement:
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Cash: | $ | ||||
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Check: | $ | ||||
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Stock Tender Exercise: | Contact Plan Administrator | ||||
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Cashless Exercise: | Contact Plan Administrator | ||||
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Net Exercise: | Contact Plan Administrator |
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4. Tax Withholding . I authorize payroll withholding and otherwise will make adequate provision for the federal, state, local and foreign tax withholding obligations of the Company, if any, in connection with the Option. If I am exercising a Nonstatutory Stock Option, I enclose payment in full of my withholding taxes, if any, as follows:
(Contact Plan Administrator for amount of tax due.)
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Cash: | $ | ||||
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Check: | $ | ||||
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5. Participant Information .
My address is: |
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My Social Security Number is: |
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6. Notice of Disqualifying Disposition . If the Option is an Incentive Stock Option, I agree that I will promptly notify the Chief Financial Officer of the Company if I transfer any of the Shares within one (1) year from the date I exercise all or part of the Option or within two (2) years of the Date of Grant.
7. Binding Effect . I agree that the Shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Grant Notice, the Option Agreement, including the Unvested Share Repurchase Option and the Right of First Refusal set forth therein, and the Plan, to all of which I hereby expressly assent. This Agreement shall inure to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns. If required by the Company, I agree to deposit the certificate(s) evidencing the Shares, along with a blank stock assignment separate from certificate executed by me, with an escrow agent designated by the Company, to be held pursuant to the escrow provisions contained in the Option Agreement.
8. Transfer . I understand and acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (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. I further understand and acknowledge that the Company is under no obligation to register the Shares. I understand that the certificate or certificates evidencing the Shares will 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.
9. Election Under Section 83(b) of the Code . I understand and acknowledge that if I am exercising the Option to purchase Unvested Shares (i.e., shares that remain subject to the Companys Unvested Share Repurchase Option), that I should consult with my tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed, if at all, no later than thirty (30) days after the date on which I exercise the Option. I acknowledge that I have been advised to consult with a tax advisor prior to the exercise of the Option regarding the tax consequences to me of exercising the Option and filing or not filing an election under Section 83(b). AN ELECTION UNDER SECTION 83(b) MUST BE FILED, IF AT ALL, WITHIN 30 DAYS AFTER THE DATE ON WHICH I PURCHASE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. I ACKNOWLEDGE THAT TIMELY FILING OF A SECTION 83(b) ELECTION, IF APPROPRIATE, IS MY SOLE RESPONSIBILITY, EVEN IF I REQUEST THE COMPANY OR ITS REPRESENTATIVES TO FILE SUCH ELECTION ON MY BEHALF.
I am aware that Rule 144 under the Securities Act, 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. I understand 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 me upon request.
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I understand that I am purchasing the Shares pursuant to the terms of the Plan, the Grant Notice and my Option Agreement, copies of which I have received and carefully read and understand.
Very truly yours, |
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(Signature) |
Receipt of the above is hereby acknowledged. | ||
ALLERGEN RESEARCH CORPORATION | ||
By: |
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Title: |
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Dated: |
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ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned does hereby sell, assign and transfer unto ( ) shares of the Capital Stock of Allergen Research Corporation standing in the undersigneds name on the books of said corporation represented by Certificate No. herewith and does hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of said corporation with full power of substitution in the premises.
Dated: |
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Signature |
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Print Name |
Instructions : Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Unvested Share Repurchase Option set forth in the Stock Option Agreement without requiring additional signatures on the part of the Participant.
Exhibit 10.5(d)
ALLERGEN RESEARCH CORPORATION
NOTICE OF GRANT OF RESTRICTED STOCK
The Participant has been granted an award (the Award ) of certain shares of Stock (the Shares ) of Allergen Research Corporation pursuant to the Allergen Research Corporation 2013 Stock Plan (the Plan ), as follows:
Participant: |
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Date of Grant: |
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Total Number of Shares: |
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, subject to adjustment as provided by the Restricted Stock Agreement. | ||||||
Fair Market Per Share on Date of Grant: | $ |
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Initial Vesting Date: | The date one (1) year after [vesting commencement date] | |||||
Vested Shares: | Except as provided in the Restricted Stock Agreement, the number of Vested Shares (disregarding any resulting fractional share) as of any date is determined by multiplying the Total Number of Shares by the Vested Ratio determined as of such date as follows: | |||||
Vested Ratio |
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Prior to Initial Vesting Date | 0 | |||||
On Initial Vesting Date, provided the Participants Service has not terminated prior to such date | 1/4 | |||||
Plus | ||||||
For each full year of the Participants continuous Service from Initial Vesting Date until the Vested Ratio equals 1/1, an additional | 1/4 |
By their signatures below, the Company and the Participant agree that the Award is governed by this Grant Notice and by the provisions of the Plan and the Restricted Stock Agreement, both of which are attached to and made a part of this document. The Participant acknowledges receipt of copies of the Plan and the Restricted Stock Agreement, represents that the Participant has read and is familiar with their provisions, and hereby accepts the Award subject to all of their terms and conditions.
ALLERGEN RESEARCH CORPORATION | PARTICIPANT | |||||
By: |
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Signature | ||||||
Its: |
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Date | ||||||
Address: |
309 University Drive |
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Menlo Park, CA 94025 | Address | |||||
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ATTACHMENTS: |
2013 Stock Plan, as amended to the Date of Grant; Restricted Stock Agreement, Assignment Separate from Certificate and form of Section 83(b) Election |
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
ALLERGEN RESEARCH CORPORATION
RESTRICTED STOCK AGREEMENT
Allergen Research Corporation has granted to the Participant named in the Notice of Grant of Restricted Stock (the Grant Notice ) to which this Restricted Stock Agreement (the Agreement ) is attached an Award consisting of Shares subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Allergen Research Corporation 2013 Stock Plan (the Plan ), as amended to the Date of Grant, the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of, and represents that the Participant has read and is familiar with, the Grant Notice, this Agreement and the Plan, (b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Grant Notice, this Agreement or the Plan.
1. | D EFINITIONS AND C ONSTRUCTION . |
1.1 Definitions . Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Grant Notice or the Plan.
1.2 Construction . Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term or is not intended to be exclusive, unless the context clearly requires otherwise.
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2. | T AX M ATTERS . |
2.1 Election under Section 83(b) of the Code. The Participant understands that Section 83 of the Code taxes as ordinary income the difference between the amount paid for the Shares, if anything, and the fair market value of the Shares as of the date on which the Shares are substantially vested, within the meaning of Section 83. In this context, substantially vested means that the right of the Company to reacquire the Shares pursuant to the Company Reacquisition Right has lapsed. The Participant understands that he or she may elect to have his or her taxable income determined at the time he or she acquires the Shares rather than when and as the Company Reacquisition Right lapses by filing an election under Section 83(b) of the Code with the Internal Revenue Service no later than thirty (30) days after the date of acquisition of the Shares. The Participant understands that failure to make a timely filing under Section 83(b) will result in his or her recognition of ordinary income, as the Company Reacquisition Right lapses, on the difference between the purchase price, if anything, and the fair market value of the Shares at the time such restrictions lapse. The Participant further understands, however, that if Shares with respect to which an election under Section 83(b) has been made are forfeited to the Company pursuant to its Company Reacquisition Right, such forfeiture will be treated as a sale on which there is realized a loss equal to the excess (if any) of the amount paid (if any) by the Participant for the forfeited Shares over the amount realized (if any) upon their forfeiture. If the Participant has paid nothing for the forfeited Shares and has received no payment upon their forfeiture, the Participant understands that he or she will be unable to recognize any loss on the forfeiture of the Shares even though the Participant incurred a tax liability by making an election under Section 83(b).
2.2 Notice to Company. The Participant will notify the Company in writing if the Participant files an election pursuant to Section 83(b) of the Code. The Company intends, in the event it does not receive from the Participant evidence of such filing, to claim a tax deduction for any amount which would otherwise be taxable to the Participant in the absence of such an election.
2.3 Valuation of the Shares.
(a) The Shares have been valued by the Company, and the Company believes this valuation represents a fair attempt at reaching an accurate appraisal of their worth. The Participant understands, however, that the Company can give no assurances that such valuation is in fact the fair market value of the Shares and that it is possible that with the benefit of hindsight, the Internal Revenue Service would successfully assert that the value of the Shares on any relevant date is greater than so determined.
(b) If the Internal Revenue Service were to succeed in a tax determination under the Code that the Shares received have a value greater than that determined by the Company, the additional value would constitute ordinary income as of the date of the Participants realization of income. The additional taxes (and interest) due would be payable by the Participant, and there is no provision for the Company to reimburse him or her for that tax liability, and the Participant assumes all responsibility for such potential tax liability. Under present law, in the event such additional value would represent more than twenty-five (25%) of the Participants gross income for the year in which the value of the Shares were taxable, the
Internal Revenue Service would have six (6) years from the due date for filing the return (or the actual filing date of the return if filed thereafter) within which to assess the Participant the additional tax and interest which would then be due. The Company undertakes no obligation to inform the Participant of any change in the tax laws which may effect this Agreement or its consequences.
2.4 Consultation with Tax Advisors. The Participant understands that he or she should consult with his or her tax advisor regarding the advisability of filing with the IRS an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date of the acquisition of the Shares pursuant to this Agreement. Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Participant. The Participant acknowledges that he or she has been advised to consult with a tax advisor regarding the tax consequences to the Participant of the purchase of Shares hereunder. ANY ELECTION UNDER SECTION 83(b) THE PARTICIPANT WISHES TO MAKE MUST BE FILED NO LATER THAN 30 DAYS AFTER THE DATE ON WHICH THE PARTICIPANT ACQUIRES THE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE PARTICIPANT ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE PARTICIPANTS SOLE RESPONSIBILITY, EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
2.5 Tax Withholding .
(a) In General . At the time the Grant Notice is executed, or at any time thereafter as requested by a Participating Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax (including any social insurance) withholding obligations of the Participating Company, if any, which arise in connection with the Award, including, without limitation, obligations arising upon (a) the transfer of Shares to the Participant, (b) the lapsing of any restriction with respect to any Shares, (c) the filing of an election to recognize tax liability, or (d) the transfer by the Participant of any Shares. The Company shall have no obligation to deliver the Shares or to release any Shares from the Escrow established pursuant to Section 8 until the tax withholding obligations of the Participating Company have been satisfied by the Participant.
(b) Withholding in Shares . The Company shall have the right, but not the obligation, to require the Participant to satisfy all or any portion of a Participating Companys tax withholding obligations by withholding a number of whole Vested Shares otherwise deliverable to the Participant or by the Participants tender to the Company of a number of whole Vested Shares or vested shares acquired otherwise than pursuant to the Award having, in any such case, a fair market value, as determined by the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax withholding obligations determined by the applicable minimum statutory withholding rates.
3. | A DMINISTRATION . |
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of agreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by the Board. All such determinations by the Board shall be final, binding and conclusive upon all persons having an interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Board in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest in the Award. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
4. | T HE A WARD . |
4.1 Grant and Issuance of Shares. On the Date of Grant, the Participant shall acquire and the Company shall issue, subject to the provisions of this Agreement, a number of Shares equal to the Total Number of Shares. As a condition to the issuance of the Shares, the Participant shall execute and deliver the Grant Notice to the Company, accompanied by an Assignment Separate from Certificate duly endorsed (with date and number of shares blank) in the form provided by the Company.
4.2 No Monetary Payment Required. The Participant is not required to make any monetary payment (other than to satisfy applicable tax withholding, if any, with respect to the issuance or vesting of the Shares) as a condition to receiving the Shares, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the Shares issued pursuant to the Award.
4.3 Beneficial Ownership of Shares; Certificate Registration . The Participant hereby authorizes the Company, in its sole discretion, to deposit the Shares with the Companys transfer agent, including any successor transfer agent, to be held in book entry form during the term of the Escrow pursuant to Section 8. Furthermore, the Participant hereby authorizes the Company, in its sole discretion, to deposit, following the term of such Escrow, for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice any or all Shares which are no longer subject to such Escrow. Except as provided by the foregoing, a certificate for the Shares shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
4.4 Issuance of Shares in Compliance with Law . The issuance of Shares shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. No Shares shall be issued hereunder if their issuance would constitute a violation of any applicable federal, state or foreign securities laws or other law or
regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Companys legal counsel to be necessary to the lawful issuance of any Shares shall relieve the Company of any liability in respect of the failure to issue such Shares as to which such requisite authority shall not have been obtained. As a condition to the issuance of the Shares, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
5. | V ESTING OF S HARES . |
Shares acquired pursuant to this Agreement shall become Vested Shares as provided in the Grant Notice. For purposes of determining the number of Vested Shares following an Ownership Change Event, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after the Ownership Change Event.
6. | C OMPANY R EACQUISITION R IGHT . |
6.1 Grant of Company Reacquisition Right . In the event that (a) the Participants Service terminates for any reason or no reason, with or without cause, or, (b) the Participant, the Participants legal representative, or other holder of the Shares, attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event), including, without limitation, any transfer to a nominee or agent of the Participant, any Shares which are not Vested Shares ( Unvested Shares ), the Participant shall forfeit and the Company shall automatically reacquire the Unvested Shares, and the Participant shall not be entitled to any payment therefor (the Company Reacquisition Right ).
6.2 Ownership Change Event, Dividends, Distributions and Adjustments . Upon the occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock or other property, or any other adjustment upon a change in the capital structure of the Company as described in Section 10, any and all new, substituted or additional securities or other property (other than regular, periodic dividends paid on Stock pursuant to the Companys dividend policy) to which the Participant is entitled by reason of the Participants ownership of Unvested Shares shall be immediately subject to the Company Reacquisition Right and included in the terms Shares, Stock and Unvested Shares for all purposes of the Company Reacquisition Right with the same force and effect as the Unvested Shares immediately prior to the Ownership Change Event, dividend, distribution or adjustment, as the case may be. For purposes of determining the number of Vested Shares following an Ownership Change Event, dividend, distribution or adjustment, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after any such event.
7. | R IGHT OF F IRST R EFUSAL . |
7.1 Grant of Right of First Refusal . Except as provided in Section 7.7 and Section 14 below, in the event the Participant, the Participants legal representative, or other holder of shares subject to the Award proposes to sell, exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the Transfer Shares ) to any person or entity, including, without limitation, any stockholder of a Participating Company, the Company shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section (the Right of First Refusal ).
7.2 Notice of Proposed Transfer . Prior to any proposed transfer of the Transfer Shares, the Participant 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, as determined by the Board in good faith. If the Participant proposes to transfer any Transfer Shares to more than one Proposed Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee. The Transfer Notice shall be signed by both the Participant and the Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal.
7.3 Bona Fide Transfer . If the Company determines that the information provided by the Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed voluntary transfer, the Company shall give the Participant written notice of the Participants failure to comply with the procedure described in this Section 7, and the Participant shall have no right to transfer the Transfer Shares without first complying with the procedure described in this Section 7. The Participant shall not be permitted to transfer the Transfer Shares if the proposed transfer is not bona fide.
7.4 Exercise of Right of First Refusal . If the Company determines the proposed transfer to be bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer Shares (except as the Company and the Participant otherwise agree) at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Participant of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to the Company. The Companys 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 Companys 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 Participant or issued by a person other than the Participant with respect to a proposed transfer to the same Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the Participant 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 Participant to any Participating Company shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled. Notwithstanding anything contained in this Section to the contrary, the period during which the Company may exercise the Right of First Refusal and consummate the purchase of the Transfer Shares from the Participant shall terminate no sooner than the completion of a period of eight (8) months following the date on which the Participant acquired the Transfer Shares.
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 Participant otherwise agree) within the period specified in Section 7.4, the Participant 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 or, if applicable, following the end of the period described in the last sentence of Section 7.4. The Company shall have the right to demand further assurances from the Participant 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 Participant, shall again be subject to the Right of First Refusal and shall require compliance by the Participant with the procedure described in this Section.
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 this Agreement, including this Section 7 providing for the Right of First Refusal with respect to any subsequent transfer. Any sale or transfer of any Shares shall be void unless the provisions of this Section are met.
7.7 Transfers Not Subject to Right of First Refusal . The Right of First Refusal shall not apply to any transfer or exchange of the Shares if such transfer or exchange is in connection with an Ownership Change Event. If the consideration received pursuant to such transfer or exchange consists of stock of a Participating Company, such consideration shall remain subject to the Right of First Refusal unless the provisions of Section 7.9 result in a termination of the Right of First Refusal.
7.8 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.
7.9 Early Termination of Right of First Refusal . The other provisions of this Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect upon (a) the occurrence of a Change in Control, unless the Acquiror assumes the Companys rights and obligations under this Agreement, 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 Exchange Act) 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.
8. | E SCROW . |
8.1 Appointment of Agent. To ensure that Shares subject to the Company Reacquisition Right will be available for reacquisition, the Participant and the Company hereby appoint the Secretary of the Company, or any other person designated by the Company, as their agent and as attorney-in-fact for the Participant (the Agent ) to hold any and all Unvested Shares and to sell, assign and transfer to the Company any such Unvested Shares reacquired by the Company pursuant to the Company Reacquisition Right. The Participant understands that appointment of the Agent is a material inducement to make this Agreement and that such appointment is coupled with an interest and is irrevocable. The Agent shall not be personally liable for any act the Agent may do or omit to do hereunder as escrow agent, agent for the Company, or attorney in fact for the Participant while acting in good faith and in the exercise of the Agents own good judgment, and any act done or omitted by the Agent pursuant to the advice of the Agents own attorneys shall be conclusive evidence of such good faith. The Agent may rely upon any letter, notice or other document executed by any signature purporting to be genuine and may resign at any time.
8.2 Establishment of Escrow . The Participant authorizes the Company to deposit the Unvested Shares with the Companys transfer agent to be held in book entry form, as provided by Section 4.3, and the Participant agrees to deliver to and deposit with the Agent each certificate, if any, evidencing the Shares and an Assignment Separate from Certificate with respect to such book entry shares and each such certificate duly endorsed (with date and number of Shares blank) in the form attached to this Agreement, to be held by the Agent under the terms and conditions of this Section (the Escrow ). Upon the occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock or other property (other than regular, periodic dividends paid on Stock pursuant to the Companys dividend policy), or any other adjustment upon a change in the capital structure of the Company, as described in Section 10, any and all new, substituted or additional securities or other property to which the Participant is entitled by reason of his or her ownership of the Shares that remain, following such Ownership Change Event, dividend, distribution or change described in Section 10, subject to the Company Reacquisition Right shall be immediately subject to the Escrow to the same extent as the Shares immediately before such event. The Company shall bear the expenses of the Escrow.
8.3 Delivery of Shares to Participant . The Escrow shall continue with respect to any Shares for so long as such Shares remain subject to the Company Reacquisition Right. Upon termination of the Company Reacquisition Right with respect to Shares, the Company shall so notify the Agent and direct the Agent to deliver such number of Shares to the
Participant. As soon as practicable after receipt of such notice, the Agent shall cause the Shares specified by such notice to be delivered to the Participant, and the Escrow shall terminate with respect to such Shares.
8.4 Notices and Payments . In the event the Shares and any other property held in escrow are subject to the Companys exercise of the Company Reacquisition Right or the Right of First Refusal, the notices required to be given to the Participant shall be given to the Agent, and any payment required to be given to the Participant shall be given to the Agent. Within thirty (30) days after payment by the Company, the Agent shall deliver the Shares and any other property which the Company has purchased to the Company and shall deliver the payment received from the Company to the Participant.
9. | E FFECT OF C HANGE IN C ONTROL . |
In the event of a Change in Control, except to the extent that the Board determines to settle the Award in accordance with Section 9.1(c) of the Plan, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the Acquiror ), may, without the consent of the Participant, assume or continue in full force and effect the Companys rights and obligations under the Award or substitute for the Award a substantially equivalent award for the Acquirors stock. For purposes of this Section, the Award shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and this Agreement, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. Notwithstanding the foregoing, Shares acquired pursuant to the Award prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Agreement except as otherwise provided herein.
10. | A DJUSTMENTS FOR C HANGES IN C APITAL S TRUCTURE . |
Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting regular, periodic cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and kind of shares of stock or other property subject to the Award, in order to prevent dilution or enlargement of the Participants rights under the Award. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as effected without receipt of consideration by the Company. Any and all new, substituted or additional securities or other property to which Participant is entitled by reason of ownership of Shares acquired pursuant to this Award will be immediately subject to the provisions of this Award on the same basis as all Shares originally acquired hereunder. Any fractional share resulting from an
adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive.
11. | R IGHTS AS A S TOCKHOLDER , D IRECTOR , E MPLOYEE OR C ONSULTANT . |
The Participant shall have no rights as a stockholder with respect to any Shares subject to the Award until the date of the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date the Shares are issued, except as provided in Section 10. Subject to the provisions of this Agreement, the Participant shall exercise all rights and privileges of a stockholder of the Company with respect to Shares deposited in the Escrow pursuant to Section 8. If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participants employment is at will and is for no specified term. Nothing in this Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participants Service, as the case may be, at any time.
12. | L EGENDS . |
The Company may at any time place legends referencing the Company Reacquisition Right, Right of First Refusal and any applicable federal, state or foreign securities law restrictions on all certificates representing Shares. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing Shares in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:
12.1 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
12.2 THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDERS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.
13. | L OCK -U P A GREEMENT . |
The Participant hereby agrees that in the event of any underwritten public offering of stock, including an initial public offering of stock, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Participant shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time shall not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public offering; provided, further, however, that such one hundred eighty (180) day period may be extended for an additional period, not to exceed twenty (20) days, upon the request of the Company or the underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto). The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act. The Participant hereby agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing within a reasonable timeframe if so requested by the Company.
14. | R ESTRICTIONS ON T RANSFER OF S HARES . |
At any time prior to the existence of a public market for the Stock, the Board may prohibit the Participant and any transferee of such Participant from selling, transferring, assigning, pledging, or otherwise disposing of or encumbering any Shares acquired pursuant to the Award (each, a Transfer ) without the prior written consent of the Board. The Board may withhold consent for any reason, including without limitation any Transfer (i) to any individual or entity identified by the Company as a potential competitor or considered by the Company to be unfriendly, or (ii) if such Transfer increases the risk of the Company having a class of security held of record by such number of persons as would require the Company to register any class of securities under the Exchange Act; or (iii) if such Transfer would result in the loss of any federal or state securities law exemption relied upon by the Company in connection with the initial issuance of such shares or the issuance of any other securities; or (iv) if such Transfer is facilitated in any manner by any public posting, message board, trading portal, Internet site, or similar method of communication, including without limitation any trading portal or Internet site intended to facilitate secondary transfers of securities; or (v) if such Transfer is to be effected in a brokered transaction; or (vi) if such Transfer would be of less than all of the shares of Stock then held by the stockholder and its affiliates or is to be made to more than a single transferee. No Shares may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Agreement and, except pursuant to an Ownership Change Event, until the date on which such shares become Vested Shares, and any such attempted disposition shall be 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 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. In order to enforce its rights under this Section, the Company shall be authorized to give a stop transfer instruction with respect to the Shares to the Companys transfer agent.
15. | M ISCELLANEOUS P ROVISIONS . |
15.1 Termination or Amendment. The Board may terminate or amend the Plan or this Agreement at any time; provided, however, that no such termination or amendment may adversely affect the Participants rights under this Agreement without the consent of the Participant, unless such termination or amendment is necessary to comply with any applicable law or government regulation. No amendment or addition to this Agreement shall be effective unless in writing.
15.2 Nontransferability of the Award. The right to acquire Shares pursuant to the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to the Award shall be exercisable during the Participants lifetime only by the Participant or the Participants guardian or legal representative.
15.3 Further Instruments. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.
15.4 Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participants heirs, executors, administrators, successors and assigns.
15.5 Delivery of Documents and Notices. Any document relating to participation in the Plan, or any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally recognized overnight courier service, with postage and fees prepaid, addressed to the other party at the address of such party set forth in the Grant Notice or at such other address as such party may designate in writing from time to time to the other party.
(a) Description of Electronic Delivery. The Plan documents, which may include but do not necessarily include: the Plan, the Grant Notice, this Agreement, and any reports of the Company provided generally to the Companys stockholders, may be delivered to the Participant electronically. In addition, if permitted by the Company, the Participant may deliver electronically the Grant Notice to the Company or to such third party involved in administering the Plan as the Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other means of electronic delivery specified by the Company.
(b) Consent to Electronic Delivery . The Participant acknowledges that the Participant has read Section 15.5(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the Company, the delivery of the Grant Notice and notices in connection with the Escrow, as described in Section 15.5(a). The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of documents described in Section 15.5(a) or may change the electronic mail address to which such documents are to be delivered (if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents described in Section 15.5(a).
15.6 Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with any employment, service or other agreement between the Participant and a Participating Company referring to the Award, shall constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein or therein and supersede any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement and the Plan shall survive any settlement of the Award and shall remain in full force and effect.
15.7 Applicable Law. The Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California.
15.8 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned does hereby sell, assign and transfer unto ( ) shares of the Capital Stock of Allergen Research Corporation standing in the undersigneds name on the books of said corporation represented by Certificate No. herewith and does hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of said corporation with full power of substitution in the premises.
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Print Name |
Instructions : Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Company Reacquisition Right set forth in the Restricted Stock Agreement without requiring additional signatures on the part of the Participant.
SAMPLE
Internal Revenue Service |
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[IRS Service Center where Form 1040 is Filed] |
Re: | Section 83(b) Election |
Dear Sir or Madam:
The following information is submitted pursuant to section 1.83-2 of the Treasury Regulations in connection with this election by the undersigned under section 83(b) of the Internal Revenue Code of 1986, as amended (the Code).
1. | The name, address and taxpayer identification number of the taxpayer are: |
Name: |
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Address: |
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Social Security Number: |
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2. | The following is a description of each item of property with respect to which the election is made: |
shares of common stock of Allergen Research Corporation (the Shares), acquired from Allergen Research Corporation (the Company) pursuant to a restricted stock grant.
3. | The property was transferred to the undersigned on: |
Restricted stock grant date:
The taxable year for which the election is made is:
Calendar Year
4. | The nature of the restriction to which the property is subject: |
The Shares are subject to automatic forfeiture to the Company upon the occurrence of certain events. This forfeiture provision lapses with regard to a portion of the Shares based upon the continued performance of services by the taxpayer over time.
5. | The following is the fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) of the property with respect to which the election is made: |
$ ( Shares at $ per share).
The property was transferred to the taxpayer pursuant to the grant of an award of restricted stock.
6. | The following is the amount paid for the property: |
No monetary consideration was provided in exchange for the Shares.
7. | A copy of this election has been furnished to the Company, the corporation for which the services were performed by the undersigned. |
Please acknowledge receipt of this election by date or received-stamping the enclosed copy of this letter and returning it to the undersigned. A self-addressed stamped envelope is provided for your convenience.
Very truly yours,
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Date: |
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Enclosures
cc: Allergen Research Corporation
Exhibit 10.13
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
CONSULTING AGREEMENT
This Agreement is made and entered into as of February 9, 2015 (Effective Date) by and between Allergen Research Corporation (Company), having a principal place of business at 2000 Alameda de las Pulgas, Suite 161, San Mateo, CA 94403 and Bryan L. Walser, (Consultant) having a principal place of business at [***].
1. Engagement of Services . Company may issue Project Assignments to Consultant in the form attached to this Agreement as Exhibit A (Project Assignment). A Project Assignment will become binding when both parties have signed it and once signed, Consultant will be obligated to provide the services and to deliver the materials and deliverables as specified in each Project Assignment. The terms of this Agreement will govern all Project Assignments and services undertaken by Consultant for Company. Consultant represents, warrants and covenants that Consultant will perform the services under this Agreement in a timely, professional and workmanlike manner and that all materials and deliverables provided to Company will comply with (i) the requirements set forth in the Project Assignment, (ii) the documentation and specifications for those materials and deliverables, (iii) any samples or documents provided by Consultant to Company.
2. Compensation; Timing . Company will pay Consultant the fee set forth in each Project Assignment for the services provided as specified in that Project Assignment. If provided for in the Project Assignment, Company will reimburse Consultants pre-approved, documented, out-of-pocket expenses no later than thirty (30) days after Companys receipt of Consultants invoice, except that reimbursement for expenses may be delayed until that time when Consultant furnishes adequate supporting documentation for the authorized expenses as Company may reasonably request. Upon termination of this
Agreement for any reason, Consultant will be (a) paid fees on the basis stated in the Project Assignment(s) and (b) reimbursed only for expenses that are properly incurred prior to termination of this Agreement and which are either expressly identified in a Project Assignment or approved in advance in writing by an authorized Company manager.
3. Independent Contractor Relationship . Consultants relationship with Company is that of an independent contractor, and nothing in this Agreement is intended to, or shall be construed to, create a partnership, agency, joint venture, employment or similar relationship. Consultant will not be entitled to any of the benefits that Company may make available to its employees, including, but not limited to, group health or life insurance, profit-sharing or retirement benefits. Consultant is not authorized to make any representation, contract or commitment on behalf of Company unless specifically requested or authorized in writing to do so by a Company manager. Consultant is solely responsible for, and will file, on a timely basis, all tax returns and payments required to be filed with, or made to, any federal, state or local tax authority with respect to the performance of services and receipt of fees under this Agreement. Consultant is solely responsible for, and must maintain adequate records of, expenses incurred in the course of performing services under this Agreement. No part of Consultants compensation will be subject to withholding by Company for the payment of any social security, federal, state or any other employee payroll taxes. Company will regularly report amounts paid to Consultant by filing Form 1099-MISC with the Internal Revenue Service as required by law.
4. Disclosure and Assignment of Work Resulting from Project Assignments .
4.1 Innovations and Company Innovations Definitions . In this Agreement, Innovations means all discoveries, designs, developments, improvements, inventions (whether or not protectable under patent laws), works of authorship, information fixed in any tangible medium of expression (whether or not protectable under copyright laws), trade secrets, know-how, ideas (whether or not protectable under trade secret laws), mask works, trademarks, service marks, trade names and trade dress. Company Innovations means Innovations that Consultant, solely or jointly with others, creates, derives, conceives, develops, makes or reduces to practice under a Project Assignment.
4.2 Disclosure and Assignment of Company Innovations . Consultant agrees to maintain adequate and current records of all Company Innovations, which records shall be and remain the property of Company. Consultant agrees to promptly disclose and describe to Company all Company Innovations. Consultant hereby does and will irrevocably assign to Company or Companys designee all of Consultants right, title and interest in and to any and all Company Innovations and all associated records. To the extent any of the rights, title and interest in and to Company Innovations cannot be assigned by Consultant to Company, Consultant hereby grants to Company an exclusive, royalty-free, transferable, irrevocable, worldwide, fully paid-up license (with rights to sublicense through multiple tiers of sublicensees) to fully use, practice and exploit those non-assignable rights, title and interest, including, but not limited to, the right to make, use, sell, offer for sale, import, have made, and have sold, the Company Innovations. To the extent any of the rights, title and interest in and to the Company Innovations can neither be assigned nor licensed by Consultant to Company, Consultant hereby irrevocably waives and agrees never to assert the non-assignable and non-licensable rights, title and interest against Company, any of Companys successors in interest, or any of Companys customers.
4.3 Assistance . Consultant agrees to perform, during and after the term of this Agreement, all acts that Company deems necessary or desirable to permit and assist Company, at its expense, in obtaining, perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company Innovations as provided to Company under this Agreement. If Company is unable for any reason to secure Consultants signature to any document required to file, prosecute, register or memorialize the assignment of any rights under any Company Innovations as provided under this Agreement, Consultant hereby irrevocably designates and appoints Company and Companys duly authorized officers and agents as Consultants agents and attorneys-in-fact to act for and on Consultants behalf and instead of Consultant to take all lawfully permitted acts to further the filing, prosecution, registration, memorialization of assignment, issuance and enforcement of rights in, to and under the Company Innovations, all with the same legal force and effect as if executed by Consultant. The foregoing is deemed a power coupled with an interest and is irrevocable.
4.4 Consultant Out-of-Scope Innovations . If Consultant incorporates or permits to be incorporated any Innovations relating in any way, at the time of conception, reduction to practice, creation, derivation, development or making of the Innovation, to Companys business or actual or demonstrably anticipated research or development but which were conceived, reduced to practice, created, derived, developed or made by Consultant (solely or jointly) either unrelated to Consultants work for Company under this Agreement or prior to the Effective Date (collectively, the Out-of-Scope Innovations) into any of the Company Innovations, then Consultant hereby grants to Company and Companys designees a royalty-free, transferable, irrevocable, worldwide, fully paid-up license (with rights to sublicense through multiple tiers of sublicensees) to fully use, practice and exploit all patent, copyright, moral right, mask work, trade secret and other
intellectual property rights relating to the Out-of-Scope Innovations. Notwithstanding the foregoing, Consultant agrees that Consultant shall not incorporate, or permit to be incorporated, any Innovations conceived, reduced to practice, created, derived, developed or made by others or any Out-of-Scope Innovations into any Company Innovations without Companys prior written consent.
4.5 Assignment by Employees of Consultant . Consultant covenants, represents and warrants that each of Consultants employees who perform services under this Agreement has or will have a written agreement with Consultant that provides Consultant with all necessary rights to fulfill its obligations under this Agreement, including but not limited to the obligations of this Section 4.
5. Confidentiality.
5.1 Definition of Confidential Information . Confidential Information means (a) any technical and non-technical information related to the Companys business and current, future and proposed products and services of Company, including for example and without limitation, Company Innovations, Company Property (as defined in Section 6 (Ownership and Return of Confidential Information and Company Property)), and Companys information concerning research, development, design details and specifications, financial information, procurement requirements, engineering and manufacturing information, customer lists, business forecasts, sales information, marketing plans and business plans, in each case whether or not marked as confidential or proprietary and (b) any information that Company has received from others that may be made known to Consultant and that Company is obligated to treat as confidential or proprietary, whether or not marked as confidential or proprietary.
5.2 Nondisclosure and Nonuse Obligations . Except as permitted in this Section, Consultant will not (i) use any
Confidential Information or (ii) disseminate or in any way disclose the Confidential Information to any person, firm, business or governmental agency or department. Consultant may use the Confidential Information solely to perform Project Assignment(s) for the benefit of Company. Consultant shall treat all Confidential Information with the same degree of care as Consultant accords to Consultants own confidential information, but in no case shall Consultant use less than reasonable care. If Consultant is not an individual, Consultant shall disclose Confidential Information only to those of Consultants employees who have a need to know the information as necessary for Consultant to perform this Agreement. Consultant certifies that each of its employees will have agreed, either as a condition of employment or in order to obtain the Confidential Information, to be bound by terms and conditions at least as protective as those terms and conditions applicable to Consultant under this Agreement. Consultant shall immediately give notice to Company of any unauthorized use or disclosure of the Confidential Information. Consultant shall assist Company in remedying any the unauthorized use or disclosure of the Confidential Information. Consultant agrees not to communicate any information to Company in violation of the proprietary rights of any third party.
5.3 Exclusions from Nondisclosure and Nonuse Obligations . Consultants obligations under Section 5.2 do not apply to any Confidential Information that Consultant can demonstrate (a) was in the public domain at or subsequent to the time the Confidential Information was communicated to Consultant by Company through no fault of Consultant; (b) was rightfully in Consultants possession free of any obligation of confidence at or subsequent to the time the Confidential Information was communicated to Consultant by Company; or (c) was independently developed by employees of Consultant without use of, or reference to, any Confidential Information communicated to Consultant by Company. A
disclosure of any Confidential Information by Consultant (a) in response to a valid order by a court or other governmental body or (b) as otherwise required by law will not be considered to be a breach of this Agreement or a waiver of confidentiality for other purposes; provided, however, that Consultant provides prompt prior written notice thereof to Company to enable Company to seek a protective order or otherwise prevent the disclosure.
6. Ownership and Return of Confidential Information and Company Property . All Confidential Information and any materials and items (including, without limitation, software, equipment, tools, artwork, documents, drawings, papers, diskettes, tapes, models, apparatus, sketches, designs and lists) that Company furnishes to Consultant by Company, whether delivered to Consultant by Company or made by Consultant in the performance of services under this Agreement and whether or not they contain or disclose Confidential Information (collectively, the Company Property), are the sole and exclusive property of Company or Companys suppliers or customers. Consultant agrees to keep all Company Property at Consultants premises unless otherwise permitted in writing by Company. Within five (5) days after any request by Company, Consultant shall destroy or deliver to Company, at Companys option, (a) all Company Property and (b) all materials and items in Consultants possession or control that contain or disclose any Confidential Information. Consultant will provide Company a written certification of Consultants compliance with Consultants obligations under this Section.
7. Indemnification . Consultant will indemnify and hold harmless Company from and against any and all third party claims, suits, actions, demands and proceedings against Company and all losses, costs and liabilities related thereto arising out of or related to (i) an allegation that any item, material and other deliverable delivered by Consultant under this Agreement infringes any intellectual property
rights or publicity rights of a third party or (ii) any negligence by Consultant or any other act or omission of Consultant, including without limitation any breach of this Agreement by Consultant
8. Observance of Company Rules . At all times while on Companys premises, Consultant will observe Companys rules and regulations with respect to conduct, health, safety and protection of persons and property.
9. No Conflict of Interest . During the term of this Agreement, Consultant will not accept work, enter into a contract or accept an obligation inconsistent or incompatible with Consultants obligations, or the scope of services to be rendered for Company, under this Agreement. Consultant warrants that, to the best of Consultants knowledge, there is no other existing contract or duty on Consultants part that conflicts with or is inconsistent with this Agreement. Consultant agrees to indemnify and hold harmless Company from any and all losses and liabilities incurred or suffered by Company by reason of the alleged breach by Consultant of any services agreement between Consultant and any third party.
10. Term and Termination .
10.1 Term . This Agreement is effective as of the Effective Date set forth above and will terminate on December 31, 2015 unless terminated earlier as set forth below. The Term may be extended on a month-by-month basis upon mutual agreement of Company and Consultant.
10.2 Termination by Company . Except during the term of a Project Assignment, Company may terminate this Agreement without cause at any time, with termination effective fifteen (15) days after Companys delivery to Consultant of written notice of termination. Company also may terminate this Agreement (a) immediately upon Consultants breach of Section 4 (Disclosure and Assignment of Work Resulting from Project
Assignments), 5 (Confidentiality) or 11 (Noninterference with Business) or (b) immediately for a breach by Consultant if Consultants breach of any other provision under this Agreement or obligation under a Project Assignment is not cured within ten (10) days after the date of Companys written notice of breach. Company may terminate a Project Assignment at any time upon three (3) days prior written notice to Consultant and, in that event, Company will pay Consultant for services properly performed prior to the date of termination.
10.3 Termination by Consultant . Except during the term of a Project Assignment, Consultant may terminate this Agreement without cause at any time, with termination effective fifteen (15) days after Consultants delivery to Company of written notice of termination. Consultant also may terminate this Agreement immediately for a material breach by Company if Companys material breach of any provision of this Agreement is not cured within ten (10) days after the date of Consultants written notice of breach.
10.4 Effect of Expiration or Termination . Upon expiration or termination of this Agreement, Company shall pay Consultant for services properly performed under this Agreement as set forth in each then pending Project Assignment. The definitions contained in this Agreement and the rights and obligations contained in this Section and Sections 4 (Disclosure and Assignment of Work Resulting from Project Assignments), 5 (Confidentiality), 6 (Ownership and Return of Confidential Information and Company Property), 7 (Indemnification), 11 (Noninterference with Business) and 12 (General Provisions) will survive any termination or expiration of this Agreement.
11. Noninterference with Business . During this Agreement, and for a period of two (2) years immediately following the termination or expiration of this Agreement, Consultant
agrees not to solicit or induce any employee or independent contractor involved in the performance of this Agreement to terminate or breach an employment, contractual or other relationship with Company. In addition, Consultant agrees to refrain from any disparagement, defamation, libel, or slander of Company, its employees and its Board of Directors during the Agreement and anytime thereafter.
12. General Provisions.
12.1 Successors and Assigns . Consultant shall not assign its rights or delegate any performance under this Agreement without the prior written consent of Company. For the avoidance of doubt, Consultant may not subcontract performance of any services under this Agreement to any other contractor or consultant without Companys prior written consent. All assignments of rights by Consultant are prohibited under this paragraph, whether they are voluntary or involuntary, by merger, consolidation, dissolution, operation of law, or any other manner. For purposes of this paragraph, (i) a change of control is deemed an assignment of rights; and (ii) merger refers to any merger in which Consultant participates, regardless of whether it is the surviving or disappearing entity. Any purported assignment of rights or delegation of performance in violation of this paragraph is void. This Agreement will be for the benefit of Companys successors and assigns, and will be binding on Consultants permitted assignees.
12.2 Injunctive Relief . Consultants obligations under this Agreement are of a unique character that gives them particular value; Consultants breach of any of these obligations will cause irreparable and continuing damage to Company for which money damages are insufficient, and Company is entitled to injunctive relief, a decree for specific performance, and all other relief as may be proper (including money damages if appropriate), without the need to post a bond.
12.3 Notices . Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows, with notice deemed given as indicated: (a) by personal delivery, when actually delivered; (b) by overnight courier, upon written verification of receipt; (c) by facsimile transmission, upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to the addresses set forth above or to such other address as either party may provide in writing.
12.4 Governing Law; Forum . The laws of the United States of America and the State of California govern all matters arising out of or relating to this Agreement without giving effect to any conflict of law principles. Each of the parties irrevocably consents to the exclusive personal jurisdiction of the federal and state courts located in San Mateo County, California, as applicable, for any matter arising out of or relating to this Agreement, except that in actions seeking to enforce any order or any judgment of the federal or state courts located in San Mateo County, California, such personal jurisdiction will be non-exclusive. Additionally, notwithstanding anything in the foregoing to the contrary, a claim for equitable relief arising out of or related to this Agreement may be brought in any court of competent jurisdiction. If a proceeding is commenced to resolve any dispute that arises between the parties with respect to the matters covered by this Agreement, the prevailing party in that proceeding is entitled to receive its reasonable attorneys fees, expert witness fees and out-of-pocket costs, in addition to any other relief to which that prevailing party may be entitled.
12.5 Severability . If a court of law holds any provision of this Agreement to be illegal, invalid or unenforceable, (a) that provision shall be deemed amended to achieve an economic effect that is as near as possible to that provided by the original provision and (b) the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected.
12.6 Waiver; Modification . If Company waives any term, provision or Consultants breach of this Agreement, such waiver shall not be effective unless it is in writing and signed by Company. No waiver by a party of a breach of this Agreement shall constitute a waiver of any other or subsequent breach by Consultant. This Agreement may be modified only by mutual written agreement of authorized representatives of the parties.
12.7 Entire Agreement . This Agreement constitutes the final and exclusive agreement between the parties relating to this subject matter and supersedes all agreements, whether prior or contemporaneous, written or oral, concerning such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
Company | Consultant | |||||||
ALLERGEN RESEARCH CORPORATION | Bryan L. Walser | |||||||
By: |
/s/ Stephen G. Dilly |
By: |
/s/ Bryan L. Walser |
|||||
Name: | Stephen G. Dilly | Name: | Bryan L. Walser | |||||
Title: | Chief Executive Officer | Title: | Advisor and Consultant |
Exhibit A
PROJECT ASSIGNMENT
Services and Deliverables to be Provided:
Objective: Develop specific, credible plan(s) to deliver additional OIT allergens to clinical development, so that ARC will be seen to own the OIT space.
| February |
| Conduct next-level literature review re: key allergens, including epidemiology/market research |
| Follow up on [***] and [***] |
| Develop proposal for analytics subcontracting (w/Howie) |
| March |
| Read-out re: literature review and identified issues to date |
| Develop and launch staged analytics plan (w/Howie) |
| Create a detailed formulation development plan |
| April/May |
| CMO/formulation out-reach |
| analytics project management |
| June-August |
| Begin initial staged formulation plans |
| Develop clinical approach per allergen (w/Rob) |
| Identify areas for IP filings (w/Christine) |
| Post-August |
| Project management for formulation and (remaining) analytics |
| Development of supporting materials for interaction with strategics/roadshow (w/Mary) |
Acceptance Criteria:
As agreed.
Acceptance Procedure:
Accepted invoice.
Payment of Fees:
Fee will be (CHECK ONE) :
¨ | a fixed price for completion of $ |
x | based on a rate per hour of $300, not to exceed 20 hours per week |
¨ | other, as follows (describe payment) : |
If either party for any reason terminates this Project Assignment or the Consulting Agreement that governs it, fees will be paid based on (CHECK ONE) :
x | Consultant time spent. |
[***] CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTION
¨ | the proportion of the deliverables furnished Company, as determined by Company. |
NOTE : This Project Assignment is governed by the terms of a Consulting Agreement in effect between Company and Consultant. Any term in this Project Assignment that is inconsistent with that agreement is invalid.
IN WITNESS WHEREOF, the parties are signing this Project Assignment as of the later date below.
Company | Consultant | |||||||
ALLERGEN RESEARCH CORPORATION | Bryan L. Walser | |||||||
By: |
/s/ Stephen G. Dilly |
By: |
/s/ Bryan L. Walser |
|||||
Name: | Stephen G. Dilly | Name: | Bryan L. Walser | |||||
Title: | Chief Executive Officer | Title: | Advisor and Consultant | |||||
Date: | 2/13/2015 | Date: | 2/12/2015 |
Exhibit 21.1
List of Subsidiaries of
Aimmune Therapeutics, Inc.
Subsidiary |
Jurisdiction of Incorporation or Organization |
|
Aimmune Therapeutics UK Limited |
United Kingdom |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Aimmune Therapeutics, Inc.:
We consent to the use of our report included herein and to the reference to our firm under the heading Experts in the prospectus.
/s/ KPMG LLP
San Francisco, CA
July 6, 2015