As filed with the Securities and Exchange Commission on January 4, 2016
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
A UDENTES T HERAPEUTICS , I NC .
(Exact name of registrant as specified in its charter)
Delaware | 2836 | 46-1606174 | ||
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification Number) |
101 Montgomery Street, Suite 2650
San Francisco, California 94104
(415) 638-6556
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Matthew R. Patterson
President and Chief Executive Officer
101 Montgomery Street, Suite 2650
San Francisco, California 94104
(415) 638-6556
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ¨
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer
x
(Do not check if a smaller reporting company) |
Smaller reporting company ¨ |
Calculation of Registration Fee
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Title of Each Class of Securities to be Registered |
Proposed Maximum
Aggregate
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Amount of
Registration Fee |
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Common stock, par value $0.00001 per share |
$86,250,000 | $8,686 | ||
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(1) | The proposed maximum aggregate offering price includes the offering price of additional shares that the underwriters have the option to purchase. |
(2) | Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated January 4, 2016
PROSPECTUS
Shares
Common Stock
This is Audentes Therapeutics, Inc.s initial public offering. We are selling shares of our common stock.
We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares. We have applied to list our common stock on The NASDAQ Global Market under the symbol BOLD.
We are an emerging growth company as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements.
Investing in the common stock involves risks that are described in the section entitled Risk Factors beginning on page 13 of this prospectus.
Per Share |
Total |
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Public offering price |
$ | $ | ||
Underwriting discounts and commissions (1) |
$ | $ | ||
Proceeds, before expenses, to us |
$ | $ |
(1) | See the section entitled Underwriting for a description of the compensation payable to the underwriters. |
The underwriters may also exercise their option to purchase up to an additional shares from us, at the public offering price, less the underwriting discounts and commissions, for 30 days after 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 , 2016.
Joint Book-Running Managers
BofA Merrill Lynch | Cowen and Company | Piper Jaffray |
Co-Manager
Wedbush PacGrow
The date of this prospectus is , 2016.
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F-1 |
Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither we nor the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before deciding to invest in shares of our common stock, you should read this summary together with the more detailed information, including our consolidated financial statements and the accompanying notes, provided elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the sections entitled Risk Factors, Selected Consolidated Financial Data, our consolidated financial statements and the accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of Operations, in each case included elsewhere in this prospectus. Some of the statements in this prospectus constitute forward-looking statements that involve risks and uncertainties. See Special Note Regarding Forward-Looking Statements.
Audentes Therapeutics, Inc.
Audentes from the Latin verb audeo : Those who have courage; those who have boldness, daring.
Courageous Patients. Bold Effort.
Overview
We are a biotechnology company focused on developing and commercializing gene therapy products for patients suffering from serious, life-threatening rare diseases caused by single gene defects. We believe that gene therapy has powerful potential to treat these diseases through delivery of a functional copy of the affected gene to cells, resulting in production of the normal protein. We have identified and built a compelling portfolio, including AT132 for the treatment of X-Linked Myotubular Myopathy, or XLMTM, AT342 for the treatment of Crigler-Najjar Syndrome Type 1, or CN Type 1, AT307 for the treatment of the CASQ2 subtype of Catecholaminergic Polymorphic Ventricular Tachycardia, or CASQ2-CPVT, and AT982 for the treatment of Pompe disease. We expect our first two product candidates, AT132 and AT342, to enter clinical development in 2016. We maintain full global rights to all of our product candidates.
Our vision is to become a fully integrated biotechnology company. In pursuit of this goal, we are executing on our core strategic initiatives, which include the expansion of our pipeline and the development of proprietary in-house manufacturing capabilities. We have assembled a world-class team with expertise in gene therapy, rare disease drug development and commercialization, and biologics manufacturing.
Our mission is to dramatically and positively transform the lives of patients suffering from serious, life-threatening rare diseases with limited or no treatment options. For example, we are developing AT132 to treat XLMTM, a disease for which there are no approved therapies and from which approximately 50% of affected children die in the first year of life. We believe our product candidates have the potential to provide long-lasting benefits, changing the lives of patients with these devastating diseases. Given the available clinical and regulatory pathways, we believe that the rarity and severity of the diseases we target may provide advantages for drug development, including the potential for expedited development and review and market exclusivity.
We focus on the treatment of rare diseases caused by single gene, or monogenic, defects in DNA that we believe can be effectively addressed using gene therapy. Conventional approaches such as protein therapeutics attempt to replace the deficient protein, but they do not correct the underlying genetic defect causing the disease. In addition, protein therapeutics often require frequent administration by injection or infusion and often result in sub-optimal safety and efficacy. We believe gene therapy is an ideal treatment modality for diseases caused by monogenic defects. Our approach employs AAV gene therapy, a therapeutic modality in which an adeno-associated virus, or AAV, a small, non-pathogenic virus, is genetically engineered to function as a vehicle, or vector, and administered to a patient to deliver a healthy copy of a mutated gene to the body. AAV gene therapy
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vectors are modified such that they will not cause an infection like a normal virus, but are capable of delivering therapeutic genes into patients cells. Vectors derived from AAV have a well-established safety profile in humans and have been shown to effectively deliver genes to the liver, eye, muscle and brain. Preclinical and clinical data demonstrate that AAV vectors are capable of providing durable efficacy with a favorable adverse event profile due at least in part to AAVs low immunogenic potential. AAV vectors can be described by the serotype, or strain, of the original virus isolate that was used to form the outer shell, or capsid, of the vector. We selected AAV8 and AAV9 as our in-licensed vector capsid serotypes, based on their biological properties, which we believe will translate into a positive clinical effect in our target indications. For example, we believe AAV8 is advantageous for the treatment of CN Type 1 given its ability to penetrate the liver, the primary organ implicated in this disease pathology.
Our business model is to develop and commercialize a broad portfolio of gene therapy product candidates to treat rare diseases. We use a focused set of criteria to select product candidates that we believe have the best chance of success. These criteria include:
| serious, life-threatening rare diseases; |
| monogenic diseases with well-understood biology; |
| disease characteristics well-suited for treatment with AAV gene therapy technology; |
| high potential for meaningful clinical benefit; |
| compelling preclinical data; |
| clear measures for evaluation in clinical trials; and |
| opportunities for expedited development through established regulatory pathways. |
We have built a portfolio of gene therapy product candidates and we intend to further expand our portfolio over time. Set forth below is a table summarizing our development programs.
AT132 . We are developing AT132, an AAV8 vector containing a functional copy of the MTM1 gene, for the treatment of XLMTM. XLMTM is characterized by extreme muscle weakness, respiratory failure and early death with an estimated 50% mortality rate in the first year of life. The incidence of XLMTM is estimated
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to be one in 50,000 male births. Currently, only supportive treatment options, such as ventilator use or a feeding tube, are available. Infants with XLMTM are typically born with severe muscle weakness and the majority require chronic mechanical ventilation from birth. Of the patients that survive the infantile period, most are severely incapacitated and do not have a life expectancy beyond early adolescence.
The disease is the result of mutations in the MTM1 gene that affect the production of myotubularin, an enzyme required for normal development and function of skeletal muscle. Mutations in the MTM1 gene result in production of too little or no functional protein. Importantly, we believe that even a modest increase of functional protein may have a significant therapeutic benefit for XLMTM patients. We believe AT132 may provide patients with significantly improved outcomes based on the ability of AAV8 to preferentially treat skeletal muscle, and has the potential to provide long-term clinical benefit to XLMTM patients through persistent expression of the functional protein following a single intravenous administration. We have two robust animal models of XLMTM, a genetically engineered murine model and a naturally occurring canine model. Both models present with disease symptoms similar to that of humans including severe muscle weakness, respiratory failure and early death.
Preclinical study results in both canine and murine models of the disease demonstrated dramatic improvements in all outcomes, including histology, muscle strength, respiratory function and survival. In the naturally occurring Laborador Retriever model, symptom onset occurs at nine to ten weeks of age, and disease progression leads to death at approximately 18 weeks of age. Multiple studies in this model have demonstrated that a single administration of AT132 significantly improves all disease symptoms and survival rates. In two dogs treated in one of our earliest studies, these effects have lasted approximately three years to date and the dogs continue to thrive. Our goal is to achieve these same benefits in XLMTM patients following a single intravenous administration of AT132.
AT342 . CN Type 1 is a rare, congenital autosomal recessive monogenic disease characterized by severely high levels of bilirubin in the blood and risk of irreversible neurological damage and death. Life expectancy is 30 years of age. CN Type 1 is estimated to affect approximately one in 1,000,000 newborns. Infants with CN Type 1 develop severe jaundice shortly after birth resulting in rapid presentation and diagnosis. CN Type 1 is caused by mutations in the gene encoding the UGT1A1 (uridine-diphosphate (UDP)-glucuronosyltransferase (UGT) 1A1) enzyme resulting in an inability to convert unconjugated bilirubin to a water-soluble form that can be excreted from the body. Clinical diagnosis is confirmed via genetic testing of the UGT1A1 gene. The current standard of care for CN Type 1 is aggressive phototherapy for more than ten to 12 hours per day using intense fluorescent light focused on the bare skin, while the eyes are shielded. Phototherapy speeds bilirubin decomposition and excretion, lowering serum bilirubin levels. Phototherapy wanes in effectiveness beginning around age four due to thickening of the skin and a reduction in surface area to body mass ratio, and a liver transplant may be required for survival.
We are developing AT342, an AAV8 vector containing a functional version of the UGT1A1 gene. Preclinical data in murine models of the disease demonstrate AAV8-UGT1A1 significantly reduces bilirubin levels, even at UGT1A1 liver expression levels of just five to eight percent of normal. We are advancing AT342 with the goal of administering a single dose that results in a significant, durable reduction in serum bilirubin, a reduction in or elimination of lengthy daily phototherapy, and elimination of the need for a liver transplant. We believe that serum bilirubin levels will be a clinically relevant endpoint and that determination of efficacy of AT342 will be straightforward due to the ease and reliability of measurement.
AT307 . CASQ2-CPVT is a rare monogenic disease that is characterized by life-threatening arrhythmias that may lead to sudden cardiac death. There are currently only limited treatment options with variable efficacy for patients suffering from CPVT, including beta-blockers and a sodium channel blocker. The autosomal recessive form of the disease is caused by mutations in the calsequestrin 2 gene, or CASQ2 gene, and is characterized by stress-induced heartbeat rhythm changes in an otherwise structurally normal heart. The CASQ2
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protein plays a key role in the release of calcium within the cardiac muscle cell, which is necessary for normal cardiac contractile function to maintain normal heart rhythm. It is estimated that CPVT occurs in one in 10,000 people, with approximately 2% to 5% due to mutations in the CASQ2 gene. This equates to an approximate prevalence of 6,000 affected people in North America, Europe and other addressable markets. The number of identified cases is likely to increase with the advent of more accessible genetic testing. It is estimated that 30% of people with CASQ2-CPVT will have had a cardiac event by the age of ten, and 79% will have had an event by the age of 40. Untreated, mortality is reported to be in the range of 30% to 50% by the age of 30. Despite available therapies to treat CPVT, which include beta-blockers and the sodium channel blocker flecainide, it is estimated that 30% to 40% of patients still experience significant cardiac events. Patients unresponsive to available therapies may be candidates for implantation of cardiac defibrillators, though their safety and effectiveness is considerably more limited in young patients. Due to the limitations of existing therapies, there remains a significant unmet medical need for patients with CPVT.
AT307 consists of an AAV9 vector that is designed to deliver a functional CASQ2 gene and to increase CASQ2 protein expression in targeted tissues. We are utilizing AAV9 because it is known to effectively penetrate heart tissue.
Preclinical data in murine models of the disease demonstrated an ability to prevent ventricular tachycardia through restoration of CASQ2 protein expression. Initial preclinical proof-of-concept studies were conducted using an AT307 prototype product candidate in a genetically engineered murine model of CASQ2-CPVT. This mouse manifests stress-induced arrhythmias upon epinephrine administration, as well as cellular and molecular manifestations of the disease. In this model, a single administration of the AT307 prototype resulted in a significant improvement in CASQ2 protein expression to a level approaching that of normal animals. We believe AT307 has the potential to provide long-term clinical benefit to CASQ2-CPVT patients through persistent expression of the protein following a single administration, resulting in a significant reduction in life-threatening arrhythmic events and other disease symptoms.
AT982. Pompe disease is a serious, progressive genetic disease characterized by severe muscle weakness, respiratory failure leading to ventilator dependence and, in infants, increased cardiac mass and heart failure. In untreated infants, the disease is often fatal due to cardio-respiratory failure within the first year of life. The overall incidence is estimated to be approximately one in 40,000 people although frequency and disease progression varies with age of onset, ethnicity and geography. Pompe disease is caused by mutations in the gene encoding the lysosomal enzyme alpha-glucosidase, or GAA, which results in a deficiency of GAA protein and leads to the accumulation of glycogen. GAA is responsible for degrading glycogen within the lysosome, and dysfunction or absence of functional GAA results in toxic accumulation of glycogen in cells. Tissues and cells most affected by the disease are predominantly skeletal muscle, cardiac muscle and motoneurons. The only approved treatment for Pompe disease is enzyme replacement therapy, or ERT, which is a chronic treatment delivered in bi-weekly intravenous infusions. Despite the availability of ERT, significant medical need still persists, which is primarily due to the inability of ERT to penetrate key tissues affected by the disease and immunogenicity of ERT treatment.
We believe our approach with AT982, which uses an AAV serotype 9 capsid vector containing a functional copy of the GAA gene, can overcome the limitations of ERT and provide long-term improvement in patient symptoms. Further, we believe AT982 may provide patients with superior outcomes based on the ability of AAV9 to penetrate key cells and tissues affected by the disease, such as motoneurons, which are not effectively treated with ERT. Preclinical studies of AT982 have been conducted in a robust and well established genetically modified murine model of Pompe disease. In these studies, treatment resulted in improvement in several measures of efficacy, including enzyme activity, glycogen clearance and skeletal muscle, cardiac and respiratory function. We believe intracellular production of the therapeutic protein may improve efficacy, reduce immunogenicity and deliver a durable therapeutic effect with a single intravenous administration.
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Although we believe our product candidates have the potential to provide long-term improvement in patient symptoms with a single administration, we will need to complete additional preclinical studies and clinical trials to determine the safety and efficacy of our product candidates. The results of these future studies and trials may be different than the results of our earlier studies and trials. We have not received regulatory approval for any of our product candidates, and in order to obtain regulatory approval and commercialize our product candidates, the U.S. Food and Drug Administration or foreign regulatory agencies will need to determine that our product candidates are safe and effective. To date, no gene therapy products have been approved in the United States and only one has been approved in Europe.
We believe that our proprietary manufacturing capabilities provide a core strategic advantage. We lease a manufacturing facility in South San Francisco that has been used for commercial manufacture of biologic drug products in the past. We are currently improving the facility in order to support our desired research, process development and manufacturing capabilities in accordance with current Good Manufacturing Practices, or cGMP, requirements. We plan to initiate cGMP manufacturing of our products in our facility in the second half of 2016. We have made and will continue to make significant investments to further optimize our manufacturing capabilities to cost-effectively produce high-quality AAV vectors at both clinical and commercial scale. We believe that our manufacturing processes, methods, expertise and facilities will give us a comprehensive manufacturing platform for production of our AAV product candidates at commercial scale.
We have a focused, passionate team with collective expertise in gene therapy, rare disease drug development and commercialization, and biologics manufacturing. Matthew Patterson, our President, Chief Executive Officer and Co-Founder, is a biotechnology leader with over 20 years of experience at Genzyme Corporation, BioMarin Pharmaceutical, Amicus Therapeutics and our company. We are backed by a group of leading life science institutional investors, including 5AM Ventures, Cormorant Asset Management LLC, Cowen Private Investments, Deerfield Management Company, Foresite Capital, OrbiMed, RA Capital Management, Redmile Group, Rock Springs Capital Management LP, Sofinnova Ventures, funds and accounts advised by T.Rowe Price Associates, Inc., Venrock and Versant Ventures.
Our Strategy
Our strategy is to leverage the expertise of our team and the transformative potential of gene therapy technology to develop treatments that improve outcomes for patients with serious, life-threatening rare diseases. Key elements of our strategy are:
| Constantly focus on serving patients. We take pride in our efforts to harness the transformative potential of gene therapy to improve the lives of patients suffering from devastating rare diseases. We intend to continue to engage with patient advocacy groups to better understand the burden of disease and align our efforts with the needs of patients and caregivers. |
| Advance our four lead product candidates through clinical development. We expect to submit Investigational New Drug applications or Clinical Trial Authorisations for our product candidates as follows: AT132 for the treatment of XLMTM and AT342 for the treatment of CN Type 1 in the second half of 2016, and AT307 for the treatment of CASQ2-CPVT and AT982 for the treatment of Pompe disease in 2017. |
| Continue to expand our pipeline with additional gene therapy product candidates targeting serious, life-threatening rare diseases. We intend to continue leveraging our expertise and focused selection criteria to expand our pipeline of product candidates. Our relationships with leading academic institutions and other rare disease companies are an important component of our strategy for sourcing additional product candidates. |
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| Continue to build our proprietary manufacturing capabilities and invest in a state-of-the-art cGMP facility. We believe the quality, reliability and scalability of our gene therapy manufacturing approach will be a core competitive advantage crucial to our long-term success. We intend to be capable of internal cGMP manufacturing in the second half of 2016. |
Our Strengths
We believe our leadership position is based on our following strengths:
| Rare disease expertise. Led by a management team with over 100 years of combined experience in rare diseases, we are building a fully integrated and industry-leading biotechnology company. Leveraging recent developments in gene therapy, we aim to provide durable and meaningful treatment options to patients suffering from rare monogenic diseases. |
| Highly focused selection criteria for development programs. We employ a disciplined approach to select and expand our pipeline of product candidates. We believe the application of our selection criteria enables the efficient, cost-effective and successful development of our product candidates. |
| Promising product candidate pipeline. On the basis of rigorous preclinical investigation, we are preparing to advance our four lead product candidates into the clinic: AT132 for the treatment of XLMTM, AT342 for the treatment of CN Type 1, AT307 for the treatment of CASQ2-CPVT and AT982 for the treatment of Pompe disease. |
| Proprietary know-how and capabilities. Our proprietary manufacturing capabilities provide a major core strategic advantage, including better control over the cost and timelines of developing our product candidates, superior protection of novel inventions and intellectual property, and expanded possibilities for new programs and partnerships. |
| Broad network. We believe our strong relationships with key opinion leaders and patient advocacy groups will support our product development efforts and our potential for future commercial success. Leveraging our collaborations with these parties allows us to better understand the diseases we target and optimize our research, clinical development and commercial plans. |
Risks Related to Our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled Risk Factors immediately following this prospectus summary. These risks include, but are not limited to, the following:
| we have a limited operating history and are very early in our development efforts, all of our product candidates are still in preclinical development and we may be unable to advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates; |
| we have not tested any of our product candidates in clinical trials, and success in early preclinical studies or clinical trials may not be indicative of results obtained in later preclinical studies and clinical trials; |
| if we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline; |
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| our product candidates are based on a novel AAV gene therapy technology with which there is little clinical experience, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval; |
| ethical and legal concerns about gene therapy and genetic testing may result in additional regulations or restrictions on the development and commercialization of our product candidates; |
| even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize a product candidate and the approval may be for a more narrow indication than we seek; |
| delays in establishing that our manufacturing process and facility comply with cGMPs or disruptions in our manufacturing process may delay or disrupt our development and commercialization efforts; |
| we may not be successful in our efforts to build a pipeline of additional product candidates; |
| if we are unable to obtain and maintain patent protection for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected; |
| there have been several adverse side effects identified in clinical trials for other gene therapy product candidates in the past, and our product candidates, which are based on gene therapy technology, may cause undesirable and unforeseen side effects or be perceived by the public as unsafe; |
| we have a history of operating losses, and we may not achieve or sustain profitability; and |
| all of our current product candidates are licensed from or based upon licenses from third parties, and if any of these license or sublicense agreements are terminated or interpreted to narrow our rights, our ability to advance our current product candidates or develop new product candidates based on these technologies will be materially adversely affected. |
Corporate Information
We were incorporated in Delaware in November 2012. Our principal executive offices are located at 101 Montgomery Street, Suite 2650, San Francisco, CA 94104, and our telephone number is (415) 638-6556. Our website address is www.audentestx.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock.
Unless the context indicates otherwise, as used in this prospectus, the terms company, Audentes, Audentes Therapeutics, Registrant, we, us and our refer to Audentes Therapeutics, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted.
We have registered the trademarks Audentes, Audentes Therapeutics and Courageous Patients. Bold Effort. in the European Union and we have trademark applications for each of these trademarks pending with the U.S. Patent and Trademark Office. The Audentes logo and all product names are our common law trademarks. All other service marks, trademarks and tradenames appearing in this prospectus are the property of
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their respective owners. Solely for convenience, the trademarks and tradenames referred to in this prospectus appear without the ® and symbols, 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.
Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an emerging growth company as defined in Section 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public company reporting requirements, including:
| reduced disclosure of financial information in this prospectus, including two years of audited financial information and two years of selected financial information; |
| an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting; |
| an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements; |
| reduced disclosure about our executive compensation arrangements; and |
| exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a stockholder approval of any golden parachute arrangements. |
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. We would cease to be an emerging growth company upon the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of this offering.
The JOBS Act also permits us, as an emerging growth company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies and thereby allows us to delay the adoption of those standards until those standards would 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.
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Common stock to be offered |
shares |
Common stock to be outstanding immediately following this offering |
shares |
Option to purchase additional shares |
We have granted to the underwriters the option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of our common stock. |
Use of proceeds |
We estimate that the net proceeds from the sale of our common stock sold in this offering will be approximately $ million, assuming an initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. |
We intend to use the net proceeds from this offering to advance preclinical and clinical development of AT132 for the treatment of XLMTM, AT342 for the treatment of CN Type 1, AT307 for the treatment of CASQ2-CPVT and AT982 for the treatment of Pompe disease; to develop and expand our proprietary manufacturing capabilities and invest in a cGMP facility; and for working capital and other general corporate purposes. See the section entitled Use of Proceeds. |
Risk factors |
You should read the section entitled Risk Factors and other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in shares of our common stock. |
Proposed NASDAQ Global Market symbol |
BOLD |
The number of shares of our common stock to be outstanding following this offering is based on (i) 4,650,354 shares of our common stock outstanding as of September 30, 2015, (ii) the sale and issuance of 9,645,913 shares of our Series C convertible preferred stock in an October 2015 private placement and (iii) the automatic conversion of shares of our convertible preferred stock outstanding as of September 30, 2015 and our Series C convertible preferred stock issued in October 2015 into 30,816,155 shares of our common stock effective immediately prior to the completion of this offering.
The number of shares of our common stock to be outstanding after this offering excludes:
| 2,958,675 shares of our common stock issuable upon the exercise of outstanding options as of September 30, 2015, with a weighted-average exercise price of approximately $0.65 per share; |
| 2,359,064 shares of our common stock issuable upon the exercise of outstanding options granted after September 30, 2015, with a weighted-average exercise price of $2.74 per share; and |
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| shares of common stock reserved for future issuance under our stock-based compensation plans as of September 30, 2015, consisting of (i) 900,374 shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan as of September 30, 2015, (ii) 3,000,000 additional shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan in October 2015, (iii) shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus and (iv) shares of common stock reserved for future issuance under our 2016 Employee Stock Purchase Plan, which will become effective on the date of this prospectus. Upon completion of this offering, any remaining shares available for issuance under our 2012 Equity Incentive Plan will be added to the shares reserved for future issuance under our 2016 Equity Incentive Plan and we will cease granting awards under our 2012 Equity Incentive Plan. Our 2016 Equity Incentive Plan and 2016 Employee Stock Purchase Plan will also provide for automatic annual increases in the number of shares reserved under the plans each year, as more fully described in the section entitled Executive CompensationEmployee Benefit and Stock Compensation Plans. |
Unless otherwise noted, the information in this prospectus reflects and assumes the following:
| the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 30,816,155 shares of our common stock effective immediately prior to the completion of this offering; |
| a -to- reverse stock split, which became effective on , 2016; |
| the filing and effectiveness of our restated certificate of incorporation in Delaware and the adoption of our restated bylaws, both of which will occur immediately prior to the completion of this offering; |
| no exercise of outstanding options; and |
| no exercise of the underwriters option to purchase additional shares. |
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our consolidated statements of operations and consolidated balance sheet data. We derived our summary statements of operations data for the years ended December 31, 2013 and 2014 from our audited financial statements included elsewhere in this prospectus. We derived our summary consolidated statements of operations data for the nine months ended September 30, 2014 and 2015 and our summary consolidated balance sheet data as of September 30, 2015 from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. Our unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles on the same basis as our audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair presentation of those unaudited interim condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in any future period and the results for the nine months ended September 30, 2015 are not necessarily indicative of operating results to be expected for the full year ending December 31, 2015 or any other period.
The summary consolidated financial data below should be read in conjunction with the sections entitled, Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
Year Ended
December 31, |
Nine Months Ended
September 30, |
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2013 | 2014 | 2014 | 2015 | |||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Consolidated Statements of Operations Data: |
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Operating expenses: |
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Research and development |
$ | 1,911 | $ | 9,280 | $ | 5,611 | $ | 12,335 | ||||||||
General and administrative |
1,143 | 1,670 | 1,145 | 4,359 | ||||||||||||
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Total operating expenses |
3,054 | 10,950 | 6,756 | 16,694 | ||||||||||||
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Loss from operations |
(3,054 | ) | (10,950 | ) | (6,756 | ) | (16,694 | ) | ||||||||
Interest income |
| 6 | 2 | 178 | ||||||||||||
Other income, net |
| 125 | 72 | 17 | ||||||||||||
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Net loss |
$ | (3,054 | ) | $ | (10,819 | ) | $ | (6,682 | ) | $ | (16,499 | ) | ||||
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Net loss per share, basic and diluted (1) |
$ | (4.59 | ) | $ | (9.67 | ) | $ | (6.13 | ) | $ | (8.73 | ) | ||||
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Shares used in computing net loss per share, basic and diluted (1) |
664,945 | 1,118,698 | 1,090,597 | 1,890,249 | ||||||||||||
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Pro forma net loss per share, basic and diluted (unaudited) (1) |
$ | (1.10 | ) | $ | (0.72 | ) | ||||||||||
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Shares used in computing pro forma net loss per share, basic and diluted (unaudited) (1) |
9,821,341 | 22,973,019 | ||||||||||||||
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(1) | See Notes 2 and 12 to our audited financial statements and Notes 2 and 11 to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share, basic and diluted pro forma net loss per share and the shares used in computing basic and diluted net loss per share and basic and diluted pro forma net loss per share. |
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September 30, 2015 | ||||||||||||
Actual | Pro Forma (1) |
Pro Forma
As Adjusted (2) |
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(in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Consolidated Balance Sheet Data: |
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Cash, cash equivalents and investments (3) |
$ | 42,811 | $ | $ | ||||||||
Working capital |
37,897 | |||||||||||
Total assets |
59,923 | |||||||||||
Convertible preferred stock |
72,970 | |||||||||||
Accumulated deficit |
(30,784 | ) | ||||||||||
Total stockholders equity |
48,014 |
(1) | The pro forma consolidated balance sheet data as of September 30, 2015 reflects (i) the sale and issuance of 9,645,913 shares of our Series C convertible preferred stock in an October 2015 private placement and (ii) the automatic conversion of shares of our convertible preferred stock outstanding as of September 30, 2015 and our Series C convertible preferred stock issued in October 2015 into 30,816,155 shares of our common stock effective immediately prior to the completion of this offering. |
(2) | The pro forma as adjusted consolidated balance sheet data reflects (i) the pro forma adjustments set forth above and (ii) the sale and issuance of shares of our common stock in this offering, at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus after deducting the estimated underwriting discounts and commissions and estimated offering expenses. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) each of cash, cash equivalents and investments, working capital, total assets and total stockholders equity by $ million, assuming that the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) each of cash, cash equivalents and investments, working capital, total assets and total stockholders equity by approximately $ million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions. |
(3) | Includes $1.7 million of investments classified as long-term. |
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Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including the consolidated financial statements, the notes thereto and the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus before deciding whether to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our stock could decline, and you could lose part or all of your investment.
Risks Related to Product Development and Regulatory Approval
We are very early in our development efforts. All of our product candidates are still in preclinical development. If we are unable to advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.
We are very early in our development efforts and all of our lead product candidates are still in preclinical development. We, or our collaborators, have only recently completed initial preclinical studies for our AT132, AT342, AT307 and AT982 programs. We have invested substantially all of our efforts and financial resources in the identification and preclinical development of our current product candidates, AT132 for X-Linked Myotubular Myopathy, or XLMTM, AT342 for the treatment of Crigler-Najjar Syndrome Type 1, or CN Type 1, AT307 for the treatment of the CASQ2 subtype of Catecholaminergic Polymorphic Ventricular Tachycardia, or CASQ2-CPVT, and AT982 for the treatment of Pompe disease. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. We currently generate no revenue from sales of any product and we may never be able to develop or commercialize a marketable product.
Each of our programs and product candidates will require additional preclinical and clinical development, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, capacity and expertise, building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenue from product sales. Our product candidates must be authorized for marketing by the U.S. Food and Drug Administration, or the FDA, or certain other foreign regulatory agencies, such as the European Medicines Agency, or EMA, before we may commercialize our product candidates.
The success of our product candidates will depend on several factors, including the following:
| successful completion of preclinical studies and successful enrollment and completion of clinical trials, including toxicology studies, biodistribution studies and minimally efficacious dose studies in animals, where applicable, under the FDAs current Good Clinical Practices, or cGCPs, and current Good Laboratory Practices, or cGLPs; |
| effective Investigational New Drug applications, or INDs, or Clinical Trial Authorisations, or CTAs, that allow commencement of our planned clinical trials or future clinical trials for our product candidates; |
| positive results from our future clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile of our product candidates in the intended populations; |
| receipt of regulatory approvals from applicable regulatory authorities; |
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| establishment of arrangements with third-party manufacturers for clinical supply and, where applicable, commercial manufacturing capabilities; |
| successful development of our internal manufacturing processes or transfer to larger-scale facilities operated by either a contract manufacturing organization, or CMO, or by us; |
| establishment and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates; |
| commercial launch of our product candidates, if and when approved, whether alone or in collaboration with others; |
| acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors; |
| effective competition with other therapies; |
| establishment and maintenance of healthcare coverage and adequate reimbursement; |
| enforcement and defense of intellectual property rights and claims; and |
| maintenance of a continued acceptable safety profile of our product candidates following approval. |
If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.
We have not tested any of our product candidates in clinical trials. Success in early preclinical studies or clinical trials may not be indicative of results obtained in later preclinical studies and clinical trials.
Though viral vectors similar to ours have been evaluated by others in clinical trials, our product candidates have never been evaluated in human clinical trials, and we may experience unexpected or adverse results in the future. We will be required to demonstrate through adequate and well-controlled clinical trials that our product candidates are safe and effective, with a favorable benefit-risk profile, for use in their target indications before we can seek regulatory approvals for their commercial sale. Earlier gene therapy clinical trials, which we believe serve as proof-of-concept for our product candidates, utilized adeno-associated viral vectors, or AAV vectors, similar to ours. For example, in October 2015, a gene therapy company publicly reported positive top-line results from a Phase 3 trial of a product candidate intended to treat rare genetic blinding conditions. However, this study or others like it should not be relied upon as evidence that our planned clinical trials will succeed. Trial designs and results from previous trials are not necessarily predictive of our future clinical trial designs or results, and initial positive results we may observe may not be confirmed upon full analysis of the complete trial data. In addition, the positive results we have observed for our product candidates in preclinical animal models may not be predictive of our future clinical trials in humans. Our product candidates may also fail to show the desired safety and efficacy in later stages of clinical development even if they successfully advance through initial clinical trials.
Many companies in the biotechnology industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and there is a high failure rate for product candidates proceeding through clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. For example, we may want to use the RECENSUS retrospective medical chart review as a historical control for our planned Phase 1/2 ASPIRO trial of AT132. However, because the patient population, supportive care used or other factors may be different than those used in the ASPIRO trial, we may be unable to use the RECENSUS study to demonstrate statistical
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significance of results in our planned ASPIRO trial, which may delay the development of AT132. Even if we demonstrate statistical significance, regulatory agencies may not accept the use of the historical control. Regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development. We cannot be certain that we will not face similar setbacks.
If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.
From time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory, manufacturing and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of preclinical studies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. For example, throughout this prospectus, we state that we plan to submit INDs or CTAs for AT132 and AT342 in 2016 and for AT307 and AT982 in 2017 and that we intend to be capable of small-scale manufacturing production in the first half of 2016, capable of internal Current Good Manufacturing Practices, or cGMP, manufacturing in the second half of 2016 and capable of providing cGMP supply at scale suitable for commercial production by 2018. All of these milestones are, and will be, based on a variety of assumptions. The actual timing of these milestones can vary significantly compared to our estimates, in some cases for reasons beyond our control. We may experience numerous unforeseen events during, or as a result of, any future clinical trials that we conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:
| the FDA and other governmental regulators, Institutional Review Boards, or IRBs, or ethics committees may not authorize or may delay authorizing us or our investigators to commence a clinical trial or conduct a clinical trial at all or at a prospective trial site, such as by requiring us to conduct additional preclinical studies and to submit additional data or imposing other requirements before permitting us to initiate a clinical trial; |
| we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
| clinical trials of our product candidates may produce negative or inconclusive results and we may decide, or regulators may require us, to conduct preclinical studies in addition to those we currently have planned or additional clinical trials or we may decide to abandon drug development programs; |
| the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; |
| our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators; |
| we may elect to, or regulators, IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to health risks; |
| the cost of planned clinical trials of our product candidates may be greater than we anticipate; |
| the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and |
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| our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs or ethics committees to suspend or terminate the trials, or reports may arise from preclinical or clinical testing of other gene therapies that raise safety or efficacy concerns about our product candidates. |
For instance, safety signals have been observed at the highest dose in mouse disease model studies of AT132 and AT982 that we conducted, and in a non-cGLP study of AT982 that was conducted by other researchers in an un-validated rat model of the disease. To appropriately understand these findings, and after discussion with regulatory authorities in the United States and Europe, we have implemented a robust plan to gather additional information and plan to engage in further discussions with regulatory authorities prior to submitting INDs and CTAs to start clinical trials. In both programs we have completed initial large animal studies in which similar safety signals were not observed. We continue to conduct preclinical studies across our portfolio of product candidates in order to enable IND and CTA submissions. If we observe additional unexpected safety signals in these studies or are unable to explain to the regulatory authorities satisfaction the safety signals we have observed to date, we may decide or be required to delay or halt initial or further clinical development of these product candidates.
In addition, for our first in human trial of AT132, the FDA as part of their initial feedback to us has suggested that we first study the product candidate in adults. The agency has provided us with an opportunity to justify our position that we do not need to first dose adults. Similarly, the Medicines Healthcare products Regulatory Agency has, in its initial feedback to us, suggested we first study AT982 in adults. These issues, or others, could delay our clinical development program. If we do not meet these milestones as publicly announced, the commercialization of our product candidates may be delayed and, as a result, our stock price may decline.
Our product candidates are based on a novel AAV gene therapy technology with which there is little clinical experience, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval. Currently, no gene therapy products have been approved in the United States and only one gene therapy product has been approved in Europe.
Our product candidates are based on gene therapy technology and our future success depends on the successful development of this novel therapeutic approach. We cannot assure you that any development problems we or other gene therapy companies experience in the future related to gene therapy technology will not cause significant delays or unanticipated costs in the development of our product candidates, or that such development problems can be solved. In addition, the clinical study requirements of the FDA, EMA and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied product candidates. Further, as we are developing novel treatments for diseases in which there is little clinical experience with new endpoints and methodologies, there is heightened risk that the FDA, EMA or comparable foreign regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be more difficult to analyze. To date, no gene therapy product has been approved in the United States and only one gene therapy product, UniQures Glybera, which received marketing authorization in the European Union, or EU, in 2012, has been approved in Europe, which makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in the United States, the EU or other jurisdictions. Further, approvals by EMA and the European Commission may not be indicative of what the FDA may require for approval.
Regulatory requirements governing gene therapy products have evolved and may continue to change in the future. For example, the FDA established the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. These and other regulatory review agencies, committees and advisory groups and the requirements and guidelines they promulgate may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our
16
development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions.
The FDA, the National Institutes of Health, or NIH, the EMA and other regulatory agencies have demonstrated caution in their regulation of gene therapy treatments, and ethical and legal concerns about gene therapy and genetic testing may result in additional regulations or restrictions on the development and commercialization of our product candidates, which may be difficult to predict.
The FDA, NIH, other regulatory agencies at both the federal and state level in the United States, U.S. congressional committees, and the EMA and other foreign governments, have expressed interest in further regulating the biotechnology industry, including gene therapy and genetic testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. Any such further regulation may delay or prevent commercialization of some or all of our product candidates. For example, in 1999, a patient died during a gene therapy clinical trial that utilized an adenovirus vector and it was later discovered that adenoviruses could generate an extreme immune system reaction that can be life-threatening. In January 2000, the FDA halted that trial and began investigating 69 other gene therapy trials underway in the United States, 13 of which required remedial action. In 2003, the FDA suspended 27 additional gene therapy trials involving several hundred patients after learning that some patients treated in a clinical trial in France had subsequently developed leukemia.
Regulatory requirements in the United States and abroad governing gene therapy products have changed frequently and may continue to change in the future. Prior to submitting an IND, our planned clinical trials will be subject to review by the NIH Office of Biotechnology Activities Recombinant DNA Advisory Committee, or RAC. Following an initial review, RAC members make a recommendation as to whether the protocol raises important scientific, safety, medical, ethical or social issues that warrant in-depth discussion at the RACs quarterly meetings. Even though the FDA decides whether individual gene therapy protocols may proceed under an IND, the RACs recommendations are shared with the FDA and the RAC public review process, if undertaken, can delay the initiation of a clinical trial, even if the FDA has reviewed the trial design and details and has not objected to its initiation or has notified the sponsor that the study may begin. Conversely, the FDA can put an IND on a clinical hold even if the RAC has provided a favorable review or has recommended against an in-depth, public review. Moreover, under guidelines published by the NIH, patient enrollment in our planned clinical trials cannot begin until the investigator for such clinical trial has received a letter from the Office of Biotechnology Activities indicating that the RAC review process has been completed; and Institutional Biosafety Committee, or IBC, approval as well as all other applicable regulatory authorizations have been obtained. In addition to the government regulators, the IBC and IRB of each institution at which we conduct our planned clinical trials, would need to review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our product candidates. Similarly, the EMA governs the development of gene therapies in the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines.
These regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all.
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Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize a product candidate and the approval may be for a more narrow indication than we seek.
Prior to commercialization, our product candidates must be approved by the FDA pursuant to a BLA in the United States and by the EMA and similar regulatory authorities outside the United States. The process of obtaining marketing approvals, both in the United States and abroad, is expensive and takes many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. We have no experience in submitting and supporting the applications necessary to gain marketing approvals. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidates safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate.
Approval of our product candidates may be delayed or refused for many reasons, including the following:
| the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; |
| we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and effective for any of their proposed indications; |
| the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval; |
| we may be unable to demonstrate that our product candidates clinical and other benefits outweigh their safety risks; |
| the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical programs or clinical trials; |
| the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere; |
| the facilities of the third-party manufacturers with which we contract may not be adequate to support approval of our product candidates; and |
| the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
Even if our product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner, or we may not be able to obtain
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regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process.
Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings or Risk Evaluation and Mitigation Strategies, or REMS. These regulatory authorities may require precautions or contra-indications with respect to conditions of use or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates and materially and adversely affect our business, financial condition, results of operations and prospects.
Further, the regulatory authorities may require concurrent approval or the CE mark, indicating conformity with applicability with European Community directives, of a companion diagnostic device. For the product candidates we currently are developing, we believe that diagnoses based on symptoms, in conjunction with existing genetic tests developed and administered by laboratories certified under the Clinical Laboratory Improvement Amendments, or CLIA, are sufficient to diagnose patients and will be permitted by the FDA. For future product candidates, however, it may be necessary to use FDA-cleared or FDA-approved diagnostic tests to diagnose patients or to assure the safe and effective use of product candidates in trial subjects. The FDA refers to such tests as in vitro companion diagnostic devices. In August 2014, the FDA issued a final guidance document describing the agencys current thinking about the development and regulation of in vitro companion diagnostic devices. The final guidance articulates a policy position that, when an in vitro diagnostic device is essential to the safe and effective use of a therapeutic product, the FDA generally will require approval or clearance of the diagnostic device at the same time that the FDA approves the therapeutic product. At this point, it is unclear how the FDA will apply this policy to our current or future gene therapy product candidates. Should the FDA deem genetic tests used for diagnosing patients for our therapies to be in vitro companion diagnostics requiring FDA clearance or approval, we may face significant delays or obstacles in obtaining approval of a BLA for our product candidates. In the EU, the European Commission has proposed substantial revisions to the current regulations governing in vitro diagnostic medical devices. If adopted in their current form, these revisions may impose additional obligations on us that may impact the development and authorization of our product candidates in the EU.
We may never obtain FDA approval for any of our product candidates in the United States, and even if we do, we may never obtain approval for or commercialize any of our product candidates in any other jurisdiction, which would limit our ability to realize their full market potential.
In order to eventually market any of our product candidates in any particular foreign jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a jurisdiction-by-jurisdiction basis regarding safety and efficacy. Approval by the FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. The foreign regulatory approval process involves all of the risks associated with FDA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are
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delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.
Delays in establishing that our manufacturing process and facility comply with cGMPs or disruptions in our manufacturing process may delay or disrupt our development and commercialization efforts. To date, no gene therapy product has received approval from the FDA so the requirements for the manufacture of a gene therapy product are uncertain.
Currently, supplies of our product candidates AT132 and AT982 are manufactured by CMOs. AT132 is manufactured by Genethon, a not-for-profit research laboratory in France in facilities that we believe comply with cGMPs and cGLPs and AT982 is manufactured by the University of Florida in a facility that we believe complies with cGMPs. We are currently investing in a state-of-the-art cGMP facility to develop and implement novel in-house production technologies. Before we can begin to manufacture our product candidates in our own facility for our planned clinical trials or for commercial production, we must demonstrate to the FDA that our planned chemistry, manufacturing and controls for our gene therapy product candidates meet applicable requirements. A manufacturing authorization must be obtained from the appropriate European Union regulatory authorities. Because no gene therapy product has yet been approved in the United States, there is no manufacturing facility that has demonstrated the ability to comply with FDA requirements, and, therefore, the timeframe for demonstrating compliance to the FDAs satisfaction is uncertain.
We expect that development of our own manufacturing facility would provide us with enhanced control of material supply for both clinical trials and the commercial market, enable the more rapid implementation of process changes and allow for better long-term margins. However, we have no experience as a company in developing a manufacturing facility and may never be successful in developing our own manufacturing facility or capability. Additionally, given that cGMP gene therapy manufacturing is a nascent industry, there are only a small number of CMOs with the experience necessary to manufacture our product candidates and we may have difficulty finding or maintaining relationships with such CMOs or hiring experts for internal manufacturing and, accordingly, our production capacity may be limited. Even if we are successful, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, lack of capacity, labor shortages, natural disasters, power failures and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
In addition, we must pass a pre-approval inspection of our manufacturing facility by the FDA before any of our product candidates can obtain marketing approval. To date, neither we nor our contract manufacturers has manufactured or attempted to manufacture batches of our products that comply with cGMPs. In order to obtain approval, we will need to ensure that all of our processes, methods and equipment are compliant with cGMPs, and perform extensive audits of vendors, contract laboratories and suppliers. If any of our vendors, contract laboratories or suppliers is found to be out of compliance with cGMPs, we may experience delays or disruptions in manufacturing while we work with these third parties to remedy the violation or while we work to identify suitable replacement vendors. If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. Any of these challenges could delay initiation of, or completion of, clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods and have an adverse effect on our business, financial condition, results of operations and growth prospects.
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We may not be successful in our efforts to build a pipeline of additional product candidates.
Our business model is centered on applying our expertise in rare diseases by establishing focused selection criteria to develop and advance a broad portfolio of gene therapy product candidates through development into commercialization. We may not be able to continue to identify and develop new product candidates in addition to the pipeline of product candidates that our research and development efforts to date have resulted in. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development. For example, they may be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize product candidates based upon our approach, we will not be able to obtain product revenue in future periods, which likely would result in significant harm to our financial position and adversely affect our stock price.
Our product candidates based on gene therapy technology may cause undesirable and unforeseen side effects or be perceived by the public as unsafe, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences.
As discussed above, there have been several significant adverse side effects in gene therapy treatments in the past, including reported cases of leukemia and death seen in other trials using other vectors. While new AAV vectors have been developed to reduce these side effects, gene therapy is still a relatively new approach to disease treatment and additional adverse side effects could develop. There also is the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material.
Possible adverse side effects that could occur with treatment with gene therapy products include an immunologic reaction early after administration which, while not necessarily adverse to the patients health, could substantially limit the effectiveness of the treatment. In previous clinical trials involving AAV vectors for gene therapy, some subjects experienced the development of a T-cell response, whereby after the vector is within the target cells, the cellular immune response system triggers the removal of transduced cells by activated T-cells. If our vectors demonstrate a similar effect we may decide or be required to halt or delay further clinical development of our product candidates.
In addition to side effects caused by the product candidate, the administration process or related procedures also can cause adverse side effects. For AT307, potential procedure-related events are similar to those associated with standard coronary diagnostic procedures, and may include vascular injury (for example, damage to the femoral, radial or brachial arteries at the site of vascular access, or damage to the coronary arteries) or myocardial injury. If any such adverse events occur, our clinical trials could be suspended or terminated. If we are unable to demonstrate that any adverse events were caused by the administration process or related procedures, the FDA, the European Commission, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Even if we are able to demonstrate that all future serious adverse events are not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to not initiate, delay, suspend or terminate any future clinical trial of any of our product candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition and prospects significantly.
Additionally, if any of our product candidates receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of the product outweigh its risks, which may include, among other things, a Medication Guide outlining the risks of the product for distribution to patients and a communication
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plan to health care practitioners. Furthermore, if we or others later identify undesirable side effects caused by our product candidate, several potentially significant negative consequences could result, including:
| regulatory authorities may suspend or withdraw approvals of such product candidate; |
| regulatory authorities may require additional warnings on the label; |
| we may be required to change the way a product candidate is administered or conduct additional clinical trials; |
| we could be sued and held liable for harm caused to patients; and |
| our reputation may suffer. |
Any of these occurrences may harm our business, financial condition and prospects significantly.
The diseases we seek to treat have low prevalence and it may be difficult to identify patients with these diseases, which may lead to delays in enrollment for our trials or slower commercial revenue if approved.
Genetically defined diseases generally, and especially those for which our current product candidates are targeted, have low incidence and prevalence. For example, we estimate that the incidence of XLMTM is approximately one in 50,000 male births, that the incidence of CN Type 1 is approximately one in 1,000,000 births, that the incidence of Pompe disease is one in 40,000 people, and that there are approximately 6,000 people in North America, Europe and other addressable markets with CASQ2-CPVT. In addition, some of our potential patients may have neutralizing antibodies to AAV, which may affect the therapeutic efficacy of our product candidates. Moreover, following administration of any AAV vector, patients are likely to develop neutralizing antibodies specific to the vector administered. These could be significant obstacles to the timely recruitment and enrollment of a sufficient number of eligible patients into our trials. Patient enrollment may be affected by other factors including:
| the severity of the disease under investigation; |
| design of the study protocol; |
| the eligibility criteria for the study; |
| the perceived risks, benefits and convenience of administration of the product candidate being studied; |
| our efforts to facilitate timely enrollment in clinical trials; |
| the patient referral practices of physicians; and |
| the proximity and availability of clinical trial sites to prospective patients. |
Our inability to enroll a sufficient number of patients with these diseases for our planned clinical trials would result in significant delays and could require us to not initiate or abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.
Additionally, our projections of both the number of people who have XLMTM, CN Type 1, CASQ2-CPVT and Pompe disease, as well as the people with these diseases who have the potential to benefit from
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treatment with our product candidates, are based on estimates. The total addressable market opportunity for our product candidates will ultimately depend upon, among other things, the final labeling for each of our product candidates, if our product candidates are approved for sale in our target indications, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients globally may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Our products may potentially be dosed on a one-time basis, which means that patients who enroll in our clinical trials may not be eligible to receive our products on a commercial basis if they are approved, leading to lower revenue potential.
A Breakthrough Therapy Designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketing approval.
We plan to seek a Breakthrough Therapy Designation for our product candidates if the clinical data support such a designation for one or more product candidates. A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug, or biologic in our case, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Biologics designated as breakthrough therapies by the FDA may also be eligible for accelerated approval.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under non-expedited the FDA review procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product no longer meets the conditions for qualification.
A Fast Track Designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our product candidates will receive marketing approval.
We do not currently have Fast Track Designation for any of our product candidates but intend to seek such designation for some or all of our product candidates. If a drug or biologic, in our case, is intended for the treatment of a serious or life-threatening condition and the biologic demonstrates the potential to address unmet medical needs for this condition, the biologic sponsor may apply for FDA Fast Track Designation. The FDA has broad discretion whether or not to grant this designation. Even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program. Many biologics that have received Fast Track Designation have failed to obtain approval.
We may also seek accelerated approval for products that have obtained Fast Track Designation. Under the FDAs accelerated approval program, the FDA may approve a biologic for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible
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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. For biologics granted accelerated approval, post-marketing confirmatory trials are required to describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. These confirmatory trials must be completed with due diligence and, in some cases, the FDA may require that the trial be designed and/or initiated prior to approval. Moreover, the FDA may withdraw approval of any product candidate or indication approved under the accelerated approval pathway if, for example:
| the trial or trials required to verify the predicted clinical benefit of the product candidate fail to verify such benefit or do not demonstrate sufficient clinical benefit to justify the risks associated with the biologic; |
| other evidence demonstrates that the product candidate is not shown to be safe or effective under the conditions of use; |
| we fail to conduct any required post-approval trial of the product candidate with due diligence; or |
| we disseminate false or misleading promotional materials relating to the product candidate. |
We may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity, for AT132 and may be unsuccessful in obtaining Orphan Drug Designation or transfer of designations obtained by others for our other product candidates.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs, or biologics in our case, intended to treat relatively small patient populations as orphan drugs. Under the U.S. Orphan Drug Act, the FDA may designate a biologic as an orphan drug if it is intended to treat a rare disease or condition, which is defined as a patient population of fewer than 200,000 individuals in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax credits for qualified clinical research costs, and prescription drug user fee waivers. Similarly, in the European Union, the European Commission grants Orphan Drug Designation after receiving the opinion of the EMAs Committee for Orphan Medicinal Products on an Orphan Drug Designation application. In the European Union, Orphan Drug Designation is intended to promote the development of biologics that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union and for which no satisfactory method of diagnosis, prevention or treatment has been authorized (or the product would be a significant benefit to those affected). In the European Union, Orphan Drug Designation entitles a party to financial incentives such as reduction of fees or fee waivers.
Generally, if a biologic with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the biologic is entitled to a period of marketing exclusivity, which precludes EMA or the FDA from approving another marketing application for the same biologic and indication for that time period, except in limited circumstances. If our competitors are able to obtain orphan drug exclusivity prior to us for products that constitute the same active moiety and treat the same indications as our product candidates, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time. The applicable period is seven years in the United States and ten years in the European Union. The European Union exclusivity period can be reduced to six years if a drug no longer meets the criteria for Orphan Drug Designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.
As part of our business strategy, we have sought and received Orphan Drug Designation for AT132 in the United States and Europe and we plan to seek Orphan Drug Designation for some or all of our other product candidates. However, Orphan Drug Designation does not guarantee future orphan drug marketing exclusivity.
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Additionally, even though we have obtained an Orphan Drug Designation for AT132 and even if we obtain orphan drug exclusivity for AT132 and other product candidates, that exclusivity may not effectively protect AT132 or our other product candidates from competition because drugs with different active moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA can also subsequently approve a later application for the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer in a substantial portion of the target populations, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to manufacture sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
We rely on third parties to conduct our preclinical studies, will rely on them to conduct clinical trials and rely on them to perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
Although we have recruited a team that has experience with clinical trials, as a company we have no experience in conducting clinical trials. Moreover, we do not have the ability to independently conduct preclinical studies and clinical trials, and we have relied upon, and plan to continue to rely upon medical institutions, clinical investigators, contract laboratories and other third parties, or our CROs, to conduct preclinical studies and future clinical trials for our product candidates. We expect to rely heavily on these parties for execution of preclinical and future clinical trials for our product candidates and control only certain aspects of their activities. Nevertheless, we will be responsible for ensuring that each of our preclinical and clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards and our reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of our preclinical studies and clinical trials, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.
We and our CROs will be required to comply with regulations, including cGCPs for conducting, monitoring, recording and reporting the results of preclinical and clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any drugs in clinical development. The FDA enforces cGCP regulations through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable cGCPs, 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, the FDA will determine that any of our future clinical trials will comply with cGCPs. In addition, our clinical trials must be conducted with product candidates produced in accordance with the requirements in cGMP regulations. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action.
Although we intend to design our planned clinical trials for our product candidates, for the foreseeable future CROs will conduct all of our planned clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct future preclinical studies and clinical trials will also result in less day-to-day control over the management of data developed through preclinical studies and clinical trials than would be the case if we were relying entirely upon our own staff.
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If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any preclinical studies or clinical trials with which such CROs are associated with may be extended, delayed or terminated. In such cases, we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates in the subject indication could be harmed, our costs could increase and our ability to generate revenue could be delayed.
Any product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.
Our product candidates and the activities associated with their development and potential commercialization, including their testing, manufacture, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMPs, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, including periodic inspections by the FDA and other regulatory authorities and requirements regarding the distribution of samples to physicians and recordkeeping.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of any approved product. The FDA closely regulates the post-approval marketing and promotion of drugs and biologics to ensure drugs and biologics are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers communications regarding use of their products. If we promote our product candidates beyond their potentially approved indications, we may be subject to enforcement action for off-label promotion. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our product candidates, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
| restrictions on such product candidates, manufacturers or manufacturing processes; |
| restrictions on the labeling or marketing of a product; |
| restrictions on product distribution or use; |
| requirements to conduct post-marketing studies or clinical trials; |
| warning or untitled letters; |
| withdrawal of any approved product from the market; |
| refusal to approve pending applications or supplements to approved applications that we submit; |
| recall of product candidates; |
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| fines, restitution or disgorgement of profits or revenues; |
| suspension or withdrawal of marketing approvals; |
| refusal to permit the import or export of our product candidates; |
| product seizure; or |
| injunctions or the imposition of civil or criminal penalties. |
Non-compliance with European requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with Europes requirements regarding the protection of personal information can also lead to significant penalties and sanctions.
Our product candidates for which we intend to seek approval may face competition from biosimilars sooner than anticipated.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, 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 reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product is approved under a biologics license application, or BLA. On March 6, 2015, the FDA approved the first biosimilar product under the BPCIA. However, the law 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 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 products.
We believe that if any of our product candidates are approved as a biological product under a BLA it should qualify for the 12-year period of exclusivity. However, there is a risk that the FDA will not consider any of our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Additionally, this period of regulatory exclusivity does not apply to companies pursuing regulatory approval via their own traditional BLA, rather than via the abbreviated pathway. Moreover, 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, and will depend on a number of marketplace and regulatory factors that are still developing. Finally, there has been public discussion of potentially decreasing the period of exclusivity from the current 12 years. If such a change were to be enacted, our product candidates, if approved, could have a shorter period of exclusivity than anticipated.
Our strategy of obtaining rights to key technologies through in-licenses may not be successful.
We seek to expand our product candidate pipeline in part by in-licensing the rights to key technologies, including those related to gene delivery. The future growth of our business will depend in significant part on our ability to in-license or otherwise acquire the rights to additional product candidates or technologies. For example, while we have entered into a license agreement with REGENXBIO Inc., or REGENXBIO, for the treatment of Crigler-Najjar syndrome using AAV8, we may need to enter into a license agreement with another third party to obtain additional intellectual property rights related to the development of AT342. If we are unable to enter into a license with a third party on favorable terms, we may be required to develop certain intellectual property related to AT342 in house, or to delay or suspend our development program. We cannot assure you that we will be able
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to in-license or acquire the rights to any product candidates or technologies from third parties on acceptable terms or at all.
The in-licensing and acquisition of these technologies is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire product candidates or technologies that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to license rights to us. Furthermore, we may be unable to identify suitable product candidates or technologies within our area of focus. If we are unable to successfully obtain rights to suitable product candidates or technologies, our business, financial condition and prospects could suffer.
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.
For example, in March 2010, 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, or the ACA, was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. As implementation of the ACA is ongoing, the law appears likely to continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.
Moreover, the Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed, or what the impact of such changes on our business, if any, may be.
Our operations and relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to penalties including criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with providers, third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any product candidates for which we obtain marketing approval. Restrictions under applicable U.S. federal and state healthcare laws and regulations may include the following:
|
the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the |
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purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid; |
| federal false claims laws, including the federal False Claims Act, imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
| the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| HIPAA, as amended by the Health Information Technology for Economic and Clinical Health, or HITECH, Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, on certain types of people and entities with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
| the federal Physician Payment Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Childrens Health Insurance Program, with specific exceptions, to report payments and other transfers of value to physicians and teaching hospitals, as well as certain ownership and investment interests held by physicians and their immediate family, which includes annual data collection and reporting obligations; and |
| analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. |
Some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of product candidates from government-funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs.
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Risks Related to Manufacturing and Commercialization
Gene therapy products are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in our development or commercialization programs or otherwise harm our business.
The manufacturing processes used to produce our product candidates are complex, novel and have not been validated for commercial use. Several factors could cause production interruptions, including equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of our suppliers.
Our product candidates require processing steps that are more complex than those required for most small molecule drugs. Moreover, unlike small molecules, the physical and chemical properties of a biologic such as ours generally cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that the product is consistent from lot-to-lot or will perform in the intended manner. Accordingly, we employ multiple steps to control the manufacturing process to assure that the process works reproducibly and the product candidate is made strictly and consistently in compliance with the process. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory. We may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet the FDA, the EMA or other applicable standards or specifications with consistent and acceptable production yields and costs.
In addition, the FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects.
We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements.
Any problems in our manufacturing process or facilities could result in delays in our planned clinical trials and increased costs, and could make us a less attractive collaborator for potential partners, including larger biotechnology companies and academic research institutions, which could limit our access to additional attractive development programs. It could also require us to find alternative manufacturing processes, which may be unavailable to us on attractive terms, or at all. Problems in our manufacturing process could restrict our ability to meet potential future market demand for our products.
We may rely on third-party manufacturers to produce some of our product candidates, but we have not entered into binding agreements with any such manufacturers to support commercialization. Additionally, these manufacturers do not have experience producing our product candidates at commercial levels and may not achieve the necessary regulatory approvals or produce our product candidates at the quality, quantities, locations and timing needed to support commercialization.
We have not yet secured manufacturing capabilities for commercial quantities of our product candidates. Although we intend to rely on third-party manufacturers for commercialization of certain of our product candidates if regulatory approval is achieved, we have only entered into agreements with such
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manufacturers to support our clinical studies. We may be unable to negotiate binding agreements with the manufacturers to support our potential commercialization activities at commercially reasonable terms.
Manufacturers may not have the experience or ability to produce our product candidates at commercial levels. We may run into technical or scientific issues related to manufacturing or development that we may be unable to resolve in a timely manner or with available funds. We also have not completed all of the characterization and validation activities necessary for potential commercialization and regulatory approvals. If our manufacturing partners do not conduct all such necessary activities in accordance with applicable regulations, our commercialization efforts will be harmed.
Even if our third-party product manufacturers develop an acceptable manufacturing process, if such third-party manufacturers are unable to produce the necessary quantities of our product candidates, or in compliance with cGMP or other pertinent regulatory requirements, and within our planned timeframe and cost parameters, the development and sales of our products, if approved, may be materially harmed.
We and our collaborators, third-party manufacturers and suppliers use biological materials and may use hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.
We and our collaborators, third-party manufacturers and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. Our operations and the operations of our third-party manufacturers and suppliers also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
Any contamination in our or our third parties manufacturing process, shortages of raw materials or reagents or failure of any of our key suppliers to deliver necessary components of our platform could result in delays in our clinical development or marketing schedules.
Given the nature of biologics manufacturing, there is a risk of contamination. Any contamination could materially adversely affect our or our third-party vendors ability to produce our gene therapies on schedule and could therefore harm our results of operations and cause reputational damage.
The raw materials required in our and our third-party vendors manufacturing processes are derived from biological sources. We cannot assure you that we or our third-party vendors have, or will be able to obtain on commercially reasonable terms, or at all, sufficient rights to these materials derived from biological sources. Such raw materials are difficult to procure and may also be subject to contamination or recall. A material shortage, contamination, recall, or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt the clinical and commercial manufacturing of our product candidates, which could materially and adversely affect our operating results and development timelines.
We rely on third-party suppliers for the supply and manufacture of certain components of our technology. Should our ability to procure these material components from our suppliers be compromised, our ability to continuously operate would be impaired until an alternative supplier is sourced, qualified and tested, which could limit our ability to produce a clinical and commercial supply of our product candidates and harm our business.
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We currently rely on third parties to manufacture our product candidates and we do not have complete control over third-party manufacturers compliance with cGMP regulations.
Before any of our collaborators, third-party manufacturers and suppliers can begin to commercially manufacture our product candidates, they must demonstrate to regulatory authorities that the planned chemistry, manufacturing and controls for our gene therapy product candidates meet certain requirements. Manufacturing of product candidates for clinical and commercial purposes must comply with the cGMP and applicable non-U.S. regulatory requirements. The cGMP requirements govern quality control and documentation policies and procedures. Complying with cGMP and non-U.S. regulatory requirements will require that we expend time, money and effort in production, recordkeeping and quality control to assure that our product candidates meet applicable specifications and other requirements. Our third-party manufacturers also must demonstrate to the FDA that they can make the product candidate in accordance with the cGMP requirements as part of a pre-approval inspection prior to FDA approval of the product candidate. Failure to pass a pre-approval inspection might significantly delay FDA approval of our product candidates. If any of our third-party manufacturers fail to comply with these requirements, we would be subject to possible regulatory action, which could limit the jurisdictions in which we are permitted to sell our products. As a result, our business, financial condition and results of operations may be materially harmed.
In addition, our third-party manufacturers may fail to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.
The commercial success of any of our product candidates will depend upon its degree of market acceptance by physicians, patients, third-party payors and others in the medical community.
Ethical, social and legal concerns about gene therapy could result in additional regulations restricting or prohibiting our products. Even with the requisite approvals from FDA in the United States, the EMA in the European Union and other regulatory authorities internationally, the commercial success of our product candidates will depend, in part, on the acceptance of physicians, patients and health care payors of gene therapy products in general, and our product candidates in particular, as medically necessary, cost-effective and safe. Any product that we commercialize may not gain acceptance by physicians, patients, health care payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of gene therapy products and, in particular, our product candidates, if approved for commercial sale, will depend on several factors, including:
| the efficacy, durability and safety of such product candidates as demonstrated in clinical trials; |
| the potential and perceived advantages of product candidates over alternative treatments; |
| the cost of treatment relative to alternative treatments; |
| the clinical indications for which the product candidate is approved by the FDA or the European Commission; |
| the willingness of physicians to prescribe new therapies; |
| the willingness of the target patient population to try new therapies; |
| the prevalence and severity of any side effects; |
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| product labeling or product insert requirements of the FDA, EMA or other regulatory authorities, including any limitations or warnings contained in a products approved labeling; |
| relative convenience and ease of administration; |
| the strength of marketing and distribution support; |
| the timing of market introduction of competitive products; |
| publicity concerning our products or competing products and treatments; and |
| sufficient third-party payor coverage and adequate reimbursement. |
Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known until after it is launched.
We face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than ours, which may harm our business and financial condition, and our ability to successfully market or commercialize our product candidates.
The biotechnology and pharmaceutical industries, including the gene therapy field, are characterized by rapidly changing technologies, competition and a strong emphasis on intellectual property. We are aware of several companies focused on developing gene therapies in various indications as well as several companies addressing other methods for modifying genes and regulating gene expression. We may also face competition from large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions.
For the treatment of XLMTM, Valerion Therapeutics, LLC is studying VAL-0620, a fusion protein consisting of an antibody linked to MTM1. Preclinical evaluation of this approach in the MTM1 murine model demonstrated improvements in both muscle structure and function, as reported in a 2013 publication. This program has not been reported by Valerion Therapeutics, LLC to have progressed to clinical development.
For the treatment of CN Type 1, the current standard of care is phototherapy, and upon disease progression, liver transplant. There are currently no products approved specifically for the treatment of CN Type 1. Genethon, a French not-for-profit organization, is developing an AAV-UGT1A1 gene therapy for the treatment of Crigler-Najjar syndrome, and has announced plans to initiate clinical development by the end of 2016. Promethera has received orphan drug designation from the FDA and European Commission for the treatment of Crigler-Najjar syndrome for HepaStem, a product that comprises heterologous human adult liver progenitor cells. Promethera previously completed a Phase 1/2 study that enrolled patients with Crigler-Najjar syndrome or ornithine transcarbamylase deficiency. No further development in Crigler-Najjar syndrome has been announced for HepaStem. Additionally, Alexion recently announced that, in collaboration with Moderna, it is developing a messenger RNA product candidate for the treatment of CN Type 1, which it expects to enter the clinic in 2016.
For the treatment of CASQ2-CPVT, nadolol or propranolol are currently used as first-line treatment sometimes with the addition of a calcium channel blocker such as verapamil. The sodium channel blocker flecainide, and implantable cardioverter defibrillators are also currently used in the treatment of CASQ2-CPVT. Heart transplant is used infrequently as a last-line therapy in refractory cases of CPVT. Additionally, there are no known investigational therapies in development for CASQ2-CPVT.
For the treatment of Pompe disease, the current standard of care is ERT with recombinant GAA protein. Genzyme Corporation currently markets MYOZYME and LUMIZYME, which are ERTs for the treatment of
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Pompe disease. Multiple companies, including BioMarin Pharmaceutical, Inc., Genzyme Corporation, Amicus Therapeutics, Inc., Valerion Therapeutics, LLC and Oxyrane UK Limited are currently reported to be developing next generation ERT to treat Pompe disease. The furthest advanced of these are reveglucosidase alfa from BioMarin Pharmaceutical, Inc., an ERT in Phase 3 clinical development, and neoGAA from Genzyme Corporation, which is in clinical development. In addition, there are currently multiple academic institutions and companies researching alternative gene therapy approaches to treating Pompe disease. We do not believe these approaches utilize AAV9 capsids and none are currently reported to be in clinical development.
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and other resources than we do, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any product candidates that we may develop. Competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market, if ever. Additionally, new or advanced technologies developed by our competitors may render our current or future product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
To become and remain profitable, we must develop and eventually commercialize product candidates with significant market potential, which will require us to be successful in a range of challenging activities. These activities can include completing preclinical studies and initiating and completing clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products that are approved and satisfying any post marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.
The pricing, insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate product revenue.
Our target indications, including XLMTM, CN Type 1, CASQ2-CPVT and Pompe disease, are indications with small patient populations. In order for products that are designed to treat smaller patient populations to be commercially viable, the reimbursement for such products must be higher, on a relative basis, to account for the lack of volume. Accordingly, we will need to implement a coverage and reimbursement strategy for any approved product candidate that accounts for the smaller potential market size. If we are unable to establish or sustain coverage and adequate reimbursement for any future product candidates from third-party payors, the adoption of those products and sales revenue will be adversely affected, which, in turn, could adversely affect the ability to market or sell those product candidates, if approved.
We expect the cost of a single administration of gene therapy products, such as those we are developing, to be substantial when and if they achieve regulatory approval. Therefore, we expect that coverage and reimbursement by government and private payors will be essential for most patients to be able to afford these treatments. Accordingly, sales of any of our product candidates will depend substantially, both domestically and internationally, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors. Even if coverage is
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provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new products are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, since CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree. However, one payors determination to provide coverage for a drug product does not assure that other payors will also provide coverage for the drug product. Further, a payors decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. It is difficult to predict what CMS will decide with respect to reimbursement for novel products such as ours since there is no body of established practices and precedents for these new products. Reimbursement agencies in Europe may be more conservative than CMS. For example, a number of cancer drugs have been approved for reimbursement in the United States and have not been approved for reimbursement in certain European countries.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of therapeutics such as our product candidates. In many countries, particularly the countries of the European Union, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In general, the prices of products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our product candidates may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.
Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of certain third-party payors, such as health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market.
In addition to CMS and private payors, professional organizations such as the American Medical Association, or the AMA, can influence decisions about reimbursement for new products by determining standards for care. In addition, many private payors contract with commercial vendors who sell software that provide guidelines that attempt to limit utilization of, and therefore reimbursement for, certain products deemed to provide limited benefit to existing alternatives. Such organizations may set guidelines that limit reimbursement or utilization of our product candidates. Even if favorable coverage and reimbursement status is attained for one or more products for which we or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
If in the future we are unable to establish U.S. or global sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if they are approved and we may not be able to generate any revenue.
We currently do not have a marketing or sales team for the marketing, sales and distribution of any of our product candidates that are able to obtain regulatory approval. In order to commercialize any product
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candidates after approval, we must build on a territory-by-territory basis 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 our product candidates receive regulatory approval, we may decide to establish an internal sales or marketing team with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time-consuming and will require significant attention of our executive officers to manage. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of any of our product candidates that we obtain approval to market.
With respect to the commercialization of all or certain of our product candidates, we may choose to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and 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 when needed on acceptable terms, or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval or any such commercialization may experience delays or limitations. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
We may not be successful in finding strategic collaborators for continuing development of certain of our product candidates or successfully commercializing or competing in the market for certain indications.
In addition to our relationship with Genethon, for some of our product candidates, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. For example, we are in the process of establishing a collaboration with a third party for the research and development of AT342. If we are unable to finalize the collaboration on terms acceptable to us, or at all, or we experience delays in doing so, we will need to find a different third-party collaborator or conduct the research and development internally, which could delay or suspend our planned development of AT342.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborators resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborators evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge
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and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. The terms of any additional collaborations or other arrangements that we may establish may not be favorable to us.
We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
In addition, our collaboration with Genethon and 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. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.
Risks Related to Our Financial Position
We have a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for the foreseeable future. If we fail to obtain additional funding to conduct our planned research and development effort, we could be forced to delay, reduce or eliminate our product development programs or commercial development efforts.
We are an early-stage biotechnology company with a limited operating history on which to base your investment decision. Biotechnology product development is a highly speculative undertaking and involves a substantial degree of risk. Our operations to date have been limited primarily to organizing and staffing our company, business planning, raising capital, acquiring and developing product and technology rights and conducting preclinical research and development activities for our product candidates. We have never generated any revenue from product sales. We have not obtained regulatory approvals for any of our product candidates, and have funded our operations to date through proceeds from sales of our preferred stock.
We have incurred net losses in each year since our inception. We incurred net losses of $3.1 million and $10.8 million for the years ended December 31, 2013 and 2014, respectively, and net losses of $6.7 million and $16.5 million for the nine months ended September 30, 2014 and 2015, respectively. As of September 30, 2015, we had an accumulated deficit of $30.8 million. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses over the
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next several years and for the foreseeable future as we intend to continue to conduct research and development, clinical testing, regulatory compliance activities, manufacturing activities, and, if any of our product candidates is approved, sales and marketing activities that, together with anticipated general and administrative expenses, will likely result in us incurring significant losses for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders deficit and working capital.
Even if this offering is successful, we expect that we will need to raise additional funding before we can expect to become profitable from any potential future sales of our products. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.
We will require substantial future capital in order to complete planned and future preclinical and clinical development for AT132, AT342, AT307, AT982 and other future product candidates, if any, and potentially commercialize these product candidates. We expect our spending levels to increase in connection with our preclinical studies and planned clinical trials, if any, of our lead product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant expenses related to product sales, medical affairs, marketing, manufacturing and distribution. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate certain of our licensing activities, our research and development programs or other operations.
Our operations have consumed significant amounts of cash since inception. As of September 30, 2015, our cash, cash equivalents and investments were $42.8 million. In October 2015, we completed our Series C preferred stock financing and obtained net proceeds of $62.8 million. We estimate that the net proceeds from this offering will be approximately $ million, based on an assumed initial public offering price of $ per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses. We expect that the net proceeds from this offering, together with our existing cash, cash equivalents and investments, will enable us to fund our operating expenses and capital expenditure requirements through at least the next months. See Use of Proceeds for more information.
Our future capital requirements will depend on many factors, including:
| the costs associated with the scope, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates; |
| the costs associated with the development of our internal manufacturing facility and processes; |
| the costs related to the extent to which we enter into partnerships or other arrangements with third parties in order to further develop our product candidates; |
| the costs and fees associated with the discovery, acquisition or in-license of product candidates or technologies; |
| our ability to establish collaborations on favorable terms, if at all; |
| the costs of future commercialization activities, if any, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval; |
| revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; and |
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| the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims. |
Our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product candidates that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives, which may not be available to us on acceptable terms, or at all.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We are a preclinical company formed in November 2012. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring our technology, identifying potential product candidates and undertaking research and preclinical studies of our product candidates and establishing licensing arrangements. We have not yet demonstrated the ability to complete and report preclinical or clinical trials of our product candidates, obtain marketing approvals, manufacture a commercial scale product or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a licensing and research focus to a company that is also capable of supporting clinical development and commercial activities. We may not be successful in such a transition.
Our ability to utilize our net operating loss carryforwards may be subject to limitation.
We have incurred substantial losses during our history and do not expect to become profitable in the near future and we may never achieve profitability. As of December 31, 2014, we had federal and state net operating loss carryforwards of $11.7 million and $11.8 million, respectively, both of which begin to expire in 2033. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an ownership change, generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporations ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Risks Related to Intellectual Property
If we are unable to obtain and maintain patent protection for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected.
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 our current product candidates and future
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products, as well as our core technologies, including our manufacturing know-how. We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to the development of our business by seeking, maintaining and defending our intellectual property, whether developed internally or licensed from third parties. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of gene therapy. Additionally, we intend to rely on regulatory protection afforded through rare drug designations, data exclusivity and market exclusivity as well as patent term extensions, where available.
Our in-licensed patents and patent applications are directed to the compositions of matter and methods of use related to various aspects of our product candidates as well as certain aspects of our manufacturing capabilities. As of December 1, 2015, we had filed one U.S. provisional patent application directed to modified AAV vectors and methods of manufacturing the same. If granted, we expect this patent would expire in 2036. We have in-licensed patents and patent applications owned by the Trustees of the University of Pennsylvania, or the University of Pennsylvania, relating to various AAV vectors. These patents and patent applications are licensed or sublicensed to REGENXBIO and sublicensed to us. Our first sublicense is exclusive in the field of treatment of XLMTM and Pompe disease in humans by in vivo gene therapy using AAV8 and AAV9. Our second sublicense is exclusive in the field of treatment of CPVT in humans by in vivo gene therapy using AAV9. Our third sublicense is exclusive in the field of treatment of Crigler-Najjar syndrome in humans by in vivo gene therapy using AAV8. These sublicenses are subject to certain retained rights. We have also in-licensed a patent family owned by the Fondazione Salvatore Maugeri, or FSM, relating to gene therapy of recessive CPVT. We have also in-licensed certain patents, rights and know-how from the University of Florida Research Foundation for the treatment of Pompe, and certain intellectual property rights controlled by Genethon for the treatment of XLMTM. As described in BusinessIntellectual Property, the REGENXBIO patents will expire between 2022 and 2026, the FSM patents will expire by 2032 and the Genethon patent family will expire by 2034 absent patent term adjustment or patent term extension. The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation.
The degree of patent protection we require to successfully compete in the marketplace may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We cannot provide any assurances that any of our licensed patents have, or that any of our pending licensed patent applications that mature into issued patents will include, claims with a scope sufficient to protect our current and future product candidates or otherwise provide any competitive advantage. The FSM and Genethon patent families were filed only in the United States, and therefore these patent families will not provide patent protection outside the United States. While other patent families include foreign counterparts, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. In addition, none of the patent applications licensed from the University of Florida Research Foundation relating to gene therapy for Pompe disease have matured into issued patents in 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 product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. If any of our AT132, AT342, AT307 or AT982 product candidates are approved by the FDA as a biological product under a BLA in the United States, we believe the product would qualify for a 12-year period of exclusivity. For example, if our AT307 product was approved by the FDA as a biological product under a BLA in 2020, we believe it would qualify for a 12-year period of exclusivity, which would expire in 2032, the same year the FSM patent family will expire in the United States absent patent term adjustment or patent term extension. Similarly, if our AT132 product was approved by the FDA as a biological product under a BLA in 2020, we believe it would qualify for a 12-year period of exclusivity, which would expire in 2031, or three years before the Genethon patent family will expire in the United States absent patent term adjustment or patent term extension. Moreover, our exclusive license is subject to retained rights, which may adversely impact our competitive position. As a result, our licensed patent portfolio may not provide us with adequate and continuing
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patent protection sufficient to exclude others from commercializing products similar to our product candidates, including biosimilar versions of such products. In addition, the patent portfolio licensed to us is, or may be, licensed to third parties, such as outside our field, and such third parties may have certain enforcement rights. Thus, patents licensed to us could be put at risk of being invalidated or interpreted narrowly in litigation filed by or against another licensee or in administrative proceedings brought by or against another licensee in response to such litigation or for other reasons.
Other parties have developed technologies that may be related or competitive to our own and such parties may have filed or may file patent applications, or may have received or may receive patents, claiming inventions that may overlap or conflict with those claimed in our own patent applications or issued patents. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and in other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether the inventors of our licensed patents and applications were the first to make the inventions claimed in those patents or pending patent applications, or that they were the first to file for patent protection of such inventions. Further, we cannot assure you that all of the potentially relevant prior art relating to our licensed patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent a patent from issuing from a pending patent application. As a result, the issuance, scope, validity and commercial value of our patent rights cannot be predicted with any certainty.
In addition, the patent prosecution process is expensive and time-consuming, and we or our licensors 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 or our licensors will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We cannot provide any assurances that we will be able to pursue or obtain additional patent protection based on our research and development efforts, or that any such patents or other intellectual property we generate will provide any competitive advantage. Patent prosecution is a lengthy process and the scope of the claims initially submitted for examination may be significantly narrowed by the time they issue, if at all. Moreover, we do not have the right to control the preparation, filing and prosecution of patent applications, or to control the maintenance of the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be filed, prosecuted or maintained in a manner consistent with the best interests of our business.
Even if we acquire patent protection that we expect should enable us to maintain competitive advantage, third parties, including competitors, may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. In litigation, a competitor could claim that our patents, if issued, are not valid for a number of reasons. If a court agrees, we would lose our rights to those challenged patents.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and our licensed patents may be challenged in courts or patent offices in the United States and abroad. For example, we may be subject to a third-party submission of prior art to the U.S. Patent and Trademark Office, or USPTO, challenging the validity of one or more claims of our licensed patents. Such submissions may also be made prior to a patents issuance, precluding the granting of a patent based on one of our pending licensed patent applications. We may become involved in opposition, derivation, reexamination, inter partes review, post-grant review, interference, or similar proceedings in the United States or abroad, challenging the patent rights of others from whom we have obtained licenses to such rights. Furthermore, our licensed patents may be challenged in district court. Competitors may claim that they invented the inventions claimed in such issued patents or patent applications prior to the inventors of our licensed patents, or may have filed patent applications before the inventors of our licensed patents did. A competitor may also claim that we are infringing its patents and that we therefore cannot practice our technology as claimed under our licensed patents, if issued. As a result, one or more claims of our licensed patents may be narrowed or invalidated.
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Even if they are unchallenged, our licensed patents and pending patent applications, if issued, may not provide us with any meaningful protection or prevent competitors from designing around our patent claims to circumvent our licensed patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. For example, even if we have a valid and enforceable patent, we may not be able to exclude others from practicing our invention if the other party can show that they used the invention in commerce before our filing date or the other party benefits from a compulsory license. Moreover, a third party may develop a competitive product that provides benefits similar to one or more of our product candidates but that uses a vector or an expression construct that falls outside the scope of our patent protection or license rights. If the patent protection provided by the patents and patent applications we hold or pursue with respect to 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. Although currently all of our patents and patent applications are in-licensed, similar risks would apply to any patents or patent applications that we may own or in-license in the future.
If we breach our license agreements it could have a material adverse effect on our commercialization efforts for our product candidates.
If we breach any of the agreements under which we license the use, development and commercialization rights to our product candidates or technology from third parties, we could lose license rights that are important to our business. We currently hold licenses or other rights for certain intellectual property from REGENXBIO relating to various AAV vectors, from the Fondazione Salvatore Maugeri relating to various nucleic acid sequences associated with single mutation arrhythmias related to CASQ2-CPVT, from Genethon related to XLMTM and from the University of Florida Research Foundation relating to Pompe disease.
Under our existing license agreements, we are subject to various obligations, including diligence obligations such as development and commercialization obligations, as well as potential royalty payments and other obligations. If we fail to comply with any of these obligations or otherwise breach our license agreements, our licensors may have the right to terminate the applicable license in whole or in part. Generally, the loss of any one of our current licenses, or any other license we may acquire in the future, could harm our business, prospects, financial condition and results of operations.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:
| the scope of rights granted under the license agreement and other interpretation-related issues; |
| whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; |
| our right to sublicense patent and other intellectual property rights to third parties under collaborative development relationships; |
| our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; |
| the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and |
| whether and the extent to which inventors are able to contest the assignment of their rights to our licensors. |
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If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. In addition, if disputes arise as to ownership of licensed intellectual property, our ability to pursue or enforce the licensed patent rights may be jeopardized. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer.
All of our current product candidates are licensed from or based upon licenses from third parties. If any of these license or sublicense agreements are terminated or interpreted to narrow our rights, our ability to advance our current product candidates or develop new product candidates based on these technologies will be materially adversely affected.
We now depend, and will continue to depend, on licenses and sublicenses from third parties and potentially on other strategic relationships with third parties for the research, development, manufacturing and commercialization of our current product candidates. If any of our licenses or relationships or any in-licenses on which our licenses are based are terminated or breached, we may:
| lose our rights to develop and market our current product candidates; |
| lose patent or trade secret protection for our current product candidates; |
| experience significant delays in the development or commercialization of our current product candidates; |
| not be able to obtain any other licenses on acceptable terms, if at all; or |
| incur liability for damages. |
Additionally, even if not terminated or breached, our intellectual property licenses or sublicenses may be subject to disagreements over contract interpretation which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations.
If we experience any of the foregoing, it could have a materially adverse effect on our business and could force us to cease operations which could cause you to lose all of your investment.
We are required to pay certain royalties under our license agreements with third-party licensors, and we must meet certain milestones to maintain our license rights.
Under our license agreements with REGENXBIO, University of Florida and FSM we will be required to pay royalties based on our net revenues from sales of our products utilizing the technologies and products. These royalty payments could adversely affect the overall profitability for us of any products that we may seek to commercialize. In order to maintain our license rights under these license agreements, we will need to meet certain specified milestones, subject to certain cure provisions, in the development of our product candidates and in the raising of funding. In addition, these agreements contain development obligations and we may not be successful in meeting all of the obligations in the future on a timely basis or at all. We may need to outsource and rely on third parties for many aspects of the clinical development, sales and marketing of our products covered under our license agreements. Delay or failure by any such third parties could adversely affect the continuation of our license agreements with third-party licensors. For example, our Exclusive License Agreement with Know-How with the University of Florida Research Foundation provides that the University of Florida Research Foundation has the right to terminate the agreement if we do not meet certain deadlines, such as submitting an IND or foreign equivalent in any country by June 30, 2016 or dosing the first patient in clinical trials in any country by December 31, 2016.
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Third parties may initiate legal proceedings alleging claims of intellectual property infringement, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and future products and use our proprietary technologies without infringing 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. We may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates, future products and technology, including interference or inter partes review proceedings before the USPTO. Our competitors or other third parties may assert infringement or misappropriation claims against us, alleging that our therapeutics, manufacturing methods, formulations or administration methods are covered by their patents. For example, we do not know which processes we will use for commercial manufacture of our future products, or which technologies owned or controlled by third parties may prove important or essential to those processes. Given the vast number of patents in our field of technology, we cannot be certain or guarantee that we do not infringe existing patents or that we will not infringe patents that may be granted in the future. Many companies have filed, and continue to file, patent applications related to gene therapy and orphan diseases. Some of these patent applications have already been allowed or issued and others may issue in the future. Since this area is competitive and of strong interest to pharmaceutical and biotechnology companies, there will likely be additional patent applications filed and additional patents granted in the future, as well as additional research and development programs expected in the future. Furthermore, because patent applications can take many years to issue, may be confidential for 18 months or more after filing and can be revised before issuance, there may be applications now pending which may later result in issued patents that may be infringed by the manufacture, use, sale or importation of our product candidates or future products. If a patent holder believes the manufacture, use, sale or importation of one of our product candidates or future products infringes its patent, the patent holder may sue us even if we have licensed other patent protection for our technology. Moreover, we may face patent infringement claims from non-practicing entities that have no relevant product revenue and against whom our licensed patent portfolio may therefore have no deterrent effect.
It is also possible that we have failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Moreover, it is difficult for industry participants, including us, to identify all third-party patent rights that may be relevant to our product candidates and technologies because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We may fail to identify relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the likelihood that such patent applications may issue with claims of relevance to our technology. In addition, we may be unaware of one or more issued patents that would be infringed by the manufacture, sale, importation or use of a current or future product candidate, or we may incorrectly conclude that a third-party patent is invalid, unenforceable or not infringed by our activities. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our future products or the manufacture or use of our future products.
Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future. If we were to challenge the validity of an issued U.S. patent in court, such as an issued U.S. patent of potential relevance to some of our product candidates or future products or manufacture or methods of use, we would need to overcome a statutory presumption of validity that attaches to every U.S. patent. This means that in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patents claims. There is no assurance that a court would find in our favor on questions of infringement or validity.
Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. If we are found, or believe there is a risk we may be found, to infringe a third
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partys intellectual property rights, we could be required or may choose to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any such license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. Without such a license, we could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our future products or force us to cease some of our business operations, which could materially harm our business. Alternatively, we may need to redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. If we lose a foreign patent lawsuit, alleging our infringement of a competitors patents, we could be prevented from marketing our therapeutics in one or more foreign countries and/or be required to pay monetary damages for infringement or royalties in order to continue marketing. Claims that we have misappropriated the confidential information, trade secrets or other intellectual property of third parties could have a similar negative impact on our business. Any of these outcomes would have a materially adverse effect on our business.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court, or redesign our future products or processes. Patent litigation is costly and time-consuming, and some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. We may not have sufficient resources to bring these actions to a successful conclusion. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and limit our ability to continue our operations.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position may be harmed.
In addition to the protection afforded by patents, we rely upon unpatented trade secret protection, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our contractors, collaborators, scientific advisors, employees and consultants and invention assignment agreements with our consultants and employees. We may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements, however, despite the existence generally of confidentiality agreements and other contractual restrictions. 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. If any of the contractors, collaborators, scientific advisors, employees and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation. As a result, we could lose our trade secrets. 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. In addition, courts outside the United States are sometimes less willing or unwilling to protect trade secrets.
Our trade secrets could otherwise become known or be independently discovered by our competitors. Competitors could purchase our product candidates 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, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If our trade secrets are not adequately protected or sufficient to provide an advantage over our competitors, our competitive position could be adversely affected, as could our
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business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets.
Obtaining and maintaining 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 governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. 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 or our licensors fail to maintain the patents and patent applications covering our product candidates, we may not be able to stop a competitor from marketing drugs that are the same as or similar to our product candidates, which would have a material adverse effect on our business.
Some intellectual property that we have in-licensed may have been discovered through government funded programs and thus may be subject to federal regulations such as march-in rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.
Many of the intellectual property rights we have licensed are generated through the use of U.S. government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as march-in rights). The U.S. government also has the right to take title to these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us or the applicable licensor to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States
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can be less extensive than those in the United States. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Further, licensing partners may not prosecute patents in certain jurisdictions in which we may obtain commercial rights, thereby precluding the possibility of later obtaining patent protection in these countries. For example, the FSM and Genethon patent families were only filed in the United States, and therefore these patent families will not provide patent protection outside the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patents claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy.
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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 litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity and is therefore 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 in September 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 in March 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 inventions and increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business, results of operations and financial condition.
The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. For example, in Association for Molecular Pathology v. Myriad Genetics, Inc., the Supreme Court ruled that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, and invalidated Myriad Geneticss patents on the BRCA1 and BRCA2 genes. Certain claims of our licensed patents relate to isolated AAV vectors, capsid proteins, or nucleic acids. To the extent that such claims are deemed to be directed to natural products, or to lack an inventive concept above and beyond an isolated natural product, a court may decide the claims are invalid under Myriad. Additionally, there have been recent proposals for additional changes to the patent laws of the United States and other countries that, if adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce our proprietary technology. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Many of our employees, consultants or advisors, and the employees, consultants or advisors of our licensors, are currently, or were previously, employed at or affiliated with universities, hospitals or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed
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intellectual property, including trade secrets or other proprietary information, of any such individuals current or former employer. Moreover, some of our and our licensors employees, consultants or advisors are or have been affiliated with multiple institutions. There is not guarantee that such institutions will not challenge our or our licensors intellectual property ownership rights. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property.
Risks Related to Employee Matters, Managing Growth and Other Risks Related to Our Business
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2015, we had 42 full-time employees. As our development, manufacturing and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need and are actively recruiting additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:
| identifying, recruiting, integrating, maintaining and motivating additional employees; |
| managing our internal development efforts effectively, including the clinical, FDA and international regulatory review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and |
| improving our operational, financial and management controls, reporting systems and procedures. |
Our future financial performance and our ability to develop, manufacture and commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert financial and other resources, and a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time, to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of regulatory approval, clinical management and manufacturing. We cannot assure you that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. We cannot assure you that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.
If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to
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further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on the research and development, clinical and business development expertise of Matthew Patterson, our President and Chief Executive Officer, Dr. Suyash Prasad, our Chief Medical Officer, Natalie Holles, our Chief Operating Officer, and Thomas Soloway, our Chief Financial Officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment letter agreements or employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain key person insurance for any of our executives or other employees. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and manufacturing strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. In addition, certain members of our senior management team, including our Chief Operating Officer and our Chief Financial Officer, who joined us in September of 2015, have worked together for only a relatively short period of time and it may be difficult to evaluate their effectiveness, on an individual or collective basis, and ability to address future challenges to our business. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
Recruiting and retaining qualified scientific, clinical, manufacturing and, if needed, sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize drugs. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.
If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. In connection with this offering, we intend to begin the process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which will require annual management assessment of the effectiveness of our internal control over financial reporting beginning with the year ended December 31, 2016.
During the audit of our financial statements for the years ended December 31, 2013 and 2014, a material weakness was identified in our internal control over financial reporting. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
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The material weakness that was identified related to a lack of sufficient accounting resources and personnel that limits our ability to adequately segregate duties, establish defined accounting policies and procedures and perform timely reviews of account reconciliations.
We are implementing measures designed to improve our internal control over financial reporting to address the underlying causes of this material weakness, including the hiring of our Chief Financial Officer and other accounting personnel and establishing new accounting and financial reporting procedures, policies and processes to have in place an appropriate level of internal control over financial reporting. However, we are still in the process of implementing these measures and cannot assure you that we will be successful in doing so or that these measures will significantly improve or remediate the material weakness described above. We, and our independent registered public accounting firm, were not required to perform an evaluation of our internal control over financial reporting as of December 31, 2014 in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required by reporting requirements under Section 404 of the Sarbanes-Oxley Act after the completion of this offering. If we are unable to successfully remediate the existing material weakness in our internal control over financial reporting, the accuracy and timing of our financial reporting, and our stock price, may be adversely affected and we may be unable to maintain compliance with the Nasdaq Stock Market listing requirements.
Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our service to new and existing customers.
We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives.
As a public company, particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the Securities and Exchange Commission and The NASDAQ Stock Market LLC, or NASDAQ, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed
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timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year in which we have total annual gross revenue of $1 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
| not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002; |
| not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements; |
| being permitted to present only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced Managements Discussion and Analysis of Financial Condition and Results of Operations disclosure in this prospectus; |
| reduced disclosure obligations regarding executive compensation; and |
| exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this prospectus. In particular, we have provided only two years of audited financial statements and have not included all of the executive compensation information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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Recent and future acquisitions or strategic alliances could disrupt our business and harm our financial condition and operating results.
We may acquire additional businesses or drugs, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business, including, for example our August 2015 acquisition of Cardiogen Sciences, Inc., or Cardiogen. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new drugs resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction. The risks we face in connection with acquisitions, including our recent acquisition of Cardiogen, include:
| diversion of management time and focus from operating our business to addressing acquisition integration challenges; |
| coordination of research and development efforts; |
| retention of key employees from the acquired company; |
| changes in relationships with strategic partners as a result of product acquisitions or strategic positioning resulting from the acquisition; |
| cultural challenges associated with integrating employees from the acquired company into our organization; |
| the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked sufficiently effective controls, procedures and policies; |
| liability for activities of the acquired company before the acquisition, including intellectual property infringement claims, violation of laws, commercial disputes, tax liabilities, and other known liabilities; |
| unanticipated write-offs or charges; and |
| litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders or other third parties. |
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions or strategic alliances could cause us to fail to realize the anticipated benefits of these transactions, cause us to incur unanticipated liabilities and harm the business generally. There is also a risk that future acquisitions will result in the incurrence of debt, contingent liabilities, amortization expenses or incremental operating expenses, any of which could harm our financial condition or operating results.
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. For example, the global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the global financial crisis, could result in a variety of risks to our business, including, weakened demand for our product candidates and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could
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also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm 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.
We or the third parties upon whom we depend may be adversely affected by natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial condition and prospects. 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 manufacturing facilities, 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 may prove inadequate 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 could have a material adverse effect on our business.
Our internal computer systems, or those of our third-party collaborators or other contractors, may fail or suffer security breaches, which could result in a material disruption of our development programs.
Our internal computer systems and those of our current and any future collaborators and other contractors or 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 material 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 development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. 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, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.
Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We intend to adopt a code of conduct applicable to all of our employees upon the completion of this offering, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
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Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any product candidates that we may develop.
We will face an inherent risk of product liability exposure related to the testing of our product candidates in clinical trials and will face an even greater risk if we commercialize any of our product candidates. If we cannot successfully defend ourselves against claims that our product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| decreased demand for any product candidates that we may develop; |
| injury to our reputation and significant negative media attention; |
| withdrawal of clinical trial participants; |
| significant time and costs to defend the related litigation; |
| substantial monetary awards to trial participants or patients; |
| loss of revenue; and |
| the inability to commercialize any product candidates that we may develop. |
We currently maintain product liability insurance coverage of up to $5.0 million, which may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage when we begin clinical trials and if we successfully commercialize any product candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations which can harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Departments Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other partners from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties for clinical trials outside of the United States, to sell our products abroad once we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.
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Risks Related to Our Common Stock and This Offering
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.
Our stock price is likely to be volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:
| the success of competitive drugs or technologies; |
| results of preclinical studies or clinical trials of our product candidates or those of our competitors; |
| unanticipated or serious safety concerns related to the use of any of our product candidates; |
| adverse regulatory decisions, including failure to receive regulatory approval for any of our product candidates; |
| regulatory or legal developments in the United States and other countries; |
| the size and growth of our prospective patient populations; |
| developments concerning our collaborators, our external manufacturers or in-house manufacturing capabilities; |
| inability to obtain adequate product supply for any product candidate for preclinical studies, clinical trials or future commercial sale or inability to do so at acceptable prices; |
| developments or disputes concerning patent applications, issued patents or other proprietary rights; |
| the recruitment or departure of key personnel; |
| the level of expenses related to any of our product candidates or clinical development programs; |
| the results of our efforts to discover, develop, acquire or in-license additional product candidates or drugs; |
| actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; |
| variations in our financial results or those of companies that are perceived to be similar to us; |
| changes in the structure of healthcare payment systems; |
| market conditions in the biotechnology sector; |
| general economic, industry and market conditions; and |
| the other factors described in this Risk Factors section. |
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An active trading market for our common stock may not develop and you may not be able to resell your shares at or above the initial public offering price.
Prior to this offering, there has been no public market for shares of our common stock. Although we have applied to list our common stock on NASDAQ, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our common stock will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after this offering. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial public offering price or at the time that they would like to sell.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
Our executive officers, directors, principal stockholders and their affiliates will continue to exercise significant influence over our company after this offering, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.
As of December 31, 2015, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 76% of our capital stock and, upon the closing of this offering, that same group will hold approximately % of our outstanding capital stock (assuming no exercise of the underwriters option to purchase additional shares, no exercise of outstanding options and no purchases of shares in this offering by any members of this group), in each case assuming the conversion of all outstanding shares of our convertible preferred stock into shares of our common stock immediately prior to the completion of this offering.
After this offering, this group of stockholders will have the ability to control us through this ownership position even if they do not purchase any additional shares in this offering. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting our planned clinical trials, manufacturing and commercialization efforts, expanded research and development activities and costs associated with operating as a public company. To raise
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capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have shares of common stock outstanding based on the number of shares outstanding as of . This includes the shares that we sell in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Of the remaining shares, shares of our common stock will be subject to lock-up agreements with the underwriters of this offering and market standoff agreements that restrict the stockholders ability to transfer shares of our common stock for 180 days from the date of this prospectus. Moreover, after this offering, holders of an aggregate of shares of our common stock will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity incentive plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the Underwriting section of this prospectus.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will be limited to the appreciation of stock. Therefore, the success of an investment in shares of our common stock will depend upon any future appreciation in value of the stock. We cannot guarantee you that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.
Our management will have broad discretion to use the net proceeds from this offering, including for any of the purposes described in the section entitled Use of Proceeds, and you will be relying on the judgment of our management regarding the application of these proceeds. You will not have the opportunity to influence our decisions on how to use the proceeds, and we may not apply the net proceeds of this offering in ways that increase the value of your investment. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. We expect to use the net proceeds from this offering to advance preclinical and clinical development of AT132, AT342, AT307 and AT982; to develop and expand our proprietary manufacturing capabilities and invest in a cGMP facility; and for general corporate purposes, including working capital. We may also use a portion of the proceeds for the acquisition of, or investment in, technologies, intellectual property or businesses that complement our business, although we have no present commitments or agreements to this effect. The failure by our management to apply these funds effectively could harm our business. Pending their use, we intend to invest the net proceeds from this offering in marketable securities that may include investment-grade interest-bearing securities, money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.
You will suffer immediate and substantial dilution in the net tangible book value of our common stock you purchase in this offering. Assuming an initial public offering price of $ per share, the midpoint of the
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estimated offering price range set forth on the cover page of this prospectus, purchasers of common stock in this offering will experience immediate dilution of $ per share in net tangible book value of our common stock. In the past, we issued options and other securities to acquire common stock at prices below the initial public offering price. To the extent these outstanding securities are ultimately exercised, investors purchasing common stock in this offering will sustain further dilution. See Dilution for a more detailed description of the dilution to new investors in the offering.
Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our amended and restated certificate of incorporation that will become effective prior to the completion of this offering will provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein and the claim not being one which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery or for which the Court of Chancery does not have subject matter jurisdiction. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and restated certificate of incorporation. This choice of forum provision may limit our stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents even though an action, if successful, might benefit our stockholders. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find this provision of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on our business, financial condition or results of operations.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and our bylaws that will become effective upon the completion of this offering may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
| establish a classified board of directors so that not all members of our board are elected at one time; |
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| permit only the board of directors to establish the number of directors and fill vacancies on the board; |
| provide that directors may only be removed for cause and only with the approval of two-thirds of our stockholders; |
| require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws; |
| authorize the issuance of blank check preferred stock that our board could use to implement a stockholder rights plan, also known as a poison pill; |
| eliminate the ability of our stockholders to call special meetings of stockholders; |
| prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; |
| prohibit cumulative voting; and |
| establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. |
Moreover, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Any of these provisions of our charter documents or Delaware law could, under certain circumstances, depress the market price of our common stock. See the section entitled Description of Capital Stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled Prospectus Summary, Risk Factors, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Business contains forward-looking statements. Forward-looking statements include all statements that are not historical facts and can be identified by the words believe, may, will, potentially, estimate, continue, anticipate, intend, could, would, project, plan, expect, and similar expressions that convey uncertainty of future events or outcomes.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Risk Factors and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law.
You should read this prospectus, and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part, with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from various sources, including independent industry publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and our experience to date in, the potential markets for our product candidates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled Risk Factors. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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We estimate that the net proceeds from our sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $ million. If the underwriters option to purchase additional shares is exercised in full, we estimate that we will receive additional net proceeds of $ million.
A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered by us remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions.
We currently intend to use the net proceeds from this offering for the following purposes:
| approximately $ million to advance AT132 for the treatment of XLMTM through preliminary results from a Phase 1/2 clinical trial; |
| approximately $ million to advance AT342 for the treatment of CN Type 1 through preliminary results from a Phase 1/2 clinical trial; |
| approximately $ million to advance preclinical development of AT307 for the treatment of CASQ2-CPVT through submission of an IND or CTA in 2017; |
| approximately $ million to advance preclinical development of AT982 for the treatment of Pompe disease through submission of an IND or CTA in 2017; |
| approximately $ million to develop and expand our proprietary manufacturing capabilities and invest in a cGMP facility; and |
| the remainder for working capital and other general corporate purposes, which will include funding for the hiring of additional personnel, capital expenditures and the costs of operating as a public company. |
We estimate that our current cash, cash equivalents and investments, along with the net proceeds from this offering, will be sufficient for us to fund our operating expenses and capital expenditure requirements through at least the next months.
The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with any certainty all of the particular uses for the net proceeds or the amounts that we will actually spend on the uses set forth above. We may use a portion of the net proceeds for the acquisition of, or investment in, technologies, intellectual property or businesses that complement our business, although we have no present commitments or agreements to this effect.
The amounts and timing of our future expenditures and the extent of product candidate development may vary significantly depending on numerous factors, including the status, results and timing of our current preclinical studies and clinical trials we may commence in the future, product approval process with the FDA and other regulatory agencies, our current collaborations and any new collaborations we may enter into with third parties and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
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The expected net proceeds of this offering will not be sufficient for us to fund any of our product candidates through regulatory approval, and we will need to raise substantial additional capital to complete the development and commercialization of our product candidates.
Pending their use as described above, we intend to invest the net proceeds from this offering in marketable securities that may include investment-grade interest-bearing securities, money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.
We have never declared or paid cash dividends on our capital stock. We do not expect to pay dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our earnings, if any, will be used for the operation and growth of our business. Any future determination to declare cash dividends would be subject to the discretion of our board of directors and would depend upon various factors, including our results of operations, financial condition and capital requirements, restrictions that may be imposed by applicable law and our contracts and other factors deemed relevant by our board of directors.
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The following table sets forth our cash, cash equivalents and investments and capitalization as of September 30, 2015 on:
| an actual basis; |
| a pro forma basis to reflect (i) the sale and issuance of 9,645,913 shares of our Series C convertible preferred stock in an October 2015 private placement, (ii) the automatic conversion of shares of our convertible preferred stock outstanding as of September 30, 2015 and our Series C convertible preferred stock issued in October 2015 into 30,816,155 shares of our common stock effective immediately prior to the completion of this offering and (iii) the effectiveness of our restated certificate of incorporation as of immediately prior to the completion of this offering; and |
| a pro forma as adjusted basis to reflect (i) the pro forma adjustments set forth above and (ii) the sale and issuance of shares of our common stock in this offering, at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. |
The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.
You should read this table together with the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
As of September 30, 2015 | ||||||||||||
Actual | Pro Forma |
Pro Forma
As Adjusted (1) |
||||||||||
(in thousands, except share and per share amounts) (unaudited) |
||||||||||||
Cash, cash equivalents and investments (2) |
$ | 42,811 | $ | $ | ||||||||
|
|
|
|
|
|
|||||||
Stockholders equity: |
||||||||||||
Convertible preferred stock, $0.00001 par value: 21,204,783 shares authorized, 21,170,242 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted |
$ | 72,970 | $ | | $ | | ||||||
Preferred stock, $0.00001 par value: no shares authorized, issued and outstanding, actual; shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted |
| |||||||||||
Common stock, $0.00001 par value: 30,000,000 shares authorized, 4,650,354 shares issued and outstanding, actual; shares authorized, 35,466,509 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted |
| |||||||||||
Additional paid-in capital |
5,833 | |||||||||||
Accumulated deficit |
(30,784 | ) | ||||||||||
Accumulated other comprehensive loss |
(5 | ) | ||||||||||
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|
|
|
|
|
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Total stockholders equity |
48,014 | |||||||||||
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|
|
|
|
|
|||||||
Total capitalization |
$ | 48,014 | $ | $ | ||||||||
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|
|
|
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(1) | A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) each of cash, cash equivalents and investments, additional paid-in capital, total stockholders equity and total capitalization by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered would increase (decrease), cash, cash equivalents and investments, additional paid-in capital, total stockholders equity and total capitalization by approximately $ million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions. |
(2) | Includes $1.7 million of investments classified as long-term. |
The table above excludes the following shares:
| 2,958,675 shares of our common stock issuable upon the exercise of outstanding options as of September 30, 2015, with a weighted-average exercise price of approximately $0.65 per share; |
| 2,359,064 shares of our common stock issuable upon the exercise of outstanding options granted after September 30, 2015, with a weighted-average exercise price of $2.74 per share; and |
| shares of common stock reserved for future issuance under our stock-based compensation plans as of September 30, 2015, consisting of (i) 900,374 shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan as of September 30, 2015, (ii) 3,000,000 additional shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan in October 2015, (iii) shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus and (iv) shares of common stock reserved for future issuance under our 2016 Employee Stock Purchase Plan, which will become effective on the date of this prospectus. |
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If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.
As of September 30, 2015, our pro forma net tangible book value was approximately $ million, or $ per share of common stock. Pro forma net tangible book value per share represents the amount of our tangible assets less our liabilities divided by the total number of shares of our common stock outstanding as of September 30, 2015, after giving effect to (i) the sale and issuance of 9,645,913 shares of our Series C convertible preferred stock in an October 2015 private placement and (ii) the automatic conversion of shares of our convertible preferred stock outstanding as of September 30, 2015 and our Series C convertible preferred stock issued in the October 2015 private placement into 30,816,155 shares of our common stock effective immediately prior to the completion of this offering.
After giving effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance of shares of our common stock at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of September 30, 2015 would have been approximately $ million, or $ per share of our common stock. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to investors purchasing shares in this offering, as follows:
Assumed initial public offering price per share |
$ | |||||||
Pro forma net tangible book value per share as of September 30, 2015 |
$ | |||||||
Increase in pro forma net tangible book value per share attributable to new investors in this offering |
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Pro forma as adjusted net tangible book value per share after this offering |
||||||||
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Dilution in net tangible book value per share to investors in this offering |
$ | |||||||
|
|
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered would increase (decrease) the dilution to new investors by $ per share or $ per share, respectively, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions.
If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $ per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $ per share.
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The following table summarizes, on a pro forma as adjusted basis as of September 30, 2015, the differences between the number of shares of common stock purchased from us, the total cash consideration and the average price per share paid to us by existing stockholders and by new investors purchasing shares in this offering, at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses:
Shares Purchased | Total Consideration |
Average
Price Per Share |
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Number | Percent | Amount | Percent | |||||||||||||||
Existing stockholders |
% | $ | % | $ | ||||||||||||||
New public investors |
$ | |||||||||||||||||
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|
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Total |
100 | % | $ | 100 | % | |||||||||||||
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|
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share of our common stock, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and before deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered would increase (decrease) the total consideration paid by new investors by $ million, assuming the assumed initial public offering price remains the same and before deducting the estimated underwriting discounts and commissions and estimated offering expenses.
If the underwriters exercise their option to purchase additional shares in full, the number of shares of common stock held by existing stockholders will be reduced to % of the total number of shares of common stock to be outstanding after this offering, and the number of shares of common stock held by investors participating in this offering will be further increased to % of the total number of shares of common stock to be outstanding after this offering.
The number of shares of our common stock to be outstanding after this offering excludes:
| 2,958,675 shares of our common stock issuable upon the exercise of outstanding options as of September 30, 2015, with a weighted-average exercise price of approximately $0.65 per share; |
| 2,359,064 shares of our common stock issuable upon the exercise of outstanding options granted after September 30, 2015, with a weighted-average exercise price of $2.74 per share; and |
| shares of common stock reserved for future issuance under our stock-based compensation plans as of September 30, 2015, consisting of (i) 900,374 shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan as of September 30, 2015, (ii) 3,000,000 additional shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan in October 2015, (iii) shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus and (iv) shares of common stock reserved for future issuance under our 2016 Employee Stock Purchase Plan, which will become effective on the date of this prospectus. |
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SELECTED CONSOLIDATED FINANCIAL DATA
We derived our selected statements of operations data for the years ended December 31, 2013 and 2014 and the balance sheet data as of December 31, 2013 and 2014 from our audited financial statements included elsewhere in this prospectus. We derived our selected consolidated statements of operations data for the nine months ended September 30, 2014 and 2015 and our consolidated balance sheet data as of September 30, 2015 from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. Our unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles on the same basis as our audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair presentation of those unaudited interim condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in any future period and the results for the nine months ended September 30, 2015 are not necessarily indicative of results to be expected for the full year ending December 31, 2015 or any other period.
The selected consolidated financial data below should be read in conjunction with the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
Year Ended
December 31, |
Nine Months Ended
September 30, |
|||||||||||||||
2013 | 2014 | 2014 | 2015 | |||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Consolidated Statements of Operations Data: |
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Operating expenses: |
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Research and development |
$ | 1,911 | $ | 9,280 | $ | 5,611 | $ | 12,335 | ||||||||
General and administrative |
1,143 | 1,670 | 1,145 | 4,359 | ||||||||||||
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Total operating expenses |
3,054 | 10,950 | 6,756 | 16,694 | ||||||||||||
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Loss from operations |
(3,054 | ) | (10,950 | ) | (6,756 | ) | (16,694 | ) | ||||||||
Interest income |
| 6 | 2 | 178 | ||||||||||||
Other income, net |
| 125 | 72 | 17 | ||||||||||||
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Net loss |
$ | (3,054 | ) | $ | (10,819 | ) | $ | (6,682 | ) | $ | (16,499 | ) | ||||
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Net loss per share, basic and diluted (1) |
$ | (4.59 | ) | $ | (9.67 | ) | $ | (6.13 | ) | $ | (8.73 | ) | ||||
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Shares used in computing net loss per share, basic and diluted (1) |
664,945 | 1,118,698 | 1,090,597 | 1,890,249 | ||||||||||||
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Pro forma net loss per share, basic and diluted (unaudited) (1) |
$ | (1.10 | ) | $ | (0.72 | ) | ||||||||||
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|
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Shares used in computing pro forma net loss per share, basic and diluted (unaudited) (1) |
9,821,341 | 22,973,019 | ||||||||||||||
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|
(1) | See Notes 2 and 12 to our audited financial statements and Notes 2 and 11 to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share, basic and diluted pro forma net loss per share and the shares used in computing basic and diluted net loss per share and basic and diluted pro forma net loss per share. |
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December 31, |
September 30,
2015 |
|||||||||||
2013 | 2014 | |||||||||||
(in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||
Cash, cash equivalents and investments |
$ | 12,946 | $ | 62,148 | $ | 42,811 | ||||||
Working capital |
12,761 | 57,830 | 37,897 | |||||||||
Total assets |
13,327 | 63,009 | 59,923 | |||||||||
Convertible preferred stock |
15,137 | 72,403 | 72,970 | |||||||||
Accumulated deficit |
(3,466 | ) | (14,285 | ) | (30,784 | ) | ||||||
Total stockholders equity |
12,912 | 59,864 | 48,014 |
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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 Consolidated Financial Data and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled Risk Factors included elsewhere in this prospectus.
Overview
We are a biotechnology company focused on developing and commercializing gene therapy products for patients suffering from serious, life-threatening rare diseases caused by single gene defects. We believe that gene therapy has powerful potential to treat these diseases through delivery of a functional copy of the affected gene to cells, resulting in production of the normal protein. Our vision is to become a fully integrated biotechnology company. In pursuit of this goal, we are executing on our core strategic initiatives, which include the expansion of our pipeline and the development of proprietary in-house manufacturing capabilities. We have assembled a world-class team with expertise in gene therapy, rare disease drug development and commercialization, and biologics manufacturing.
We have identified and built a compelling portfolio, including AT132 for the treatment of X-Linked Myotubular Myopathy, or XLMTM, AT342 for the treatment of Crigler-Najjar Syndrome Type 1, or CN Type 1, AT307 for the treatment of the CASQ2 subtype of Catecholaminergic Polymorphic Ventricular Tachycardia, or CASQ2-CPVT, and AT982 for the treatment of Pompe disease. We expect our first two product candidates, AT132 and AT342, to enter clinical development in 2016. Given the available clinical and regulatory pathways, we believe that the rarity and severity of the diseases we target may provide advantages for drug development, including the potential for expedited development and review and market exclusivity. We maintain full global rights to all of our product candidates.
We have built our portfolio of product candidates in part by engaging in strategic transactions with third parties. In July 2013, we entered into a license agreement with REGENXBIO Inc., or REGENXBIO, pursuant to which we obtained intellectual property rights related to AT132 and AT982. In January 2014, we entered into a collaborative development agreement with Genethon, pursuant to which we acquired intellectual property rights related to AT132 in exchange for granting Genethon the exclusive right to manufacture materials for preclinical and early clinical development, subject to Genethons ability to supply required quantities in accordance with applicable timelines, and the funding for certain research and development activities related to AT132. In July 2015, we entered into a license with the University of Florida Research Foundation, or UFRF, pursuant to which we obtained intellectual property rights related to AT982. In August 2015, in connection with our acquisition of Cardiogen Sciences, Inc., or Cardiogen, we acquired a license agreement with Fondazione Salvatore Maugeri, or FSM, pursuant to which we obtained a license to FSMs intellectual property rights related to AT307 and certain other products that we may develop related to the treatment of several additional inherited arrhythmias. In November 2015, we entered into two additional license agreements with REGENXBIO, pursuant to which we obtained intellectual property rights related to AT307 and AT342. We may be required to make milestone payments and pay royalties and other amounts to third parties pursuant to these or future agreements as we further develop and commercialize our product candidates.
Since our inception, we have devoted substantially all of our resources to: identifying, acquiring, and developing our product candidate portfolio; organizing and staffing our company; raising capital; developing our manufacturing capabilities; and providing general and administrative support for these operations. We have never
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generated revenue and have incurred significant net losses since inception. We do not expect to receive any revenue from any product candidates that we develop until we obtain regulatory approval and commercialize our product candidates or enter into collaborative agreements with third parties. Our net losses were $3.1 million and $10.8 million for the years ended December 31, 2013 and 2014, respectively, $6.7 million and $16.5 million for the nine months ended September 30, 2014 and 2015, respectively. As of September 30, 2015, we had an accumulated deficit of $30.8 million. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:
| invest significantly to further develop, and seek regulatory approval for, our existing product candidates; |
| further expand our pipeline of potential product candidates; |
| continue to develop our proprietary in-house manufacturing facility and capabilities; |
| hire additional clinical, scientific, management and administrative personnel; |
| seek regulatory and marketing approvals for any product candidates that we may develop; |
| ultimately establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval; |
| maintain, expand and protect our intellectual property portfolio; |
| acquire or in-license other assets and technologies; and |
| add additional operational, financial and management information systems and processes to support our ongoing development efforts, any future manufacturing or commercialization efforts and our transition to operating as a public company |
We have funded our operations to date primarily from the issuance and sale of our convertible preferred stock. As of September 30, 2015, we had cash, cash equivalents and investments of $42.8 million. In October 2015, we completed our Series C preferred stock financing and obtained net proceeds of $62.8 million.
To fund our current operating plans, we will need additional capital, which we may obtain through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Financial Operations Overview
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
| expenses incurred under agreements with consultants, third-party contract organizations and investigative clinical trial sites that conduct research and development activities on our behalf; |
| laboratory and vendor expenses related to the execution of preclinical studies and clinical trials; and |
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| costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers. |
Internal costs are associated with activities performed by our research and development organization and generally benefit multiple programs. These costs are not separately allocated by product candidate. Unallocated, internal research and development costs consist primarily of:
| personnel costs, which include salaries, benefits and stock-based compensation expense; |
| facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense; and |
| lab supplies and equipment used for internal research and development activities. |
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and as services are performed.
The largest component of our operating expenses has historically been our investment in research and development activities. However, we do not allocate internal research and development costs, such as salaries, benefits, stock-based compensation expense and indirect costs to product candidates on a program-specific basis.
The following table summarizes our research and development expenses incurred during the respective periods:
Year Ended
December 31, |
Nine Months Ended
September 30, |
|||||||||||||||
2013 | 2014 | 2014 | 2015 | |||||||||||||
(in thousands) | ||||||||||||||||
AT132 external program costs |
$ | 641 | $ | 4,802 | $ | 2,769 | $ | 3,763 | ||||||||
AT982 external program costs |
237 | 700 | 476 | 1,527 | ||||||||||||
Internal research and development costs |
1,033 | 3,778 | 2,366 | 7,045 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total research and development expenses |
$ | 1,911 | $ | 9,280 | $ | 5,611 | $ | 12,335 | ||||||||
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|
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We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance into later stages of development and we begin to conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, facilities costs, including rent and maintenance of facilities, depreciation and amortization expense and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation expense. We expect our general and administrative expenses to increase
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for the foreseeable future due to anticipated increases in headcount to advance our product candidates and 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, The NASDAQ Global Market, additional insurance expenses, investor relations activities and other administration and professional services.
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and investments.
Other Income, net
Other income, net consists of foreign currency transaction gains and losses incurred during the period.
Critical Accounting Polices and Estimates
Our managements discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. 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.
Accrued 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 research, preclinical studies, regulatory consulting, 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 include these costs in accrued liabilities in the balance sheet 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. 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.
Stock-Based Compensation Expense
We recognize compensation costs related to stock-based awards granted to employees, including stock options, 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, and the resulting stock-based compensation expense, 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.
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We account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these options is measured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The fair value of the unvested options under these arrangements is subject to remeasurement over the vesting terms as earned. Expense is recognized over the vesting period which is generally the same as the service period.
The Black-Scholes option-pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. These assumptions include:
| Expected Term Our expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term for employee options and based on the contractual term for non-employee options). |
| Expected Volatility Since we are privately held and do not have any trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies 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. |
| 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 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. |
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 materially differs from our estimates, we will be required to record adjustments to stock-based compensation expense in future periods.
For the years ended December 31, 2013 and 2014, stock-based compensation expense was $0.1 million and $0.2 million respectively. For the nine months ended September 30, 2014 and 2015, stock-based compensation expense was $0.3 million and $0.5 million. As of September 30, 2015, we had $0.9 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, which we expect to recognize over a weighted-average period of 2.93 years.
Historically, for all periods prior to this initial public offering, the fair values 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 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 their 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; the lack of marketability of our common stock; and valuations obtained from sales of our preferred stock to unrelated parties.
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For valuations 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 intrinsic value of all outstanding options as of September 30, 2015 was $ million based on the estimated fair value of our common stock of $ per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We 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.
As of December 31, 2014, our total gross deferred tax assets were $6.5 million. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards.
Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions. These ownership change limitations may limit the amount of net operating loss carryforwards and other tax attributes that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points (by value) of the outstanding stock of a company by certain stockholders. Since our formation, we have raised capital through the issuance of capital stock on several occasions, which separately or combined with the purchasing stockholders subsequent disposition of those shares, may have resulted in such ownership changes, or could result in ownership changes in the future.
We have not completed an analysis to assess whether an ownership change has occurred. If we have experienced an ownership change as defined in the Code at any time since our formation, utilization of our net operating loss carryforwards would be subject to an annual limitation under Section 382 of the Code. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets, with a corresponding reduction of the valuation allowance.
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Results of Operations
Comparison of the Nine Months Ended September 30, 2014 and 2015
Nine Months Ended
September 30, |
Increase/
(Decrease) |
|||||||||||
2014 | 2015 | |||||||||||
(in thousands) | ||||||||||||
Operating expenses: |
||||||||||||
Research and development |
$ | 5,611 | $ | 12,335 | $ | 6,724 | ||||||
General and administrative |
1,145 | 4,359 | 3,214 | |||||||||
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|
|
|||||||
Total operating expenses |
6,756 | 16,694 | 9,938 | |||||||||
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|||||||
Loss from operations |
(6,756 | ) | (16,694 | ) | (9,938 | ) | ||||||
Interest income |
2 | 178 | 176 | |||||||||
Other income, net |
72 | 17 | (55 | ) | ||||||||
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|
|
|
|
|
|||||||
Net loss |
$ | (6,682 | ) | $ | (16,499 | ) | $ | (9,817 | ) | |||
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|
|
|
Research and Development
Research and development expenses increased by $6.7 million, or 120%, from $5.6 million for the nine months ended September 30, 2014 to $12.3 million for the nine months ended September 30, 2015. The increase was primarily due to a $2.9 million increase in personnel costs and a $0.3 million increase in facilities costs due in part to a new lease agreement. In addition, there was a $2.9 million increase in expenses related to our AT132 program and AT982 program, as we conducted more preclinical studies, increased manufacturing of study materials and incurred consulting and initiation costs in preparation for future clinical trials. There was also an increase in the cost of lab supplies of $0.4 million due to additional research activities and an increase of $0.2 million in business travel expenses.
General and Administrative
General and administrative expenses increased by $3.2 million, or 281%, from $1.1 million for the nine months ended September 30, 2014 to $4.4 million for the nine months ended September 30, 2015. The increase was primarily due to a $1.8 million increase in personnel costs and a $0.2 million increase in facilities costs as a result of increased headcount and an increase of $0.6 million related to legal fees. Additionally, we incurred $0.4 million in transaction costs associated with the acquisition of Cardiogen.
Interest Income
Interest income increased by $176,000 from $2,000 for the nine months ended September 30, 2014 to $178,000 for the nine months ended September 30, 2015 as we invested the funds we received from our November 2014 preferred stock financing.
Other Income, Net
Other income, net decreased by $55,000 from $72,000 for the nine months ended September 30, 2014 to $17,000 for the nine months ended September 30, 2015. The decrease was due to a decrease in foreign currency gains resulting from Euro-based invoices settled in U.S. dollars.
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Comparison of the Years Ended December 31, 2013 and 2014
Year Ended
December 31, |
Increase/
(Decrease) |
|||||||||||
2013 | 2014 | |||||||||||
(in thousands) | ||||||||||||
Operating expenses: |
||||||||||||
Research and development |
$ | 1,911 | $ | 9,280 | $ | 7,369 | ||||||
General and administrative |
1,143 | 1,670 | 527 | |||||||||
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|
|
|
|||||||
Total operating expenses |
3,054 | 10,950 | 7,896 | |||||||||
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|
|||||||
Loss from operations |
(3,054 | ) | (10,950 | ) | (7,896 | ) | ||||||
Interest income |
| 6 | 6 | |||||||||
Other income, net |
| 125 | 125 | |||||||||
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Net loss |
$ | (3,054 | ) | $ | (10,819 | ) | $ | (7,765 | ) | |||
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|
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Research and Development
Research and development expenses increased by $7.4 million, or 386%, from $1.9 million for the year ended December 31, 2013 to $9.3 million for the year ended December 31, 2014. The increase was due to an increase of $4.2 million related to costs for our AT132 program, as we conducted more preclinical studies and commenced manufacturing of study materials, primarily through our collaboration agreement with Genethon, and began preparations for future clinical trials. In addition, personnel costs increased by $2.1 million as a result of increased headcount. Rent expense increased by $0.4 million due to our additional leased facility space in 2014. There was also an increase of $0.5 million related to our AT982 program primarily related to the manufacturing of materials for use in preclinical studies, as well as an increase in consulting fees for the program.
General and Administrative
General and administrative expenses increased by $0.5 million, or 46%, from $1.1 million for the year ended December 31, 2013 to $1.7 million for the year ended December 31, 2014. The increase was primarily due to a $0.6 million increase in personnel costs driven by an increase in headcount and a $0.1 million increase in travel expenses. These increases were partially offset by a $0.2 million decrease in rent expense due to a larger proportion of expense that was allocated to research and development in 2014.
Other Income, Net
Other income, net was zero for the year ended December 31, 2013 compared to $0.1 million for the year ended December 31, 2014. The increase is related to foreign currency transaction gains from Euro-based invoices settled in U.S. dollars.
Liquidity, Capital Resources and Plan of Operations
Since our inception in 2012 through September 30, 2015, our operations have been financed solely by net proceeds of $72.4 million from the sale of shares of our convertible preferred stock. As of September 30, 2015, we had $42.8 million in cash, cash equivalents and investments and an accumulated deficit of $30.8 million. In October 2015, we completed our Series C preferred stock financing and received net cash proceeds of $62.8 million.
Our primary use of cash is to fund operating expenses, which consist of research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses is impacted by
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the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
We believe that our existing cash, cash equivalents and investments, including the $62.8 million in net proceeds from our Series C preferred stock financing in October 2015, will be sufficient to meet our anticipated cash and capital expenditure requirements for at least the next 12 months. Furthermore, based upon our current operating plan, we believe that the net proceeds from this offering, together with our existing cash, cash equivalents and investments, will enable us to fund our operating expenses and capital expenditure requirements through at least the next months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
If we need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical trials, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, and collaborations or licensing arrangements. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If additional funding is required, there can be no assurance that additional funds will be available to us on acceptable terms on a timely basis, if at all. If we are unable to raise capital, we will need to curtail planned activities to reduce costs. Doing so will likely have an unfavorable effect on our ability to execute our business plans.
The following table summarizes our cash flows for the periods indicated:
Year Ended
December 31, |
Nine Months Ended
September 30, |
|||||||||||||||
2013 | 2014 | 2014 | 2015 | |||||||||||||
(in thousands) | ||||||||||||||||
Cash used in operating activities |
$ | (3,230 | ) | $ | (8,405 | ) | $ | (5,053 | ) | $ | (18,065 | ) | ||||
Cash used in investing activities |
(106 | ) | (16,664 | ) | (42 | ) | (17,996 | ) | ||||||||
Cash provided by financing activities |
14,882 | 57,722 | | 25 | ||||||||||||
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Net increase (decrease) in cash and cash equivalents |
$ | 11,546 | $ | 32,653 | $ | (5,095 | ) | $ | (36,036 | ) | ||||||
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Cash Flows from Operating Activities
Cash used in operating activities for the nine months ended September 30, 2015 was $18.1 million, consisting of a net loss of $16.5 million, which was offset by noncash charges of $1.1 million primarily for
78
accretion of discounts on investments of $0.5 million and stock-based compensation expense of $0.5 million. The change in our net operating assets and liabilities was due primarily to an increase in restricted investments of $2.7 million, an increase in accounts payable of $0.3 million as a result of payment timing and an increase in prepaid expenses and other current assets of $0.4 million due to prepayments for our research and development activities, which was partially offset by an increase in accrued liabilities of $0.9 million due to our operational growth.
Cash used in operating activities for the nine months ended September 30, 2014 was $5.1 million, consisting of a net loss of $6.7 million, which was offset by noncash charges of $0.3 million for stock-based compensation expense. The change in our net operating assets and liabilities was due primarily to an increase in accrued liabilities and accounts payable of $1.5 million and $0.4 million, respectively, resulting from increases in our operating activities, primarily in research and development. The increase was offset by an increase in prepaid expenses and other current assets of $0.5 million resulting from prepayments for research and development activities.
Cash used in operating activities for the year ended December 31, 2014 was $8.4 million, consisting of a net loss of $10.8 million, which was offset by noncash charges of $0.2 million for stock-based compensation expense. The change in our net operating assets and liabilities was due primarily to an increase in accrued liabilities of $1.7 million and accounts payable of $0.9 million resulting from increased costs primarily related to our research and development activities.
Cash used in operating activities for the year ended December 31, 2013 was $3.2 million, consisting of a net loss of $3.1 million, which was offset by noncash charges of $0.1 million for stock-based compensation expense. The change in our net operating assets and liabilities was due primarily to a decrease in accounts payable of $0.2 million due to the timing of payments.
Cash Flows from Investing Activities
Cash used for investing activities was $18.0 million for the nine months ended September 30, 2015 and is primarily related to purchases of marketable securities for $33.9 million and purchases of property and equipment for $0.9 million, partially offset by the maturity or sale of investments of $16.6 million and cash received in the acquisition of Cardiogen of $0.1 million.
Cash used for investing activities was $42,000 for the nine months ended September 30, 2014 and was related to purchases of property and equipment.
Cash used for investing activities for the year ended December 31, 2014 was $16.7 million and related to the purchase of marketable securities of $16.5 million and purchases of property and equipment of $0.1 million.
Cash used for investing activities for the year ended December 31, 2013 was $0.1 million and was related to purchases of property and equipment.
Cash Flows from Financing Activities
Cash provided by financing activities for the nine months ended September 30, 2015 was related to net proceeds from the issuance of common stock of $25,000. No cash was provided by financing activities for the nine months ended September 30, 2014.
Cash provided by financing activities for the years ended December 31, 2013 and 2014 was primarily related to net proceeds from the issuance of convertible preferred stock of $14.8 million and $57.4 million, respectively.
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Contractual Obligations and Other Commitments
The following tables summarize our contractual obligations as of December 31, 2014 and September 30, 2015:
December 31, 2014 |
||||||||||||||||||||||||||||
Payments Due by Period | ||||||||||||||||||||||||||||
Less than
|
2 years |
3 years |
4 years |
5 years |
More than
|
Total |
||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Operating lease obligations: |
$ | 609 | $ | 613 | $ | | $ | | $ | | $ | | $ | 1,222 | ||||||||||||||
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Total contractual obligations |
$ | 609 | $ | 613 | $ | | $ | | $ | | $ | | $ | 1,222 | ||||||||||||||
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September 30, 2015 |
||||||||||||||||||||||||||||
Payments Due by Period | ||||||||||||||||||||||||||||
Less than
|
2 years |
3 years |
4 years |
5 years |
More than
|
Total |
||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Operating lease obligations: |
$ | 1,586 | $ | 2,091 | $ | 1,631 | $ | 1,679 | $ | 1,728 | $ | 3,028 | $ | 11,743 | ||||||||||||||
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Total contractual obligations |
$ | 1,586 | $ | 2,091 | $ | 1,631 | $ | 1,679 | $ | 1,728 | $ | 3,028 | $ | 11,743 | ||||||||||||||
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Lease Agreements
Beginning in January 2015, we entered into a series of amendments to our existing Janssen facility lease to increase the office and lab space available under the agreement. The amendments resulted in quarterly lease expense of approximately $0.1 million and an increase in the aggregate security deposit to approximately $0.1 million. The lease agreement provides for successively renewable three month lease terms that are cancelable by us upon 60 days written notice. All other terms remained substantially the same. In July 2015, we entered into a sub-lease agreement for approximately 22,000 square feet of manufacturing space in South San Francisco for an initial term that expires in May 2017 with total minimum lease payments due of $0.9 million. In November 2015, we purchased an option that we can exercise in 2016 to enter into a ten-year lease for the existing 22,000 square feet plus approximately 17,000 additional square feet of manufacturing space, which, if exercised, would become effective in June 2017. In September 2015, we also entered into a lease agreement for approximately 22,000 square feet of office space in San Francisco. The initial term commences in February 2016 and expires in June 2022 with total payments due of $10.2 million.
Cardiogen Acquisition
In August 2015, we acquired Cardiogen, a biotechnology company focused on the discovery and development of AAV gene therapy products for rare, inherited arrhythmogenic diseases. As consideration for the acquisition, we issued 2,883,271 shares of common stock and 104,736 shares of Series B preferred stock. Additionally, upon the first dosing of a patient in a human clinical study involving AT307, we are obligated to pay to former Cardiogen stockholders $4.2 million in common stock plus an additional $5.8 million in either cash or common stock, at our election. We have not included this potential contingent payment obligation in the table above as the timing and likelihood of such payment is not known.
License and Collaboration Agreements
Under various license agreements, we will be required to make milestone payments and pay royalties and other amounts to third parties. Under the 2013 license agreement with REGENXBIO related to AT132 and AT982, we are required to pay REGENXBIO (i) an annual maintenance fee; (ii) up to $8.9 million in combined milestone fees per licensed product related to XLMTM and up to $8.9 million in combined milestone fees per licensed product related to Pompe disease, a small portion of which may be paid in the form of shares of our common stock; (iii) mid
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to high single digit royalty percentages on net sales of licensed products and (iv) mid-single to lower mid-double digit percentages of any sublicense fees we receive from sublicensees for the licensed patent rights.
Under the 2015 license agreement with REGENXBIO regarding intellectual property rights related to AT307, we are required to pay REGENXBIO (i) an annual maintenance fee for each covered indication; (ii) up to $8.8 million in combined development and regulatory milestone fees for each indication and each licensed product; (iii) up to $45.0 million in combined commercial milestone fees based on various annual aggregate net sales thresholds; (iv) mid-single to low-double digit royalty percentages on net sales of licensed products sold by us, our affiliates and sublicensees and (v) a lower-mid double digit percentage of any sublicense fees we receive from sublicensees for the licensed products and certain fees we receive from the sale or transfer of specified rights related to a licensed product.
Under the 2015 license agreement with REGENXBIO regarding intellectual property rights related to AT342, we are required to pay REGENXBIO (i) an annual maintenance fee; (ii) up to $7.6 million in combined development and regulatory milestone fees per licensed product; (iii) mid-single to low-double digit royalty percentages on net sales of licensed products sold by us, our affiliates and sublicensees and (iv) a lower-mid double digit percentage of certain sublicense fees we receive from sublicensees for the licensed products and certain fees we receive from the sale or transfer of specified rights related to a licensed product.
Under the 2015 license agreement with UFRF, we are required to pay UFRF (i) an annual maintenance fee; (ii) up to $1.2 million in combined development and regulatory milestone payments; (iii) low single digit royalty percentages on net sales of AT982 and certain other product candidates that we may develop in the future related to Pompe disease, subject to minimum annual royalty payments of up to $0.2 million per year following the first commercial sale; and (iv) certain percentages of sublicense fees we receive from sublicensees of the licensed patent rights.
Under the license agreement with FSM that we acquired in connection with the 2015 Cardiogen acquisition, we are required to pay FSM low single digit royalties on net sales of AT307 and certain other product candidates that we may develop in the future related to the treatment of CASQ2-CPVT and several additional inherited arrhythmias. As of September 30, 2015, we had not developed a commercial product using the licensed technologies and no milestones had been achieved under these agreements. We have not included any contingent payment obligations, such as milestones or royalties, in the table above as the amount, timing and likelihood of such payments are not known.
Under a 2014 collaborative development agreement with Genethon, we are also committed to reimbursing Genethon for mutually agreed manufacturing costs and research and development activities related to AT132. We have not included these potential payment obligations in the table above as the amount and timing of such payments are not known.
For further information about our license and collaboration agreements, see the section entitled BusinessLicense and Collaboration Agreements.
Other Contracts
We also enter into contracts in the normal course of business with various third parties for preclinical research studies, clinical trials, testing and other services. These contracts generally provide for termination upon notice, and therefore we believe that our noncancelable obligations under these agreements are not material.
Internal Control over Financial Reporting
During the audit of our financial statements for the years ended December 31, 2013 and 2014, a material weakness was identified in our internal control over financial reporting. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency or combination of deficiencies
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in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. The material weakness that was identified related to a lack of sufficient accounting resources and personnel that limits our ability to adequately segregate duties, establish defined accounting policies and procedures and perform timely reviews of account reconciliations.
We are implementing measures designed to improve our internal control over financial reporting to address the underlying causes of this material weakness, including the hiring of our Chief Financial Officer and other accounting personnel and establishing new accounting and financial reporting procedures, policies and processes to have in place an appropriate level of internal control over financial reporting. We, and our independent registered public accounting firm, were not required to perform an evaluation of our internal control over financial reporting as of December 31, 2014 in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required by reporting requirements under Section 404 of the Sarbanes-Oxley Act after the completion of this offering.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. We had cash, cash equivalents and investments of $62.1 million and $42.8 million as of December 31, 2014 and September 30, 2015, respectively, which consist of bank deposits, money market funds, and marketable securities. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant for us. We had no outstanding debt as of December 31, 2014 and September 30, 2015.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. 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 June 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or 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 . The ASU 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. We early adopted this guidance and accordingly, there is no inception to date information presented in the financial statements included elsewhere is this prospectus.
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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 relevant conditions, events and certain management plans that are known or reasonably knowable that when, considered in the aggregate, raise substantial doubt about the entitys ability to continue as a going concern within one year after the date that the financial statements are issued, for both annual and interim periods. ASU 2014-15 also requires certain disclosures around managements plans and evaluation, as well as the plans, if any, that are intended to mitigate those conditions or events that will alleviate the substantial doubt. ASU 2014-15 is effective for fiscal years ending after December 15, 2016. We do not anticipate that the adoption of ASU 2014-15 will have a material impact on our financial statements and related disclosures.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes . ASU 2015-17 specifies that deferred tax assets and liabilities shall be classified as noncurrent, or long-term, in a classified statement of financial position. The ASU is effective for public entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or an annual reporting period. We elected to early adopt this ASU for the nine month period ended September 30, 2015.
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Audentes from the Latin verb audeo : Those who have courage; those who have boldness, daring.
Courageous Patients. Bold Effort.
Overview
We are a biotechnology company focused on developing and commercializing gene therapy products for patients suffering from serious, life-threatening rare diseases caused by single gene defects. We believe that gene therapy has powerful potential to treat these diseases through delivery of a functional copy of the affected gene to cells, resulting in production of the normal protein. We have identified and built a compelling portfolio, including AT132 for the treatment of X-Linked Myotubular Myopathy, or XLMTM, AT342 for the treatment of Crigler-Najjar Syndrome Type 1, or CN Type 1, AT307 for the treatment of the CASQ2 subtype of Catecholaminergic Polymorphic Ventricular Tachycardia, or CASQ2-CPVT, and AT982 for the treatment of Pompe disease. We expect our first two product candidates, AT132 and AT342, to enter clinical development in 2016. We maintain full global rights to all of our product candidates.
Our vision is to become a fully integrated biotechnology company. In pursuit of this goal, we are executing on our core strategic initiatives, which include the expansion of our pipeline and the development of proprietary in-house manufacturing capabilities. We have assembled a world-class team with expertise in gene therapy, rare disease drug development and commercialization, and biologics manufacturing.
Our mission is to dramatically and positively transform the lives of patients suffering from serious, life-threatening rare diseases with limited or no treatment options. For example, we are developing AT132 to treat XLMTM, a disease for which there are no approved therapies and from which approximately 50% of affected children die in the first year of life. We believe our product candidates have the potential to provide long-lasting benefits, changing the lives of patients with these devastating diseases. Given the available clinical and regulatory pathways, we believe that the rarity and severity of the diseases we target may provide advantages for drug development, including the potential for expedited development and review and market exclusivity.
We focus on the treatment of rare diseases caused by single gene, or monogenic, defects in DNA that we believe can be effectively addressed using gene therapy. Conventional approaches such as protein therapeutics attempt to replace the deficient protein, but they do not correct the underlying genetic defect causing the disease. In addition, protein therapeutics often require frequent administration by injection or infusion and often result in sub-optimal safety and efficacy. We believe gene therapy is an ideal treatment modality for diseases caused by monogenic defects. Our approach employs AAV gene therapy, a therapeutic modality in which an adeno-associated virus, or AAV, a small, non-pathogenic virus, is genetically engineered to function as a vehicle, or vector, and administered to a patient to deliver a healthy copy of a mutated gene to the body. AAV gene therapy vectors are modified such that they will not cause an infection like a normal virus, but are capable of delivering therapeutic genes into patients cells. Vectors derived from AAV have a well-established safety profile in humans and have been shown to effectively deliver genes to the liver, eye, muscle and brain. Preclinical and clinical data demonstrate that AAV vectors are capable of providing durable efficacy with a favorable adverse event profile due at least in part to AAVs low immunogenic potential. AAV vectors can be described by the serotype, or strain, of the original virus isolate that was used to form the outer shell, or capsid, of the vector. We selected AAV8 and AAV9 as our in-licensed vector capsid serotypes, based on their biological properties, which we believe will translate into positive clinical effect in our target indications. For example, we believe AAV8 is advantageous for the treatment of CN Type 1 given its ability to penetrate the liver, the primary organ implicated in this disease pathology.
Our business model is to develop and commercialize a broad portfolio of gene therapy product candidates to treat rare diseases. We use a focused set of criteria to select product candidates that we believe have the best chance of success. These criteria include:
| serious, life-threatening rare diseases; |
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| monogenic diseases with well-understood biology; |
| disease characteristics well-suited for treatment with AAV gene therapy technology; |
| high potential for meaningful clinical benefit; |
| compelling preclinical data; |
| clear measures for evaluation in clinical trials; and |
| opportunities for expedited development through established regulatory pathways. |
We have built a portfolio of gene therapy product candidates and we intend to further expand our portfolio over time. Set forth below is a table summarizing our development programs.
AT132 . XLMTM is characterized by extreme muscle weakness, respiratory failure and early death with an estimated 50% mortality rate in the first year of life. The disease is the result of mutations in the MTM1 gene that affect the production of myotubularin, an enzyme required for normal development and function of skeletal muscle. The incidence of XLMTM is estimated to be one in 50,000 male births. Currently, only supportive treatment options, such as ventilator use or a feeding tube, are available. We are developing AT132, an AAV8 vector containing a functional copy of the MTM1 gene, for the treatment of XLMTM. We believe AT132 may provide patients with significantly improved outcomes based on the ability of AAV8 to preferentially treat skeletal muscle. Preclinical study results in both canine and murine models of the disease demonstrated dramatic improvements in all outcomes, including histology, muscle strength, respiratory function and survival. Our goal is to achieve these same benefits in XLMTM patients following a single intravenous administration of AT132.
AT342 . CN Type 1 is a rare, congenital autosomal recessive monogenic disease characterized by severely high levels of bilirubin in the blood and risk of irreversible neurological damage and death. Life expectancy is 30 years of age. CN Type 1 is estimated to affect approximately one in 1,000,000 newborns. Infants with CN Type 1 develop severe jaundice shortly after birth resulting in rapid presentation and diagnosis. CN Type 1 is caused by mutations in the gene encoding the UGT1A1 (uridine-diphosphate (UDP)-glucuronosyltransferase (UGT) 1A1) enzyme resulting in an inability to convert unconjugated bilirubin to a water-soluble form that can be excreted from the body. Clinical diagnosis is confirmed via genetic testing of the UGT1A1 gene. The current standard of care for CN Type 1 is aggressive phototherapy for more than ten to 12 hours per day using intense fluorescent light focused on the bare skin, while the eyes are shielded. Phototherapy speeds bilirubin decomposition and excretion, lowering serum bilirubin levels. Phototherapy wanes in
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effectiveness beginning around age four due to thickening of the skin and a reduction in surface area to body mass ratio, and a liver transplant may be required for survival.
We are developing AT342, an AAV8 vector containing a functional version of the UGT1A1 gene. Preclinical data in murine models of the disease demonstrate AAV8-UGT1A1 significantly reduces bilirubin levels, even at UGT1A1 liver expression levels of just five to eight percent of normal. We are advancing AT342 with the goal of administering a single dose that results in a significant, durable reduction in serum bilirubin, a reduction in or elimination of lengthy daily phototherapy, and elimination of the need for a liver transplant. We believe that serum bilirubin levels will be a clinically relevant endpoint and that determination of efficacy of AT342 will be straightforward due to the ease and reliability of measurement.
AT307 . CASQ2-CPVT is a rare monogenic disease that is characterized by life-threatening arrhythmias that may lead to sudden cardiac death. There are currently only limited treatment options with variable efficacy for patients suffering from CPVT, including beta-blockers and a sodium channel blocker. The autosomal recessive form of the disease is caused by mutations in the calsequestrin 2 gene, or CASQ2 gene, and is characterized by stress-induced heartbeat rhythm changes in an otherwise structurally normal heart. It is estimated that CPVT occurs in one in 10,000 people, with approximately 2% to 5% due to mutations in the CASQ2 gene. This equates to an approximate prevalence of 6,000 affected people in North America, Europe and other addressable markets. Despite treatment with anti-arrhythmia therapies, sympathectomy and implantable cardiac defibrillators, a significant portion of the patients remain symptomatic. We are developing AT307, an AAV9 vector containing a functional version of the CASQ2 gene. We believe AT307 may provide patients with improved outcomes based on the ability of AAV9 to preferentially treat cardiac muscle. Preclinical data in murine models of the disease demonstrated an ability to prevent ventricular tachycardia through restoration of CASQ2 protein expression. We are advancing AT307 with the goal of providing a single administration of AT307 that results in a significant reduction in life-threatening arrhythmic events and a major improvement in quality of life.
AT982. Pompe disease is a serious, progressive genetic disease characterized by severe muscle weakness, respiratory failure leading to ventilator dependence and, in infants, increased cardiac mass and heart failure. In untreated infants, the disease is often fatal due to cardio-respiratory failure within the first year of life. Pompe disease is caused by mutations in the gene encoding the lysosomal enzyme alpha-glucosidase, or GAA, which results in a deficiency of GAA protein and leads to the accumulation of glycogen. The incidence of Pompe disease is approximately one in 40,000 births. The only approved treatment for Pompe disease is enzyme replacement therapy, or ERT, which is a chronic treatment delivered in bi-weekly intravenous infusions. Despite the availability of ERT, significant medical need still persists, which is primarily due to the inability of ERT to penetrate key tissues affected by the disease and immunogenicity of ERT treatment. We believe our approach with AT982, which uses an AAV serotype 9 capsid vector containing a functional copy of the GAA gene, can overcome the limitations of ERT and provide long-term improvement in patient symptoms. Further, we believe AT982 may provide patients with superior outcomes based on the ability of AAV9 to penetrate key cells and tissues affected by the disease, such as motoneurons, which are not effectively treated with ERT. Preclinical data in a murine model achieved statistically significant improvements in weight gain, ventilation parameters, glycogen deposition and cardiac left ventricle mass. We believe intracellular production of the therapeutic protein may improve efficacy, reduce immunogenicity and deliver a durable therapeutic effect with a single intravenous administration.
Although we believe our product candidates have the potential to provide long-term improvement in patient symptoms with a single administration, we will need to complete additional preclinical studies and clinical trials to determine the safety and efficacy of our product candidates. The results of these future studies and trials may be different than the results of our earlier studies and trials. We have not received regulatory approval for any of our product candidates, and in order to obtain regulatory approval and commercialize our product candidates, the U.S. Food and Drug Administration, or FDA, or foreign regulatory agencies will need to determine that our product candidates are safe and effective. To date, no gene therapy products have been approved in the United States and only one has been approved in Europe.
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We believe that our proprietary manufacturing capabilities provide a core strategic advantage. We lease a manufacturing facility in South San Francisco that has been used for commercial manufacture of biologic drug products in the past. We are currently improving the facility in order to support our desired research, process development and manufacturing capabilities in accordance with current Good Manufacturing Practices, or cGMP, requirements. We plan to initiate cGMP manufacturing of our products in our facility in the second half of 2016. We have made and will continue to make significant investments to further optimize our manufacturing capabilities to cost-effectively produce high-quality AAV vectors at both clinical and commercial scale. We believe that our manufacturing processes, methods, expertise and facilities will give us a comprehensive manufacturing platform for production of our AAV product candidates at commercial scale.
We have a focused, passionate team with collective expertise in gene therapy, rare disease drug development and commercialization, and biologics manufacturing. Matthew Patterson, our President, Chief Executive Officer and Co-Founder, is a biotechnology leader with over 20 years of experience at Genzyme Corporation, BioMarin Pharmaceutical, Amicus Therapeutics and our company. We are backed by a group of leading life science institutional investors, including 5AM Ventures, Cormorant Asset Management LLC, Cowen Private Investments, Deerfield Management Company, Foresite Capital, OrbiMed, RA Capital Management, Redmile Group, Rock Springs Capital Management LP, Sofinnova Ventures, funds and accounts advised by T.Rowe Price Associates, Inc., Venrock and Versant Ventures.
Our Strategy
Our strategy is to leverage the expertise of our team and the transformative potential of gene therapy technology to develop treatments that improve outcomes for patients with serious, life-threatening rare diseases. Key elements of our strategy are:
| Constantly focus on serving patients. We take pride in our efforts to harness the transformative potential of gene therapy to improve the lives of patients suffering from devastating rare diseases. We intend to continue to engage with patient advocacy groups to better understand the burden of disease and align our efforts with the needs of patients and caregivers. |
| Advance our four lead product candidates through clinical development. We expect to submit Investigational New Drug applications, or INDs, or Clinical Trial Authorisations, or CTAs, for our product candidates as follows: AT132 for the treatment of XLMTM and AT342 for the treatment of CN Type 1 in the second half of 2016, and AT307 for the treatment of CASQ2-CPVT and AT982 for the treatment of Pompe disease in 2017. |
| Continue to expand our pipeline with additional gene therapy product candidates targeting serious, life-threatening rare diseases. We intend to continue leveraging our expertise and focused selection criteria to expand our pipeline of product candidates. Our relationships with leading academic institutions and other rare disease companies are an important component of our strategy for sourcing additional product candidates. |
| Continue to build our proprietary manufacturing capabilities and invest in a state-of-the-art cGMP facility . We believe the quality, reliability and scalability of our gene therapy manufacturing approach will be a core competitive advantage crucial to our long-term success. We intend to be capable of internal cGMP manufacturing in the second half of 2016. |
Our Strengths
We believe our leadership position is based on our following strengths:
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Rare disease expertise. Led by a management team with over 100 years of combined experience in rare diseases, we are building a fully integrated and industry-leading biotechnology company. |
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Leveraging recent developments in gene therapy, we aim to provide durable and meaningful treatment options to patients suffering from rare monogenic diseases. |
| Highly focused selection criteria for development programs. We employ a disciplined approach to select and expand our pipeline of product candidates. We believe the application of our selection criteria enables the efficient, cost-effective and successful development of our product candidates. |
| Promising product candidate pipeline. On the basis of rigorous preclinical investigation, we are preparing to advance our four lead product candidates into the clinic: AT132 for the treatment of XLMTM, AT342 for the treatment of CN Type 1, AT307 for the treatment of CASQ2-CPVT and AT982 for the treatment of Pompe disease. |
| Proprietary know-how and capabilities. Our proprietary manufacturing capabilities provide a major core strategic advantage, including better control over the cost and timelines of developing our product candidates, superior protection of novel inventions and intellectual property, and expanded possibilities for new programs and partnerships. |
| Broad network. We believe our strong relationships with key opinion leaders and patient advocacy groups will support our product development efforts and our potential for future commercial success. Leveraging our collaborations with these parties allows us to better understand the diseases we target and optimize our research, clinical development and commercial plans. |
Gene Therapy Background
Genes are composed of sequences of deoxyribonucleic acid, or DNA, which code for proteins that perform a broad range of physiologic functions within all living organisms. DNA is a large, highly charged molecule that is difficult to transport across a cell membrane and deliver to the nucleus, where it can be transcribed and translated into protein.
Gene therapy is a therapeutic approach to treating genetic diseases caused by mutations in DNA. For gene therapy to work, an isolated gene sequence or segment of DNA needs to be delivered efficiently to the desired target tissues and cell types. The treatment involves the administration of a functional gene to produce normal protein within a patients cells, offering the potential for durable therapeutic benefit. To achieve these goals, scientists have designed and developed a variety of viral vectors to facilitate gene delivery in cells.
Our Approach
The AAV gene therapy vectors we utilize are capable of transducing a wide range of tissues with generally little or no toxicity and only mild immune response. Functionally, AAV packages a single-stranded linear DNA genome that can be engineered to contain a therapeutic gene in place of all the virus genes. AAV vectors have a well-established safety profile and do not naturally propagate by themselves in the absence of another viral infection, reducing the likelihood of inappropriate viral spread following administration. As a result, AAV vectors are emerging as the preferred delivery vehicle for gene therapy.
Our vector design strategy includes careful selection of the vector capsid (the outer protein shell) and sophisticated engineering of the vector genome (the therapeutic DNA expression cassette) to target the correct tissues and improve the potential to provide patients with meaningful and durable outcomes. Optimal selection of capsids can reduce immune responses that attenuate the function of AAV vectors, and enable more robust trafficking to the specific tissues we care about for each disease. The vector genome is composed of multiple structural elements, including the gene coding sequence and the promoter, which drives expression of the gene. We use the latest available technology to engineer the vector genome to direct the target cells to make the desired protein at the appropriate level necessary to achieve a therapeutic effect for the longest period possible. We
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believe the product candidates we have created offer distinct advantages for our indications due to their selectivity for target tissue types and focused expression of the desired protein.
Our Product Candidate and Target Indication Selection Criteria
Our business model is to develop and commercialize a broad portfolio of gene therapy product candidates to treat rare diseases. We use a focused set of criteria to select product candidates that we believe have the best chance of success. These criteria include:
| Serious, life-threatening rare diseases with high unmet medical need. We target orphan indications where there are limitations with existing therapeutic options or no such options exist, particularly with an opportunity to bring products with high value to patients and their caregivers. |
| Monogenic diseases with well-understood biology. Gene therapy is particularly effective when applied to replace a single gene producing a single protein, the function of which is well understood. |
| High potential for meaningful clinical benefit. We focus on diseases with the potential to demonstrate a meaningful therapeutic effect with only moderate levels of expression of the deficient protein. |
| Well suited for AAV gene therapy. We select target indications and product candidates where we believe AAV technology can be used effectively. |
| Compelling preclinical data. We look for product candidates that have positive results from preclinical studies in animal models of disease that provide increased confidence in the potential for positive human results. |
| Clear measures for evaluation in clinical trials. We prioritize diseases that we believe have the potential for straightforward clinical endpoints to demonstrate efficacy. |
| Opportunities for expedited development through established regulatory pathways. We believe our product candidates may be eligible for expedited regulatory review, including Breakthrough Therapy and Fast Track designations. |
Our AAV Product Candidates
AT132 for the Treatment of X-Linked Myotubular Myopathy
Overview of XLMTM
XLMTM is a rare, severe, congenital muscle disease with an estimated incidence of one in 50,000 male births. The disease is caused by mutations in the MTM1 gene, which encodes a protein called myotubularin. Myotubularin is an enzyme involved in the development, maturation, maintenance and function of skeletal muscle cells. Mutations in the MTM1 gene result in production of too little or no functional protein. Importantly, we believe that even a modest increase of functional protein may have a significant therapeutic benefit for XLMTM patients.
Infants with XLMTM are typically born with severe muscle weakness and the majority require chronic mechanical ventilation from birth. Approximately 50% of patients die in the first year of life. There is no approved treatment for XLMTM and disease management is primarily supportive. Of the patients that survive the infantile period, most are severely incapacitated and do not have a life expectancy beyond early adolescence.
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Diagnosis of XLMTM is generally based on recognition of clinical symptoms at birth, typically followed by muscle biopsy and confirmation with genetic testing. Like many rare diseases, we believe XLMTM is under diagnosed and that approval of treatment would increase disease awareness, screening and diagnosis.
AT132 Description
AT132 is an AAV8 vector that delivers an MTM1 gene expression cassette containing a desmin promoter, which is a regulatory element that drives gene transcription in muscle tissue. The MTM1 cassette is capable of increasing myotubularin expression in targeted tissues. AT132 was designed with these elements because AAV8 is known to effectively penetrate skeletal muscle and the desmin promoter is primarily active in muscle. We believe AT132 has the potential to provide long-term clinical benefit to XLMTM patients through persistent expression of the functional protein following a single intravenous administration.
Preclinical Proof-of-Concept for AT132
We have two robust animal models of XLMTM, a murine model consisting of mice engineered to knock out the functional MTM1 gene, or MTM1 KO mice, and a naturally occurring canine model. Preclinical studies in these models have used an AT132 construct engineered to include the species-specific MTM1 transgene. Both models present with disease symptoms similar to that of humans including severe muscle weakness, respiratory failure and early death. We believe that in this indication the canine model, as with many large animal models, is particularly valuable given similarities to humans with XLMTM in size, weight and physiology.
Murine Model
In the murine model, symptom onset occurs at approximately two to three weeks of age, and there is rapid progression of the disease leading to death at approximately seven to eight weeks of age. Through multiple studies in this murine model, treatment with AT132 has been shown to significantly improve disease symptoms when compared to untreated controls. Specifically, the administration of a single intravenous dose of AT132 (3 x 10 14 vg/kg, or vector genomes per kilogram) to eight mice at three weeks of age resulted in improved muscle strength, nearly normal growth and long-term survival in MTM1 KO mice. In order to evaluate the potential benefit of treatment of mice at a later stage of disease, the same dose was administered to 11 severely affected MTM1 KO mice at five weeks of age, when 20% of the animals in the treatment group had already died, and a robust effect on survival was again observed. The figure below summarizes the effects of AT132 on survival.
AT132 Improves Survival in MTM1 Knockout Mice
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In an additional study in the murine model, muscle strength was evaluated. MTM1 KO mice were treated by intramuscular injection of an AT132 prototype. As a control, normal mice were treated with a placebo. Contractile strength of the muscles in the extensor digitorum longus, or EDL, and tibialis anterior, or TA, muscles were measured four weeks post dose. The effects of the AT132 prototype are shown in the figure below.
AT132-Prototype Restores Muscle Contractility in
MTM1 Knockout Mice
Statistical significance is important and when used herein is denoted by p-values. The p-value is the probability that the reported result was achieved purely by chance (for example, a p-value £ 0.001 means that there is a 0.1% or less chance that the observed change was purely due to chance). Generally, a p-value less than 0.05 is considered to be statistically significant.
Canine Model
In the naturally occurring Labrador Retriever model, symptom onset occurs at nine to ten weeks of age, and disease progression leads to death at approximately 18 weeks of age. Multiple studies in this model have demonstrated that a single administration of AT132 significantly improves all disease symptoms and survival rates. In two dogs treated in one of the earliest studies, these effects have lasted over three years to date and the dogs continue to thrive.
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The first canine study was designed as a proof-of-concept to determine whether AT132 could improve muscle strength and organ function in comparison to an XLMTM dog treated with a placebo. Administration of a single dose of AT132 (2.5 x 10 14 vg/kg) to three dogs at nine weeks of age resulted in maintenance of muscle strength, respiratory function and survival comparable to normal dogs. The evaluation of the muscle strength of these dogs is illustrated in the figure below. The XLMTM dog dosed with placebo died before the 14-week measurement.
AT132 Improves Muscle Strength in XLMTM Dogs
The evaluation of respiratory function as measured by the fastest flow rate measured during inhalation, or peak inspiratory flow, is illustrated in the figure below.
AT132 Improves Respiratory Function in XLMTM Dogs
Most importantly, all treated dogs achieved a statistically significant improvement in survival, which extended far beyond the critical 18-week time point, when all untreated XLMTM dogs could no longer ambulate. All three of the treated dogs survived for the one-year duration of the study. One of these dogs was euthanized for study purposes, but the other two are now approximately three years of age and remain indistinguishable from normal dogs.
The second canine study was designed to compare the effects of three different doses of AT132 delivered by systemic administration versus untreated XLMTM and normal dogs. The three doses, a low dose (5.0 x 10 13 vg/kg), a mid-dose (2.5 x 10 14 vg/kg) and a high dose (8.0 x 10 14 vg/kg), were administered to
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XLMTM1 dogs at ten weeks of age and the dogs were evaluated for 45 weeks. Three dogs were treated at each dose. In this study, the low dose was deemed to be the minimally effective dose, meaning that it produced somewhat extended survival and some improvement in functional parameters, including muscle strength, but not optimal restoration of function. Dosing at both the mid and high doses resulted in dramatically superior efficacy outcomes as compared to untreated XLMTM dogs, including muscle strength, respiratory function and 100% survival. In addition, biodistribution analyses of both cohorts revealed encouraging expression levels of myotubularin. Specifically, the mid dose resulted in a range of 10% to 40% of normal myotubularin levels, and the high dose resulted in approximately 100% of normal myotubularin levels as measured in a wide range of skeletal muscle.
We intend to conduct additional preclinical studies of AT132, primarily related to safety assessments, prior to the submission of our IND or CTA.
Planned Clinical Development of AT132
The clinical development plan for AT132 currently consists of four individual studies to evaluate AT132 in children with XLMTM and to characterize the natural history of the disease. We plan to submit an IND or CTA in the second half of 2016 and initiate ASPIRO, a Phase 1/2 trial thereafter. We are currently conducting a retrospective chart review and a prospective natural history study.
| RECENSUS Study (Ongoing)Retrospective Medical Chart Review: The RECENSUS study is an international, non-interventional, retrospective medical chart review of approximately 120 living and deceased XLMTM patients. The purpose of this study is to further characterize the clinical manifestations and natural history of XLMTM. In addition, this study may serve as a historical control for the planned Phase 1/2 ASPIRO trial. However, because the patient population, supportive care used or other factors may be different than those used in the ASPIRO trial, we may be unable to use the RECENSUS study to demonstrate statistical significance of results in the planned ASPIRO trial. |
| INCEPTUS (Ongoing)Prospective Natural History Study: The INCEPTUS study is an international, non-interventional clinical assessment study of 16 to 20 patients, ages three years or younger, with XLMTM. The primary objective of this study is to characterize the disease course and natural history of children with XLMTM, with a specific focus on respiratory and neuromuscular measurements. In addition, the study will assess the burden of disease on XLMTM subjects and caregivers. The study will evaluate subjects over a three to 12-month period prior to potential enrollment in the Phase 1/2 trial of AT132. |
| ASPIROPhase 1/2 Trial: The ASPIRO trial is planned as a Phase 1/2 multicenter, multinational, single-arm, open-label evaluation of the safety and efficacy of AT132 in approximately 12 XLMTM patients up to four years of age. The planned primary endpoint is safety over 12 months, assessed as occurrence of adverse events along with changes in hepatic measures, immunologic function (including development of AAV8 antibodies), cardiac function and survival. Planned secondary endpoints include key efficacy parameters such as assessments of neuromuscular and respiratory function, burden of disease and health related quality of life, and muscle tissue histology and biomarkers. |
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Phase 1/2 Extension trial: Our Phase 1/2 extension trial is expected to evaluate the safety and efficacy of AT132 in patients who participated in the ASPIRO trial. Patients will be followed for a minimum of 24 months after enrollment in this study, for a minimum total of 36 months of follow up after single-dose administration in the ASPIRO trial. The primary endpoint is safety over the entire 36 months of treatment, assessed as occurrence of adverse events as well as changes in hepatic measures, immunologic function (including development of AAV8 antibodies), cardiac |
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function and survival. Secondary endpoints include key efficacy parameters such as assessments of neuromuscular function and respiratory function. |
We have met with and are planning additional meetings with regulatory authorities regarding our planned IND and CTA. After the conclusion of the ASPIRO trial, we plan to meet with regulatory authorities in the United States and Europe to discuss next steps in the development and approval of AT132.
AT342 for the Treatment of CN Type 1
Overview of CN Type 1
CN Type 1 is a rare, congenital autosomal recessive monogenic disease characterized by severely high levels of bilirubin in the blood and risk of irreversible neurological damage and death. CN Type 1 is caused by mutations in the gene encoding the UGT1A1 (uridine-diphosphate (UDP)-glucuronosyltransferase (UGT) 1A1) enzyme resulting in an inability to convert unconjugated bilirubin to a water-soluble form that can be excreted from the body. The accumulation of bilirubin in the peripheral and central nervous system, including the brain, can lead to irreversible neurological damage and death.
Infants with CN Type 1 develop severe jaundice shortly after birth resulting in rapid presentation and diagnosis. Clinical diagnosis can be confirmed via genetic testing of the UGT1A1 gene. The current standard of care for CN Type 1 is aggressive phototherapy for more than ten to 12 hours per day, which becomes less effective beginning around age four. Life expectancy is 30 years of age. CN Type 1 is estimated to affect approximately one in 1,000,000 newborns.
Limitations of Current Therapy for CN Type 1
There are currently no products approved specifically for the treatment of CN Type 1. The current standard of care for CN Type 1 is aggressive phototherapy for more than ten to 12 hours per day using intense fluorescent light focused on the bare skin, while the eyes are shielded. The impact on quality of life is substantial. Phototherapy speeds bilirubin decomposition and excretion, lowering serum bilirubin levels. However, the effectiveness of phototherapy typically wanes beginning around four years of age due to thickening of the skin and a reduction in the surface area to body mass ratio. As children get older, compliance with phototherapy becomes challenging. As CN Type 1 infants and children begin to experience progression of neurological symptoms, a liver transplant is often required for survival. However, limited donor organ availability, the risks associated with the transplant procedure itself and potential for organ rejection limit the utility of a transplant as a widespread treatment modality for CN Type 1.
AT342 Description
AT342 consists of an AAV8 vector capsid designed to deliver a functional UGT1A1 gene and increase UGT1A1 protein expression in the liver and other tissues. Importantly, AAV8 has high affinity for liver cells allowing for the efficient introduction of therapeutic genes into liver cells. We believe that, if approved and determined by the FDA to be safe and effective, AT342 has the potential to provide long-term clinical benefit to CN Type 1 patients through persistent expression of the protein following a single administration, resulting in significant reduction in bilirubin levels, reduction or elimination of the need for lengthy daily phototherapy treatment and elimination of the need for a liver transplant.
Preclinical Proof-of-Concept for AT342
Preclinical proof-of-concept study results have been reported using AAV8-UGT1A1 in a murine model of Crigler-Najjar syndrome. Data demonstrate that a single administration of AAV8-UGT1A1 resulted in a rapid and significant reduction in total bilirubin levels of 12 mice as compared to 11 mice that received only phototherapy. The administration of AAV8-UGT1A1 also proved durable, lasting the entire 17-month duration
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of the study. Bilirubin levels at 17 months were over 50% lower in AAV8-UGT1A1 treated mice versus control mice that received only phototherapy. Furthermore, bilirubin levels remained below the level at which neurological damage is observed in this model for the duration of the study.
AAV8-UGT1A1 Reduces Total Bilirubin Levels in a Crigler-Najjar Syndrome Mouse Model
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We intend to complete dose selection and toxicology studies with AT342 prior to entering clinical development.
Planned Clinical Development of AT342
We plan to submit an IND or CTA for AT342 in the second half of 2016, and, if and when it becomes effective, commence a Phase 1/2 clinical trial. In this trial, we plan to evaluate the safety of AT342 in CN Type 1 patients as well as assess efficacy measures including bilirubin levels and time on phototherapy.
AT307 for the Treatment of CASQ2-Catecholaminergic Polymorphic Ventricular Tachycardia
Overview of CASQ2-CPVT
CASQ2-CPVT is a life-threatening, autosomal recessive, inherited cardiac disease caused by mutations in the CASQ2 gene that encodes the protein called calsequestrin 2. The CASQ2 protein plays a key role in the release of calcium within the cardiac muscle cell, which is necessary for normal cardiac contractile function to maintain normal heart rhythm. It is estimated that CPVT occurs in one in 10,000 people, with approximately 2% to 5% due to mutations in the CASQ2 gene. This equates to an estimated prevalence of 6,000 affected people in North America, Europe and other addressable markets. The number of identified cases is likely to increase with the advent of more accessible genetic testing.
CPVT is characterized by the sudden occurrence of severe ventricular arrhythmia that can cause dizziness and fainting, and can progress rapidly to cardiac arrest and sudden cardiac death. These arrhythmias are triggered during exercise or in response to a sudden stressful occurrence. It is estimated that 30% of people with CASQ2-CPVT will have had a cardiac event by the age of ten, and 79% will have had an event by the age of 40. Untreated, mortality is reported to be in the range of 30% to 50% by the age of 30. In addition, a high proportion of sudden infant death is also thought to be due to severe arrhythmia-related events such as CPVT. Due to the association between exercise, stress and the onset of symptoms, there is a significant impact on the activities of daily living of patients, their families and their caregivers, as any stressful event or activity may trigger an episode, creating considerable anxiety for the patients and their family members. Despite major electrophysiological abnormality, patients with CPVT have a structurally normal heart and a normal baseline electrocardiogram. However, during a cardiac stress test, such as an exercise test on a treadmill, patients with CVPT display a distinct polymorphic electrocardiogram that makes clinical diagnosis straightforward.
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Limitations of Current Therapy for CPVT
Despite available therapies to treat CPVT, which include beta-blockers and the sodium channel blocker flecainide, it is estimated that 30% to 40% of patients still experience significant cardiac events. Patients unresponsive to available therapies may be candidates for implantation of cardiac defibrillators, though their safety and effectiveness is considerably more limited in young patients. Due to the limitations of existing therapies, there remains a significant unmet medical need for patients with CPVT.
AT307 Description
AT307 consists of an AAV9 vector that is designed to deliver a functional CASQ2 gene and to increase CASQ2 protein expression in targeted tissues. We are utilizing AAV9 because it is known to effectively penetrate heart tissue. We are evaluating a number of different promoters and other proprietary vector structural elements to optimize AT307 for transgene expression and product quality. We believe AT307 has the potential to provide long-term clinical benefit to CASQ2-CPVT patients through persistent expression of the protein following a single administration, resulting in a significant reduction in life-threatening arrhythmic events and other disease symptoms.
Preclinical Proof-of-Concept for AT307
Initial preclinical proof-of-concept studies were conducted using an AT307 prototype product candidate in a genetically engineered murine model of CASQ2-CPVT. This mouse manifests stress-induced arrhythmias upon epinephrine administration, as well as cellular and molecular manifestations of the disease. In this model, a single administration of the AT307 prototype to nine mice resulted in a significant improvement in CASQ2 protein expression to a level approaching that of normal animals. Cardiomyocytes isolated from animals with a CASQ2 mutation show abnormal electrophysiology, as demonstrated by pre-arrhythmic events such as increased delayed after depolarizations and triggered activity. Cardiomyocytes isolated from the affected mice treated with the AT307 prototype had electrophysiology indistinguishable from that of normal mice.
Additionally, the efficacy of the AT307 prototype was evaluated in studies in both newborn and adult affected mice. In both studies treatment resulted in significant reductions in ventricular tachycardia versus untreated controls when challenged with epinephrine. The effect of this single treatment lasted for the one-year duration of the studies.
AT307 Prototype Improves Ventricular Tachycardia in Newborn and Adult Mice
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We intend to complete additional studies in the murine model to select our development candidate and to determine an appropriate dose for our planned clinical trial. We are also planning a large-animal study to determine the optimal route of administration for AT307.
Planned Clinical Development of AT307
We plan to submit an IND or CTA for AT307 in 2017 and initiate a Phase 1/2 study thereafter. In this study, we plan to determine the safety of AT307 in patients with CASQ2-CPVT, and to collect preliminary efficacy data utilizing exercise electrocardiogram testing as a means of evaluating therapeutic benefit.
AT982 for the Treatment of Pompe Disease
Overview of Pompe Disease
Pompe disease is a rare, severe, progressive, congenital neuromuscular disease. The overall incidence is estimated to be approximately one in 40,000 people although frequency and disease progression varies with age of onset, ethnicity and geography. The disease is characterized by mutations in the gene that encodes the enzyme acid alpha-glucosidase, or GAA. GAA is responsible for degrading glycogen within the lysosome, and dysfunction or absence of functional GAA results in toxic accumulation of glycogen in cells. Tissues and cells most affected by the disease are predominantly skeletal muscle, cardiac muscle and motoneurons.
The severity of Pompe disease symptoms and rate of progression is highly variable and correlated with age of symptom onset and the degree of enzyme deficiency. Infantile or early onset disease, the most severe form of Pompe disease, accounts for approximately one quarter of all affected patients. Those with early-onset disease are usually diagnosed in the first few months of life due to the severe presentation associated with total or near-total absence of GAA activity, and confirmatory diagnosis is made through genetic testing. These infants usually present with feeding difficulties, failure to thrive, muscular hypotonia, progressive weakness, respiratory distress, severe enlargement of the tongue and thickening of the heart muscle. If left untreated, these children usually die in the first year of life. Those with late-onset disease typically have enzyme levels at 1% to 40% of normal and usually have symptoms such as reduced mobility and respiratory problems. Late-onset patients experience progressive difficulty walking and respiratory decline, and although life expectancy can vary, it is a life-limiting disease and death generally occurs due to complications from respiratory failure. Newborn-screening programs can successfully identify Pompe disease in the newborn period, but such programs have not yet been widely implemented worldwide.
Limitations of Current Therapy for Pompe Disease
The only approved treatment for Pompe disease is ERT. Although ERT is the current standard of care for the disease, it has a number of recognized limitations:
| Currently approved versions of ERT are administered every two weeks, and in some cases more frequently. |
| Large doses of ERT have to be delivered systemically in order to achieve potentially therapeutic levels in the target tissues, and as a result approximately 93% of patients develop antibodies against the therapy. Such antibody responses may impact both the safety and efficacy of ERT. Currently approved ERT products carry a black box warning related to the risk of life-threatening anaphylaxis, and severe allergic and immune mediated reactions. |
| While initial studies of ERT demonstrated that treatment improved survival and ventilator-free survival of patients with early-onset disease, long-term follow-up of these patients indicates substantial disease progression. Subsequent analyses of the effectiveness of ERT have identified variations in outcomes, with most infants exhibiting declines in motor and respiratory function and reduced survival despite treatment. |
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| ERT is unable to cross the blood-brain barrier and thus cannot reduce the accumulation of glycogen in the brain, spinal cord and peripheral nervous system. It is believed that glycogen accumulation is particularly detrimental to the function of the cells of the peripheral nervous system in Pompe, especially motoneurons, and thus the inability of ERT to reach these cells may lead to incomplete treatment of the underlying pathology and account for the failure of ERT to halt disease progression and reverse functional decline. |
| Chronic therapy with ERT is costly. Experts in health technology assessment have projected the lifetime costs of ERT to be in excess of $7 million for patients with infantile onset Pompe. Due to the requirement of dosing by body weight, the cost for infantile patients increases year-over-year as these patients grow. |
AT982 Description
AT982 consists of an AAV9 vector that delivers a GAA gene expression cassette containing a desmin promoter capable of increasing GAA activity in targeted tissues. AT982 was designed with these elements because AAV9 is known to effectively penetrate the heart, muscle and motoneurons and the desmin promoter is known to increase gene expression primarily in muscle but also in motoneurons. We believe AT982 has the potential to provide long-term clinical benefit to patients with Pompe disease through persistent expression of the GAA protein following a single intravenous administration.
Preclinical Proof-of-Concept for AT982
Preclinical studies of AT982 have been conducted in a robust and well established genetically modified murine model of Pompe disease. In these studies, treatment resulted in improvement in several measures of efficacy, including enzyme activity, glycogen clearance and skeletal muscle, cardiac and respiratory function.
A recent study evaluated systemic administration of AT982 to six mice at a dose level of approximately 5 x 10 12 vg/kg and compared outcomes versus untreated Pompe mice, normal mice and mice treated with multiple doses of ERT. Treatment with AT982, measured at three months following treatment, significantly increased GAA activity in heart, diaphragm and costal muscle versus both untreated mice and mice treated with ERT, as shown in the figure below.
AT982 Significantly Increases GAA Activity Compared to ERT in Multiple Muscle Tissues
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At three months following administration, both the AT982 and ERT-treated groups showed significant improvements in body mass, cardiac function and diaphragm function. However, AT982 also resulted in a statistically significant increase in breathing frequency, a decrease in expiratory time and an increase in timing of the total respiratory cycle as compared with both ERT and control, which resulted in outcomes comparable to those in normal mice. These data are shown in the figure below. The enhanced respiratory function on these parameters compared to ERT may result from increased GAA activity in motoneurons, specifically the phrenic nerve that innervates the diaphragm. For three of the six measures studied, no significant differences were detected between all three groups at this age. Separate studies in the murine model of Pompe have demonstrated the ability of AT982 to enter motoneurons and increase GAA activity.
AT982 Restores Several Respiratory Parameters
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Total Respiratory Cycle Time
Planned Development of AT982
We plan to conduct additional preclinical studies to support the submission of an IND or CTA for AT982 in 2017. If and when the IND or CTA for AT982 becomes effective, we intend to commence a Phase 1/2 study.
Manufacturing
We believe it is important to our business to ensure reliable, high quality clinical and commercial supply that is produced cost effectively. For these reasons, we are building strong scientific AAV process development and manufacturing teams and are investing in a state-of-the-art cGMP manufacturing facility in South San Francisco to develop and implement novel in-house production technologies. We view the development of internal manufacturing capacity as a key competitive advantage as it allows for better control over product development timelines, costs and intellectual property, such as trade secrets, novel inventions and proprietary knowledge. Our process development and manufacturing teams are composed of a combination of industry veterans and established key opinion leaders in the field of AAV manufacturing.
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Process development research is currently ongoing in both our laboratories and those of our research collaborators. Our new manufacturing facility will also include process development research space to expand this capability, as well as to provide support for small-scale production of AAV vectors for preclinical studies. This new laboratory space is expected to be available and capable of small-scale production in the first half of 2016, with cGMP manufacturing of our product candidates expected in the second half of 2016. We anticipate our manufacturing facility will be capable of providing cGMP supply at scale suitable for commercial production by 2018.
Our manufacturing strategy focuses on utilizing mammalian cells as the substrate for AAV-based product candidates. Mammalian cells are the natural host for AAV, and so provide a cellular environment most closely mimicking that in which the virus normally replicates. We believe that matching the production host cell to the vector in this way best preserves the quality of the replication complexes responsible for synthesizing viral vector genomes and creating, assembling and filling viral vector capsids with those genomes. Our early phase product candidates are manufactured using transient transfection, in which genetic components for vector production are supplied to cells during each manufacturing run. We are evaluating a future transition to a stable cell line system, in which at least some genetic components are permanently integrated into the host cell genome before manufacturing occurs.
Our current production process utilizes HEK293 cells, which are the most commonly used host cell for AAV vector production. These cells are familiar to regulatory authorities and commercial cell culture media manufacturers, and take up foreign DNA robustly to produce high transient vector titers. Our early clinical stage production platform utilizes serum-free suspension cell culture of HEK293 cells and transient transfection of plasmids to produce clinical grade AAV vectors in a scalable process. We believe this approach maximizes speed of development, product quality and regulatory compliance. Further, our analytical team utilizes the latest technologies for characterization of biological molecules to enable the creation of strict standards of quality and potency that we believe will differentiate our products from others in the field.
Our Plans for Clinical and Commercial Scale-Up
As our products progress through clinical development, we plan to transition their production to newer mammalian cell processes that maximize vector product yield while maintaining the high quality derived from the current processes. This may include transitioning to a stable cell producer system, which our team is currently evaluating in our research facilities. As large scale gene therapy manufacturing remains a new discipline, we view our investment in the capacity to develop, manufacture and analyze AAV vectors as strategically important, and we expect it to yield intellectual property and know-how that benefits both our internal programs and the broader gene therapy field.
Current Status of Manufacturing
We have established relationships with research facilities, contract manufacturing organizations, or CMOs, and our collaborators to manufacture and supply our product candidates for preclinical and clinical studies. Currently, AT132 is manufactured by Genethon, a not-for-profit research laboratory in France in facilities that we believe comply with cGMPs and cGLPs and AT982 is manufactured by the University of Florida in a facility that we believe complies with cGMPs. We anticipate that material for preclinical studies of AT342 and AT307 will be manufactured by CMOs. We plan to begin transitioning manufacturing activities to our own facilities in 2016 as we establish and scale our manufacturing capabilities.
Intellectual Property
We have licensed numerous patents and patent applications and possess substantial proprietary know-how and trade secrets relating to our development programs and manufacturing capabilities. We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to the
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development of our business by seeking, maintaining and defending our intellectual property, whether developed internally or licensed from third parties. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of gene therapy. Additionally, we intend to rely on regulatory protection afforded through rare drug designations, data exclusivity and market exclusivity as well as patent term extensions, where available.
We are heavily dependent on patented or proprietary technologies that we license from third parties. For additional information regarding these license agreements, see License and Collaboration Agreements. We anticipate that we will require additional licenses to third-party intellectual property rights relating to our development programs in the future, which may not be available on commercially reasonable terms, if at all.
Our in-licensed patents and patent applications are directed to the compositions of matter and methods of use related to various aspects of our product candidates as well as certain aspects of our manufacturing capabilities. As of December 1, 2015, we had filed one U.S. provisional patent application directed to modified AAV vectors and methods of manufacturing the same. If granted, we expect this patent would expire in 2036. Our in-licensed patent portfolio as it relates to one or more of our product candidates includes:
| one U.S. patent relating to AT132, expiring in 2034, as well as one U.S. patent application, comprising claims directed to recombinant AAV for use in treating XLMTM and AAV constructs containing the MTM gene under control of the desmin promoter and uses thereof; |
| four U.S. patents, expiring between 2022 and 2024, and one U.S. patent application as well as corresponding patents and patent applications internationally, relating to recombinant AAV vectors having an AAV8 capsid utilized in AT132 and AT342; |
| two U.S. patent applications projected to expire between 2028 and 2032, as well as corresponding patent applications internationally relating to AT982, comprising claims directed to recombinant AAV having an AAV9 capsid for use in treating Pompe disease and AAV constructs containing the GAA gene under control of the desmin promoter and uses thereof; |
| one U.S. patent relating to AT307, expiring in 2032, as well as one U.S. patent application, each with claims directed to methods of treating recessive CPVT by CASQ2 gene therapy; and |
| one U.S. patent, expiring in 2026, and one U.S. patent application as well as corresponding patents and patent applications internationally, relating to recombinant AAV vectors having an AAV9 capsid utilized in AT982 and AT307. |
The term of individual patents may vary based on the countries in which they are obtained. Generally, patents issued for applications filed in the United States are effective for 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of FDA regulatory review period. The restoration period cannot be longer than five years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. The duration of patents outside of the United States varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date.
In addition to patents and patent applications that we license, we rely on trade secrets and know-how to develop and maintain our competitive position. For example, significant aspects of our AAV manufacturing capabilities and gene therapy technology are based upon trade secrets and know-how. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, and obtain and maintain ownership of certain technologies, in part, through confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how, including by
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implementing measures intended to maintain the physical security of our premises and the physical and electronic security of our information technology systems.
Our future commercial success depends, in part, on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operate without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. With respect to our licensed intellectual property, we cannot be sure that patents will issue with respect to any of the pending patent applications to which we license rights or with respect to any patent applications that we or our licensors may file in the future, nor can we be sure that any of our licensed patents or any patents that may be issued in the future to us or our licensors will be commercially useful in protecting our product candidates and methods of manufacturing the same. Moreover, we may be unable to obtain patent protection for certain of our product candidates generally, as well as with respect to certain indications. See the section entitled Risk FactorsRisks Related to Our Intellectual Property for a more comprehensive description of risks related to our intellectual property.
License and Collaboration Agreements
We have built our portfolio of product candidates in part by engaging in strategic transactions with third parties. We intend to continue to collaborate with additional third parties to expand our pipeline of product candidates, as well as to deepen our existing relationships with our collaborators and licensors. We intend to leverage these relationships to continue to advance the scientific understanding of the indications we target. We have in the past supported investigator-sponsored preclinical studies and clinical trials, and may do so in the future with our current and future collaborators.
REGENXBIO License Agreement (XLMTM/Pompe)
In July 2013, we entered into an exclusive license agreement with REGENXBIO Inc. (formerly ReGenX Biosciences, LLC), or REGENXBIO. Under the agreement, REGENXBIO granted us an exclusive worldwide license under certain patent rights to make, have made, use, import, sell and offer for sale licensed products in the treatment of both XLMTM and Pompe disease using both AAV8 and AAV9.
As consideration for the licensed rights, we paid REGENXBIO an initial fee of $0.3 million and 111,999 shares of our common stock. We will also owe REGENXBIO (i) an annual maintenance fee; (ii) up to $8.9 million in combined milestone fees per licensed product related to XLMTM and up to $8.9 million in combined milestone fees per licensed product related to Pompe disease, a small portion of which may be paid in the form of shares of our common stock; (iii) mid to high single digit royalty percentages on net sales of licensed products and (iv) mid-single to lower mid-double digit percentages of any sublicense fees we receive from sublicensees for the licensed patent rights.
We are obligated to achieve certain development milestones, including submission to the FDA and subsequent effectiveness of an IND for each indication within a specified time period, which we may extend for additional time for a specified number of extensions upon the payment of a fee.
The agreement will expire upon the expiration, lapse, abandonment or invalidation of the last claim of the licensed patent rights to expire, lapse or become abandoned or unenforceable in all countries worldwide. We may terminate the agreement upon prior written notice. REGENXBIO may terminate the agreement immediately if we or our affiliates become insolvent, if we are late by a specified number of days in paying money due under the agreement or if we or our affiliates commence any action against REGENXBIO or its licensors to declare or render any claim of the licensed patent rights invalid or unenforceable. Either party may terminate the agreement for material breach that is not cured within a specified number of days.
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REGENXBIO License Agreement (Crigler-Najjar Syndrome)
In November 2015, we entered into a second license agreement with REGENXBIO. Under the agreement, REGENXBIO granted us an exclusive worldwide license under certain patent rights to make, have made, use, import, sell and offer for sale licensed products for the treatment of Crigler-Najjar syndrome in humans using AAV8.
As consideration for the licensed rights, we paid REGENXBIO an upfront fee of $0.2 million and agreed to pay an additional $0.4 million upon the occurrence of certain events. We will also owe REGENXBIO (i) an annual maintenance fee; (ii) up to $7.6 million in combined development and regulatory milestone fees per licensed product; (iii) mid-single to low-double digit royalty percentages on net sales of licensed products sold by us, our affiliates and sublicensees and (iv) a lower mid-double digit percentage of certain sublicense fees we receive from sublicensees for the licensed products and certain fees we receive from the sale or transfer of specified rights related to a licensed product.
Under the agreement we are obligated to diligently use commercially reasonable efforts to develop, commercialize, market, promote and sell licensed products. We are also obligated to achieve certain development milestones, including submission to the FDA and subsequent effectiveness of an IND application, or acceptance by the European Medicines Agency of an equivalent application, within a specified time period, which we may extend for a specified number of extensions upon the payment of certain fees.
The agreement will continue on a country-by-country and licensed product-by-licensed product basis and expire upon the later of the expiration, lapse, abandonment or invalidation of the last claim of the licensed patent rights to expire, lapse or become abandoned or unenforceable in such country, or ten years after first commercial sale of such licensed product in such country. We may terminate the agreement upon prior written notice. REGENXBIO may terminate the agreement immediately in case of our bankruptcy, or other similar events, if we are late in paying money due under the agreement and do not pay in full within a specified number of days after receiving written notice, or if we or our affiliates commence any action against REGENXBIO or its licensors to declare or render any claim of the licensed patent rights invalid or unenforceable. Either party may terminate the agreement for material breach that is not cured within a specified number of days.
REGENXBIO License Agreement (CPVT)
Also in November 2015, we entered into a third license agreement with REGENXBIO. Under the agreement, REGENXBIO granted us an exclusive worldwide license under certain patent rights to make, have made, use, import, sell and offer for sale licensed products for the treatment of CPVT in humans using AAV9. Within a specified time and upon written notice we may elect to substitute for, or add to, CPVT certain other inherited arrhythmias.
As consideration for the licensed rights, we paid REGENXBIO an upfront fee of $1.0 million. For each additional indication we may elect to pursue under the licensed rights, we agreed to pay REGENXBIO a fee of $0.5 million upon such election. We will also owe REGENXBIO (i) an annual maintenance fee for each covered indication; (ii) up to $8.8 million in combined development and regulatory milestone fees for each indication and each licensed product; (iii) up to $45.0 million in combined commercial milestone fees based on various annual aggregate net sales thresholds; (iv) mid-single to low-double digit royalty percentages on net sales of licensed products sold by us, our affiliates and sublicensees and (v) a lower-mid double digit percentage of any sublicense fees we receive from sublicensees for the licensed products and certain fees we receive from the sale or transfer of specified rights related to a licensed product.
Under the agreement, we are obligated to use commercially reasonable efforts to develop, commercialize, market, promote and sell licensed products for each indication. We are also obligated to achieve certain development milestones for each indication, including submission to the FDA and subsequent effectiveness of an IND application, or acceptance by the European Medicines Agency of an equivalent
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application, within a specified time period, which we may extend for additional time and for a specified number of extensions upon the payment of certain fees.
The agreement will continue on a country-by-country and licensed product-by-licensed product basis and expire upon the later of the expiration, lapse, abandonment or invalidation of the last claim of the licensed patent rights to expire, lapse or become abandoned or unenforceable in such country, or ten years after first commercial sale of such licensed product in such country. We may terminate the agreement in its entirety or for each elected disease indication upon prior written notice. REGENXBIO may terminate the agreement immediately in case of our bankruptcy, or other similar events, if we are late in paying money due under the agreement and do not pay in full within a specified number of days after receiving written notice, or if we or our affiliates commence any action against REGENXBIO or its licensors to declare or render any claim of the licensed patent rights invalid or unenforceable. Either party may terminate the agreement for material breach that is not cured within a specified number of days.
Genethon Collaborative Development Agreement
In January 2014, we entered into a collaborative development agreement with Genethon, a French not-for-profit organization. Subject to certain limitations on patents that are co-owned or in-licensed by us, Genethon granted us a royalty-free, exclusive, worldwide license under certain background intellectual property rights controlled by Genethon to research, develop, make and commercialize certain products for the treatment of XLMTM. In addition, the collaboration agreement provides that new intellectual property arising from the performance of the development plan will be owned jointly by both parties and Genethon granted us a royalty-free, exclusive, worldwide license to Genethons interest in such new intellectual property to research, develop, make and commercialize certain products for the treatment of XLMTM. Genethon also granted us a right of first negotiation to negotiate rights to other internal research programs conducted by Genethon to research, develop, manufacture or commercialize other products for the treatment of XLMTM that are not already included within the scope of this agreement.
In connection with the entry into the collaborative development agreement, we issued 585,084 shares of our common stock to Genethon, of which 195,028 shares vested immediately, 195,028 shares vested in January 2015 and 195,028 shares will vest in January 2016. Unvested shares are subject to a repurchase option at our election in the event of any termination of the agreement. Unvested shares will become fully vested in the event we undergo a change in control or an initial public offering. Genethon also received certain registration rights and information rights, similar to those held by our preferred stockholders.
The agreement provides Genethon with the exclusive right to manufacture licensed product for preclinical and clinical purposes, subject to Genethons ability to supply required quantities in accordance with applicable timelines. Manufacturing costs will be paid by us. Under the agreement, we are obligated to fund Genethons research and development activities related to AT132.
Unless earlier terminated, the agreement will stay in effect until completion of the research program and our license grants will survive any expiration of the agreement. Either party may terminate the agreement for the other partys uncured material breach of the agreement or for the other partys bankruptcy. We may terminate the agreement for convenience upon prior written notice. Genethon may terminate the agreement upon raising an objection to continued development on grounds of a safety or efficacy issue and upon prior written notice of such objection.
University of Florida License Agreement
Effective July 2015, we entered into a license agreement with the University of Florida Research Foundation, or UFRF. Under the agreement, UFRF granted us an exclusive, worldwide license under certain patent rights and a non-exclusive license to certain related know-how for the treatment of Pompe. We agreed to
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pay an upfront license fee, an annual maintenance fee until first commercial sale of a licensed product, up to $1.2 million in combined development and regulatory milestone payments, and a low single digit royalty on net sales of licensed products sold by us and our sublicensees, subject to minimum annual royalty payments following the first commercial sale of a licensed product. We are obligated to pay royalties on a country-by-country basis until the later of expiration of the last valid claim within the licensed patent rights in such country and ten years after first commercial sale of a licensed product in such country. We also agreed to pay to UFRF certain percentages of sublicense fees we receive from sublicensees of the licensed patent rights based on the stage of development at the time the sublicense is executed.
Under the agreement, we are obligated to diligently perform a specified development plan and to use commercially reasonable efforts to market and commercialize at least one licensed product which has obtained regulatory approval. We are also obligated to achieve a number of diligence milestones, including the achievement of first commercial sale within a specific time period. If we fail to meet any of these diligence milestones and the deadlines are not extended in accordance with the terms of the agreement, then UFRF may terminate the agreement.
We may terminate the agreement for convenience upon prior written notice. UFRF may terminate the agreement upon prior written notice for breach of the agreement by us, including specific listed breaches, our violation of laws or regulations in the development or commercialization of licensed products or our bankruptcy or liquidation. In addition, UFRF may terminate the agreement immediately if we or our affiliates challenge the validity, patentability or enforceability of the licensed patents rights. If the challenge is brought by a sublicensee, UFRF may request that we terminate the sublicense.
FSM License Agreement
In August 2015, we acquired Cardiogen Sciences, Inc., or Cardiogen. Through this transaction, we acquired a license agreement previously entered into by Cardiogen with the Fondazione Salvatore Maugeri, or FSM an Italian non-profit organization. Under the license agreement, we obtained an exclusive worldwide license to certain intellectual property to develop, use and commercialize products related to recessive CPVT, as well as to several additional inherited arrhythmias. Under the agreement we are obligated to use commercially reasonable efforts to develop and, after receiving regulatory approval for products in a given country, commercialize such products in such country.
As consideration for the license, Cardiogen issued 425,000 shares of Cardiogen common stock to FSM. In connection with our acquisition of Cardiogen, the Cardiogen shares held by FSM were cancelled and converted into 115,881 shares of our common stock. We also agreed to pay FSM low single digital royalties on net sales of licensed products for as long as such product is covered by a valid claim of the licensed patents in the applicable country.
We may terminate the agreement for convenience upon prior written notice. Either party may terminate the agreement upon prior written notice for the uncured material breach of the agreement by the other party or the other partys bankruptcy or liquidation.
Competition
The biotechnology and pharmaceutical industries, including the gene therapy field, are characterized by rapidly changing technologies, competition and a strong emphasis on intellectual property. We are aware of several companies focused on developing gene therapies in various indications as well as several companies addressing other methods for modifying genes and regulating gene expression. We may also face competition from large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions. The key competitive factors affecting the success of any approved product will include the efficacy, safety profile, method of administration, cost and level of promotional activity.
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For our product candidates, we are aware of the following competing efforts:
| AT132 for XLMTM. Valerion Therapeutics, LLC is studying VAL-0620, a fusion protein consisting of an antibody linked to the MTM1 protein. Preclinical evaluation of this approach in an XLMTM murine model demonstrated improvements in both muscle structure and function, as reported in a 2013 publication. This program has not been reported by Valerion Therapeutics, LLC to have progressed to clinical development. |
| AT342 for CN Type 1 . The current standard of care for the treatment of CN Type 1 is phototherapy, and when urgent treatment is needed to avoid neurological damage, aggressive intravenous fluid hydration, management of glucose levels, albumin administration and plasma exchange may be provided. Upon disease progression, liver transplant may be required for survival. There are currently no products approved for the treatment of CN Type 1. Genethon, a French not-for-profit organization, is developing an AAV-UGT1A1 gene therapy for the treatment of Crigler-Najjar syndrome, and has announced plans to initiate clinical development by the end of 2016. Promethera has received orphan designation from the FDA and European Commission for the treatment of Crigler-Najjar syndrome for HepaStem, a product that comprises heterologous human adult liver progenitor cells. Promethera previously completed a Phase 1/2 study that enrolled patients with Crigler-Najjar syndrome or ornithine transcarbamylase deficiency. No further development in Crigler-Najjar syndrome has been announced for HepaStem. Additionally, Alexion recently announced that, in collaboration with Moderna, it is developing a messenger RNA product candidate for the treatment of CN Type 1, which it expects to enter the clinic in 2016. |
| AT307 for CASQ2-CPVT. To date, no therapies have been approved specifically for the treatment of CASQ2-CPVT. Beta-blockers, including nadolol or propranolol, are currently used as first line treatment, sometimes with the addition of a calcium channel blocker such as verapamil. The sodium channel blocker flecainide, and implantable cardioverter defibrillators are also currently used in the treatment of CASQ2-CPVT. Heart transplant is used infrequently as a last-line therapy in refractory cases of CPVT. Additionally, there are no known investigational therapies in development for CASQ2-CPVT. |
| AT982 for Pompe Disease. The current standard of care for the treatment of Pompe disease is ERT with recombinant GAA protein. Genzyme Corporation currently markets MYOZYME and LUMIZYME, which are ERTs for the treatment of Pompe disease. Multiple companies, including BioMarin Pharmaceutical, Inc., Genzyme Corporation, Amicus Therapeutics, Inc., Valerion Therapeutics, LLC and Oxyrane UK Limited are currently reported to be developing next generation ERT to treat Pompe disease. The furthest advanced of these are reveglucosidase alfa from BioMarin Pharmaceutical, Inc., an ERT in Phase 3 clinical development, and neoGAA from Genzyme Corporation, which is in clinical development. In addition, there are currently multiple academic institutions and companies researching alternative gene therapy approaches to treating Pompe disease. We do not believe these approaches utilize AAV9 capsids for motoneuron targeting and none are currently reported to be in clinical development. |
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and other resources than we do, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any product candidates that we may develop. Competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market, if ever. Additionally, new or advanced
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technologies developed by our competitors may render our current or future product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Biological products used for the prevention, treatment, or cure of a disease or condition of a human being are subject to regulation under the FDC Act, except the section of the FDC Act which governs the approval of New Drug Applications, or NDAs. Biological products, such as our gene therapy products, are approved for marketing under provisions of the Public Health Service Act, or PHSA, via a Biologics License Application, or BLA. However, the application process and requirements for approval of BLAs are very similar to those for NDAs, and biologics are associated with similar approval risks and costs as drugs. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending NDAs or BLAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
Biological product development for a new product or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including Good Laboratory Practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical tests, such as tests of reproductive toxicity and carcinogenicity in animals, may continue after the IND is submitted. A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational biologic to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with Good Clinical Practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the
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effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA regulations or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRBs requirements, or may impose other conditions if it believes that the patients are subject to unacceptable risk.
Clinical trials to support BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the biologic into healthy human subjects or patients, the product is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with drug exposure, and to obtain early evidence of a treatment effect if possible. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug or biologic for a particular indication, determine optimal dose and regimen, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain additional information about clinical effects and confirm efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug or biologic and to provide adequate information for the labeling of the product. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the safety and efficacy of the drug or biologic. In rare instances, a single Phase 3 trial with other confirmatory evidence may be sufficient where there is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.
After completion of the required clinical testing, a BLA is prepared and submitted to the FDA. FDA approval of the BLA is required before marketing and distribution of the product may begin in the United States. The BLA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the products pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting a BLA is substantial. The submission of most BLAs is additionally subject to a substantial application user fee, currently exceeding $2,374,000 for Fiscal Year 2016. Under an approved BLA, the applicant is also subject to annual product and establishment user fees, currently exceeding $114,000 per product and $585,000 per establishment for Fiscal Year 2016. These fees are typically increased annually. The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the Agencys determination that it is adequately organized and sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals to complete the review of BLAs. Most applications are classified as Standard Review products that are reviewed within ten months of the date the FDA accepts the BLA for filing; applications classified as Priority Review are reviewed within six months of the date the FDA accepts the BLA for filing. A BLA can be classified for Priority Review when the FDA determines the biologic product has the potential to treat a serious or life-threatening condition and, if approved, would be a significant improvement in safety or effectiveness compared to available therapies. The review process for both standard and priority reviews may be extended by the FDA for three or more additional months to consider certain late-submitted information, or information intended to clarify information already provided in the BLA submission.
The FDA may also refer applications for novel biologic products, or biologic products that present difficult questions of safety or efficacy, to be reviewed by an advisory committeetypically a panel that includes clinicians, statisticians and other expertsfor review, evaluation, and a recommendation as to whether the BLA should be approved. The FDA is not bound by the recommendation of an advisory committee, but generally follows such recommendations. Before approving a BLA, the FDA will typically inspect one or more clinical
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sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the biologic product is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the BLA contains data that provide substantial evidence that the biologic is safe, pure, potent and effective in the claimed indication.
After the FDA evaluates the BLA and completes any clinical and manufacturing site inspections, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the BLA submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application for approval. If, or when, those deficiencies have been addressed to the FDAs satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing and distribution of the biologic with specific prescribing information for specific indications. As a condition of BLA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the biologic outweigh the potential risks to patients. A REMS can include medication guides, communication plans for healthcare professionals, and elements to assure a products safe use, or ETASU. An ETASU can include, but is not limited to, special training or certification for prescribing or dispensing the product, dispensing the product only under certain circumstances, special monitoring, and the use of patient-specific registries. The requirement for a REMS can materially affect the potential market and profitability of the product. Moreover, the FDA may require substantial post-approval testing and surveillance to monitor the products safety or efficacy.
Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing. Changes to some of the conditions established in an approved BLA, including changes in indications, product labeling, manufacturing processes or facilities, require submission and FDA approval of a new BLA or BLA supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing BLA supplements as it does in reviewing BLAs.
Additional Regulation for Gene Therapy Products
In addition to the regulations discussed above, there are a number of additional standards that apply to clinical trials involving the use of gene therapy. FDA has issued various guidance documents regarding gene therapies, which outline additional factors that FDA will consider at each of the above stages of development and relate to, among other things: the proper preclinical assessment of gene therapies; the CMC information that should be included in an IND application; the proper design of tests to measure product potency in support of an IND or BLA application; and measures to observe delayed adverse effects in subjects who have been exposed to investigational gene therapies when the risk of such effects is high. For instance, FDA usually recommends that sponsors observe all surviving subjects who receive treatment using gene therapies in clinical trials for potential gene therapy-related delayed adverse events for a minimum 15-year period, including a minimum of five years of annual examinations followed by 10 years of annual queries, either in person or by questionnaire. FDA does not require the long-term tracking to be complete prior to its review of the BLA.
In addition, if a gene therapy trial is conducted at, or sponsored by, institutions receiving National Institutes of Health, or NIH, funding for recombinant DNA research, a protocol and related documentation must be submitted to, and the study registered with, the NIH Office of Biotechnology Activities, or OBA, pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules, prior to the submission of an IND to the FDA. In addition, many companies and other institutions not subject to the NIH Guidelines voluntarily follow them. The NIH convenes the Recombinant DNA Advisory Committee, or RAC, a federal advisory committee, to discuss selected protocols and informed consent documents that raise novel or particularly important scientific, safety or ethical considerations at one of its quarterly public meetings. The OBA notifies the FDA of the RACs decision regarding the necessity for full public review of a gene therapy protocol. RAC proceedings and reports are posted to the OBA website and may be accessed by the public.
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The NIH and the FDA have a publicly accessible database, the Genetic Modification Clinical Research Information System, which includes information on gene therapy trials and serves as an electronic tool to facilitate the reporting and analysis of adverse events on these trials.
Fast Track Designation and Accelerated Approval
The FDA is required to facilitate the development, and expedite the review, of biologics that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the Fast Track program, the sponsor of a new biologic product candidate may request that the FDA designate the product for a specific indication for Fast Track status concurrent with, or after, the filing of the IND. The FDA must determine if the biologic product candidate qualifies for Fast Track designation within 60 days of receipt of the sponsors request. Under the Fast Track program and FDAs accelerated approval regulations, the FDA may approve a biologic product for a serious or life-threatening illness or condition that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint. A surrogate endpoint is an endpoint that is reasonably likely to predict clinical benefit, or is a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A biologic product candidate approved using a surrogate endpoint is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the beneficial effect on a clinical endpoint. Failure to conduct required post-approval trials, or to confirm a clinical benefit during post-marketing trials, will allow the FDA to withdraw the approved biologic product from the market on an expedited basis. All promotional materials for biologic products approved under accelerated regulations are subject to prior review by the FDA.
In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with the FDA, the FDA may initiate review of sections of BLA with Fast Track designation before the application is complete. This is termed rolling review and is available if the applicant provides, and the FDA approves, a schedule for the submission of the outstanding BLA information and the applicant pays the applicable user fees. However, the FDAs performance goal for reviewing a BLA does not begin until the last section of the BLA is submitted. Additionally, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Breakthrough Therapy Designation
The FDA is also required to expedite the development and review of biological products that are intended to treat a serious or life-threatening disease or condition where preliminary clinical evidence indicates that the biologic product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. The sponsor of a new biologic product candidate may request that the FDA designate the candidate for a specific indication as a Breakthrough Therapy concurrent with, or after, the filing of the IND for the biologic product candidate. The FDA must determine if the biological product qualifies for Breakthrough Therapy designation within 60 days of receipt of the sponsors request.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan drug designation to biological products intended to treat a rare disease or conditiongenerally a disease or condition that affects fewer than 200,000
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individuals in the United States, or if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a product available in the United States for such disease or condition will be recovered from sales of the product.
Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the identity of the biological product and its potential orphan disease use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first BLA applicant to receive FDA approval for a particular active moiety to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product in the approved indication. During the seven-year marketing exclusivity period, the FDA may not approve any other applications to market a biological product containing the same active moiety for the same indication, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. A product can be considered clinically superior if it is safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biological product for the same disease or condition, or the same biological product for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA user fee.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including biological products, are required to register and disclose certain clinical trial information on the website www.clintrials.gov. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of a clinical trial are then made public as part of the registration. Sponsors are also obligated to share the results of the clinical trial after completion. Disclosure of the results of clinical trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the progress of clinical development programs as well as clinical trial design.
Pediatric Information
Under the Pediatric Research Equity Act, or PREA, NDAs or BLAs or supplements to NDAs or BLAs must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the biological product is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any biological product with orphan product designation.
Additional Controls for Biologics
To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend biologics licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases within the United States.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the lot manufacturing history and the results of all of the manufacturers tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before
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allowing the manufacturer to release the lots for distribution. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of a BLA, biologics manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.
Patent Term Restoration
After approval, owners of relevant biologic patents may apply for a patent term extension for a patent to include the regulatory review period. The allowable patent term extension is calculated as half of the drugs testing phasethe time from an IND application becoming effective to BLA submissionand all of the regulatory review phasethe time from BLA submission to approval, up to a maximum of five years of patent term restoration. The time can be shortened if FDA determines that the applicant did not pursue approval with appropriate due diligence. The total patent term after the extension may not exceed 14 years from the date of FDA approval of the BLA.
For patents that might expire during the BLA review phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the United States Patent and Trademark Office must determine that approval of the drug or biologic covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a biologic for which a BLA has not been submitted.
Biosimilars
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, creates an abbreviated approval pathway for biological products shown to be highly similar to or interchangeable with an FDA-licensed reference biological product. Biosimilarity sufficient to reference a prior FDA-approved product requires that there be no differences in conditions of use, route of administration, dosage form, and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency. Biosimilarity must be shown through analytical trials, animal trials, and a clinical trial or trials, unless the Secretary of Health and Human Services waives a required element. A biosimilar product may be deemed interchangeable with a previously approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, 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. On March 6, 2015, the FDA approved the first biosimilar product under the BPCIA. Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to biosimilar product implementation, which is still being evaluated by the FDA.
A reference biologic is granted 12 years of exclusivity from the time of first licensure, or BLA approval, of the reference product, and no application for a biosimilar can be submitted for four years from the date of licensure of the reference product. The first biologic product submitted under the biosimilar abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other biologics for the same condition of use for the lesser of (i) one year after first commercial marketing of the first interchangeable biosimilar, (ii) 18 months after the first interchangeable biosimilar is approved if there is no patent challenge, (iii) eighteen months after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or (iv) 42 months after the first interchangeable biosimilars application has been approved if a patent lawsuit is ongoing within the 42-month period.
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Post-Approval Requirements
Once a BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of biologics, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. Biologics may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Adverse event reporting and submission of periodic safety summary reports is required following FDA approval of a BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, biological product manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval. Biologic manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects a biologic products manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with required regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
Other U.S. Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare & Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the federal false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, recommending or arranging for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and/or formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.
Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, or the ACA, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a
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violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act (discussed below).
The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
Federal false claims laws, including the federal civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes any request or demand for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies marketing of the product for unapproved, and thus generally non-reimbursable, uses.
HIPAA created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, 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.
Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes requirements on certain types of people and entities relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH made HIPAAs security standards directly applicable to business associates, independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, 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 specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Additionally, the federal Physician Payments Sunshine Act within the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance Program (with certain exceptions) report annually information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.
In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or
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distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.
If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private qui tam actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Coverage, Pricing 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 extent to which third-party payors provide coverage, and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. Third-party payors are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. We may need to conduct expensive pharmaco-economic 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. Further, one payors determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. 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.
Different pricing and reimbursement schemes exist in other countries. In the EU, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some 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 product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs 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.
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The marketability of any product candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on healthcare pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Healthcare Reform
In March 2010, President Obama enacted the ACA, which has begun to substantially change healthcare financing and delivery by both governmental and private insurers, and has also begun to significantly impact the pharmaceutical and biotechnology industry. The ACA will impact existing government healthcare programs and will result in the development of new programs.
Among the ACA provisions of importance to the pharmaceutical and biotechnology industries, in addition to those otherwise described above, are the following:
| an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs, that began in 2011; |
| an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP; |
| 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; |
| extension of manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; |
| expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning in 2014 and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers Medicaid rebate liability; |
| expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and |
| a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. |
We anticipate that the ACA will result in additional downward pressure on coverage and the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. In addition, it is possible that there will be further legislation or regulation that could harm our business, financial condition and results of operations.
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Additional Regulation
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.
European Union and the Rest of the World Government Regulation
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval of a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a CTA much like the IND prior to the commencement of human clinical trials. In the European Union, or EU, for example, a CTA must be submitted to each countrys national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a countrys requirements, clinical trial development may proceed. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational drug or biological product under EU regulatory systems, we must submit a marketing authorization application. The application used to file the BLA in the United States is similar to that required in the EU, with the exception of, among other things, country-specific document requirements.
For other countries outside of the EU, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we or our potential collaborators fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Legal Proceedings
We are not currently a party to any pending legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm and other factors.
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Facilities
We currently occupy 10,170 square feet of office space in San Francisco, California, under a lease that expires in January 2017. We plan to relocate to new offices, also in San Francisco, California, in 2016 and occupy 21,596 square feet under a lease that expires in June 2022. Additionally, we have subleased 21,960 square feet of cGMP manufacturing and laboratory space in South San Francisco, California, under a sublease that expires in May 2017. We have an option to enter into a ten-year lease for this manufacturing space plus approximately 17,000 additional square feet of contiguous manufacturing space, which, if exercised, would become effective in June 2017.
Employees
As of December 31, 2015, we had 42 full-time employees, including 12 employees with M.D. or Ph.D. degrees, and one part-time employee, who holds a Ph.D. degree. Of our workforce, 34 employees are engaged in research and development activities and eight employees are engaged in finance, legal, human resources and general management activities. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
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The following table provides information regarding our executive officers and directors as of December 31, 2015:
Name |
Age |
Position |
||||
Executive Officers: |
||||||
Matthew Patterson |
44 | President, Chief Executive Officer and Director | ||||
Natalie Holles |
43 | Senior Vice President, Chief Operating Officer | ||||
Thomas Soloway |
48 | Senior Vice President, Chief Financial Officer | ||||
Suyash Prasad, M.B.B.S., F.F.P.M. |
46 | Senior Vice President and Chief Medical Officer | ||||
Mary Newman |
57 | Senior Vice President, Regulatory Affairs | ||||
David Nagler |
63 | Senior Vice President, Human Resources and Corporate Affairs | ||||
John Gray, Ph.D. |
52 | Senior Vice President, Research and Development | ||||
Non-Employee Directors: |
||||||
Jonathan Silverstein |
48 | Chairman of Board of Directors | ||||
Louis Lange, M.D., Ph.D. |
67 | Director | ||||
Jonathan Leff |
47 | Director | ||||
Scott Morrison |
58 | Director | ||||
Kush Parmar, M.D., Ph.D. |
35 | Director | ||||
Thomas Schuetz, M.D., Ph.D. |
55 | Director | ||||
Stephen Squinto, Ph.D. |
59 | Director | ||||
Thomas Woiwode, Ph.D. |
44 | Director |
(1) | Member of the Audit Committee |
(2) | Member of the Compensation Committee |
(3) | Member of the Nominating and Corporate Governance Committee |
Executive Officers
Matthew Patterson is one of our co-founders and has served as our President and Chief Executive Officer and a member of our board of directors since our inception in November 2012. Mr. Patterson also served as our Chief Financial Officer and Secretary from December 2012 to September 2015. Previously, Mr. Patterson was the Entrepreneur-In-Residence at OrbiMed Advisors LLC, an investment firm and one of our principal stockholders, from November 2011 to December 2012. Prior to OrbiMed, from December 2004 to August 2011, Mr. Patterson worked for Amicus Therapeutics, Inc., a rare disease biotechnology company, most recently serving as President and Acting Chief Executive Officer. Prior to Amicus, Mr. Patterson worked at BioMarin Pharmaceutical Inc. from 1998 to 2004 and at Genzyme Corporation from 1993 to 1998. Mr. Patterson is a member of the Board of Directors of Gildas Club of New York City, which provides social and emotional support for people living with cancer. Mr. Patterson holds a B.A. from Bowdoin College. Our board of directors believes that Mr. Patterson should serve as a director due to the perspective he brings as our founder and his expertise in the fields of business, biotechnology and drug development.
Natalie Holles has served as our Senior Vice President, Chief Operating Officer since August 2015. Previously, Ms. Holles served as Senior Vice President, Corporate Development at Hyperion Therapeutics, Inc., a rare disease pharmaceutical company, from June 2013 through its acquisition by Horizon Pharma, plc in May 2015. From August 2012 until June 2013, Ms. Holles served as the Executive Vice President, Corporate Development at Immune Design, Inc., an immunotherapy company, and from December 2010 to June 2013, Ms. Holles served as an independent life sciences corporate development consultant. Earlier in her career, Ms. Holles served as the Vice President, Business Development at KAI Pharmaceuticals, Inc. and previously held corporate development and commercial roles at InterMune, Inc. and Genentech, Inc. Ms. Holles holds an A.B. from Stanford University and an M.A. from the University of Colorado, Boulder.
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Thomas Soloway has served as our Senior Vice President, Chief Financial Officer since September 2015. Prior to joining us, Mr. Soloway served as the Senior Vice President, Chief Financial Officer of Ascendis Pharma A/S, a Danish biopharmaceutical company, from January 2014 until September 2015. Prior to Ascendis, Mr. Soloway co-founded Transcept Pharmaceuticals, Inc., a biotechnology company, in 2002. At Transcept, Mr. Soloway held various positions, including Chief Financial Officer and Executive Vice President, Chief Operating Officer. Prior to joining Transcept, Mr. Soloway financed and advised early stage healthcare and life sciences companies as a Principal at Montreux Equity Partners. Mr. Soloway holds a B.S. from the University of Southern California and an M.B.A. from Georgetown University.
Suyash Prasad, M.B.B.S., F.F.P.M., has served as our Senior Vice President and Chief Medical Officer since February 2014. Prior to joining us, Dr. Prasad served as Senior Group Medical Director, Development Sciences at BioMarin Pharmaceutical, Inc., a rare genetic disease biotechnology company, from December 2010 to February 2014. Prior to joining BioMarin, Dr. Prasad served as the Director Global Medical Affairs, Personalized Genetic Health at Genzyme Corporation, a genetic disease biotechnology company, from January 2009 to December 2010 and in a country Medical Director role at Genzyme prior to that. He has also served as a senior clinical research physician at Eli Lilly. Prior to these roles, Dr. Prasad worked as a Pediatrician at Pediatric centers of excellence in the UK and Australia. Dr. Prasad is also an elected Fellow to the Faculty of Pharmaceutical Medicine of the Royal College of Physicians, UK. Dr. Prasad holds a degree from the University of Newcastle-upon-Tyne, United Kingdom and a Diploma from the Faculty of Pharmaceutical Medicine of the Royal Colleges of Physicians of the United Kingdom. Dr. Prasad is a United Kingdom board certified physician and is a member of the Royal College of Physicians and the Royal College of Paediatrics and Child Health.
Mary Newman has served as our Senior Vice President, Regulatory Affairs since October 2014. Prior to joining us, Ms. Newman held various positions at SARcode Biotherapeutics Inc., a biotechnology company, from July 2007 to April 2013, including as the Senior Vice President, Regulatory Affairs and Quality. She has also served in various management roles at BioMarin Pharmaceutical, Inc., Berlex Inc. (now Bayer HealthCare Pharmaceuticals Inc.) and Sequus Pharmaceuticals, Inc. (now Johnson and Johnson). Ms. Newman holds a B.S. from Oregon State University.
David Nagler has served as our Senior Vice President, Human Resources and Corporate Affairs since February 2015. Prior to joining us, he served as a human resources and corporate development consultant from April 2013 to February 2015. From July 2003 to March 2013, Mr. Nagler served as the Vice President Corporate Affairs at ARYx Therapeutics, Inc., a biotechnology company. He has also served as the Vice President Human Resources at Genentech, Inc. Mr. Nagler has served on the board of directors of U.C. Davis CONNECT, as well as the boards of the Northern California Chapter of the American Liver Foundation and the John Vasconcellos Legacy Project. Mr. Nagler studied at the University of California, Berkeley.
John Gray, Ph.D., has served as our Senior Vice President, Research and Development since December 2015, and as our Vice President, Research and Development from July 2014 to December 2015. Prior to joining us, Dr. Gray served as the Director of Vector Production and Development at St. Jude Childrens Research Hospital from June 2003 to June 2014. Prior to St. Jude Childrens Research Hospital, Dr. Gray served as the Assistant Director of the Harvard Gene Therapy Initiative and as a researcher at Pfizer Animal Health. Dr. Gray holds a B.A. from the University of California, Berkeley and a Ph.D. from the University of Colorado, Boulder.
Non-Employee Directors
Jonathan Silverstein has served as the chairman of our board of directors since December 2012. Mr. Silverstein is currently a general partner at OrbiMed, a healthcare investment firm, where he has worked since December 1998. Previously, Mr. Silverstein was a director of life sciences in the investment banking department at Sumitomo Bank. Mr. Silverstein serves on the board of directors of Intercept Pharmaceuticals, Inc., Roka Biosciences Inc., Glaukos Corp and Ascendis Pharma A/S. Mr. Silverstein also serves on the boards of directors of several private companies. Mr. Silverstein holds a B.A. from Denison University and a J.D. and
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M.B.A. from the University of San Diego. Our board of directors believes that Mr. Silversteins strategic development and capital markets experience qualifies him to serve on our board of directors.
Louis Lange, M.D., Ph.D. has served as a member of our board of directors since August 2015. Dr. Lange is currently a general partner at Asset Management Ventures, an investment firm, where he has worked since June 2009. Dr. Lange was the co-founder and served as the President and Chief Executive Officer of Cardiogen Sciences, Inc., a biotechnology company, from April 2014 until it was acquired by us in August 2015. Dr. Lange also co-founded CV Therapeutics, Inc. in 1990 and served as the Chairman, Chief Executive Officer and Chief Scientific Officer until it was acquired by Gilead Sciences, Inc. in 2009. Dr. Lange has also served as the Chief of Cardiology and Professor of Medicine at Jewish Hospital at Harvard University and Washington University. Dr. Lange served on the board of directors of Maxygen, Inc. from December 2005 to August 2013, CymaBay Therapeutics, Inc. from November 2003 to October 2015, and Esperion Therapeutics, Inc. from February 2010 to May 2014. Dr. Lange also serves as a member of the Board of Trustees at the University of Rochester, The Gladstone Foundation, is a senior advisor to Gilead and was on the board of directors of BIO (the trade organization of biotech companies) from 1998 to 2009, as well as other private companies. Dr. Lange holds a B.A. from the University of Rochester, an M.D. from Harvard Medical School and a Ph.D. from Harvard University. Our board of directors believes that Dr. Langes deep experience in molecular cardiology and biotechnology business development qualifies him to serve on our board of directors.
Jonathan Leff has served as a member of our board of directors since November 2014. Mr. Leff is currently a partner at Deerfield Management Company, L.P., an investment firm, where he has worked since January 2013. Previously, Mr. Leff was a managing director at Warburg Pincus, a private equity investment firm where he worked from July 1996 to December 2012. Mr. Leff serves on the board of Nivalis Therapeutics, Inc. and previously served on the boards of directors of Talon Therapeutics, Inc., Allos Therapeutics, Inc., Inspire Pharmaceuticals, Inc., InterMune, Inc. and Sophiris Bio Inc. Mr. Leff also serves on the boards of directors of several private companies. Mr. Leff holds an A.B. from Harvard University and an M.B.A. from Stanford University Graduate School of Business. Our board of directors believes that Mr. Leff understanding of financial investment and business development in our industry qualifies him to serve on our board of directors. Mr. Leff has informed us that he intends to resign from our board of directors prior to the effectiveness of the registration statement of which this prospectus is a part.
Scott Morrison has served as a member of our board of directors since December 2015. From 1996 to December 2015, Mr. Morrison was a partner with Ernst & Young LLP, a public accounting firm, where he also served as U.S. Life Sciences Leader from 2002 to December 2015. Mr. Morrison has held roles on the boards of directors of numerous life sciences industry organizations. Since 1999, he has served on the board of directors of the Biotechnology Institute, where has also served on the audit committee since 2002. Mr. Morrison has previously served on the boards of directors of the Life Sciences Foundation, the Bay Area Biosciences Association and the Emerging Companies Section of the Biotechnology Industry Organization. He holds a B.S. from the University of California-Berkeley and is a certified public accountant (inactive). Our board of directors believes that Mr. Morrisons extensive experience in public accounting and the life sciences industry qualifies him to serve on our board of directors.
Kush Parmar, M.D., Ph.D., has served as a member of our board of directors since July 2013. Dr. Parmar is currently a managing partner at 5AM Ventures, a venture capital firm, where he has worked since June 2010. Previously, Dr. Parmar was a National Institute of Health Physician Scientist Fellow at Harvard Medical School, completed clinical clerkships at the Massachusetts General & Brigham and Womens Hospitals and consulted for an oncology startup. Dr. Parmar currently serves as on the board of directors of several private companies. He is also a Fellow of the Society of Kauffman Fellows. He holds an A.B. from Princeton University, a Ph.D. from Harvard University and an M.D. from Harvard Medical School. Our board of directors believes that Dr. Parmars significant experience in advising biotechnology companies qualify him to serve on our board of directors.
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Thomas Schuetz, M.D., Ph.D., is our co-founder and has served as a member of our board of directors since July 2013. Dr. Schuetz is currently the Chief Executive Officer of Compass Therapeutics, LLC, a biotechnology company, where he has worked since July 2014. Previously, Dr. Schuetz was a consultant in the biotechnology industry from May 2012 to June 2014, including a consultant for us from July 2012 to June 2013. Prior to consulting, Dr. Schuetz was a venture partner at OrbiMed, a healthcare investment firm, where he worked from November 2007 to May 2012. Dr. Schuetz has also served as the Chief Medical Officer of Therion Biologics Corporation and the Vice President of Clinical Affairs at Transkaryotic Therapies, Inc. (now Shire Pharmaceuticals, Inc.). Dr. Schuetz has served as the Chief Medical Resident at Massachusetts General Hospital and completed a medical oncology fellowship at the Dana-Farber Cancer Institute. Dr. Schuetz also serves on the board of directors of Relypsa, Inc. and a private company. Dr. Schuetz holds a B.S. from Xavier University, an M.D. from Harvard Medical School and a Ph.D. from Harvard University. Dr. Schuetz is Board Certified in Medical Oncology. Our board of directors believes that Dr. Schuetzs clinical and executive experience and medical background qualify him to serve on our board of directors.
Stephen Squinto, Ph.D., has served as a member of our board of directors since April 2015. Dr. Squinto is currently a venture partner at OrbiMed, a healthcare investment firm, where he has worked since January 2015. Previously, Dr. Squinto co-founded Alexion Pharmaceuticals Inc., a rare disease biotechnology company, and served in various roles from April 1992 to December 2014, including as its Executive Vice President and Chief Global Operations Officer. Dr. Squinto has also held various positions at Regeneron Pharmaceuticals, Inc. and a joint academic position at both the Tulane University and Louisiana State University Medical Schools. Dr. Squinto holds a B.A. and a Ph.D. from Loyola University of Chicago. Our board of directors believes that Dr. Squintos experience with rare disease research and development qualifies him to serve on our board of directors.
Thomas Woiwode, Ph.D., has served as a member of our board of directors since July 2013. Dr. Woiwode has been with Versant Ventures since 2002 in various capacities, serving as a venture partner since June 2011 and a managing director since July 2014. He has served in a number of operating roles over this time, most recently as the Chief Operating Officer of Okairos. Dr. Woiwode also co-founded EuroVentures, a wholly owned biotech incubator within Versant Ventures, and in this role, served as the founding Chief Business Officer for three biotech companies created within Versant. Dr. Woiwode also served as a research scientist at XenoPort, Inc. prior to joining Versant Ventures. Dr. Woiwode serves on the board of directors of several private companies. Dr. Woiwode holds a B.A. and a B.S. from the University of California, Berkeley and a Ph.D. from Stanford University. Our board of directors believes that Dr. Woiwodes experience with biotechnology company development and strategic planning qualifies him to serve on our board of directors.
Election of Officers
Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors or executive officers.
Board of Directors
Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of nine members and will consist of eight members upon Mr. Leffs resignation prior to the effectiveness of the registration statement of which this prospectus is a part. Our current certificate of incorporation and voting agreement among certain investors provide for one director to be elected by holders of our common stock, three directors to be elected by specific holders of our Series A convertible preferred stock, one director to be elected by a specific holder of our Series B convertible preferred stock and all other directors to be elected by the holders of our common stock and of every other class or series of voting stock (including all convertible preferred stock) voting together as a single class on an as-converted to common stock basis. Dr. Parmar and Messrs. Silverstein and Woiwode are the designees of our Series A convertible preferred stock, Mr. Leff is the designee of our Series B convertible preferred stock, Mr. Patterson is the designee of our common stock and Drs. Schuetz and Squinto and Mr. Morrison are designees of our common stock and preferred stock voting together.
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The voting agreement and the provisions of our certificate of incorporation by which Messrs. Leff, Morrison, Patterson and Silverstein and Drs. Parmar, Schuetz, Squinto and Woiwode were elected will terminate in connection with our initial public offering and there will be no contractual obligations regarding the election of our directors.
Dr. Lange was the President and Chief Executive Officer of Cardiogen Sciences, Inc., or Cardiogen, and was elected to our board of directors in connection with our acquisition of Cardiogen in August 2015.
Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.
Classified Board of Directors
Our restated certificate of incorporation and restated bylaws that will be in effect immediately prior to the completion of this offering provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows.
| the Class I directors will be and , and their terms will expire at the annual meeting of stockholders to be held in ; |
| the Class II directors will be , and , and their terms will expire at the annual meeting of stockholders to be held in ; and |
| the Class III directors will be , and , and their terms will expire at the annual meeting of stockholders to be held in . |
Each directors term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our restated certificate of incorporation and restated bylaws that will be in effect immediately prior to the completion of this offering will authorize only our board of directors to fill vacancies on our board of directors. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
The classification of our board of directors may have the effect of delaying or preventing changes in control of our company. See Description of Capital StockAnti-Takeover ProvisionsRestated Certificate of Incorporation and Restated Bylaws Provisions.
Director Independence
In connection with this offering, we have applied to list our common stock on The NASDAQ Global Market, or NASDAQ. Under NASDAQ rules, independent directors must comprise a majority of a listed companys board of directors within a specified period of the completion of this offering. In addition, NASDAQ rules require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and corporate governance committees be independent. Under NASDAQ rules, a director will only qualify as an independent director if, in the opinion of that companys board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of
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the audit committee, the board of directors or any other board committee: (i) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (ii) be an affiliated person of the listed company or any of its subsidiaries.
Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that Messrs. Leff, Morrison and Silverstein and Drs. Lange, Parmar, Schuetz, Squinto and Silverstein, representing eight of our nine directors, are independent directors as defined under the applicable rules and regulations of the Securities and Exchange Commission, or the SEC, and the listing requirements and rules of NASDAQ. 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, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section entitled Certain Relationships and Related-Party Transactions.
Committees of Our Board of Directors
Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below as of the closing of our initial public offering. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each committee will operate under a charter approved by our board of directors. Following this offering, copies of each committees charter will be posted on the investor relations section of our website at www.audentestx.com.
Audit Committee
Our audit committee is comprised of , and . is the chairperson of our audit committee. , and each meet the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors has determined that is an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is responsible for, among other things:
| our accounting and financial reporting processes, including our financial statement audits and the integrity of our financial statements; |
| our compliance with legal and regulatory requirements; |
| reviewing and approving related person transactions; |
| selecting and hiring our registered independent public accounting firm; |
| the qualifications, independence and performance of our independent auditors; and |
| the preparation of the audit committee report to be included in our annual proxy statement. |
Compensation Committee
Our compensation committee is comprised of , and . is the chairperson of our compensation committee. The composition of our compensation committee meets the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Each member of this
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committee is (i) an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and (ii) a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. Our compensation committee is responsible for, among other things:
| evaluating, recommending, approving and reviewing executive officer and director compensation arrangements, plans, policies and programs; |
| administering our cash-based and equity-based compensation plans; and |
| making recommendations to our board of directors regarding any other board of director responsibilities relating to executive compensation. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is comprised of , and . is the chairperson of our nominating and corporate governance committee. The composition of our nominating and corporate governance committee meets the requirements for independence under the current NASDAQ listing standards and SEC rules and regulations. Our nominating and corporate governance committee is responsible for, among other things:
| identifying, considering and recommending candidates for membership on our board of directors; |
| overseeing the process of evaluating the performance of our board of directors; and |
| advising our board of directors on other corporate governance matters. |
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during the year ended December 31, 2015.
Codes of Business Conduct and Ethics
Prior to the completion of this offering, our board of directors will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of our code of conduct will be posted on the investor relations section of our website at www.audentestx.com. The reference to our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our code of conduct, or waivers of these provisions, on our website or in public filings to the extent required by the applicable rules and exchange requirements.
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Non-Employee Director Compensation
The following table presents the total compensation for each person who served as a non-employee member of our board of directors in the year ended December 31, 2015. Other than as set forth in the table, in the year ended December 31, 2015, we did not pay any fees to, make any equity awards or non-equity awards to or pay any other compensation to the non-employee members of our board of directors. Mr. Patterson, our Chief Executive Officer, received no compensation for his service as a director in the year ended December 31, 2015.
Name (1) |
Fees Earned
or Paid in Cash |
Option Awards (2) | Total | |||||||||
Scott Morrison |
$ | | $ | 195,135 | $ | 195,135 | ||||||
Thomas Schuetz |
31,000 | 9,213 | 40,213 | |||||||||
Stephen Squinto |
24,750 | 36,636 | 61,386 |
(1) | Louis Lange, Jonathan Leff, Kush Parmar, Jonathan Silverstein and Thomas Woiwode also served as non-employee members of our board of directors in 2015. None of these directors were paid any compensation during 2015, nor did they hold any outstanding options to purchase shares of common stock as of December 31, 2015. As of December 31, 2015, Mr. Morrison held outstanding options to purchase 75,000 shares of common stock with an exercise price of $4.26 per share, Dr. Schuetz held outstanding options to purchase 40,329 shares of common stock with an exercise price of $0.35 per share and options to purchase 12,500 shares of common stock at an exercise price of $0.98 per share, and Dr. Squinto held outstanding options to purchase 50,000 shares of common stock with an exercise price of $0.98 per share. |
(2) | The amounts reported in the Option Awards column represent the grant date fair value of the stock options granted to the directors during the year ended December 31, 2015 as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column are set forth in Note 9 to our audited financial statements included in this prospectus. Note that the amounts reported in this column reflect the accounting cost for these stock options, and do not correspond to the actual economic value that may be received by our directors from the options. |
In May 2015, we entered into an offer letter with Dr. Schuetz in connection with the termination of his consulting services, and in April 2015, we entered into an offer letter with Dr. Squinto in connection with his appointment to our board of directors. Pursuant to the offer letters, Drs. Schuetz and Squinto received options to purchase 12,500 and 50,000 shares of common stock, respectively, which vest in 12 equal quarterly installments, subject to accelerated vesting upon a change in control of our company. In connection with Mr. Morrisons appointment to our board of directors in December 2015, Mr. Morrison received an option to purchase 75,000 shares of common stock, which vests in 12 equal quarterly installments, subject to accelerated vesting upon a change in control of our company. Additionally, Drs. Schuetz and Squinto and Mr. Morrison are entitled to receive an annual cash retainer of $33,000.
In the future, we intend to adopt a formal policy regarding the compensation of all of our non-employee directors.
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The following tables and accompanying narrative disclosure set forth information about the compensation provided to certain of our executive officers during the years ended December 31, 2014 and 2015. These executive officers, who include our principal executive officer and the two most highly-compensated executive officers (other than our principal executive officer) who were serving as executive officers as of December 31, 2015, the end of our last completed fiscal year, were:
| Matthew Patterson, President, Chief Executive Officer and Director; |
| Suyash Prasad, M.D., Senior Vice President and Chief Medical Officer; and |
| John Gray, Ph.D., Senior Vice President, Research and Development. |
We refer to these individuals in this section as our Named Executive Officers.
Summary Compensation Table
The following table presents summary information regarding the total compensation that was awarded to, earned by or paid to our Named Executive Officers for services rendered during the years ended December 31, 2014 and 2015.
Name and Principal Position |
Year | Salary | Bonus |
Option
Award (1) |
Non-Equity
Incentive Plan Compensation (2) |
All Other
Compensation |
Total | |||||||||||||||||||||
Matthew Patterson |
2015 | $ | 416,000 | $ | | $ | 1,322,186 | $ | 101,920 | $ | | $ | 1,840,106 | |||||||||||||||
President, Chief Executive Officer and Director |
2014 | 341,250 | | | 92,138 | | 433,388 | |||||||||||||||||||||
Suyash Prasad, M.D. (3) |
2015 | 340,000 | 2,500 | (4) | 312,545 | 59,500 | | 714,545 | ||||||||||||||||||||
Senior Vice President and Chief Medical Officer |
2014 | 278,666 | 90,000 | (5) | 56,610 | 65,500 | | 490,776 | ||||||||||||||||||||
John Gray, Ph.D. |
2015 | 275,000 | 11,500 | (4) | 357,952 | 38,500 | 85,239 | (6) | 768,191 | |||||||||||||||||||
Senior Vice President, Research and Development |
(1) | The amounts reported in the Option Awards column represent the grant date fair value of the stock options granted to the Named Executive Officers during the years ended December 31, 2014 and 2015 as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column are set forth in Note 9 to our audited financial statements included in this prospectus. Note that the amounts reported in this column reflect the accounting cost for these stock options, and do not correspond to the actual economic value that may be received by our Named Executive Officers from the options. |
(2) | For additional information regarding the non-equity incentive plan compensation, see 2015 Non-Equity Incentive Plan Awards and Bonuses. |
(3) | Dr. Prasads employment with our company commenced in February 2014. |
(4) | Represents amounts awarded at the discretion of our board of directors for exceptional performance in 2015. |
(5) | Represents signing bonus paid to Dr. Prasad. |
(6) | Represents expenses paid by us in connection with Dr. Grays relocation to San Francisco, California. |
2015 Non-Equity Incentive Plan Awards and Bonuses
Annual bonuses for our executive officers are based on the achievement of corporate performance objectives, which in 2015 included the achievement of preclinical and business development milestones. In December 2015, based on the achievement of these corporate performance objectives, our board of directors
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determined that approximately 70% of each executive officers target bonus should be awarded. For 2015, Mr. Pattersons target bonus was equal to 35% of his annual base salary of $416,000, Dr. Prasads target bonus was equal to 25% of his annual base salary of $340,000 and Dr. Grays target bonus was equal to 20% of his annual base salary of $275,000. Additionally, our board of directors determined that Drs. Prasad and Gray should receive a slightly higher bonus for exceptional performance in 2015. Accordingly, Mr. Patterson and Drs. Prasad and Gray were awarded the 2015 annual bonuses reflected in the table above.
2015 Equity Awards
In February and May 2015, our board of directors granted Mr. Patterson and Drs. Prasad and Gray options to purchase 315,060, 54,000 and 40,000 shares of common stock, respectively, with an exercise price of $0.98 per share. Additionally, after a review of the equity held by our Named Executive Officers in comparison to equity held by executive officers of our peer companies, in December 2015 our board of directors granted Mr. Patterson and Drs. Prasad and Gray options to purchase 423,256, 105,814 and 126,977 shares of common stock, respectively, with an exercise price of $4.26 per share. All of these options vest quarterly over four years.
Outstanding Equity Awards at Fiscal Year-End Table
The following table presents, for each of the Named Executive Officers, information regarding outstanding stock options held as of December 31, 2015.
Option Awards (1) | ||||||||||||||||
Name |
Number of
Securities Underlying Unexercised Options Exercisable |
Number of
Securities Underlying Unexercised Options Unexercisable |
Option
Exercise Price |
Option
Expiration Date |
||||||||||||
Mr. Patterson |
439,995 | (2) | 199,999 | $ | 0.35 | 9/25/2023 | ||||||||||
| 315,060 | (3) | 0.98 | 2/04/2025 | ||||||||||||
| 423,256 | (5) | 4.26 | 12/18/2025 | ||||||||||||
Dr. Prasad |
94,500 | (3) | 121,500 | 0.35 | 2/18/2024 | |||||||||||
7,875 | (4) | 46,125 | 0.98 | 5/27/2025 | ||||||||||||
| 105,814 | (5) | 4.26 | 12/18/2025 | ||||||||||||
Dr. Gray |
50,000 | (3) | 110,000 | 0.47 | 9/17/2024 | |||||||||||
5,833 | (4) | 34,167 | 0.98 | 5/27/2025 | ||||||||||||
| 126,977 | (5) | 4.26 | 12/18/2025 |
(1) | All of the outstanding option awards were granted under our 2012 Equity Incentive Plan. |
(2) | Vests with respect to 25% of the shares underlying the option on the one year anniversary of the vesting commencement date and the remaining 75% of the shares underlying the option vest in 16 equal quarterly installments thereafter. If the Named Executive Officer is terminated without cause or resigns for good reason during the period beginning 90 days prior to and ending on the first anniversary of a change in control of our company, 100% of the then-unvested shares underlying the option will vest. |
(3) | Vests with respect to 25% of the shares underlying the option on the one year anniversary of the vesting commencement date and the remaining 75% of the shares underlying the option vest in 16 equal quarterly installments thereafter. |
(4) | Vests in equal monthly installments over four years. |
(5) | Vests in equal quarterly installments over four years. If the Named Executive Officer is terminated without cause or resigns for good reason during the period beginning 90 days prior to and ending on the first anniversary of a change in control of our company, 100% of the then-unvested shares underlying the option will vest. |
Employment Agreements
We intend to enter into new employment agreements with certain senior management personnel in connection with this offering, including our Named Executive Officers. We expect that each of these agreements
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will provide for at-will employment and include each officers base salary, a discretionary annual incentive bonus opportunity and standard employee benefit plan participation. We also expect these agreements to provide for severance benefits upon termination of employment or a change in control of our company.
Employee Benefit and Stock Compensation Plans
2012 Equity Incentive Plan
Our board of directors adopted the 2012 Equity Incentive Plan, or the 2012 Plan, in December 2012 and our stockholders subsequently approved it in December 2012. We subsequently amended the 2012 Plan in July 2013, September 2014 and November 2014. Our board of directors, or a committee thereof appointed by our board of directors, administers the 2012 Plan and the awards granted under it. The plan administrator has the authority to modify outstanding awards under the 2012 Plan. The 2012 Plan provides for the grant of both incentive stock options, which qualify for favorable tax treatment to their recipients under Section 422 of the Code, and nonstatutory stock options, as well as for the issuance of shares of restricted stock awards, or RSAs, restricted stock units, or RSUs, and stock appreciation rights, or SARs. We may grant incentive stock options only to our employees and employees of our majority-owned subsidiaries. We may grant nonstatutory stock options, RSAs, RSUs and SARs to our employees, directors and consultants and employees, directors and consultants of our majority-owned subsidiaries. The exercise price of each stock option must be at least equal to the fair market value of our common stock on the date of grant, unless expressly determined in writing by the plan administrator. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. The maximum permitted term of options granted under the 2012 Plan is ten years, except that the maximum permitted term of incentive stock options granted to 10% stockholders is five years. In the event of an acquisition (as defined in the 2012 Plan), the 2012 Plan provides that, unless the applicable option agreement provides otherwise or our board of directors or compensation committee takes certain actions, such as accelerating the vesting of the awards or providing for the assumption, conversion or replacement of the option by an acquirer, awards held by current employees, directors and consultants will terminate if not vested or exercised prior to the effective time of the acquisition.
As of September 30, 2015, we had reserved 3,929,049 shares of our common stock for issuance under the 2012 Plan and 900,374 shares remained available for future grant. In October 2015, we increased the number of shares of common stock available for issuance under our 2012 Plan by 3,000,000 shares. We will cease issuing awards under the 2012 Plan upon the implementation of the 2016 Equity Incentive Plan, or the 2016 Plan. The 2016 Plan will become effective on the date immediately prior to the date of this prospectus. As a result, we will not grant any additional options under the 2012 Plan following that date, and the 2012 Plan will terminate at that time. However, any outstanding options granted under the 2012 Plan will remain outstanding, subject to the terms of the 2012 Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms. Options granted under the 2012 Plan have terms similar to those described below with respect to options to be granted under the 2016 Plan.
2016 Equity Incentive Plan
We intend to adopt the 2016 Plan, which we expect to become effective on the date immediately prior to the date of this prospectus and serve as the successor to the 2012 Plan. We will reserve shares of our common stock to be issued under the 2016 Plan. The number of shares reserved for issuance under the 2016 Plan will increase automatically on of each of our fiscal years beginning and continuing through by the number of shares equal to % of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our board of directors may reduce the amount of the increase in any particular year. In addition, the following shares of our common stock will be available for grant and issuance under the 2016 Plan:
| shares subject to options or SARs granted under the 2016 Plan that cease to be subject to the option or SAR for any reason other than exercise of the option or SAR; |
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| shares subject to awards granted under the 2016 Plan that are subsequently forfeited or repurchased by us at the original issue price; |
| shares subject to awards granted under the 2016 Plan that otherwise terminate without shares being issued; |
| shares surrendered, cancelled, or exchanged for cash or a different award (or combination thereof); |
| shares subject to awards under the 2016 Plan that are used to pay the exercise price of an award or withheld to satisfy the tax withholding obligations related to any award; |
| shares reserved but not issued or subject to outstanding awards under the 2012 Plan on the date of this prospectus; |
| shares issuable upon the exercise of options or subject to other awards under the 2012 Plan prior to the date of this prospectus that cease to be subject to such options or other awards by forfeiture or otherwise after the date of this prospectus; |
| shares issued under the 2012 Plan that are repurchased by us or forfeited after the date of this prospectus; and |
| shares subject to awards under the 2012 Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. |
The 2016 Plan authorizes the award of stock options, RSAs, SARs, RSUs, performance awards and stock bonuses. No person will be eligible to receive more than shares in any calendar year under the 2016 Plan other than a new employee of ours, who will be eligible to receive no more than shares under the plan in the calendar year in which the employee commences employment. No participant will be eligible to receive more than $ in performance awards in any calendar year. No more than shares will be issued pursuant to the exercise of incentive stock options. The aggregate number of shares of our common stock that may be subject to awards granted to any one non-employee director pursuant to the 2016 Plan in any calendar year shall not exceed .
The 2016 Plan will be administered by our compensation committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation committee. The compensation committee will have the authority to construe and interpret the 2016 Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.
The 2016 Plan will provide for the grant of awards to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair market value of our common stock on the date of grant. The compensation committee has the authority to reprice any outstanding stock option or SAR (by reducing the exercise price of any outstanding option or SAR, canceling an option or SAR in exchange for cash or another equity award) under the 2016 Plan without the approval of our stockholders.
We anticipate that, in general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under the 2016 Plan is 10 years.
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An RSA is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price, if any, of an RSA will be determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the holder no longer provides services to us and unvested shares will be forfeited to or repurchased by us.
SARs provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price at grant up to a maximum amount of cash or number of shares. SARs may vest based on time or achievement of performance conditions.
RSUs represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, we will deliver to the holder of the RSU shares of our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash. We anticipate that, in general, RSUs will vest over a four-year period.
Performance awards cover a number of shares of our common stock that may be settled upon achievement of the pre-established performance conditions as provided in the 2016 Plan in cash or by issuance of the underlying shares. These awards are subject to forfeiture prior to settlement due to termination of employment or failure to achieve the performance conditions.
Stock bonuses may be granted as additional compensation for past or future service or performance, and therefore, no payment will be required for any shares awarded under a stock bonus. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the holder no longer provides services to us and unvested shares (if any) will be forfeited to us.
The 2016 Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1.0 million limitation on income tax deductibility imposed by Section 162(m) of the Code. Our compensation committee may structure awards so that the stock or cash will be issued or paid only following the achievement of certain pre-established performance goals during a designated performance period.
Awards granted under the 2016 Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation committee. Unless otherwise permitted by our compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionees guardian or legal representative. Options granted under the 2016 Plan generally may be exercised for a period of three months after the termination of the optionees service to us, for a period of months in the case of death or for a period of months in the case of disability, or such longer period as our compensation committee may provide. Options generally terminate immediately upon termination of employment for cause.
If we are party to a merger or consolidation, sale of all or substantially all assets or similar change in control transaction, outstanding awards, including any vesting provisions, may be assumed or substituted by the successor company. In the alternative, outstanding awards may be cancelled in connection with a cash payment. Outstanding awards that are not assumed, substituted or cashed out will accelerate in full and expire upon the closing of the transaction. Awards held by non-employee directors will immediately vest as to all or any portion of the shares subject to the stock award and will become exercisable at such times and on such conditions as the compensation committee determines.
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The 2016 Plan will terminate ten years from the date our board of directors approved it, unless it is terminated earlier by our board of directors. Our board of directors may amend or terminate the 2016 Plan at any time. If our board of directors amends the 2016 Plan, it does not need to ask for stockholder approval of the amendment unless required by applicable law.
2016 Employee Stock Purchase Plan
We intend to adopt a 2016 Employee Stock Purchase Plan, or the 2016 ESPP, in order to enable eligible employees to purchase shares of our common stock at a discount following the date of this offering. Purchases will be accomplished through participation in discrete offering periods. The 2016 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code. We will reserve shares of our common stock for issuance under the 2016 ESPP. The number of shares reserved for issuance under the 2016 ESPP will increase automatically on of each of our fiscal years beginning and continuing through by the number of shares equal to the greater of % of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of the 2016 ESPP will not exceed shares of our common stock.
Our compensation committee will administer the 2015 ESPP. Our employees generally are eligible to participate in the 2015 ESPP. Our compensation committee may in its discretion elect to exclude employees who work fewer than 20 hours per week or five months in a calendar year. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in the 2016 ESPP, are ineligible to participate in the 2016 ESPP. We may impose additional restrictions on eligibility. Under the 2016 ESPP, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Our eligible employees will be able to select a rate of payroll deduction between 1% and 15% of their eligible cash compensation. We will also have the right to amend or terminate the 2016 ESPP at any time. The 2016 ESPP will terminate on the tenth anniversary of the effective date of this offering, unless it is terminated earlier by our board of directors.
The 2016 ESPP is implemented through a series of offering periods with durations of not more than 27 months under which our employees who meet the eligibility requirements for participation in that offering period will automatically be granted a nontransferable option to purchase shares in that offering period. For subsequent offering periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequent offering periods. Except for the first offering period, each offering period will run for 24 months, with purchase periods occurring every six months. The first offering period began upon the effective date of this offering and will end on , or another date selected by our compensation committee. Except for the first purchase period, each purchase period will be for six months, commencing each and . The purchase periods under the first offering period will end on , , and . An employees participation automatically ends upon termination of employment for any reason.
No participant will have the right to purchase shares of our common stock in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar year, that have a fair market value of more than $ , determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than shares during any one purchase period or a lesser amount determined by our compensation committee. The purchase price for shares of our common stock purchased under the 2016 ESPP will be % of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period. The fair market value of our common stock for purposes of our first offering period under the 2015 ESPP will be the price at which shares are first sold to the public under this offering.
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If we experience a change in control transaction, any offering period that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new purchase date. The new purchase date will occur prior to the closing of the proposed change in control transaction and the 2015 ESPP will then terminate on the closing of the proposed change in control.
401(k) Plan
We sponsor a retirement plan intended to qualify for favorable tax treatment under Section 401(a) of the Code, containing a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the Code. U.S. employees who have attained at least 21 years of age are generally eligible to participate in the plan concurrent with, or any time following their second payroll following the employees date of hire, subject to certain eligibility requirements. Participants may make pre-tax contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit on pre-tax contributions under the Code. Participants who are 50 years of age or older may contribute additional amounts based on the statutory limits for catch-up contributions. Pre-tax contributions by participants and the income earned on those contributions are generally not taxable to participants until withdrawn. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employees interest in his or her pre-tax deferrals is 100% vested when contributed. Although the plan provides for a discretionary employer matching contribution, to date we have not made such a contribution on behalf of employees. The Plan permits all eligible Plan participants to contribute between 1% and 100% of eligible compensation, on a pre-tax basis, into their accounts.
Limitations on Liability and Indemnification Matters
Our restated certificate of incorporation that will become effective in connection with the completion of this offering contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the Delaware General Corporation Law, or DGCL. 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 DGCL; or |
| any transaction from which the director derived an improper personal benefit. |
Our restated certificate of incorporation and our restated bylaws that will become effective in connection with the completion of this offering require us to indemnify our directors and officers to the maximum extent not prohibited by the DGCL and allow us to indemnify other employees and agents as set forth in the DGCL. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is required or permitted.
We have entered, and intend to continue to enter, into separate indemnification agreements with our directors, officers and certain of our key employees, in addition to the indemnification provided for in our restated certificate of incorporation and restated bylaws. These agreements, among other things, require us to indemnify our directors, officers and key employees for certain expenses, including attorneys fees, judgments, penalties, fines and settlement amounts actually incurred by these individuals in any action or proceeding arising out of their service to us or any of our subsidiaries or any other company or enterprise to which these individuals provide services at our request. Subject to certain limitations, our indemnification agreements also require us to
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advance expenses incurred by our directors, officers and key employees for the defense of any action for which indemnification is required or permitted.
We believe that provisions of our restated certificate of incorporation, bylaws and indemnification agreements are necessary to attract and retain qualified directors, officers and key employees. We also maintain directors and officers liability insurance.
The limitation of liability and indemnification provisions in our restated certificate of incorporation and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
In addition to the executive officer and director compensation arrangements discussed above under ManagementNon-Employee Director Compensation and Executive Compensation, below we describe transactions since January 1, 2013 to which we have been or will be a participant, in which the amount involved in the transaction exceeds or will exceed $120,000 and in which any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Equity Financings
Series A Convertible Preferred Stock Financing
In three closings in July 2013, December 2013 and November 2014, we sold an aggregate of 11,199,876 shares of our Series A convertible preferred stock at a purchase price of $2.6786 per share for an aggregate purchase price of approximately $30.0 million. Each share of our Series A convertible preferred stock will convert automatically into one share of our common stock immediately prior to the completion of this offering.
The purchasers of our Series A convertible preferred stock are entitled to specified registration rights. For additional information, see Description of Capital StockRegistration Rights. The following table summarizes the Series A convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our Series A convertible preferred stock.
Name of Stockholder |
Shares of
Series A Convertible Preferred Stock |
Total
Purchase Price |
||||||
OrbiMed Private Investments IV, LP (1) |
5,599,939 | $ | 14,999,997 | |||||
Entities affiliated with 5AM Ventures (2) |
3,173,297 | 8,499,993 | ||||||
Entities affiliated with Versant Ventures (3) |
2,426,640 | 6,499,998 |
(1) | Jonathan Silverstein, a member of our board of directors, is a general partner at OrbiMed, and Stephen Squinto, a member of our board of directors, is a venture partner at OrbiMed. |
(2) | Consists of shares held by 5AM Ventures III, L.P. and 5AM Co-Investors III, L.P. Kush M. Parmar, a member of our board of directors, is a partner of 5AM Ventures. |
(3) | Consists of shares held by Versant Venture Capital IV, L.P. and Versant Side Fund IV, L.P. Thomas F. Woiwode, a member of our board of directors, is the managing director of Versant Ventures. |
Series B Convertible Preferred Stock Financing
In November 2014, we sold an aggregate of 8,465,630 shares of our Series B convertible preferred stock at a purchase price of $5.0203 per share for an aggregate purchase price of approximately $42.5 million. Each share of our Series B convertible preferred stock will convert automatically into one share of our common stock immediately prior to the completion of this offering.
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The purchasers of our Series B convertible preferred stock are entitled to specified registration rights. For additional information, see Description of Capital StockRegistration Rights. The following table summarizes the Series B convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our Series B convertible preferred stock.
Name of Stockholder |
Shares of
Series B Convertible Preferred Stock |
Total
Purchase Price |
||||||
OrbiMed Private Investments IV, LP (1) |
2,390,296 | $ | 12,000,003 | |||||
Entities affiliated with Deerfield Management (2) |
1,792,722 | 9,000,002 | ||||||
Entities affiliated with 5AM Ventures (3) |
1,410,938 | 7,083,332 | ||||||
Entities affiliated with Versant Ventures (4) |
1,078,953 | 5,416,668 | ||||||
Sofinnova Venture Partners IX, L.P. |
995,956 | 4,999,998 |
(1) | Jonathan Silverstein, a member of our board of directors, is a general partner at OrbiMed, and Stephen Squinto, a member of our board of directors, is a venture partner at OrbiMed. |
(2) | Consists of shares held by Deerfield Special Situations Fund, L.P. and Deerfield Private Design Fund III, L.P. Jonathan Leff, a member of our board of directors, is a partner of Deerfield Management. |
(3) | Consists of shares held by 5AM Ventures III, L.P. and 5AM Co-Investors III, L.P. Kush Parmar, a member of our board of directors, is a partner of 5AM Ventures. |
(4) | Consists of shares held by Versant Venture Capital IV, L.P. and Versant Side Fund IV, L.P. Thomas Woiwode, a member of our board of directors, is the managing director of Versant Ventures. |
Series C Convertible Preferred Stock Financing
In October 2015, we sold an aggregate of 9,645,913 shares of our Series C convertible preferred stock at a purchase price of $6.7386 per share for an aggregate purchase price of approximately $65.0 million. Each share of our Series C convertible preferred stock will convert automatically into one share of our common stock immediately prior to the completion of this offering.
The purchasers of our Series C convertible preferred stock are entitled to specified registration rights. For additional information, see Description of Capital StockRegistration Rights. The following table summarizes the Series C convertible preferred stock purchased by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The terms of these purchases were the same for all purchasers of our Series C convertible preferred stock.
Name of Stockholder |
Shares of
Series C Convertible Preferred Stock |
Total
Purchase Price |
||||||
OrbiMed Private Investments IV, LP (1) |
741,993 | $ | 4,999,994 | |||||
Entities affiliated with Deerfield Management (2) |
445,196 | 2,999,998 | ||||||
Entities affiliated with 5AM Ventures (3) |
593,595 | 3,999,999 | ||||||
Entities affiliated with Versant Ventures (4) |
445,196 | 2,999,998 | ||||||
Sofinnova Venture Partners IX, L.P. |
1,780,785 | 11,999,998 |
(1) | Jonathan Silverstein, a member of our board of directors, is a general partner at OrbiMed, and Stephen Squinto, a member of our board of directors, is a venture partner at OrbiMed. |
(2) | Consists of shares held by Deerfield Special Situations Fund, L.P. and Deerfield Private Design Fund III, L.P. Jonathan Leff, a member of our board of directors, is a partner of Deerfield Management. |
(3) |
Consists of shares held by 5AM Ventures III, L.P. and 5AM Co-Investors III, L.P. Kush Parmar, a member of our board of directors, is a partner of 5AM Ventures. |
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(4) | Consists of shares held by Versant Venture Capital IV, L.P. and Versant Side Fund IV, L.P. Thomas Woiwode, a member of our board of directors, is the managing director of Versant Ventures. |
Cardiogen Acquisition
In August 2015, we acquired Cardiogen Sciences, Inc., and in consideration issued an aggregate of 104,736 shares of our Series B convertible preferred stock, 2,883,271 shares of our common stock and the opportunity to receive additional cash or shares of our common stock upon achievement of a certain milestone. Each share of our Series B convertible preferred stock will convert automatically into one share of our common stock immediately prior to the completion of this offering.
The holders of our Series B convertible preferred stock are entitled to specified registration rights. For additional information, see Description of Capital StockRegistration Rights. The following table summarizes the Series B convertible preferred stock acquired in connection with the Cardiogen acquisition by our directors, executive officers and beneficial holders of more than 5% of our capital stock. The same terms applied to all acquisitions of shares of Series B convertible preferred stock in the Cardiogen acquisition.
Name of Stockholder |
Shares of
Common Stock |
Shares of
Series B Convertible Preferred Stock |
||||||
Entities affiliated with Louis Lange (1) |
1,309,555 | 54,929 |
(1) | Consists of shares held by Louis G. Lange, Amygdala Lange Trust, Lange Minors Trust, Asset Management Ventures Fund, L.P. and Camp Lowell, LLC. |
Transactions with OrbiMed
In 2013, we paid entities affiliated with OrbiMed, a holder of more than 5% of our capital stock, $400,000 for certain consulting services provided to us in connection with the founding of our company, expense reimbursements and other costs that OrbiMed paid on our behalf.
Amended and Restated Investors Rights Agreement
We have entered into an amended and restated investors rights agreement with certain holders of our common stock and holders of our convertible preferred stock, including entities with which certain of our directors are affiliated. These stockholders are entitled to rights with respect to the registration of their shares following our initial public offering under the Securities Act. For a description of these registration rights, see Description of Capital StockRegistration Rights.
Equity Grants to Executive Officers and Directors
We have granted stock options to our executive officers and certain directors, as more fully described in the sections entitled Executive Compensation and ManagementNon-Employee Director Compensation, respectively.
Indemnification Agreements
In connection with this offering, we intend to enter into indemnification agreements with each of our directors and executive officers. The indemnification agreements, our restated certificate of incorporation and our restated bylaws will require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers. For more information regarding these agreements, see Executive CompensationLimitations on Liability and Indemnification Matters.
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Review, Approval or Ratification of Transactions with Related-Parties
In connection with this offering, we intend to adopt a written related-person transactions policy that provides that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of our common stock, and any members of the immediate family of the foregoing persons, are not permitted to enter into a material related-person transaction with us without the review and approval of our audit committee, or a committee composed solely of independent directors in the event it is inappropriate for our audit committee to review such transaction due to a conflict of interest. The policy provides that any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of our common stock or with any of their immediate family members or affiliates, in which the amount involved exceeds $120,000 will be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, we expect that our audit committee will consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related persons interest in the transaction.
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The following table sets forth certain information with respect to the beneficial ownership of our common stock as of December 31, 2015, and as adjusted to reflect the sale of common stock by us in this offering, for:
| each of our directors; |
| each of our named executive officers; |
| all of our directors and executive officers as a group; and |
| each person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our common stock. |
We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially owned, subject to applicable community property laws.
Applicable percentage ownership is based on 35,512,446 shares of common stock issued and outstanding as of December 31, 2015 and assumes the conversion of all outstanding shares of preferred stock into an aggregate of 30,816,155 shares of our common stock. For purposes of computing the applicable percentage of shares beneficially owned by a person after this offering in the table below, we have assumed that shares of common stock will be issued by us in our initial public offering based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options held by that person or entity that are currently exercisable or that will become exercisable within 60 days of December 31, 2015. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table on the following page is c/o Audentes Therapeutics, Inc., 101 Montgomery Street, Suite 2650, San Francisco, CA 94104.
Shares Beneficially Owned
|
Shares Beneficially
|
|||||||||||||
Name of Beneficial Owner |
Number |
Percentage |
Number |
Percentage |
||||||||||
5% Stockholders: |
||||||||||||||
OrbiMed Private Investments IV, LP (1) |
10,632,228 | 29.9 | % | % | ||||||||||
Entities affiliated with 5AM Ventures (2) |
5,177,830 | 14.6 | ||||||||||||
Entities affiliated with Versant Ventures (3) |
3,950,789 | 11.1 | ||||||||||||
Sofinnova Venture Partners IX, L.P. (4) |
2,776,741 | 7.8 | ||||||||||||
Entities affiliated with Deerfield Management (5) |
2,237,918 | 6.3 | ||||||||||||
Directors and Named Executive Officers: |
||||||||||||||
Matthew Patterson (6) |
858,760 | 2.4 | ||||||||||||
Suyash Prasad (7) |
118,125 | * | ||||||||||||
John Gray (8) |
67,500 | * | ||||||||||||
Louis Lange (9) |
1,364,484 | 3.9 | ||||||||||||
Jonathan Leff |
| | ||||||||||||
Scott Morrison |
| | ||||||||||||
Kush Parmar (2) |
5,177,830 | 14.6 | ||||||||||||
Thomas Schuetz (10) |
233,371 | * | ||||||||||||
Jonathan Silverstein (1) |
10,632,228 | 29.9 | ||||||||||||
Stephen Squinto (11) |
12,500 | * | ||||||||||||
Thomas Woiwode (3) |
3,950,789 | 11.1 | ||||||||||||
All executive officers and directors as a group (15 persons) (12) |
22,483,712 | 61.8 |
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* | Represents beneficial ownership of less than one percent. |
(1) | Represents shares of common stock held by OrbiMed Private Investments IV, LP, or OPI IV. OrbiMed Capital GP IV LLC, or GP IV, is the sole general partner of OPI IV. OrbiMed Advisors LLC, or OrbiMed, is the managing member of GP IV. Samuel D. Isaly is the managing member of OrbiMed. By virtue of such relationships, GP IV, OrbiMed, and Mr. Isaly may be deemed to have voting and investment power with respect to the shares held by OPI IV. Jonathan T. Silverstein, a member of OrbiMed, is a member of our board of directors. The address of OPI IV is c/o OrbiMed Advisors LLC, 601 Lexington Avenue, 54th floor, New York, New York 10022. |
(2) | Represents (i) 5,047,738 shares held by 5AM Ventures III, L.P., or 5AM Ventures, and (ii) 130,902 shares held by 5AM Co-Investors III, L.P., or 5AM Co-Investors. 5AM Partners III, LLC, or 5AM Partners, is the general partner of each of 5AM Ventures and 5AM Co-Investors, and may be deemed to have sole voting and investment power over the shares held by each of 5AM Ventures and 5AM Co-Investors. Andrew Schwab, John Diekman and Scott Rocklage are the managing members of 5AM Partners. Kush Parmar, a member of our board of directors, is a managing partner at 5AM Venture Management, LLC, which is an affiliate of 5AM Partners. The address of 5AM Ventures is 2200 Sand Hill Road, Suite 110, Menlo Park, California 94025. |
(3) | Represents (i) 3,926,058 shares held by Versant Venture Capital IV, L.P., or VVC IV, and (ii) 24,731 shares held by Versant Side Fund IV, L.P., or VSF IV. Versant Ventures IV, LLC, or VV IV, is the sole general partner of each of VVC IV and VSF IV. Thomas Woiwode, a member of our board of directors, together with Brian Atwood, Bradley Bolzon, Samuel Colella, Ross Jaffe, William Link, Kirk Nielsen, Robin Praeger, Rebecca Robertson and Charles Warden, are the managing directors of VV IV and may be deemed to share voting and investment power over the shares held by each of the VVC IV and VSF IV. The address of Versant Ventures is One Sansome Street, Suite 3630, San Francisco, California 94104. |
(4) | Represents shares of common stock held by Sofinnova Venture Partners IX, L.P., or SVP IX. Sofinnova Management IX, L.L.C., or SM IX, is the general partner of SVP IX and Dr. Michael F. Powell, Dr. James I. Healy, Dr. Anand Mehra and Dr. Srinivas Akkaraju, the managing members of SM IX, may be deemed to have shared voting and investment power over the shares held by SVP IX. The address for SVP IX is c/o Sofinnova Ventures, 3000 Sand Hill Road, Building 4, Suite 250, Menlo Park, California 94025. |
(5) | Represents (i) 820,172 shares held by Deerfield Special Situations Fund, L.P., or Deerfield Fund, and (ii) 1,417,746 shares held by Deerfield Private Design Fund III, L.P., or Deerfield Fund III. Deerfield Mgmt, L.P. is the general partner of Deerfield Fund, and Deerfield Mgmt III, L.P. is the general partner of Deerfield Fund III. Deerfield Management Company, L.P. is the investment manager of Deerfield Fund and Deerfield Fund III. James Flynn is the sole member of the general partner of each of Deerfield Mgmt III, L.P., Deerfield Mgmt, L.P. and Deerfield Management Company, L.P. and may be deemed to have voting and investment power over the shares held by Deerfield Fund and Deerfield Fund III. The address of Deerfield Management Company, L.P. is 780 Third Avenue, 37th Floor, New York, New York 10017. |
(6) | Represents (i) 300,000 shares of common stock and (ii) 558,760 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2015. |
(7) | Represents 118,125 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2015. |
(8) | Represents 67,500 shares of common stock underlying options to purchase common stock that are exercisable within 60 days of December 31, 2015. |
(9) | Represents (i) 1,060,926 shares held by Mr. Lange, (ii) 57,258 shares held by Amygdala Lange Trust, of which Mr. Langes domestic partner is a trustee, (iii) 19,085 shares held by Lange Minors Trust, of which Mr. Langes domestic partner is a trustee, (iv) 194,757 shares held by Asset Management Ventures Fund, L.P., of which Mr. Lange is a general partner, and (v) 32,458 shares held by Camp Lowell, LLC, of which Mr. Lange is president. |
(10) | Represents (i) 200,000 shares of common stock and (ii) 33,371 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2015. |
(11) | Represents 12,500 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2015. |
(12) | Includes 21,625,331 shares of common stock and 858,381 shares underlying options to purchase common stock that are exercisable within 60 days of December 31, 2015. |
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Upon the completion of this offering and the filing of our restated certificate of incorporation, our authorized capital stock will consist of shares of common stock, $0.00001 par value per share, and shares of undesignated preferred stock, $0.00001 par value per share. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part.
Pursuant to the provisions of our certificate of incorporation, all of our outstanding convertible preferred stock will automatically convert into common stock effective immediately prior to the completion of this offering. Assuming (i) the sale and issuance of 9,645,913 shares of Series C convertible preferred stock in an October 2015 private placement and (ii) the conversion of shares of our convertible preferred stock outstanding as of September 30, 2015 and our Series C convertible preferred stock issued in October 2015 into 30,816,155 shares of common stock, as of September 30, 2015, there were 35,466,509 shares of our common stock issued and outstanding, held by approximately 67 stockholders of record, and no shares of our preferred stock outstanding. Our board of directors is authorized, without stockholder approval, to issue additional shares of our capital stock.
Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See Dividend Policy above.
Voting Rights
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We do not intend to provide for cumulative voting for the election of directors in our restated certificate of incorporation. Accordingly, holders of a majority of the shares of our common stock will be able to elect all of our directors. Our restated certificate of incorporation will establish a classified board of directors, to be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
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Preferred Stock
Pursuant to the provisions of our certificate of incorporation, each currently-outstanding share of convertible preferred stock will automatically be converted into one share of common stock effective immediately prior to the completion of this offering. Following this offering, no shares of preferred stock will be outstanding.
Pursuant to our restated certificate of incorporation that will become effective in connection with the completion of this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue from time to time up to shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of their qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors will also be able to increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may be able to authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.
Stock Options
As of September 30, 2015, we had outstanding options to purchase an aggregate of 2,958,675 shares of our common stock, with a weighted-average exercise price of approximately $0.65 per share. Subsequent to September 30, 2015, we issued options to purchase an aggregate of 2,359,064 shares of our common stock, with a weighted-average exercise price of $2.74 per share.
Registration Rights
The holders of certain outstanding shares of our common stock and the holders of shares of our common stock issuable upon conversion of our convertible preferred stock, or their permitted transferees, are entitled to rights with respect to the registration of these shares under the Securities Act. These shares are referred to as registrable securities. Upon completion of this offering, there will be approximately registrable securities outstanding. These rights are provided under the terms of an amended and restated investors rights agreement between us and the holders of these shares, which was entered into in connection with our preferred stock financings and with our Common Stock Purchase Agreement with Genethon, and include demand registration rights, short-form registration rights and piggyback registration rights. In any registration made pursuant to such amended and restated investors rights agreement, all fees, costs and expenses of underwritten registrations, including fees and disbursements of one counsel to the selling stockholders not to exceed $30,000, will be borne by us and all selling expenses, including estimated underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.
The registration rights terminate five years following the completion of this offering or, with respect to any particular stockholder, at such time as we have completed this offering and that stockholder can sell all of its shares during any three-month period pursuant to Rule 144 of the Securities Act.
Demand Registration Rights
Under the terms of the amended and restated investors rights agreement, if we receive a written request, at any time after 180 days following the effective date of this offering, from the holders of at least 66.67% of the common stock (i) issued or issuable upon conversion of then-outstanding shares of preferred stock held by
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preferred stockholders under the amended and restated investors rights agreement and (ii) then held by Genethon, voting together as a single class on an as-converted to common stock basis, that we file a registration statement under the Securities Act covering the registration of outstanding registrable securities, then we will be required to use commercially reasonable efforts to register, as soon as practicable, and in any event within 90 days of such written request, all of the shares requested to be registered for public resale, if the amount of registrable securities to be registered will have anticipated aggregate gross proceeds (net of underwriting discounts, commissions, taxes and certain fees and expenses of counsel for selling stockholders) of at least $25.0 million. We are required to effect only two registrations pursuant to this provision of the amended and restated investors rights agreement. We may postpone the filing of a registration statement no more than once during any 12-month period for up to 90 days if our board of directors determines that the filing would be materially detrimental to us and our stockholders, but we shall not register any securities for our own account or that of any other stockholder during such 90-day period, subject to certain exceptions. We are not required to effect a demand registration under certain additional circumstances specified in the amended and restated investors rights agreement.
Form S-3 Registration Rights
Any holder of registrable securities then outstanding can request that we register all or part of 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 $5.0 million (net of underwriting discounts, commissions, taxes and certain fees and expenses of counsel for selling stockholders). We shall not be obligated to effect a registration if we have effected two registrations within the 12-month period immediately preceding the date of the request. We may postpone the filing of a registration statement no more than once during any 12-month period for up to 90 days if our board of directors determines that the filing would be materially detrimental to us and our stockholders, but we shall not register any securities for our own account or that of any other stockholder during such 90-day period, subject to certain exceptions. We are not required to effect a registration on Form S-3 under certain additional circumstances specified in the amended and restated investors rights agreement.
Piggyback Registration Rights
In connection with this offering, holders of our registrable securities were entitled to, and the necessary percentage of holders waived, their rights to notice of this offering and to include their registrable securities in this offering. If we register any of our securities for public sale in another offering, holders of registrable securities will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to employee benefit plans, a registration relating to a corporate reorganization, a registration on any registration form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of registrable securities or a registration in which the only common stock being registered is common stock issuable upon conversion of debt securities that are also being registered. If the total number of securities requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by us) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then we will be required to include in the offering only that number of securities that we and the underwriters determine will not jeopardize the success of the offering. In this case, the number of shares held by the selling stockholders to be registered will be allocated among the selling stockholders in proportion the number of registrable securities owned or held by each selling stockholders or in such other proportions as mutually agreed to by all such selling stockholders. However, the number of shares to be registered by these holders cannot be reduced below 30% of the total shares covered by the registration statement, other than in the initial public offering.
Anti-Takeover Provisions
The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect immediately prior to the completion of this offering, could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions,
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which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, regulating corporate takeovers. In general, DGCL Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:
| prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
| the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (i) shares owned by persons who are directors and also officers and (ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66.67% of the outstanding voting stock that is not owned by the interested stockholder. |
Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporations outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that DGCL Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Restated Certificate of Incorporation and Restated Bylaws Provisions
Our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect immediately prior to the completion of this offering, include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our company, including the following:
| Board of Directors Vacancies. Our restated certificate of incorporation and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management. |
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| Classified Board. Our restated certificate of incorporation and restated bylaws will provide that our board of directors will be classified into three classes of directors, each with staggered three-year terms. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See ManagementBoard of Directors. |
| Stockholder Action; Special Meetings of Stockholders. Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our restated bylaws. Further, our restated bylaws and restated certificate of incorporation will provide that special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our Chief Executive Officer or our President, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors. |
| Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our restated bylaws also will specify certain requirements regarding the form and content of a stockholders notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company. |
| No Cumulative Voting. The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporations certificate of incorporation provides otherwise. Our restated certificate of incorporation will not provide for cumulative voting. |
| Directors Removed Only for Cause. Our restated certificate of incorporation will provide that stockholders may remove directors only for cause and only by the affirmative vote of the holders of at least two-thirds of our outstanding common stock. |
| Amendment of Charter Provisions. Any amendment of the above expected provisions in our restated certificate of incorporation would require approval by holders of at least two-thirds of our outstanding common stock. |
| Issuance of Undesignated Preferred Stock. Our board of directors has the authority, without further action by the stockholders, to issue up to shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means. |
|
Choice of Forum. Our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim |
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against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our restated bylaws; any action to interpret, apply, enforce or determine the validity of our restated certificate of incorporation or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The enforceability of similar choice of forum provisions in other companies certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. |
Exchange Listing
We have applied to list our common stock on The NASDAQ Global Market under the symbol BOLD.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agents address is 6201 15th Avenue, Brooklyn, New York 11219, and its telephone number is (800) 937-5449.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for shares of our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.
Upon the completion of this offering, we will have a total of shares of our common stock outstanding, assuming (i) the sale and issuance of 9,645,913 shares of our Series C convertible preferred stock in an October 2015 private placement, (ii) the automatic conversion of shares of our convertible preferred stock outstanding as of September 30, 2015 and our Series C convertible preferred stock issued in the October 2015 private placement into 30,816,155 shares of our common stock effective immediately prior to the completion of this offering and (iii) the sale and issuance of shares of our common stock in this offering, at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. Of these outstanding shares, all of the shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.
The remaining outstanding shares of our common stock will be deemed restricted securities as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. In addition, all of our security holders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements and the provisions of our amended and restated investors rights agreement described above under Description of Capital StockRegistration Rights, subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:
| beginning on the date of this prospectus, all of the shares sold in this offering will be immediately available for sale in the public market; and |
| beginning 181 days after the date of this prospectus, additional shares will become eligible for sale in the public market, of which shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below. |
Lock-Up and Market Standoff Agreements
All of our directors, executive officers and our security holders are subject to lock-up agreements or market standoff provisions that, subject to certain exceptions, prohibit them from directly or indirectly offering, pledging, selling, contracting to sell, selling any option or contract to purchase, purchasing any option or contract to purchase, granting any option, right or warrant to purchase or otherwise transferring or disposing of any shares of our common stock, options to acquire shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock, whether now owned or hereafter acquired, or entering into any swap or any other agreement or any transaction that transfer, in whole or in part, directly or indirectly, the economic consequence of ownership, for a period of 180 days following the date of this prospectus, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Cowen and Company, LLC. See the section entitled Underwriting.
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Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up and market standoff agreements described above, within any three-month period, a number of shares that does not exceed the greater of:
| 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or |
| the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. |
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701 and are subject to the lock-up and market standoff agreements described above.
Stock Options
In connection with this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our common stock subject to outstanding options and the shares of our common stock reserved for issuance under our stock plans. We expect to file this registration statement as soon as permitted under the Securities Act. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice and public information requirements of Rule 144 and will not be eligible for resale until expiration of the lock-up and market standoff agreements to which they are subject.
Registration Rights
We have granted demand, piggyback and Form S-3 registration rights to certain of our stockholders to sell our common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For a further description of these rights, see Description of Capital StockRegistration Rights.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK
This section summarizes the material U.S. federal income tax considerations relating to the acquisition, ownership and disposition of our common stock by non-U.S. holders (as defined below) pursuant to this offering. This summary does not provide a complete analysis of all potential U.S. federal income tax considerations relating thereto. The information provided below is based upon provisions of the Internal Revenue Code of 1986, as amended (the Code), Treasury regulations promulgated thereunder, administrative rulings and judicial decisions currently in effect. These authorities may change at any time, possibly retroactively, or the Internal Revenue Service, or IRS, might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of our common stock could differ from those described below. As a result, we cannot assure you that the tax consequences described in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS.
This summary does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent provided below. In addition, this discussion does not address tax considerations applicable to an investors particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
| banks, insurance companies or other financial institutions; |
| partnerships or entities or arrangements treated as partnerships or other pass-through entities for U.S. federal tax purposes (or investors in such entities); |
| corporations that accumulate earnings to avoid U.S. federal income tax; |
| persons subject to the alternative minimum tax or medicare contribution tax; |
| tax-exempt organizations or tax-qualified retirement plans; |
| controlled foreign corporations or passive foreign investment companies; |
| persons who acquired our common stock as compensation for services; |
| dealers in securities or currencies; |
| traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; |
| persons that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below); |
| certain former citizens or long-term residents of the United States; |
| persons who hold our common stock as a position in a hedging transaction, straddle, conversion transaction or other risk reduction transaction; |
| persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes); or |
| persons deemed to sell our common stock under the constructive sale provisions of the Code. |
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In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes is a beneficial owner of our common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. Accordingly, this summary does not address tax considerations applicable to partnerships that hold our common stock, and partners in such partnerships should consult their tax advisors.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES
Non-U.S. Holder Defined
For purposes of this summary, a non-U.S. holder is any holder of our common stock, other than a partnership, that is not:
| an individual who is a citizen or resident of the United States; |
| a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state therein or the District of Columbia; |
| a trust if it (1) is subject to the primary supervision of a U.S. court and one of more U.S. persons have authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or |
| an estate whose income is subject to U.S. income tax regardless of source. |
If you are a non-U.S. citizen who is an individual, you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three- year period ending in the current calendar year. For these purposes, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to U.S. federal income tax as if they were U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.
Dividends
We do not expect to declare or make any distributions on our common stock in the foreseeable future and the terms of our credit facility currently restrict our ability to pay dividends. If we do pay dividends on shares of our common stock, however, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. holders adjusted tax basis in shares of our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of our common stock. See Sale of Common Stock.
Any dividend paid to a non-U.S. holder on our common stock that is not effectively connected with a non-U.S. holders conduct of a trade or business in the United States will generally be subject to U.S. withholding tax at a 30% rate. The withholding tax might apply at a reduced rate under the terms of an applicable income tax treaty between the United States and the non-U.S. holders country of residence subject to the discussion below regarding the Foreign Account Tax Compliance Act. You should consult your tax advisors
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regarding your entitlement to benefits under a relevant income tax treaty. Generally, in order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder generally can meet this certification requirement by providing a Form W-8BEN or Form W- 8BEN-E (or any successor form) or appropriate substitute form to us or our paying agent. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the holders behalf, the holder will be required to provide appropriate documentation to the agent. The holders agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS in a timely manner.
Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder, and if required by an applicable income tax treaty between the United States and the non-U.S. holders country of residence, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States, are not subject to U.S. withholding tax. To obtain this exemption, a non-U.S. holder must provide us or our paying agent with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition to being taxed at graduated tax rates, dividends received by corporate non-U.S. holders that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.
Sale of Common Stock
Subject to the discussion below regarding Backup Withholding and the Foreign Account Tax Compliance Act, non-U.S. holders will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange or other disposition of our common stock unless:
| the gain (i) is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business and (ii) if required by an applicable income tax treaty between the United States and the non-U.S. holders country of residence, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States (in which case the special rules described below apply); |
| the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the sale, exchange or other disposition of our common stock, and certain other requirements are met (in which case the gain would be subject to a flat 30% tax, or such reduced rate as may be specified by an applicable income tax treaty, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States); or |
| the rules of the Foreign Investment in Real Property Tax Act, or FIRPTA, treat the gain as effectively connected with a U.S. trade or business. |
The FIRPTA rules may apply to a sale, exchange or other disposition of our common stock if we are, or were within the shorter of the five-year period preceding the disposition and the non-U.S. holders holding period, a U.S. real property holding corporation, or USRPHC. In general, we would be a USRPHC if interests in U.S. real estate comprised at least half of the value of our business assets. We do not believe that we are a USRPHC and we do not anticipate becoming one in the future. Even if we become a USRPHC, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if beneficially owned by a non-U.S. holder that actually or constructively owned more than 5% of our outstanding common stock at some time within the five-year period preceding the disposition.
If any gain from the sale, exchange or other disposition of our common stock, (i) is effectively connected with a U.S. trade or business conducted by a non-U.S. holder and (ii) if required by an applicable
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income tax treaty between the United States and the non-U.S. holders country of residence, is attributable to a permanent establishment maintained by such non-U.S. holder in the United States, then the gain generally will be subject to U.S. federal income tax at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If the non-U.S. holder is a corporation, under certain circumstances, that portion of its earnings and profits that is effectively connected with its U.S. trade or business, subject to certain adjustments, generally would be subject also to a branch profits tax. The branch profits tax rate is 30%, although an applicable income tax treaty between the United States and the non-U.S. holders country of residence might provide for a lower rate.
U.S. Federal Estate Tax
The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedents country of residence provides otherwise.
Backup Withholding and Information Reporting
The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by backup withholding rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28%. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign, provided they establish such exemption.
Payments to non-U.S. holders of dividends on common stock generally will not be subject to backup withholding, and payments of proceeds made to non-U.S. holders by a broker upon a sale of common stock will not be subject to information reporting or backup withholding, in each case so long as the non-U.S. holder certifies its nonresident status (and we or our paying agent do not have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. The certification procedures to claim treaty benefits described under Dividends will generally satisfy the certification requirements necessary to avoid the backup withholding tax. We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides.
Under the Treasury regulations, the payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless the beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and the broker does not have actual knowledge or reason to know the holder is a U.S. person) or otherwise establishes an exemption. The payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. Information reporting, but not backup withholding, will apply to a payment of proceeds, even if that payment is made outside of the United States, if you sell our common stock through a non-U.S. office of a broker that is:
| a U.S. person (including a foreign branch or office of such person); |
| a controlled foreign corporation for U.S. federal income tax purposes; |
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| a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business; or |
| a foreign partnership if at any time during its tax year (i) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interests of the partnership or (ii) the foreign partnership is engaged in a U.S. trade or business; |
unless the broker has documentary evidence that the beneficial owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no actual knowledge or reason to know to the contrary).
Backup withholding is not an additional tax. Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance Act
A U.S. federal withholding tax of 30% may apply to dividends and the gross proceeds of a disposition of our common stock paid to a foreign financial institution (as specifically defined by the applicable rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). This U.S. federal withholding tax of 30% will also apply to dividends and the gross proceeds of a disposition of our common stock paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. The 30% federal withholding tax described in this paragraph cannot be reduced under an income tax treaty with the United States or by providing an IRS Form W-8BEN or similar documentation. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Holders should consult with their own tax advisors regarding the possible implications of the withholding described herein.
The withholding provisions described above generally apply to proceeds from a sale or other disposition of common stock if such sale or other disposition occurs on or after January 1, 2019 and to payments of dividends on our common stock.
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE TO ANY NON-U.S. HOLDER IN ITS PARTICULAR CIRCUMSTANCES. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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Merrill Lynch, Pierce, Fenner & Smith Incorporated, Cowen and Company, LLC and Piper Jaffray & Co. 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
|
||
Cowen and Company, LLC |
||
Piper Jaffray & Co. |
||
Wedbush Securities Inc. |
||
|
||
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 discounts and commissions |
$ | $ | $ | |||||||||
Proceeds, before expenses, to us |
$ | $ | $ |
The expenses of the offering, not including the underwriting discount, are estimated to be approximately $ million. We have also agreed to reimburse the underwriters for up to $ for their Financial Industry Regulatory Authority, Inc., or FINRA, counsel fee. In accordance with FINRA Rule 5110, this reimbursement is deemed underwriting compensation for this offering.
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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 substantially all 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 Cowen and Company, 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.
NASDAQ Global Market Listing
We have applied to list our common stock on The NASDAQ Global Market under the symbol BOLD.
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.
156
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. An affiliate of Cowen and Company, LLC served as the placement agent for our Series C convertible preferred stock financing in October 2015.
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, no offer of ordinary shares which are the subject of the offering has been, or will be made to the public in that Member State, other than under the following exemptions under the Prospectus Directive:
(i) | to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
(ii) | to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the Representatives for any such offer; or |
(iii) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of ordinary shares referred to in (a) to (c) above shall result in a requirement for the company or any representative 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 located in a Member State to whom any offer of ordinary shares is made or who receives any communication in respect of an offer of ordinary shares, or who initially acquires any ordinary shares will be deemed to have represented, warranted, acknowledged and agreed to and with each representative and the company that (i) it is a qualified investor within the meaning of the law in that Member State implementing Article 2(1)(e) of the Prospectus Directive; and (ii) in the case of any ordinary shares acquired by it as a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, the ordinary shares acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the Representatives has been given to the offer or resale; or where ordinary shares have been acquired by it on behalf of persons in any Member State other than qualified investors, the offer of those ordinary shares to it is not treated under the Prospectus Directive as having been made to such persons.
157
The company, the representatives and their respective affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgments and agreements.
This prospectus has been prepared on the basis that any offer of shares in any Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that 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 representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the company nor the representatives 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 representatives to publish a prospectus for such offer.
For the purposes of this provision, the expression an offer of ordinary shares to the public in relation to any ordinary shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the ordinary shares to be offered so as to enable an investor to decide to purchase or subscribe the ordinary shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (as amended) and includes any relevant implementing measure in each Member State.
The above selling restriction is in addition to any other selling restrictions set out below.
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, or 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 or 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, or FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
158
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, or 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 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, or 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, or 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, or 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.
159
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 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 the 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, or 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:
(i) | 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 |
(ii) | 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:
(i) | 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; |
(ii) | where no consideration is or will be given for the transfer; |
(iii) | where the transfer is by operation of law; |
(iv) | as specified in Section 276(7) of the SFA; or |
(v) | as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Notice to Prospective Investors in Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration
160
Requirements, Exemptions and Ongoing Registrant Obligations . Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
161
The validity of the shares of common stock offered by this prospectus will be passed upon for us by Fenwick & West LLP, San Francisco, California. Certain legal matters relating to this offering will be passed upon for the underwriters by Cooley LLP, San Francisco, California.
The financial statements of Audentes Therapeutics, Inc. at December 31, 2013 and 2014 and for each of the years in the two-year period ended December 31, 2014 are 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 ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, or the SEC, a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, NE, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from that office. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
We currently do not file periodic reports with the SEC. Upon the closing of our initial public offering, we will be required to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. These periodic reports, proxy statements and other information will be available for inspection and copying at the SECs public reference facilities and the website of the SEC referred to above.
We also maintain a website at www.audentestx.com. Upon completion of this offering, you may access these materials at our website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
162
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
Financial Statements |
||||
F-3 | ||||
Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2013 and 2014 |
F-4 | |||
Statements of Stockholders Equity for the Years Ended December 31, 2013 and 2014 |
F-5 | |||
Statements of Cash Flows for the Years Ended December 31, 2013 and 2014 |
F-6 | |||
F-7 | ||||
Unaudited Interim Condensed Consolidated Financial Statements |
||||
Condensed Consolidated Balance Sheets as of December 31, 2014 and September 30, 2015 |
F-26 | |||
F-27 | ||||
F-28 | ||||
Notes to Unaudited Interim Condensed Consolidated Financial Statements |
F-29 |
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors
Audentes Therapeutics, Inc.:
We have audited the accompanying balance sheets of Audentes Therapeutics, Inc. 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 Audentes 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 19, 2015
F-2
Balance Sheets
(in thousands, except shares and per share data)
December 31, | ||||||||
2013 | 2014 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 12,946 | $ | 45,599 | ||||
Short-term investments |
| 14,851 | ||||||
Restricted cash |
50 | 50 | ||||||
Prepaid expenses and other current assets |
151 | 441 | ||||||
|
|
|
|
|||||
Total current assets |
13,147 | 60,941 | ||||||
Property and equipment, net |
110 | 264 | ||||||
Long-term investments |
| 1,698 | ||||||
Other assets |
70 | 106 | ||||||
|
|
|
|
|||||
Total assets |
$ | 13,327 | $ | 63,009 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 198 | $ | 1,240 | ||||
Accrued liabilities |
188 | 1,871 | ||||||
|
|
|
|
|||||
Total current liabilities |
386 | 3,111 | ||||||
Deferred rent |
29 | 34 | ||||||
|
|
|
|
|||||
Total liabilities |
415 | 3,145 | ||||||
|
|
|
|
|||||
Stockholders equity: |
||||||||
Convertible preferred stock, Series Seed, $0.00001 par value: 1,400,000 shares authorized as of December 31, 2013 and 2014; 1,400,000 and 1,400,000 shares issued and outstanding as of December 31, 2013 and 2014; aggregate liquidation preference of $1,400 as of December 31, 2014 |
1,378 | 1,378 | ||||||
Convertible preferred stock, Series A, $0.00001 par value: 11,199,876 shares authorized as of December 31, 2013 and 2014; 5,599,937 and 11,199,876 shares issued and outstanding as of December 31, 2013 and 2014, respectively; aggregate liquidation preference of $15,000 and $30,000 as of December 31, 2013 and 2014, respectively |
13,759 | 28,757 | ||||||
Convertible preferred stock, Series B, $0.00001 par value: 0 and 8,500,000 shares authorized as of December 31, 2013 and 2014, respectively; 0 and 8,465,630 shares issued and outstanding as of December 31, 2013 and 2014, respectively; aggregate liquidation preference of $42,500 as of December 31, 2014 |
| 42,268 | ||||||
Common stock, $0.00001 par value, 17,500,000 and 28,000,000 shares authorized as of December 31, 2013 and 2014, respectively; 1,111,999 and 1,697,083 issued and outstanding as of December 31, 2013 and 2014, respectively |
| | ||||||
Additional paid-in capital |
1,241 | 1,756 | ||||||
Accumulated deficit |
(3,466 | ) | (14,285 | ) | ||||
Accumulated other comprehensive loss |
| (10 | ) | |||||
|
|
|
|
|||||
Total stockholders equity |
12,912 | 59,864 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 13,327 | $ | 63,009 | ||||
|
|
|
|
See accompanying notes to financial statements.
F-3
Statements of Operations and Comprehensive Loss
(in thousands)
Year Ended December 31, | ||||||||
2013 | 2014 | |||||||
Operating expenses: |
||||||||
Research and development |
$ | 1,911 | $ | 9,280 | ||||
General and administrative |
1,143 | 1,670 | ||||||
|
|
|
|
|||||
Total operating expenses |
3,054 | 10,950 | ||||||
|
|
|
|
|||||
Loss from operations |
(3,054 | ) | (10,950 | ) | ||||
Interest income |
| 6 | ||||||
Other income, net |
| 125 | ||||||
|
|
|
|
|||||
Net loss |
(3,054 | ) | (10,819 | ) | ||||
Unrealized losses on available-for-sale securities |
| (10 | ) | |||||
|
|
|
|
|||||
Net loss and comprehensive loss |
$ | (3,054 | ) | $ | (10,829 | ) | ||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (4.59 | ) | $ | (9.67 | ) | ||
|
|
|
|
|||||
Shares used in computing net loss per share, basic and diluted |
664,945 | 1,118,698 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted (unaudited) |
(1.10 | ) | ||||||
|
|
|||||||
Shares used in computing pro forma net loss per share, basic and diluted (unaudited) |
9,821,341 | |||||||
|
|
See accompanying notes to financial statements.
F-4
Statements of Stockholders Equity
Years ended December 31, 2013 and 2014
(in thousands, except shares)
Series Seed
Convertible Preferred Stock |
Series A
Convertible Preferred Stock |
Series B
Convertible Preferred Stock |
Common Stock |
Additional
Paid-in Capital |
Accumulated
Deficit |
Accumulated
Other Comprehensive Loss |
Stockholders
Equity |
|||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2013 |
1,400,000 | $ | 1,378 | | $ | | | $ | | 1,000,000 | $ | | $ | | $ | (412 | ) | $ | | $ | 966 | |||||||||||||||||||||||||||
Issuance of common stock to REGENXBIO (note 6) |
| | | | | | 111,999 | | 39 | | | 39 | ||||||||||||||||||||||||||||||||||||
Issuance of Series A convertible preferred stock, net of $162 in issuance costs |
| | 5,599,937 | 13,759 | | | | | 1,079 | | | 14,838 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | 123 | | | 123 | ||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (3,054 | ) | | (3,054 | ) | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance at December 31, 2013 |
1,400,000 | 1,378 | 5,599,937 | 13,759 | | | 1,111,999 | | 1,241 | (3,466 | ) | | 12,912 | |||||||||||||||||||||||||||||||||||
Issuance of common stock to Genethon (see note 6) |
| | | | | | 585,084 | | 336 | | | 336 | ||||||||||||||||||||||||||||||||||||
Issuance of Series A convertible preferred stock, net of $2 in issuance costs |
| | 5,599,939 | 14,998 | | | | | | | | 14,998 | ||||||||||||||||||||||||||||||||||||
Issuance of Series B convertible preferred stock, net of $217 in issuance costs |
| | | | 8,465,630 | 42,268 | | | | | | 42,268 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | 179 | | | 179 | ||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (10,819 | ) | | (10,819 | ) | ||||||||||||||||||||||||||||||||||
Other comprehensive loss |
| | | | | | | | | | (10 | ) | (10 | ) | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance at December 31, 2014 |
1,400,000 | $ | 1,378 | 11,199,876 | $ | 28,757 | 8,465,630 | $ | 42,268 | 1,697,083 | $ | | $ | 1,756 | $ | (14,285 | ) | $ | (10 | ) | $ | 59,864 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-5
Statements of Cash Flows
(in thousands)
Year Ended December 31, | ||||||||
2013 | 2014 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (3,054 | ) | $ | (10,819 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
3 | 35 | ||||||
Stock-based compensation |
123 | 179 | ||||||
Other |
| (9 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Restricted cash |
(50 | ) | | |||||
Prepaid expenses and other current assets |
(150 | ) | (300 | ) | ||||
Other assets |
(70 | ) | (36 | ) | ||||
Accounts payable |
(214 | ) | 857 | |||||
Accrued liabilities |
153 | 1,683 | ||||||
Deferred rent |
29 | 5 | ||||||
|
|
|
|
|||||
Net cash used in operating activities |
(3,230 | ) | (8,405 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(106 | ) | (125 | ) | ||||
Purchases of marketable securities |
| (16,539 | ) | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(106 | ) | (16,664 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of Series A convertible preferred stock, net of issuance costs |
14,843 | 14,998 | ||||||
Proceeds from issuance of Series B convertible preferred stock, net of issuance costs |
| 42,388 | ||||||
Proceeds from issuance of common stock |
39 | 336 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
14,882 | 57,722 | ||||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
11,546 | 32,653 | ||||||
Cash and cash equivalents at beginning of period |
1,400 | 12,946 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 12,946 | $ | 45,599 | ||||
|
|
|
|
|||||
Noncash investing and financing activities: |
||||||||
Change in accounts payable related to property and equipment purchases |
$ | (7 | ) | $ | (65 | ) | ||
Preferred stock issuance costs |
$ | (5 | ) | $ | (120 | ) |
See accompanying notes to financial statements.
F-6
AUDENTES THERAPEUTICS, INC.
1. Organization and Basis of Presentation
Audentes Therapeutics, Inc., or the Company, was incorporated in the State of Delaware on November 13, 2012. The Company is a biotechnology company focused on developing and commercializing gene therapy products for patients suffering from serious, life-threatening rare diseases caused by single gene defects. The Companys principal operations are located in San Francisco, California, and it operates in one business segment.
Liquidity
In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next several years. The Companys ultimate success depends on the outcome of its research and development activities. The Company has incurred net losses from operations since inception and has an accumulated deficit of $14.3 million, as of December 31, 2014. The Company intends to raise additional capital through the issuance of additional equity, and potentially through strategic alliances with partner companies. If financing is not available at adequate levels, the Company may need to reevaluate its operating plans. Management believes currently available resources will provide sufficient funds to enable the Company to meet its operating plans for at least the next twelve months. However, if the Companys anticipated operating results are not achieved in future periods, planned expenditures may need to be reduced in order to extend the time period over which the then-available resources would be able to fund the Companys operations.
2. Summary of Significant Accounting Policies
Use of Estimates
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of any expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to accrued liabilities, fair value of assets, common stock, income taxes, and stock-based compensation. Management bases its estimates on historical experience, and on various other market-specific relevant assumptions that management believes to be reasonable, under the circumstances. Actual results may differ from those estimates.
Financial Instruments
The following methods were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents : Cash and cash equivalents consist of bank deposits, money market funds and commercial money market instruments with original maturities of three months or less used for operational purposes. Cash equivalents are recorded at fair value.
Short-term and long-term investments : Short-term investments consist of debt securities with original maturities of 12 months or less and greater than three months. Long-term investments consist of debt securities with maturities greater than 12 months. Short-term and long-term investments are classified as available-for-sale investments and are recognized at fair value.
The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary
F-7
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
include: the length of time and extent to which the fair market value has been lower than the cost basis, the financial condition and near-term prospects of the investee, credit quality, likelihood of recovery, and the Companys ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair market value. Unrealized gains and losses, net of tax, are included in accumulated other comprehensive loss as a separate component of stockholders equity. The amortization of premiums and discounts on the investments, and realized gains and losses on available-for-sale securities are included in other income, net on the statements of operations and comprehensive loss. The Company uses the specific-identification method to determine cost in calculating realized gains and losses upon sale of its marketable securities.
Fair Value Measurements
Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liabilitys fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices, or parameters derived from such prices. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment. The degree of management estimation and judgment is dependent on the price transparency for the instruments, or market, and the instruments complexity. The authoritative accounting guidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable. These levels of inputs are as follows:
Level 1Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Money market funds are valued using quoted market price, and are included in cash equivalents on the Companys balance sheets. Marketable securities are valued using quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active, and are included in cash equivalents, short-term investments or long-term investments on the Companys balance sheets.
Restricted Cash
Restricted cash consists of money market funds held by the Companys financial institution as collateral for the Companys obligations under its corporate credit card program.
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 by a financial institution in the United States. Amounts on deposit may at times exceed federally insured limits. Management believes that the financial institution is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution.
F-8
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
Concentration of Manufacturing Risk
As of December 31, 2014, the Company had manufacturing arrangements with Genethon located in Evry, France, and the University of Florida for the supply of materials for use in preclinical and future clinical studies. If the Company were to experience any disruptions in either partys ability or willingness to continue to provide manufacturing services, the Company may experience significant delays in its product development timelines and may incur substantial costs to secure alternative sources of manufacturing.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets. Depreciation and amortization begins at the time the asset is placed in service. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations.
The estimated useful lives of property and equipment are as follows:
Research and development equipment |
5 years | |
Furniture and office equipment |
5 years | |
Computer equipment |
3 years | |
Software |
3 years | |
Leasehold improvements |
Shorter of remaining lease term
or estimated useful life |
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 the asset is expected to generate over its remaining life. 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 asset. The Company has recorded no impairment of any long-lived assets during any of the periods presented.
Accrued Research and Development Costs
The Company accrues 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. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided, and includes these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations and comprehensive loss. 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. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period.
F-9
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
Research and Development Costs
Research and development costs are expensed as incurred and consist of personnel costs, lab supplies and allocated facility and other costs, as well as fees paid to third parties to conduct research and development activities on the Companys behalf. Amounts incurred in connection with license agreements are also included in research and development expenses.
Deferred Rent
Rent expense is recognized on a straight-line basis over the non-cancelable term of the Companys operating lease and, accordingly, the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent asset or liability. Incentives granted under the Companys facility leases, including any allowances to fund leasehold improvements, are deferred and recognized as adjustments to rent expense on a straight-line basis over the term of the lease.
Stock-Based Compensation
Stock-based awards issued to employees and directors, including stock options, are recorded at fair value as of the grant date using the Black-Scholes option pricing model and recognized as expense on a straight line-basis over the employees or directors 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 estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.
Stock-based awards and stock options issued to nonemployee consultants are recorded at fair value and remeasured at the end of each period as they vest using the Black-Scholes option pricing model. Expense is recognized over the vesting period which is generally the same as the service period.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 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 recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Companys policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest charges or penalties related to unrecognized tax benefits
Other Income
Other income consists of foreign currency gains and losses.
F-10
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during the period without consideration of common stock equivalents. Diluted net loss per common share is the same as basic net loss per common share, since the effects of potentially dilutive securities are antidilutive.
Pro Forma Net Loss per Share
Pro forma basic and diluted net loss per share has been computed to give effect to the assumed conversion of the shares of convertible preferred stock into common stock as if such conversions had occurred at the beginning of the period. The pro forma net loss per share does not include the shares expected to be sold and related proceeds to be received from an initial public offering.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board, or 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 . The ASU 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.
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 relevant conditions, events, and certain management plans that are known or reasonably knowable that, when considered in the aggregate, raise substantial doubt about the entitys ability to continue as a going concern within one year after the date that the financial statements are issued, for both annual and interim periods. ASU 2014-15 also requires certain disclosures around managements plans and evaluation, as well as the plans, if any, that are intended to mitigate those conditions or events that will alleviate the substantial doubt. ASU 2014-15 is effective for fiscal years ending after December 15, 2016. The Company does not anticipate adoption of this guidance to have a material impact to its financial statements or disclosures.
3. Cash Equivalents and Available for Sale Securities
During December 2014, the Company implemented a cash management program and began investing in available-for-sale debt securities.
The fair value and amortized cost of cash equivalents and available-for-sale debt securities by major security type as of December 31, 2014 are presented in the tables that follow:
December 31, 2014 | ||||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 36,989 | $ | | $ | | $ | 36,989 | ||||||||
Commercial paper |
598 | | | 598 | ||||||||||||
Corporate debt securities |
19,281 | 1 | (11 | ) | 19,271 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 56,868 | $ | 1 | $ | (11 | ) | $ | 56,858 | |||||||
|
|
|
|
|
|
|
|
F-11
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
The Company did not have any investment securities as of December 31, 2013, other than the $50,000 held in a money market fund that was classified as restricted cash. The account is used as collateral for a purchasing card held with a financial institution. The $50,000 would have been categorized as level 1 as of December 31, 2013 and 2014 if it had been included in the Companys investments.
Realized gains and losses on the sale of marketable securities during the 12 months ended December 31, 2014 were not material.
The following table summarizes the amortized cost and estimated fair value of investments in marketable securities designated as available-for-sale and classified by the contractual maturity date of the security for the year ended December 31, 2014:
December 31, 2014 | ||||||||||||||||
Amortized
|
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Less than one year |
$ | 55,167 | $ | 1 | $ | (8 | ) | $ | 55,160 | |||||||
1 2 years |
1,701 | | (3 | ) | 1,698 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 56,868 | $ | 1 | $ | (11 | ) | $ | 56,858 | |||||||
|
|
|
|
|
|
|
|
4. Fair Value Measurements
Assets Measured at Fair Value
The Companys financial instruments are valued using quoted prices in active markets or based upon other observable inputs. The following table sets forth the fair value of the Companys financial assets as of the year ended December 31, 2014:
Fair Value Measurements Using | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 36,989 | $ | 36,989 | $ | | $ | | ||||||||
Commercial paper |
598 | | 598 | | ||||||||||||
Corporate debt securities |
19,271 | | 19,271 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 56,868 | $ | 36,989 | $ | 19,869 | $ | | ||||||||
|
|
|
|
|
|
|
|
F-12
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
5. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net, consist of the following:
December 31, | ||||||||
2013 | 2014 | |||||||
(in thousands) | ||||||||
Furniture and office equipment |
$ | 76 | $ | 165 | ||||
Computer equipment |
37 | 67 | ||||||
Software |
| 5 | ||||||
Leasehold improvements |
| 65 | ||||||
|
|
|
|
|||||
Total property and equipment |
113 | 302 | ||||||
Less accumulated depreciation and amortization |
(3 | ) | (38 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 110 | $ | 264 | ||||
|
|
|
|
Property and equipment depreciation and amortization expense for the years ended December 31, 2013 and 2014 was approximately $3,000 and $35,000, respectively.
Accrued Liabilities
Accrued liabilities consist of the following:
December 31, | ||||||||
2013 | 2014 | |||||||
(in thousands) | ||||||||
Accrued payroll and related expenses |
$ | 167 | $ | 518 | ||||
Accrued research and development expenses |
| 1,204 | ||||||
Other |
21 | 149 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 188 | $ | 1,871 | ||||
|
|
|
|
6. License and Collaboration Agreements
REGENXBIO License Agreement
In July 2013, the Company entered into an exclusive license agreement with REGENXBIO Inc. (formerly ReGenX Biosciences, LLC), or REGENXBIO. Under the agreement, REGENXBIO granted the Company an exclusive worldwide license under certain patent rights to make, have made, use, import, sell and offer for sale licensed products in the treatment of both X-linked myotubular myopathy, or XLMTM, and Pompe disease using two adeno-associated virus serotypes.
As consideration for the licensed rights, the Company paid REGENXBIO an initial fee of $0.3 million in cash and issued 111,999 shares of common stock with a fair value at the date of issuance of $39,200. The Company will also owe REGENXBIO (i) an annual maintenance fee; (ii) up to $17.7 million in combined milestone fees, a small portion of which may be paid in the form of shares of the Companys common stock; (iii) mid to high single digit royalty percentages on net sales of licensed products and (iv) mid-single to lower mid-double digit percentages of any sublicense fees it receives from sublicensees for the licensed patent rights.
F-13
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
The agreement will expire upon the expiration, lapse, abandonment or invalidation of the last claim of the licensed patent rights to expire, lapse or become abandoned or unenforceable in all countries worldwide. The Company may terminate the agreement upon prior written notice. REGENXBIO may terminate the agreement immediately if the Company or its affiliates become insolvent, if the Company is late by a specified number of days in paying money due under the agreement or if the Company or its affiliates commence any action against REGENXBIO or its licensors to declare or render any claim of the licensed patent rights invalid or unenforceable. Either party may terminate the agreement for material breach that is not cured within a specified number of days.
The initial fee, consisting of the $39,200 in common stock and $0.3 million paid in cash was recorded as research and development expense on the date of the agreement. The annual maintenance fee will be recorded as expense each year. Milestone payments will be recorded as research and development expenses once achievement of each associated milestone has occurred or the achievement is considered probable. As of December 31, 2014, none of the development milestones had been reached or were probable of achievement.
Genethon Collaboration Agreement
In January 2014, the Company entered into a collaborative development agreement with Genethon, a French not-for-profit organization. In connection with the entry into the collaborative development agreement, the Company issued 585,084 shares of common stock to Genethon, of which 195,028 shares vested immediately, 195,028 shares vested in January 2015 and 195,028 shares will vest in January 2016. Unvested shares are subject to a repurchase option at the Companys election in the event of any termination of the agreement. Unvested shares will become fully vested in the event the Company undergoes a change in control or an initial public offering. Genethon also received certain registration rights and information rights similar to those held by the Companys preferred stockholders. The first one-third of vested shares issued to Genethon was recorded as research and development expense at the estimated fair value on the date of issuance. The remaining two-thirds of unvested shares are remeasured at each reporting period at estimated fair value and will be recorded as research and development expense over the remaining vesting term.
Subject to certain limitations on patents that are co-owned or in-licensed by the Company, Genethon granted the Company a royalty-free, exclusive, worldwide license under certain background intellectual property rights controlled by Genethon to research, develop, make and commercialize certain products for the treatment of XLMTM. In addition, the collaboration agreement provides that new intellectual property arising from the performance of the development plan will be owned jointly by both parties, and Genethon granted the Company a royalty-free, exclusive, worldwide license to Genethons interest in such new intellectual property to research, develop, make and commercialize certain products for the treatment of XLMTM. The agreement provides Genethon with the exclusive right to manufacture licensed product for preclinical and clinical purposes, subject to Genethons ability to supply required quantities in accordance with applicable timelines. Manufacturing costs will be paid by the Company. Additionally, the agreement specifies that Genethon will be paid by the Company for research and development activities it performs pursuant to mutually agreed upon research and development plans as determined by a joint development committee. Costs incurred under the agreement are recorded to research and development expense as services are performed.
Either party may terminate the agreement for the other partys uncured material breach of the agreement or for the other partys bankruptcy. The Company may terminate the agreement for convenience upon prior written notice. Genethon may terminate the agreement upon raising an objection to continued development on grounds of a safety or efficacy issue and upon prior written notice of such objection.
The Company conducts business with Genethon, which results in payables in the Euro currency. The Company does not engage in hedging activities to offset the risk of exchange rate fluctuations on these payables.
F-14
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
During the year ended December 31, 2014, the Company benefited from foreign exchange gains on these accounts payable of approximately $0.1 million, reported as other income in its statements of operations.
7. Convertible Preferred Stock
Convertible preferred stock consisted of the following:
December 31, 2013 | ||||||||||||||||||||
Shares
|
Original Issue
|
Shares
|
Net Carrying
|
Aggregate
|
||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||
Series Seed |
1,400,000 | $ | 1.0000 | 1,400,000 | $ | 1,378 | $ | 1,400 | ||||||||||||
Series A |
11,199,876 | 2.6786 | 5,599,937 | 13,759 | 15,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total convertible preferred stock |
12,599,876 | 6,999,937 | $ | 15,137 | $ | 16,400 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2014 |
||||||||||||||||||||
Shares
|
Original Issue
|
Shares
|
Net Carrying
|
Aggregate
|
||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||
Series Seed |
1,400,000 | $ | 1.0000 | 1,400,000 | $ | 1,378 | $ | 1,400 | ||||||||||||
Series A |
11,199,876 | 2.6786 | 11,199,876 | 28,757 | 30,000 | |||||||||||||||
Series B |
8,500,000 | 5.0203 | 8,465,630 | 42,268 | 42,500 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total convertible preferred stock |
21,099,876 | 21,065,506 | $ | 72,403 | $ | 73,900 | ||||||||||||||
|
|
|
|
|
|
|
|
In July 2013, the Company entered into a Series A Preferred Stock Purchase Agreement and agreed to issue up to 11,199,876 shares of its Series A convertible preferred stock at a purchase price of $2.6786 per share in multiple tranches or closings, subject to certain conditions. In the initial July 2013 closing, the Company issued 1,119,987 shares of Series A convertible preferred stock at a purchase price of $2.6786 per share, resulting in gross proceeds of $3.0 million. The purchase agreement provided investors with a right to purchase 10,079,889 additional shares, or Tranche Option, at $2.6786 per share at a future date based on the occurrence of certain events as specified under the agreement. The fair value of the Tranche Option was measured at $1.1 million using a Black-Scholes option valuation model and recorded as additional paid-in capital at the initial funding date.
In December 2013, the Series A preferred stockholders elected to purchase shares pursuant to the second closing and the Company issued 4,479,950 shares of Series A convertible preferred stock at $2.6786 per share for aggregate gross proceeds of $12.0 million.
In November 2014, the Series A preferred stockholders elected to purchase shares pursuant to the third and final Tranche Option and the Company issued 5,599,939 shares for gross proceeds of $15.0 million. As of December 31, 2014, all Tranche Options had been fully exercised.
In November 2014, the Company entered into a preferred stock purchase agreement with existing and new investors and issued 8,465,630 shares of Series B convertible preferred stock at a price per shares of $5.0203 for gross proceeds of $42.5 million.
F-15
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
The rights, privileges, and preferences of convertible preferred stock are summarized as follows:
Liquidation Preference
Upon liquidation, dissolution, or winding up of the Company (whether voluntary or involuntary), or Deemed Liquidation Event (as defined below), before any distribution or payment shall be made to the holders of common stock, each series of convertible preferred stock shall be entitled to be paid on a pari passu basis out of the funds and assets available for distribution, an amount equal to the Original Issue Price of $1.00 for holders of Series Seed convertible preferred stock, $2.6786 for holders of Series A convertible preferred stock, and $5.0203 for holders of Series B convertible preferred stock, plus any dividends declared but unpaid thereon. If upon any liquidation, dissolution, winding up or Deemed Liquidation Event of the Company, the assets of the Company available for distribution to shareholders is insufficient to pay the holders of shares of preferred stock in full, the holders of preferred stock will share ratably in any distribution.
After payment of all preferential amounts required to be paid to the holders of preferred stock, the remaining funds and assets available for distribution to the shareholders of the Company will be distributed among the holders of preferred stock and common stock, pro rata based on the number of shares held by each such holder.
The following events are defined as Deemed Liquidation Events unless the holders of at least 66.67% of the then outstanding shares of convertible preferred stock elect otherwise by written notice to the Company:
(i) | a merger or consolidation; or |
(ii) | the sale, lease, transfer, exclusive license or other disposition, of all or substantially all the assets of the Company. |
Voting
Each holder of shares of convertible preferred stock is 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 has voting rights and powers equal to the voting rights and powers of the common stock, and except as provided by law or by other provisions of the Certificate of Incorporation, shall vote together with the common stock as a single class on an as-converted basis on all matters as to which holders of common stock have the right to vote.
The holders of convertible preferred stock, voting together as a single class, are entitled to elect four members of the Companys Board of Directors. The holders of common stock, exclusively and as a separate class, are entitled to elect one member of the Companys Board of Directors. The one remaining member of the Companys Board of Directors is elected by the holders of the common stock and any other series or class of voting stock, including the convertible preferred stock, exclusively and voting together as a single class.
Conversion
The holders of convertible preferred stock are subject to certain optional and mandatory conversion rights.
(i) | Optional Conversion Rights: Each share of convertible preferred stock is convertible, at the option of the holder, into such number of fully paid shares of common stock as is determined by dividing the original issuance price by the conversion price in effect at the time of conversion. As of December 31, 2014, the conversion ratio was 1:1 for all series of preferred stock. |
F-16
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(ii) | Mandatory Conversion Rights: Upon either (a) the date and time, or the occurrence of a future event as determined by vote or written consent of holders of at least a 66.67% of the then outstanding shares of convertible preferred stock, or (b) the closing of the sale of shares of the Companys common stock to the public in a qualified initial public offering, all outstanding shares of convertible preferred stock will automatically be converted into shares of common stock, at the then effective conversion rate. A qualified initial public offering is defined as the closing of a firm commitment underwritten public offering with an offering price per share of not less than $10.0406, and at least $50.0 million in gross proceeds. |
The conversion price for convertible preferred shares is subject to adjustment upon certain events including certain dilutive issuances of shares, share subdivisions such as stock splits and stock dividends. At December 31, 2014, Series Seed preferred shares had a conversion price of $1.00 per share, Series A preferred shares had a conversion price of $2.6786 per share and Series B preferred shares had a conversion price of $5.0203 per share.
Dividends
The holders of the outstanding shares of convertible preferred stock are entitled to receive, when and if declared by the Board of Directors, a noncumulative cash dividend at the rate of 8% of the applicable original issue price per annum on each outstanding share of convertible preferred stock. Such dividends are payable in preference to any dividends for common stock declared by the Board of Directors. In the case of a dividend on common stock, the dividend per share of convertible preferred stock would also include the dividend payable on each share determined, if applicable, as if all convertible preferred stock had been converted to common stock. No dividends had been declared as of December 31, 2014.
8. Common Stock
Common Stock
Common stockholders are entitled to dividends when, as and if declared by the Board of Directors, subject to the liquidation preferences of the preferred stockholders. As of December 31, 2014, no dividends had been declared by the Board of Directors.
Common stock reserved for issuance was as follows:
December 31, | ||||||||
2013 | 2014 | |||||||
Convertible preferred stock, on an as-converted basis |
6,999,937 | 21,065,506 | ||||||
Options issued and outstanding |
1,175,323 | 1,749,923 | ||||||
Options available for future grants |
1,244,420 | 2,179,126 | ||||||
|
|
|
|
|||||
Total |
9,419,680 | 24,994,555 | ||||||
|
|
|
|
Restricted Stock
Certain founding directors purchased 500,000 common shares that are subject to a repurchase right upon termination or cessation of services at the original purchase price of $0.01 per share. Compensation expense of such shares will be remeasured at fair value until vested at each reporting date. This repurchase right lapses as vesting occurs. At December 31, 2013 and 2014, there were immaterial amounts recorded in liabilities related to restricted share sales.
F-17
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
A summary of restricted stock activity and related information follows:
Number of
Restricted Shares Outstanding |
||||
Unvested sharesJanuary 1, 2013 |
489,583 | |||
Vested |
(206,250 | ) | ||
|
|
|||
Unvested sharesDecember 31, 2013 |
283,333 | |||
Vested |
(187,500 | ) | ||
|
|
|||
Unvested sharesDecember 31, 2014 |
95,833 | |||
|
|
As of December 31, 2013 and 2014, there was approximately $99,000 and $94,000 of unrecognized stock based compensation expense, respectively, related to outstanding restricted stock granted to employees. This amount is expected to be recognized over a remaining weighted average period of 1.95 years and 1.92 years, respectively.
There were no restricted share awards granted during 2014.
9. Stock Compensation Plan
In 2012, the Company adopted the 2012 Equity Incentive Plan, or Plan. Under the Plan, shares of the Companys common stock have been reserved for the issuance of stock options to employees, directors, and consultants under terms and provisions established by the Board of Directors. A total of 3,929,049 shares were reserved for issuance under the 2012 Plan at December 31, 2014, of which 2,179,126 shares are 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 and non-statutory 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. The vesting schedule of newly issued option grants is typically 25% one year from the vesting commencement date and 1/48th per month thereafter. The following summarizes option activity under the 2012 Plan:
Shares
Available for Grant |
Number of
Options Outstanding |
Weighted-
Average Exercise Price per Option |
Weighted-
Average Remaining Contract Term |
Aggregate
Intrinsic Value |
||||||||||||||||
(in thousands, except share data and contractual term amounts) | ||||||||||||||||||||
Balance, December 31, 2012 |
400,000 | | $ | | ||||||||||||||||
Shares reserved for issuance |
2,019,743 | |||||||||||||||||||
Options granted |
(1,175,323 | ) | 1,175,323 | 0.35 | ||||||||||||||||
Options exercised |
| | | |||||||||||||||||
Options canceled |
| | | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Balance, December 31, 2013 |
1,244,420 | 1,175,323 | 0.35 | 9.81 | ||||||||||||||||
Shares reserved for issuance |
1,509,306 | |||||||||||||||||||
Options granted |
(574,600 | ) | 574,600 | 0.40 | ||||||||||||||||
Options exercised |
| | | |||||||||||||||||
Options canceled |
| | | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Balance Outstanding, December 31, 2014 |
2,179,126 | 1,749,923 | 0.37 | 9.01 | $ | 1,074 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Exercisable, December 31, 2014 |
590,937 | 0.36 | 8.87 | $ | 369 | |||||||||||||||
|
|
|
|
|||||||||||||||||
Vested and expected to vest, December 31, 2014 |
1,686,640 | 0.37 | 9.00 | $ | 1,036 | |||||||||||||||
|
|
|
|
F-18
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the estimated fair value of the Companys common stock, as determined by the Board of Directors, as of December 31, 2014. No options were exercised in the years ended December 31, 2013 and 2014.
Stock-Based Compensation Expense
Total stock-based compensation expense was as follows:
Year Ended December 31, | ||||||||
2013 | 2014 | |||||||
(in thousands) | ||||||||
Research and development |
$ | 9 | $ | 51 | ||||
General and administrative |
114 | 128 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 123 | $ | 179 | ||||
|
|
|
|
|||||
Employees |
$ | 105 | $ | 142 | ||||
Nonemployees |
18 | 37 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 123 | $ | 179 | ||||
|
|
|
|
The weighted average grant date fair value of employee options granted during the years ended December 31, 2013 and 2014 were $0.26 and $0.30 per share, respectively. As of December 31, 2014, the total unrecognized compensation expense related to unvested employee options, net of estimated forfeitures, was approximately $0.4 million which the Company expects to recognize over an estimated weighted average period of 2.6 years. To the extent the actual forfeiture rate is different from what the Company has estimated, stock-based compensation related to these awards will be different from its expectations.
The fair value of stock options for employees was estimated using a Black-Scholes option pricing model with the following assumptions:
Year Ended December 31, | ||||
2013 | 2014 | |||
Fair value of employee options |
$ 0.26 | $0.26 $0.35 | ||
Fair value of common stock |
$ 0.35 | $0.35 $0.47 | ||
Expected term (in years) |
6.1 | 6.1 | ||
Expected volatility |
91% | 88% 91% | ||
Risk-free interest rate |
1.4% 1.8% | 1.5% 1.8% | ||
Expected dividend yield |
% | % |
The weighted average grant date fair value of nonemployee options granted during the year ended December 31, 2013 was $0.27 per share. There were no nonemployee option grants during the year ended December 31, 2014. As of December 31, 2014, the total unrecognized compensation expense related to unvested nonemployee options, net of estimated forfeitures, was approximately $29,000, which the Company expects to recognize over an estimated weighted average period of 2.0 years. To the extent the actual forfeiture rate is different from what the Company has estimated, stock-based compensation related to these awards will be different from its expectations.
F-19
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
The fair value of stock options for nonemployees was estimated using a Black-Scholes option pricing model with the following assumptions:
Year Ended December 31, | ||||
2013 | 2014 | |||
Fair value of nonemployee options |
$ 0.27 | $0.27 $0.83 | ||
Fair value of common stock |
$ 0.35 | $0.35 $0.98 | ||
Expected term (in years) |
9.7 10.0 | 8.7 9.5 | ||
Expected volatility |
70% 72% | 70% 71% | ||
Risk-free interest rate |
2.6% 3.0% | 1.9% 2.4% | ||
Expected dividend yield |
% | % |
In determining the fair value of the stock-based awards, the Company uses the Black-Scholes option pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.
Fair Value of Common Stock: Given the absence of a public trading market, the Board of Directors considered numerous objective and subjective factors to determine the fair value of common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of common stock performed by unrelated third-party specialists; (ii) the prices for preferred stock sold to outside investors; (iii) the rights, preferences and privileges of preferred stock relative to common stock; (iv) the lack of marketability of common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of the Company, given prevailing market conditions.
Expected Term: The Companys expected term represents the period that the Companys stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term for employee options and based on the contractual term for nonemployee options).
Expected Volatility: Since the Company is privately held and does not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies 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.
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 option.
Expected Dividend Yield: The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.
F-20
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
10. Income Taxes
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes for 2013 and 2014 was an immaterial amount.
Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 35% to pretax loss as follows:
Year Ended December 31, | ||||||||
2013 | 2014 | |||||||
(in thousands) | ||||||||
U.S. federal provision (benefit): |
||||||||
At statutory rate |
$ | (1,069 | ) | $ | (3,788 | ) | ||
State taxes |
| 1 | ||||||
Change in valuation allowance |
1,070 | 3,998 | ||||||
Tax credits |
(55 | ) | (345 | ) | ||||
Stock-based compensation |
41 | 60 | ||||||
Other |
13 | 74 | ||||||
|
|
|
|
|||||
Total |
$ | | $ | | ||||
|
|
|
|
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets for federal and state income taxes are as follows:
Year Ended December 31, | ||||||||
2013 | 2014 | |||||||
(in thousands) | ||||||||
Deferred tax assets: |
||||||||
Federal & state net operating loss carryforward |
$ | 1,027 | $ | 5,125 | ||||
Research and other credits |
65 | 487 | ||||||
Intangibles |
144 | 296 | ||||||
Reserves and accruals |
86 | 414 | ||||||
Stock-based compensation |
2 | 6 | ||||||
Start-up costs |
176 | 164 | ||||||
Other |
17 | 44 | ||||||
|
|
|
|
|||||
Total gross deferred tax assets |
1,517 | 6,536 | ||||||
Less valuation allowance |
(1,516 | ) | (6,531 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets |
1 | 5 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property plant and equipment |
(1 | ) | (5 | ) | ||||
|
|
|
|
|||||
Total gross deferred tax liability |
(1 | ) | (5 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | | $ | | ||||
|
|
|
|
F-21
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Due to the lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2013 and 2014, the Company had net operating loss carryforwards for federal income tax purposes of $2.3 million and $11.7 million, respectively which will begin to expire in 2033. The Company had total state net operating loss carryforwards of approximately $2.3 million and $11.8 million, respectively which will begin to expire in 2033. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the change in ownership provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. The Company has not performed an ownership change analysis.
The Company has federal credits of $0.5 million which will begin to expire in 2033 and state research credits of approximately $0.1 million which have no expiration date. These tax credits are subject to the same limitations discussed above.
Unrecognized Tax Benefits
The Company has incurred net operating losses since inception and has no significant unrecognized tax benefits. The Companys policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the statements of operations. If in the future the Company recognizes uncertain tax positions, the Companys effective tax rate will be reduced. Currently, the Company has a full valuation allowance against its net deferred tax asset which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future. Any adjustments to uncertain tax positions would result in an adjustment of net operating loss or tax credit carry forwards rather than resulting in a cash outlay.
Income tax returns are filed in the U.S. and California. The Company is not currently under examination. Due to net operating losses and research credit carryovers, all of the tax years remain open to examination.
Unrecognized tax benefits were as follows:
Year Ended December 31, | ||||||||
2013 | 2014 | |||||||
(in thousands) | ||||||||
Beginning balance |
$ | | $ | 15 | ||||
Tax positions related to current year: |
||||||||
Federal and state |
15 | 106 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 15 | $ | 121 | ||||
|
|
|
|
Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months. During the year ended December 31, 2014, no interest or penalties were recognized relating to unrecognized tax benefits.
F-22
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
11. Commitments and Contingencies
Facility Operating Leases
The Company leases its office location in San Francisco, California, under a non-cancelable operating lease for 4,996 square feet of office space. The lease expires in January 2017 and included an initial rent-free period. The lease also provides for annual rent escalation throughout the term of the lease. In accordance with the lease agreement, the Company provided a security deposit of $67,500 to the landlord. In August 2014, the lease was amended to expand the available premises to 10,170 square feet under substantially similar terms as the original agreement and became effective beginning January 2015.
In December 2014, the Company entered into a facility lease agreement with Janssen Research & Development LLC (Janssen) whereby the Company gained access and use rights to office and laboratory space located in South San Francisco, California, effective January 2015. The agreement provides for successively renewable three-month lease terms that are cancelable by the Company upon 60 days written notice and annual rent escalation. In accordance with the Janssen agreement, the Company paid an initial security deposit of $35,800. The Company recognizes rent expense on a straight-line basis over each non-cancelable lease term.
Rent expense under non-cancelable operating leases was approximately $39,000 and $0.3 million for the years ended December 31, 2013 and 2014, respectively. Future minimum lease payments under non-cancelable operating leases as of December 31, 2014 were as follows:
Year Ended
December 31, |
||||
(in thousands) | ||||
2015 |
$ | 609 | ||
2016 |
565 | |||
2017 |
48 | |||
|
|
|||
Total |
$ | 1,222 | ||
|
|
University of Washington
During 2014, the University of Washington performed certain work beneficial to the Company that was beyond the scope of the initial work agreement. The Company is currently negotiating a settlement to reimburse the University for a portion of the additional work performed. Accordingly, the Company recorded an estimated $0.4 million liability and research and development expense during the year ended December 31, 2014 in anticipation of the settlement. Any difference in the actual settlement amount will be recorded as a future period cost or benefit.
Guarantees and Indemnifications
The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the 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 a director may be subject to any proceeding arising out of acts or omissions of such director in such capacity. The maximum amount of future indemnification is unlimited; however, the Company currently holds director 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 presented.
F-23
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
12. Net Loss per Share and Unaudited Pro Forma Net Loss per Share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period and excludes any dilutive effects of share-based awards. Diluted net loss per share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, convertible preferred stock, and unvested restricted common stock. As the Company had net losses for the years ended December 31, 2013 and 2014, all potential common shares were determined to be anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per share of common stock during the years ended December 31, 2013 and 2014:
Year Ended December 31, | ||||||||
2013 | 2014 | |||||||
(in thousands, except share
and per share data) |
||||||||
Net loss |
$ | (3,054 | ) | $ | (10,819 | ) | ||
|
|
|
|
|||||
Weighted-average shares used in computing net loss per share |
664,945 | 1,118,698 | ||||||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (4.59 | ) | $ | (9.67 | ) | ||
|
|
|
|
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:
Year Ended December 31, | ||||||||
2013 | 2014 | |||||||
Convertible preferred stock (on an as if converted basis) |
6,999,937 | 21,065,506 | ||||||
Stock options to purchase common stock |
1,175,323 | 1,749,923 | ||||||
Restricted stock subject to future vesting |
283,333 | 485,889 | ||||||
|
|
|
|
|||||
Total |
8,458,593 | 23,301,318 | ||||||
|
|
|
|
The Company has presented unaudited pro forma basic and diluted net loss per common share, which has been computed to give effect to the conversion of all outstanding shares of convertible preferred stock into shares of common stock as if such conversion had occurred as of the beginning of the period presented or as of the date of issuance for convertible preferred stock issued during 2014. The following table sets forth the computation of the Companys pro forma basic and diluted net loss per common share (in thousands, except share and per share amounts):
Year Ended
December 31, 2014 |
||||
(Unaudited) | ||||
Net loss, basic and diluted |
$ | (10,819 | ) | |
|
|
|||
Shares used in computing net loss per share, basic and diluted |
1,118,698 | |||
Pro forma adjustment to reflect assumed conversion of convertible preferred stock |
8,702,643 | |||
|
|
|||
Shares used in computing pro forma net loss per share, basic and diluted |
9,821,341 | |||
|
|
|||
Pro forma net loss per share, basic and diluted |
$ | (1.10 | ) | |
|
|
F-24
AUDENTES THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
13. Related Party Transactions
Between 2012 and 2014, the Company made payments to OrbiMed Advisors LLC, or OrbiMed, for consulting services and cost reimbursements. OrbiMed is a preferred stock shareholder of the Company and is represented on the Board of Directors.
In January 2013, the Company entered into a consulting agreement with Dr. Thomas Schuetz, a member of the Board of Directors and a shareholder of the Company. Dr. Schuetz was compensated for Board of Director and consulting services and received expense reimbursements during 2013 and 2014.
Aggregate payments for the above related party transactions totaled approximately $0.5 million and $47,000 in 2013 and 2014, respectively.
14. Subsequent Events
Janssen Facility Lease Amendments
Beginning January 2015, the Company entered into a series of amendments to the existing Janssen facility operating lease to increase the office and lab space available under the agreement resulting in incremental quarterly lease expense of approximately $33,000 and an increase to the aggregate security deposit to $58,000. All other terms remained substantially the same.
F-25
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share data)
December 31, 2014 | September 30, 2015 |
Pro Forma
Stockholders Equity as of September 30, 2015 |
||||||||||
(unaudited) | (unaudited) | |||||||||||
Assets | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 45,599 | $ | 9,563 | ||||||||
Short-term investments |
14,851 | 31,548 | ||||||||||
Restricted investments |
50 | 50 | ||||||||||
Prepaid expenses and other current assets |
441 | 1,048 | ||||||||||
|
|
|
|
|||||||||
Total current assets |
60,941 | 42,209 | ||||||||||
Restricted investments |
| 2,660 | ||||||||||
Property and equipment, net |
264 | 1,423 | ||||||||||
Goodwill |
| 3,631 | ||||||||||
Intangible assets, net |
| 8,000 | ||||||||||
Long-term investments |
1,698 | 1,700 | ||||||||||
Other assets |
106 | 300 | ||||||||||
|
|
|
|
|||||||||
Total assets |
$ | 63,009 | $ | 59,923 | ||||||||
|
|
|
|
|||||||||
Liabilities and Stockholders Equity | ||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 1,240 | $ | 1,432 | ||||||||
Accrued liabilities |
1,871 | 2,880 | ||||||||||
|
|
|
|
|||||||||
Total current liabilities |
3,111 | 4,312 | ||||||||||
Facility lease obligation |
34 | 147 | ||||||||||
Contingent consideration |
| 4,190 | ||||||||||
Deferred tax liability |
| 3,260 | ||||||||||
|
|
|
|
|||||||||
Total liabilities |
3,145 | 11,909 | ||||||||||
|
|
|
|
|||||||||
Stockholders equity: |
||||||||||||
Convertible preferred stock, Series Seed, $0.00001 par value: 1,400,000 shares authorized as of December 31, 2014 and September 30, 2015 (unaudited); 1,400,000 shares issued and outstanding as of December 31, 2014 and September 30, 2015; aggregate liquidation preference of $1,400 as of December 31, 2014 and September 30, 2015 (unaudited), actual; no shares issued and outstanding as of September 30, 2015, pro forma (unaudited) |
1,378 | 1,378 | $ | | ||||||||
Convertible preferred stock, Series A, $0.00001 par value: 11,199,876 shares authorized as of December 31, 2014 and September 30, 2015 (unaudited); 11,199,876 shares issued and outstanding as of December 31, 2014 and September 30, 2015 (unaudited); aggregate liquidation preference of $30,000 as of December 31, 2014 and September 30, 2015 (unaudited), actual; no shares issued and outstanding as of September 30, 2015, pro forma (unaudited) |
28,757 | 28,757 | | |||||||||
Convertible preferred stock, Series B, $0.00001 par value: 8,500,000 and 8,604,907 shares authorized as of December 31, 2014 and September 30, 2015, respectively (unaudited); 8,465,630 and 8,570,366 shares issued and outstanding as of December 31, 2014 and September 30, 2015 (unaudited); aggregate liquidation preference of $42,500 and $43,066 as of December 31, 2014 and September 30, 2015, respectively (unaudited) actual; no shares issued and outstanding as of September 30, 2015, pro forma (unaudited) |
42,268 | 42,835 | | |||||||||
Common stock, $0.00001 par value, 28,000,000 and 30,000,000 shares authorized as of December 31, 2014 and September 30, 2015, respectively (unaudited); 1,697,083 and 4,650,354 issued and outstanding as of December 31, 2014 and September 30, 2015, respectively (unaudited), actual; 35,466,509 issued and outstanding, pro forma (unaudited) |
| | | |||||||||
Additional paid-in capital |
1,756 | 5,833 | 141,645 | |||||||||
Accumulated deficit |
(14,285 | ) | (30,784 | ) | (30,784 | ) | ||||||
Accumulated other comprehensive loss |
(10 | ) | (5 | ) | (5 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stockholders equity |
59,864 | 48,014 | $ | 110,856 | ||||||||
|
|
|
|
|
|
|||||||
Total liabilities and stockholders equity |
$ | 63,009 | $ | 59,923 | ||||||||
|
|
|
|
See accompanying notes to financial statements.
F-26
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except shares and per share data)
Nine Months Ended
September 30, |
||||||||
2014 | 2015 | |||||||
Operating expenses: |
||||||||
Research and development |
$ | 5,611 | $ | 12,335 | ||||
General and administrative |
1,145 | 4,359 | ||||||
|
|
|
|
|||||
Total operating expenses |
6,756 | 16,694 | ||||||
|
|
|
|
|||||
Loss from operations |
(6,756 | ) | (16,694 | ) | ||||
Interest income |
2 | 178 | ||||||
Other income, net |
72 | 17 | ||||||
|
|
|
|
|||||
Net loss |
(6,682 | ) | (16,499 | ) | ||||
Unrealized losses on available-for-sale securities |
| (5 | ) | |||||
|
|
|
|
|||||
Comprehensive loss |
$ | (6,682 | ) | $ | (16,504 | ) | ||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (6.13 | ) | $ | (8.73 | ) | ||
|
|
|
|
|||||
Shares used in computing net loss per share, basic and diluted |
1,090,597 | 1,890,249 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted |
$ | (0.72 | ) | |||||
|
|
|||||||
Shares used in computing pro forma net loss per share, basic and diluted |
22,973,019 | |||||||
|
|
See accompanying notes to financial statements.
F-27
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended
September 30, |
||||||||
2014 | 2015 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (6,682 | ) | $ | (16,499 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
(Accretion) amortization of discounts on investments |
| 491 | ||||||
Depreciation and amortization |
24 | 97 | ||||||
Stock-based compensation |
289 | 478 | ||||||
Other assets |
| 43 | ||||||
Changes in operating assets and liabilities: |
||||||||
Restricted investments |
| (2,660 | ) | |||||
Prepaid expenses and other current assets |
(510 | ) | (374 | ) | ||||
Other assets |
| (195 | ) | |||||
Accounts payable |
369 | (314 | ) | |||||
Accrued liabilities |
1,450 | 870 | ||||||
Deferred rent |
7 | (2 | ) | |||||
|
|
|
|
|||||
Net cash used in operating activities |
(5,053 | ) | (18,065 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Cash acquired from acquisition |
| 142 | ||||||
Purchases of property and equipment |
(42 | ) | (860 | ) | ||||
Proceeds from sales and maturities of marketable securities |
| 16,622 | ||||||
Purchases of marketable securities |
| (33,900 | ) | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(42 | ) | (17,996 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
| 25 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
| 25 | ||||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(5,095 | ) | (36,036 | ) | ||||
Cash and cash equivalents at beginning of period |
12,946 | 45,599 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 7,851 | $ | 9,563 | ||||
|
|
|
|
|||||
Noncash investing and financing activities: |
||||||||
Net assets acquired and stock issued for the Cardiogen acquisition |
$ | | $ | 8,513 | ||||
Change in property and equipment related to equipment financing agreement |
| 254 | ||||||
Change in accounts payable related to property and equipment purchases |
| 142 | ||||||
Deferred preferred stock issuance costs |
224 | 140 | ||||||
Issuance of common stock in exchange for license |
| 128 |
See accompanying notes to financial statements.
F-28
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Audentes Therapeutics, Inc., or the Company, was incorporated in the State of Delaware on November 13, 2012. The Company is a biotechnology company focused on developing and commercializing gene therapy products for patients suffering from serious, life-threatening rare diseases caused by single gene defects. The Companys principal operations are located in San Francisco, California, and it operates in one business segment.
The accompanying unaudited condensed consolidated financial statements include the accounts of Audentes Therapeutics, Inc., and its wholly owned subsidiaries, Audentes Therapeutics UK Ltd and Maximus Acquisition Sub, LLC. All inter-company balances and transactions have been eliminated in consolidation.
Liquidity
In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next several years. The Companys ultimate success depends on the outcome of its research and development activities. The Company has incurred net losses from operations since inception and has an accumulated deficit of $30.8 million, as of September 30, 2015. The Company intends to raise additional capital through the issuance of additional equity, and potentially through strategic alliances with partner companies. If financing is not available at adequate levels, or at rates acceptable to the Company, the Company may need to reevaluate its operating plans. Management believes currently available resources will provide sufficient funds to enable the Company to meet its operating plans for at least the next 12 months. However, if the Companys anticipated operating results are not achieved in future periods, planned expenditures may need to be reduced in order to extend the time period over which the then-available resources would be able to fund the Companys operations.
2. Summary of Significant Accounting Policies
Unaudited Interim Condensed Consolidated Financial Statements
The interim condensed consolidated financial statements as of September 30, 2015 and for the nine months ended September 30, 2014 and 2015 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Companys consolidated financial position as of September 30, 2015 and its consolidated results of operations and cash flows for the nine months ended September 30, 2014 and 2015. The financial data and other information disclosed in these notes to consolidated financial statements related to the nine-month periods are also unaudited. The results of operations for the nine months ended September 30, 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 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 unaudited pro forma stockholders equity as of September 30, 2015 presents the Companys stockholders equity as though all the Companys outstanding convertible preferred stock as of September 30, 2015 and Series C convertible preferred stock issued after September 30, 2015 had converted into 30,816,155 shares of common stock upon the completion of an initial public offering, or IPO, of the Companys common stock. The Companys certificate of incorporation provides for automatic conversion of outstanding preferred shares in the event of an IPO provided that certain minimum offering conditions are met.
F-29
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of any expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to accrued liabilities, fair value of assets, common stock, income taxes, and stock-based compensation. Management bases its estimates on historical experience, and on various other market-specific relevant assumptions that management believes to be reasonable, under the circumstances. Actual results may differ from those estimates.
Financial Instruments
The following methods were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents: Cash and cash equivalents consist of bank deposits, money market funds and commercial money market instruments with original maturities of three months or less used for operational purposes. Cash equivalents are recorded at fair value.
Short-term and long-term investments: Short-term investments consist of debt securities with original maturities of 12 months or less and greater than three months. Long-term investments consist of debt securities with maturities greater than 12 months. Short-term and long-term investments are classified as available-for-sale investments and are recognized at fair value.
Restricted Investments
Restricted investments consists of money market funds held by the Companys financial institution as collateral for the Companys obligations under its leases and corporate credit card program.
Deferred Offering Costs
Deferred offering costs, consisting of legal, accounting, printer and filing fees related to the IPO are capitalized. The deferred offering costs will be offset against proceeds from the IPO upon the effectiveness of the offering. In the event the offering is terminated, all capitalized deferred offering costs will be expensed. As of September 30, 2015, $0.3 million of deferred offering costs were capitalized, which are included in other assets in the accompanying condensed consolidated balance sheets. No amounts were deferred as of December 31, 2014.
Impairment of Long-Lived Assets
The Company records goodwill in a business combination when the total consideration exceeds the fair value of the net tangible and identifiable intangible assets acquired. Goodwill and intangible assets with indefinite lives are not amortized but subject to an annual impairment analysis.
The Company performs its annual impairment review of goodwill and indefinite lived intangibles during the fourth quarter and whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that the full carrying amount of an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset exceeds its fair value. As of September 30, 2015, the Company had only one reporting unit.
F-30
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 the asset is expected to generate over its remaining life. 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 asset. The Company has recorded no impairment of any long-lived assets during any of the periods presented.
Business Combinations
The Company allocates the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets and in-process research and development, or IPR&D.
Contingent Consideration Payable
The Company determines the fair value of contingent consideration payable on the acquisition date using a probability-based income approach utilizing an appropriate discount rate. Each reporting period thereafter, the Company revalues these obligations and records increases or decreases in their fair value as adjustments to research and development expense. Changes in the fair value of the contingent consideration payable can result from adjustments to the estimated probability and assumed timing of achieving the underlying milestones, as well as from changes to the discount rates.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during the period without consideration of common stock equivalents. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive.
Unaudited Pro Forma Net Loss per Share
Pro forma basic and diluted net loss per share has been computed to give effect to the conversion of the shares of convertible preferred stock into common stock as if such conversions had occurred at the beginning of the period or when issued. The pro forma net loss per share does not include the shares expected to be sold and related proceeds to be received from an IPO.
Recent Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, 2015-17, Balance Sheet Classification of Deferred Taxes . ASU 2015-17 specifies that deferred tax assets and liabilities shall be classified as noncurrent, or long-term, in a classified statement of financial position. The ASU is effective for public entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or an annual reporting period. The Company elected to early adopt this ASU for the nine month period ended September 30, 2015.
F-31
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Cash Equivalents and Available-for-Sale Securities
The fair value and amortized cost of cash equivalents, restricted investments and available-for-sale securities by major security type as of December 31, 2014 and September 30, 2015 are presented in the tables that follow:
December 31, 2014 | ||||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 36,989 | $ | | $ | | $ | 36,989 | ||||||||
Commercial paper |
598 | | | 598 | ||||||||||||
Corporate debt securities |
19,281 | 1 | (11 | ) | 19,271 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 56,868 | $ | 1 | $ | (11 | ) | $ | 56,858 | |||||||
|
|
|
|
|
|
|
|
September 30, 2015 | ||||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 10,577 | $ | | $ | | $ | 10,577 | ||||||||
Commercial paper |
4,096 | | | 4,096 | ||||||||||||
Corporate debt securities |
26,933 | 2 | (8 | ) | 26,927 | |||||||||||
U.S. Government Agency Securities |
3,724 | 1 | | 3,725 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents, restricted investments and available-for sale securities |
$ | 45,330 | $ | 3 | $ | (8 | ) | $ | 45,325 | |||||||
|
|
|
|
|
|
|
|
Realized gains and losses on the sale of marketable securities during the nine months ended September 30, 2015 were not material.
The following table summarizes the amortized cost and estimated fair value of investments in marketable securities designated as available-for-sale and classified by the contractual maturity date of the security as of September 30, 2015:
September 30, 2015 | ||||||||||||||||
Amortized
Cost |
Unrealized
|
Unrealized
|
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Less than one year |
$ | 43,631 | $ | 2 | $ | (8) | $ | 43,625 | ||||||||
1 2 years |
1,699 | 1 | | 1,700 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 45,330 | $ | 3 | $ | (8) | $ | 45,325 | ||||||||
|
|
|
|
|
|
|
|
4. Fair Value Measurements
Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liabilitys fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices, or parameters derived from such prices. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment. The degree of management estimation and judgment is dependent on the price transparency for the instruments, or market, and the instruments complexity. The
F-32
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
authoritative accounting guidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable. These levels of inputs are as follows:
Level 1Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Money market funds are valued using quoted market price, and are included in cash equivalents on the Companys condensed consolidated balance sheets. Marketable securities are valued using quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active, and are included in cash equivalents, short-term investments or long-term investments on the Companys balance sheets.
F-33
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
The Companys financial instruments are valued using quoted prices in active markets or based upon other observable inputs. The following table sets forth the fair value of the Companys financial assets as of December 31, 2014 and September 30, 2015:
December 31, 2014 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 36,989 | $ | 36,989 | $ | | $ | | ||||||||
Commercial paper |
598 | | 598 | | ||||||||||||
Corporate debt securities |
19,271 | | 19,271 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 56,858 | $ | 36,989 | $ | 19,869 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
September 30, 2015 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 10,577 | $ | 10,577 | $ | | $ | | ||||||||
Commercial paper |
4,096 | | 4,096 | | ||||||||||||
Corporate debt securities |
26,927 | | 26,927 | | ||||||||||||
U.S. Government Agency Securities |
3,725 | | 3,725 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 45,325 | $ | 10,577 | $ | 34,748 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Contingent consideration |
4,190 | | | 4,190 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | 4,190 | $ | | $ | | $ | 4,190 | ||||||||
|
|
|
|
|
|
|
|
The fair value of financial liabilities categorized with Level 3 inputs as of September 30, 2015 was as follows:
Contingent
Consideration |
||||
(in thousands) |
||||
December 31, 2014 |
$ | | ||
Cardiogen acquisition date |
4,147 | |||
Increase/(decrease) in value |
43 | |||
|
|
|||
September 30, 2015 |
$ | 4,190 | ||
|
|
The Companys contingent consideration payable is estimated using a probability-based income approach utilizing an appropriate discount rate. Key assumptions used by management to estimate the fair value of contingent acquisition consideration payable include estimated probabilities and timing of when and if a milestone may be attained and assumed discount periods and rates. The probability-based income approach used by management to estimate the fair value of the contingent acquisition consideration is most sensitive to changes in the estimated probabilities.
F-34
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net, consist of the following:
December 31,
2014 |
September 30,
2015 |
|||||||
(in thousands) | ||||||||
Furniture and office equipment |
$ | 165 | $ | 168 | ||||
Computer equipment |
67 | 67 | ||||||
Software |
5 | 81 | ||||||
Leasehold improvements |
65 | 65 | ||||||
Research and development equipment |
| 587 | ||||||
Construction in progress |
| 590 | ||||||
|
|
|
|
|||||
Total property and equipment |
302 | 1,558 | ||||||
Less accumulated depreciation and amortization |
(38 | ) | (135 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 264 | $ | 1,423 | ||||
|
|
|
|
Property and equipment depreciation and amortization expense for the year ended December 31, 2014 and the nine months ended September 30, 2015 was approximately $35,000 and $97,000, respectively.
Accrued Liabilities
Accrued liabilities consist of the following:
December 31,
2014 |
September 30,
2015 |
|||||||
(in thousands) | ||||||||
Accrued payroll and related expenses |
$ | 518 | $ | 937 | ||||
Accrued research and development expenses |
1,204 | 1,388 | ||||||
Equipment financing obligation |
| 139 | ||||||
Other |
149 | 416 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 1,871 | $ | 2,880 | ||||
|
|
|
|
6. Business Combination
In August 2015, the Company acquired Cardiogen Sciences, Inc., or Cardiogen, a biotechnology company focused on the discovery and development of AAV gene therapy products for rare, inherited arrhythmogenic diseases. As consideration for the acquisition, the Company issued 2,883,271 shares of common stock and 104,736 shares of Series B preferred stock. Additionally, upon first dosing of a patient in a human clinical study involving AT307 for the treatment of CASQ2-CPVT, the Company is obligated to pay to former Cardiogen shareholders $4.2 million in common stock plus an additional $5.8 million in either cash or common stock, at the Companys election, for aggregate contingent consideration of $10.0 million.
The acquisition of Cardiogen was accounted for as the purchase of a business. The related acquisition costs, consisting primarily of legal and accounting expenses in the amount of $0.4 million during the nine months ended September 30, 2015, were expensed. These legal and accounting expenses are presented as general and administrative expenses on the consolidated statements of operations for the nine months ended September 30, 2015.
F-35
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following is the total consideration paid for the business combination:
Amount | ||||
(in thousands) | ||||
Fair value of shares issued |
$ | 4,142 | ||
Fair value of contingent payments |
4,147 | |||
|
|
|||
Total consideration |
$ | 8,289 | ||
|
|
The estimated fair value of the shares issued was determined by the Companys board of directors. The estimated fair value of the contingent payments is based on the risk adjusted present value of managements estimated likelihood and timing of the first dosing of a patient in a human clinical study involving AT307.
In connection with the Companys acquisition of Cardiogen, it acquired a license agreement previously entered into by Cardiogen with Fondazione Salvatore Maugeri, or FSM, an Italian non-profit organization. Under the license agreement, the Company obtained an exclusive worldwide license to certain intellectual property to develop, use and commercialize products related to recessive CPVT, as well as to several additional inherited arrhythmias. The Company may terminate the license agreement with FSM for convenience upon prior written notice. Either party may terminate the agreement upon prior written notice for the uncured material breach of the agreement by the other party, or the other partys bankruptcy or liquidation.
The acquisition of Cardiogen provided the Company with certain intellectual property through the license agreement with FSM, including Cardiogens lead program for CASQ2-CPVT. The Company determined that the fair value of such intellectual property was approximately $8.0 million. The fair value of the intellectual property was determined using the excess earnings approach. The excess earnings approach considers the economics related to the intellectual property. The assumptions underlying the fair value calculation include: revenue attributable to the intellectual property, future research and development expenses, an estimated effective income tax rate and an estimated discount rate.
Primarily as a result of the deferred tax liability recognized in the acquisition, the Company recognized goodwill of $3.6 million equal to the excess of the purchase consideration over the fair value of the assets acquired and the liabilities assumed.
The following table summarizes the allocation of the consideration paid of $8.3 million to the fair values of the assets acquired and liabilities assumed at the acquisition date:
Amount | ||||
(in thousands) | ||||
In process research and development |
$ | 8,000 | ||
Deferred tax liability |
(3,260 | ) | ||
Goodwill |
3,631 | |||
Net liabilities assumed |
(82 | ) | ||
|
|
|||
Net assets acquired |
$ | 8,289 | ||
|
|
The results of operations of Cardiogen have been included in the Companys consolidated statements of operations from the acquisition date. Pro forma results of operations have not been presented because the acquisition was not material to the Companys results of operations.
F-36
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. License and Collaboration Agreements
University of Florida License Agreement
Effective July 2015, the Company entered into a license agreement with the University of Florida Research Foundation, or UFRF. Under the agreement, UFRF granted the Company an exclusive, worldwide license under certain patent rights and a non-exclusive license to certain related know-how for the treatment of Pompe. The Company agreed to pay an upfront license fee, an annual maintenance fee until first commercial sale of a licensed product, up to $1.2 million in combined development and regulatory milestone payments and a low single digit royalty on net sales of licensed products sold by the Company and its sublicensees, subject to minimum annual royalty payments following the first commercial sale of a licensed product. The Company is obligated to pay royalties on a country-by-country basis until the later of expiration of the last valid claim within the licensed patent rights in such country and ten years after first commercial sale of a licensed product in such country. The Company also agreed to pay to UFRF certain percentages of sublicense fees it receives from sublicensees of the licensed patent rights based on the stage of development at the time the sublicense is executed.
Under the agreement, the Company is obligated to perform a specified development plan and to use commercially reasonable efforts to market and commercialize at least one licensed product which has obtained regulatory approval. The Company is also obligated to achieve a number of diligence milestones, including the achievement of first commercial sale within a specific time period. If the Company fails to meet any of these diligence milestones and the deadlines are not extended in accordance with the terms of the agreement, then UFRF may terminate the agreement.
The Company may terminate the agreement for convenience upon prior written notice. UFRF may terminate the agreement upon prior written notice for breach of the agreement by the Company, including specific listed breaches. In addition, UFRF may terminate the agreement immediately if the Company or its affiliates challenge the validity, patentability or enforceability of the licensed patents rights. If the challenge is brought by a sublicensee, UFRF may request that the Company terminate the sublicense.
Fondazione Salvatore Maugeri License Agreement
In connection with the Companys acquisition of Cardiogen, it acquired a license agreement previously entered into by Cardiogen with FSM, an Italian non-profit organization. Under the license agreement, the Company obtained an exclusive worldwide license to certain intellectual property to develop, use and commercialize products related to recessive CPVT, as well as to several additional inherited arrhythmias.
The Company may terminate the license agreement with FSM for convenience upon prior written notice. Either party may terminate the agreement upon prior written notice for the uncured material breach of the agreement by the other party, or the other partys bankruptcy or liquidation.
Other License Agreements
The Company holds interests in other agreements providing the Company with licenses or options to acquire licenses to certain intellectual property rights. The Company has paid upfront fees of $250,000 related to those agreements. Additionally, the Company is obligated to pay $300,000 upon the occurrence of certain milestones or upon termination of the respective agreements. One agreement provides for a payment of $100,000 within 18 months from the effective date, unless the agreement is cancelled prior to that date. The Company may terminate the agreements at any time upon prior written notice.
F-37
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Convertible Preferred Stock
Convertible preferred stock consisted of the following at December 31, 2014 and September 30, 2015:
December 31, 2014 | ||||||||||||||||
Shares
Authorized |
Shares
Issued and Outstanding |
Net Carrying
Value |
Aggregate
Liquidation Preference |
|||||||||||||
Series Seed |
1,400,000 | 1,400,000 | $ | 1,378 | $ | 1,400 | ||||||||||
Series A |
11,199,876 | 11,199,876 | 28,757 | 30,000 | ||||||||||||
Series B |
8,500,000 | 8,465,630 | 42,268 | 42,500 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total convertible preferred stock |
21,099,876 | 21,065,506 | $ | 72,403 | $ | 73,900 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
September 30, 2015 | ||||||||||||||||
Shares
Authorized |
Shares
Issued and Outstanding |
Net Carrying
Value |
Aggregate
Liquidation Preference |
|||||||||||||
Series Seed |
1,400,000 | 1,400,000 | $ | 1,378 | $ | 1,400 | ||||||||||
Series A |
11,199,876 | 11,199,876 | 28,757 | 30,000 | ||||||||||||
Series B |
8,604,907 | 8,570,366 | 42,835 | 43,066 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total convertible preferred stock |
21,204,783 | 21,170,242 | $ | 72,970 | $ | 74,466 | ||||||||||
|
|
|
|
|
|
|
|
9. Common Stock
Common Stock
As of September 30, 2015, no dividends had been declared by the Board of Directors. Common stock reserved for issuance was as follows:
September 30, 2015 | ||||
Convertible preferred stock, on an as-converted basis |
21,170,242 | |||
Options issued and outstanding |
2,958,675 | |||
Options available for future grants |
900,374 | |||
|
|
|||
Total |
25,029,291 | |||
|
|
10. Stock Compensation Plan
As of September 30, 2015, there were 900,374 shares available for the Company to grant under the 2012 Equity Incentive Plan, or the 2012 Plan.
F-38
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes option activity under the 2012 Plan:
Number of
Options Outstanding |
Weighted-
Average Exercise Price per Option |
Weighted-
Average Remaining Contract Term |
Aggregate
Intrinsic Value |
|||||||||||||
(in thousands, except share data and contractual term
amounts) |
||||||||||||||||
Balance, December 31, 2014 |
1,749,923 | $ | 0.37 | 9.01 | $ | 1,074 | ||||||||||
Shares reserved for issuance |
| | ||||||||||||||
Options granted |
1,403,752 | 0.98 | ||||||||||||||
Options exercised |
(70,000 | ) | | |||||||||||||
Options canceled |
(125,000 | ) | 0.35 | |||||||||||||
|
|
|||||||||||||||
Balance Outstanding, September 30, 2015 |
2,958,675 | 0.65 | 8.83 | $ | 1,818 | |||||||||||
|
|
|
|
|||||||||||||
Exercisable, September 30, 2015 |
1,109,302 | 0.47 | 7.81 | $ | 853 | |||||||||||
|
|
|
|
|||||||||||||
Vested and expected to vest, September 30, 2015 |
2,936,983 | 0.64 | 8.81 | $ | 1,759 | |||||||||||
|
|
|
|
The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the estimated fair value of the Companys common stock, as determined by the Board of Directors, as of December 31, 2014 and September 30, 2015.
Stock-Based Compensation Expense
Total stock-based compensation expense was as follows:
Nine Months Ended
September 30, |
||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Research and development |
$ | 197 | $ | 262 | ||||
General and administrative |
92 | 216 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 289 | $ | 478 | ||||
|
|
|
|
|||||
Employees |
$ | 106 | $ | 191 | ||||
Nonemployees |
183 | 287 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 289 | $ | 478 | ||||
|
|
|
|
The weighted average grant date fair value of employee options granted during the nine months ended September 30, 2014 and 2015 were $0.26 and $0.70 per share, respectively. As of September 30, 2015, the total unrecognized compensation expense related to unvested employee options, net of estimated forfeitures, was approximately $0.9 million, which the Company expects to recognize over an estimated weighted average period of 2.93 years. To the extent the actual forfeiture rate is different from what the Company has estimated, stock-based compensation related to these awards will be different from expectations.
F-39
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The fair value of stock options for employees was estimated using a Black-Scholes option pricing model with the following assumptions:
Nine Months Ended
September 30, |
||||
2014 | 2015 | |||
Fair value of employee options |
$0.26 $0.35 | $0.69 $0.70 | ||
Fair value of common stock |
$0.35 $0.47 | $0.98 | ||
Expected term (in years) |
6.1 | 6.1 | ||
Expected volatility |
88% 91% | 81% 85% | ||
Risk-free interest rate |
1.5% 1.9% | 1.3% 1.8% | ||
Expected dividend yield |
% | % |
The weighted average grant date fair value of nonemployee options granted during the nine months ended September 30, 2015 was $0.86 per share. There were no nonemployee option grants during the nine months ended September 30, 2014. As September 30, 2015, the total unrecognized compensation expense related to unvested nonemployee options, net of estimated forfeitures, was approximately $0.2 million, which the Company expects to recognize over an estimated weighted average period of 2.64 years. To the extent the actual forfeiture rate is different from what the Company has estimated, stock-based compensation related to these awards will be different from its expectations.
The fair value of stock options for nonemployees was estimated using a Black-Scholes option pricing model with the following assumptions:
Nine Months Ended
September 30, |
||||
2014 | 2015 | |||
Fair value of nonemployee options |
$0.27 $0.37 | $0.72 $1.07 | ||
Fair value of common stock |
$0.35 $0.47 | $0.98 $1.24 | ||
Expected term (in years) |
9.0 9.5 | 8.0 10.0 | ||
Volatility |
70% 71% | 69% 72% | ||
Risk-free interest rate |
2.3% 2.4% | 1.6% 2.3% | ||
Dividend yield |
% | % |
11. Net Loss per Share and Unaudited Pro Forma Net Loss per Share
The following table sets forth the computation of basic and diluted net loss per share during the nine months ended September 30, 2014 and 2015:
Nine Months Ended
September 30, |
||||||||
2014 | 2015 | |||||||
(in thousands, except share and
per share data) |
||||||||
Net loss |
$ | (6,682 | ) | $ | (16,499 | ) | ||
|
|
|
|
|||||
Shares used in computing net loss per share |
1,090,597 | 1,890,249 | ||||||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (6.13 | ) | $ | (8.73 | ) | ||
|
|
|
|
F-40
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
September 30, | ||||||||
2014 | 2015 | |||||||
Convertible preferred stock (on an as if converted basis) |
6,999,937 | 21,170,242 | ||||||
Stock options to purchase common stock |
1,749,923 | 2,958,675 | ||||||
Restricted stock subject to future vesting |
523,389 | 253,361 | ||||||
|
|
|
|
|||||
Total |
9,273,249 | 24,382,278 | ||||||
|
|
|
|
The following table sets forth the computation of the Companys unaudited pro forma basic and diluted net loss per share during the nine months ended September 30, 2015:
Nine Months
Ended September 30, 2015 |
||||
(unaudited) | ||||
Net loss, basic and diluted (in thousands) |
$ | (16,499 | ) | |
|
|
|||
Shares used in computing net loss per share, basic and diluted |
1,890,249 | |||
Pro forma adjustment to reflect assumed conversion of convertible preferred stock |
21,082,770 | |||
|
|
|||
Shares used in computing pro forma net loss per share, basic and diluted |
22,973,019 | |||
|
|
|||
Pro forma net loss per share, basic and diluted |
$ | (0.72 | ) | |
|
|
12. Income Taxes
For the nine months ended September 30, 2014 and 2015, the Company did not record an income tax provision. The U.S. federal and California deferred tax assets generated from the Companys net operating losses have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized.
A deferred tax liability of $3.3 million has been recorded relating to the Cardiogen acquisition.
13. Commitments and Contingencies
Facility Operating Leases
Rent expense under non-cancelable operating leases was approximately $0.2 million and $0.7 million for the nine months ended September 30, 2014 and 2015, respectively. Future minimum lease payments under non-cancelable operating leases as of September 30, 2015 were as follows:
September 30, 2015 | ||||||||||||||||||||||||||||
Payments Due by Period | ||||||||||||||||||||||||||||
Less
than 1 year |
2 years | 3 years | 4 years | 5 years |
More
than 5 years |
Total | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Operating lease obligations: |
$ | 1,586 | $ | 2,091 | $ | 1,631 | $ | 1,679 | $ | 1,728 | $ | 3,028 | $ | 11,743 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total contractual obligations |
$ | 1,586 | $ | 2,091 | $ | 1,631 | $ | 1,679 | $ | 1,728 | $ | 3,028 | $ | 11,743 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Solstice Sub-Lease
On July 30, 2015, the Company entered into a sub-lease agreement with Solstice Neurosciences LLC, or Solstice, to sub-lease 21,960 square feet of manufacturing space in South San Francisco, California with total minimum lease payments due of $0.9 million. The lease expires in May 2017. In November 2015, the Company entered into an option to extend the lease. The terms of the lease provide for a single rent escalation following the first twelve months of the lease. An initial deposit of $0.1 million and a standby letter of credit totaling $0.7 million was provided by the Company to Solstice, which is included within restricted investments on the Companys consolidated balance sheet at September 30, 2015.
Under the Solstice lease agreement, the Company agreed to return the property to its original condition upon lease termination. The asset retirement obligation was estimated by the Company using expected future cash flows that reflect, to the extent possible, an assessment of the cost and timing of performing the required activities, which were then discounted using a credit adjusted risk free rate. The Company records rent expense to increase the asset retirement obligation to its full value of $0.6 million over the term of the lease agreement.
The following is an analysis of the change in the Companys asset retirement obligation for the nine months ended September 30, 2015:
Amount | ||||
(in thousands) | ||||
Balance at December 31, 2014 |
$ | | ||
Accretion |
55 | |||
|
|
|||
Balance at September 30, 2015 |
$ | 55 | ||
|
|
MEPT Lease Agreement
On September 21, 2015, the Company entered into a lease agreement with MEPT 600 California Street LLC, or MEPT, to occupy 21,596 square feet of office space in San Francisco, California beginning February 2016. The Company intends to relocate its corporate headquarters to this location. The lease agreement provides for an initial three month rent-free period and provides for annual rent escalation with a lease term through June 2022. The Company provided a standby letter of credit in the amount of $1.9 million to MEPT following execution of the agreement. The agreement also provides for up to $1.6 million of leasehold improvements to be paid by MEPT.
14. Related Party Transactions
Aggregate payments for related party transactions totaled approximately $45,000 and $63,000 during the nine months ended September 30, 2014 and 2015, and consisted primarily of payments and cost reimbursements for board members.
15. Subsequent Events
Series C Financing
On October 8, 2015, the Company closed a $65.0 million Series C financing with participation by both new and existing investors. Pursuant to the transaction, the Company issued 9,645,913 shares of Series C convertible preferred stock at a price of $6.7386 per share. Each Series C share is convertible into common stock at a 1:1 conversion ratio and has a stated liquidation preference of $6.7386 per share along with voting, conversion and dividend rights that are similar in terms to those held by the Series A and Series B preferred stockholders. Cowen and Company served as exclusive placement agent for the transaction. Proceeds to the Company net of the placement agent fee and expenses were approximately $62.8 million.
F-42
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Equity Incentive Plan and Option Grants
On October 8, 2015, the Company increased the number of shares available for grant pursuant to its 2012 Equity Incentive Plan by 3,000,000 shares to a total of 6,929,049 shares. Subsequent to September 30, 2015, the Company granted options to employees to acquire 2,359,064 shares of common stock with a weighted average exercise price of $2.74 per share.
REGENXBIO CPVT License
On November 3, 2015, the Company entered into a license agreement with REGENXBIO Inc., or REGENXBIO, pursuant to which REGENXBIO granted the Company an exclusive worldwide license under certain patent rights to make, have made, use, import, sell and offer for sale licensed products for the treatment of CPVT in humans using AAV9. Within a specified time and upon written notice the Company may elect to substitute for, or add to, CPVT certain other inherited arrhythmias.
The agreement will continue on a country-by-country and licensed product-by-licensed product basis and expire upon the later of the expiration, lapse, abandonment or invalidation of the last claim of the licensed patent rights to expire, lapse or become abandoned or unenforceable in such country, or ten years after first commercial sale of such licensed product in such country. The Company may terminate the agreement in its entirety or for each elected disease indication upon prior written notice. REGENXBIO may terminate the agreement immediately in case of the Companys bankruptcy or other similar events, if the Company is late in paying money due under the agreement and does not pay in full within a specified number of days after receiving written notice, or if the Company or the Companys affiliates commence any action against REGENXBIO or its licensors to declare or render any claim of the licensed patent rights invalid or unenforceable. Either party may terminate the agreement for material breach that is not cured within a specified number of days.
As consideration for the licensed rights, the Company paid REGENXBIO an upfront fee of $1.0 million. For each additional indication the Company may elect to pursue under the licensed rights, it agreed to pay REGENXBIO a fee of $0.5 million upon such election. The Company will also owe REGENXBIO (i) an annual maintenance fee for each covered indication; (ii) up to $8.8 million in combined development and regulatory milestone fees for each indication and each licensed product; (iii) up to $45.0 million in combined commercial milestone fees based on various annual aggregate net sales thresholds, beginning when annual aggregate net sales of the licensed products equals or exceeds $100.0 million; (iv) mid-single to low-double digit royalty percentages on net sales of licensed products sold by the Company, its affiliates and sublicensees and (v) a lower-mid-double digit percentage of any sublicense fees the Company receives from sublicensees for the licensed products and certain fees the Company receives from the sale or transfer of specified rights related to a licensed product.
REGENXBIO Crigler-Najjar Syndrome License
On November 3, 2015, the Company entered into a license agreement with REGENXBIO, pursuant to which REGENXBIO granted the Company an exclusive worldwide license to make, have made, use, import, sell, and offer for sale the licensed products for the treatment of Crigler-Najjar syndrome in humans using AAV8.
The agreement will continue on a country-by-country and licensed product-by-licensed product basis and expire upon the later of the expiration, lapse, abandonment or invalidation of the last claim of the licensed patent rights to expire, lapse or become abandoned or unenforceable in such country, or ten years after first commercial sale of such licensed product in such country. The Company may terminate the agreement upon prior written notice. REGENXBIO may terminate the agreement immediately in case of the Companys bankruptcy, or other similar events, if the Company is late in paying money due under the agreement and does not pay in full within a specified
F-43
AUDENTES THERAPEUTICS, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
number of days after receiving written notice, or if the Company or its affiliates commence any action against REGENXBIO or its licensors to declare or render any claim of the licensed patent rights invalid or unenforceable. Either party may terminate the agreement for material breach that is not cured within a specified number of days.
As consideration for the licensed rights, the Company paid REGENXBIO an upfront fee of $0.2 million and agreed to pay an additional $0.4 million upon the occurrence of certain events. The Company will also owe REGENXBIO (i) an annual maintenance fee; (ii) up to $7.6 million in combined development and regulatory milestone fees per licensed product; (iii) mid-single to low-double digit royalty percentages on net sales of licensed products sold by the Company, its affiliates and sublicensees and (iv) a lower-mid-double digit percentage of certain sublicense fees it receives from sublicensees for the licensed products and certain fees the Company receives from the sale or transfer of specified rights related to a licensed product.
JCN Facility Lease Option
Effective November 10, 2015, the Company entered into a facility lease option agreement with JCN Partners, or JCN, that provides the Company an option to lease manufacturing space under the terms of a long-term lease for 22,000 square feet that is currently leased by the Company pursuant to the Solstice sub-lease agreement dated July 30, 2015, plus approximately 17,000 square feet of additional space. The Company has until August 1, 2016 to exercise the option providing an initial lease term of 10 years with an option to further extend the lease for two additional five-year terms. The Company paid $10,000 to JCN in exchange for the lease option. In connection with the lease option agreement, the Company also entered into a separate agreement for restoration of premises between JCN, Solstice Neurosciences, LLC and US WorldMeds, LLC, whereby the Company agreed to accept liability to restore the leased premises to its original warehouse condition upon expiration of the final lease term. The Company estimates that the cost to restore the premises without additional improvements would be approximately $0.6 million. Upon entry into the restoration agreement, the Company issued a stand-by letter of credit to JCN for $1.0 million.
F-44
Through and including , 2016 (the 25th day after the date of this prospectus), all dealers effecting transactions in the Common Stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Shares
Common Stock
P R O S P E C T U S
BofA Merrill Lynch
Cowen and Company
Piper Jaffray
Wedbush PacGrow
, 2016
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, other than underwriting discounts and commissions, paid or payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and The NASDAQ Global Market listing fee:
Amount
|
||||
SEC registration fee |
$ | 8,686 | ||
FINRA filing fee |
13,438 | |||
NASDAQ Global Market listing fee |
* | |||
Blue sky qualification fees and expenses |
* | |||
Printing and engraving expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Transfer agent and registrar fees and expenses |
* | |||
Miscellaneous expenses |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* | To be completed by amendment. |
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporations board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
As permitted by the Delaware General Corporation Law, the Registrants restated certificate of incorporation to be effective in connection with the completion of this offering contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:
| any breach of the directors duty of loyalty to the Registrant or its stockholders; |
| acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; |
| under Section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases); or |
| any transaction from which the director derived an improper personal benefit. |
As permitted by the Delaware General Corporation Law, the Registrants restated bylaws to be effective immediately prior to the completion of this offering, provide that:
| the Registrant is required to indemnify its directors and executive officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; |
II-1
| the Registrant may indemnify its other employees and agents as set forth in the Delaware General Corporation Law; |
| the Registrant is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and |
| the rights conferred in the restated bylaws are not exclusive. |
Prior to the completion of this offering, the Registrant intends to enter into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrants restated certificate of incorporation and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the Registrant for which indemnification is sought. Reference is also made to the underwriting agreement to be filed as Exhibit 1.1 to this registration statement, which provides for the indemnification of executive officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrants restated certificate of incorporation, restated bylaws and the indemnification agreements to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrants directors and executive officers for liabilities arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities.
Since December 31, 2012 and through December 31, 2015, the Registrant has issued and sold the following securities:
1. | From December 31, 2012 to December 31, 2015, the Registrant has granted to its directors, officers, employees and consultants options to purchase 5,512,739 shares of common stock under its 2012 Equity Incentive Plan with per share exercise prices ranging from $0.35 to $4.26, and has issued 115,937 shares of common stock upon exercise of such options. These transactions were exempt from the registration requirements of the Securities Act in reliance upon Rule 701 promulgated under the Securities Act. |
2. | In July 2013, the Registrant issued 111,999 shares of its common stock to one purchaser, who represented to the Registrant that it was a sophisticated purchaser, at a per share price of $2.6786 for approximately $300,000. This transaction was exempt from the registration requirements of the Securities Act in reliance on Section 4(a)(2) promulgated under the Securities Act. |
3. | In July 2013, December 2013 and November 2014, the Registrant sold an aggregate of 11,199,876 shares of its Series A convertible preferred stock at a purchase price of $2.6786 per share for an aggregate purchase price of approximately $30.0 million to 15 purchasers, each of whom represented to the Registrant that it was an accredited investor. This transaction was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated under the Securities Act. |
4. | In January 2014, the Registrant issued 585,084 shares of its common stock to one purchaser, in connection with a strategic transaction. This transaction was exempt from the registration requirements of the Securities Act in reliance on Regulation S promulgated under the Securities Act. |
5. |
In November 2014 and August 2015, the Registrant sold an aggregate of 8,570,366 shares of its Series B convertible preferred stock at a purchase price of $5.0203 per share for an aggregate |
II-2
purchase price of approximately $43.0 million to 20 purchasers, each of whom represented to the Registrant that it was an accredited investor or a qualified institutional buyer. This transaction was exempt from the registration requirements of the Securities Act in reliance upon Regulation D promulgated under the Securities Act. |
6. | In August 2015, the Registrant issued an aggregate of 2,883,271 shares of its common stock in connection with the merger of Cardiogen Sciences, Inc. into the Registrant. This transaction was exempt from the registration requirements of the Securities Act in reliance upon Regulation D promulgated under the Securities Act. |
7. | In October 2015, the Registrant sold an aggregate of 9,645,913 shares of its Series C convertible preferred stock at a purchase price of $6.7386 per share for an aggregate purchase price of approximately $65 million to 27 purchasers, each of whom represented to the Registrant that it was an accredited investor. This transaction was exempt from the registration requirements of the Securities Act in reliance upon Regulation D promulgated under the Securities Act. |
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering, and the Registrant believes each transaction was exempt from the registration requirements of the Securities Act as stated above. All recipients of the foregoing transactions either received adequate information about the Registrant or had access, through their relationships with the Registrant, to such information. Furthermore, the Registrant affixed appropriate legends to the share certificates and instruments issued in each foregoing transaction setting forth that the securities had not been registered and the applicable restrictions on transfer.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
(b) Financial Statement Schedule.
No financial statement schedules are provided because the information called for is not required or is shown either in the consolidated financial statements or notes.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
II-3
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 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:
(a) 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.
(b) 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.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on this 4th day of January 2016.
A UDENTES T HERAPEUTICS , I NC . | ||
By: | /s/ Matthew Patterson | |
Matthew Patterson 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 Matthew Patterson and Tom Soloway, and each of them, as his true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Matthew Patterson Matthew Patterson |
President, Chief Executive Officer and Director (Principal Executive Officer) | January 4, 2016 | ||
/s/ Tom Soloway Tom Soloway |
Chief Financial Officer (Principal Financial and Accounting Officer) | January 4, 2016 | ||
/s/ Louis Lange Louis Lange |
Director | January 4, 2016 | ||
/s/ Jonathan Leff Jonathan Leff |
Director | January 4, 2016 | ||
/s/ Scott Morrison Scott Morrison |
Director | January 4, 2016 | ||
/s/ Kush Parmar Kush Parmar |
Director | January 4, 2016 | ||
/s/ Thomas Schuetz Thomas Schuetz |
Director | January 4, 2016 | ||
/s/ Jonathan Silverstein Jonathan Silverstein |
Director | January 4, 2016 |
II-5
Signature |
Title |
Date |
||
/s/ Stephen Squinto Stephen Squinto |
Director | January 4, 2016 | ||
/s/ Thomas Woiwode Thomas Woiwode |
Director | January 4, 2016 |
II-6
EXHIBIT INDEX
Exhibit
|
Description of Document |
|
1.1* | Form of Underwriting Agreement. | |
3.1 | Restated Certificate of Incorporation, as amended. | |
3.2* | Form of Restated Certificate of Incorporation to be effective immediately prior to the completion of this offering. | |
3.3 | Amended and Restated Bylaws, as currently in effect. | |
3.4* | Form of Restated Bylaws to be effective immediately prior to the completion of this offering. | |
4.1* | Form of Common Stock Certificate. | |
4.2 | Amended and Restated Investors Rights Agreement, dated October 8, 2015, by and among the Registrant and certain of its stockholders. | |
5.1* | Opinion of Fenwick & West LLP. | |
10.1* | Form of Indemnity Agreement. | |
10.2 | 2012 Equity Incentive Plan and forms of award agreements. | |
10.3* | 2016 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of award agreements. | |
10.4* | 2016 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and form of subscription agreement. | |
10.5* | Executive Employment Agreement, dated , by and between the Registrant and Matthew Patterson. | |
10.6* | Executive Employment Agreement, dated , by and between the Registrant and Suyash Prasad. | |
10.7* |
Executive Employment Agreement, dated , by and between the Registrant and John Gray. |
|
10.8* | Form of Board Member Offer Letter. | |
10.9 | Office Lease, dated October 17, 2013, by and between the Registrant and 101 Montgomery Street Co., as amended. | |
10.10 | Sublease, dated July 30, 2015, by and between the Registrant and Solstice Neurosciences, LLC. | |
10.11 | Office Lease, dated September 21, 2015, by and between the Registrant and MEPT 600 California Street LLC. | |
10.12 | Collaborative Development Agreement, dated January 24, 2014, by and between the Registrant and Genethon, a French not-for-profit organization. | |
10.13 | License Agreement, dated September 26, 2014, by and between Cardiogen Sciences, Inc. and Fondazione Salvatore Maugeri. | |
10.14 | Exclusive License Agreement with Know-How, dated July 28, 2015, by and between the Registrant and the University of Florida Research Foundation, Incorporated. | |
10.15 | License Agreement, dated July 9, 2013, by and between the Registrant and ReGenX Biosciences, LLC. | |
10.16 | License Agreement, dated November 3, 2015, by and between the Registrant and REGENXBIO Inc. (relating to CPVT). | |
10.17 | License Agreement, dated November 3, 2015, by and between the Registrant and REGENXBIO Inc. (relating to CN Type 1). | |
21.1 | Subsidiary of the Registrant. | |
23.1 | Consent of KPMG LLP, Independent Registered Public Accounting Firm. | |
23.2* | Consent of Fenwick & West LLP (included in Exhibit 5.1). | |
24.1 | Power of Attorney. Reference is made to the signature page hereto. |
* | To be filed by amendment. |
| Registrant has omitted and filed separately with the SEC portions of the exhibit pursuant to a confidential treatment request under Rule 406 promulgated under the Securities Act. |
Exhibit 3.1
AUDENTES THERAPEUTICS, INC.
RESTATED CERTIFICATE OF INCORPORATION
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Audentes Therapeutics, Inc., 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 as follows:
1. The name of this corporation is Audentes Therapeutics, Inc. This corporation was originally incorporated pursuant to the General Corporation Law on November 13, 2012 under the name Audentes Therapeutics, Inc.
2. The Board of Directors of this corporation duly adopted resolutions proposing to amend and restate the 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 Certificate of Incorporation of this corporation be amended and restated in its entirety to read as set forth on Exhibit A attached hereto and incorporated herein by this reference.
Exhibit A referred to in the resolution above is attached hereto as Exhibit A and is hereby incorporated herein by this reference.
3. This Restated Certificate of Incorporation 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. This 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 Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 8th day of October, 2015.
By: |
/s/ Matthew Patterson |
|
Matthew Patterson | ||
President and Chief Executive Officer |
Exhibit A
AUDENTES THERAPEUTICS, INC.
RESTATED CERTIFICATE OF INCORPORATION
ARTICLE I : NAME .
The name of this corporation is Audentes Therapeutics, Inc. (the Corporation ).
ARTICLE II : REGISTERED OFFICE .
The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III : PURPOSE .
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.
ARTICLE IV : AUTHORIZED SHARES .
The total number of shares of all classes of stock which the Corporation shall have authority to issue is (a) 50,000,000 shares of Common Stock, $0.00001 par value per share ( Common Stock ), and (b) 30,855,031 shares of Preferred Stock, $0.00001 par value per share ( Preferred Stock ). As of the effective date of this Restated Certificate of Incorporation (as may be amended, restated or modified from time to time, this Restated Certificate ), (w) 1,400,000 shares of the authorized Preferred Stock of the Corporation are hereby designated Series Seed Preferred Stock , (x) 11,199,876 shares of the authorized Preferred Stock of the Corporation are hereby designated Series A Preferred Stock , (y) 8,570,366 shares of the authorized Preferred Stock are hereby designated Series B Preferred Stock , and (z) 9,684,789 shares of the authorized Preferred Stock are hereby designated Series C Preferred Stock .
The following is a statement of the designations and the rights, powers and privileges, 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 privileges 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); provided, however, that, except as otherwise required by law, holders of Common
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Stock, as such, shall not be entitled to vote on any amendment to this Restated Certificate that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law. Unless required by law, 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 plus the number of shares thereof issuable upon conversion of shares of Preferred Stock 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 this Restated Certificate) 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 and without a separate class vote of the holders of the Common Stock.
B. | PREFERRED STOCK |
The following rights, powers and privileges, and restrictions, qualifications and limitations, shall apply to the Preferred Stock. Unless otherwise indicated, references to Sections in this Part B of this Article IV refer to sections of this Part B.
1. Dividends .
1.1 Non-Cumulative Preferred Stock Dividend Preference . The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation in any calendar year unless (in addition to the obtaining of any consents required elsewhere in this Restated Certificate) the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, out of funds legally available therefor, a dividend on each outstanding share of Preferred Stock in an amount equal to (i) in the case of a dividend on Common Stock, that dividend per share of such class or series of Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of such class or series of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend, up to an amount equal to 8% of the Original Issue Price (as defined below) per share of such Preferred Stock, or (ii) in the case of a dividend on any class or series of Preferred Stock, 8% of the Original Issue Price per share of such class or series of Preferred Stock; provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the greatest Preferred Stock dividend for each such class or series of Preferred Stock. The foregoing dividends shall not be cumulative and shall be paid when, as and if declared by the Board of Directors of the Corporation (the Board ). In the case of the Series Seed Preferred Stock, the Original Issue Price for the Series Seed Preferred Stock shall mean $1.00 per share, subject to appropriate adjustment in the event of any stock splits and combinations of shares, dividends paid on such stock in shares of such stock, reorganizations, recapitalizations,
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reclassifications and other similar events ( Recapitalization Events ) with respect to the Series Seed Preferred Stock. In the case of the Series A Preferred Stock, the Original Issue Price for the Series A Preferred Stock shall mean $2.6786 per share, subject to appropriate adjustment in the event of any Recapitalization Events with respect to the Series A Preferred Stock. In the case of the Series B Preferred Stock, the Original Issue Price for the Series B Preferred Stock shall mean $5.0203 per share, subject to appropriate adjustment in the event of any Recapitalization Events with respect to the Series B Preferred Stock. In the case of the Series C Preferred Stock, the Original Issue Price for the Series C Preferred Stock shall mean $6.7386 per share, subject to appropriate adjustment in the event of any Recapitalization Events with respect to the Series C Preferred Stock.
1.2 Participation . If, after dividends in the full preferential amount specified in Section 1.1 for each series of the Preferred Stock have been paid or set apart for payment in any calendar year of the Corporation, the Board shall declare additional dividends out of funds legally available therefor in that calendar year, then such additional dividends shall be declared pro rata on the Common Stock and the Preferred Stock on a pari passu basis according to the number of shares of Common Stock held by such holders. For this purpose each holder of shares of Preferred Stock is to be treated as holding the greatest whole number of shares of Common Stock then issuable upon conversion of all shares of Preferred Stock held by such holder pursuant to Sections 4 and 5.
1.3 Non-Cash Dividends . Whenever a dividend provided for in this Section 1 shall be payable in property other than cash, the value of such dividend shall be deemed to be the fair market value of such property as determined in good faith by the Board.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .
2.1 In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or any Deemed Liquidation Event (as defined below), the funds and assets available for distribution to the Corporations stockholders shall be distributed as follows:
2.1.1 Preferential Payments to Holders of Preferred Stock . First, before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, the holders of shares of each series of Preferred Stock then outstanding shall be entitled to be paid on a pari passu basis out of the funds and assets available for distribution to its stockholders, an amount per share 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, winding up or Deemed Liquidation Event of the Corporation, the funds and assets available for distribution to the stockholders of the Corporation shall be insufficient to pay the holders of shares of Preferred Stock the full amounts to which they are entitled under this Section 2.1, the holders of shares of Preferred Stock shall share ratably in any distribution of the funds and assets available for distribution in proportion to the respective amounts that would otherwise be payable in respect of the shares of Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
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2.1.2 Distribution of Remaining Assets . Second, after the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock as provided in Section 2.1, the remaining funds and assets available for distribution to the stockholders of the Corporation shall be distributed among the holders of the shares of Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder (treating for this purpose all shares of Preferred Stock as if they had been converted to Common Stock pursuant to the terms of this Restated Certificate immediately prior to such dissolution, liquidation, winding up or Deemed Liquidation Event of the Corporation) provided , however , that with respect to each series of Preferred Stock, if the aggregate amount of payments which the holders of such series of Preferred Stock are entitled to receive under Section 2.1.1 and the foregoing provisions of this Section 2.1.2 exceeds three (3) times the Original Issue Price of such series of Preferred Stock, plus any dividends declared but unpaid thereon (with respect to such series, the Maximum Participation Amount for such series), then each holder of each such series of Preferred Stock shall be entitled to receive upon such dissolution, liquidation, winding up or Deemed Liquidation Event of the Corporation the greater of (i) the Maximum Participation Amount for such series of Preferred Stock or (ii) the amount such holder would have received if all shares of such series of Preferred Stock had been converted into Common Stock immediately prior to the closing of such dissolution, liquidation, winding up or Deemed Liquidation Event of the Corporation (and, in such case of (ii), such shares of Preferred Stock shall be deemed to have converted (regardless of whether actually converted) into shares of Common Stock immediately prior to such voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event of the Corporation).
2.2 Deemed Liquidation Events .
2.2.1 Definition . Each of the following events shall be considered a Deemed Liquidation Event unless the holders of at least 66.67% of the outstanding shares of Preferred Stock (voting together as a single class on an as-converted basis) (the Requisite Investors ) elect otherwise by written notice sent to the Corporation at least five days prior to the effective date of any such event:
(a) a merger or consolidation (each a Combination ) 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 Combination, except any such Combination (A) effected exclusively to change the domicile of the Corporation or (B) involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such Combination continue to represent, or are converted into or exchanged for equity securities that represent, immediately following such Combination, at least a majority, by voting power, of the equity securities of (1) the surviving or resulting party or (2) if the surviving or resulting party is a wholly owned subsidiary of another party immediately following such Combination, the parent of such surviving or resulting party; provided that, for the purpose of Section 2.2.1(a)(ii), all shares of Common Stock issuable upon exercise of Options (as defined in Section 5.1 below) outstanding immediately prior to such Combination or upon conversion of Convertible Securities (as defined in Section 5.1 below) outstanding immediately prior to such Combination shall be deemed to be
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outstanding immediately prior to such Combination and, if applicable, deemed to be converted or exchanged in such Combination on the same terms as the actual outstanding shares of Common Stock are converted or exchanged; or
(b) the sale, lease, exclusive license, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary or subsidiaries of the Corporation, of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, (or, if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by one or more subsidiaries, the sale or disposition (whether by consolidation, merger, conversion or otherwise) of such subsidiaries of the Corporation), except where such sale, lease, exclusive license, transfer or other disposition is made to the Corporation or one or more wholly owned subsidiaries of the Corporation (an Asset Disposition ).
2.2.2 Allocation of Escrow and Contingent Consideration . In the event of a voluntary or involuntary liquidation, dissolution or winding up or a Deemed Liquidation Event and unless the Requisite Investors elect otherwise by written notice sent to the Corporation at least five days prior to the effective date of any such event, if any portion of the consideration payable to the stockholders of the Corporation is placed into escrow and/or is payable to the stockholders of the Corporation subject to contingencies or upon the realization of any milestone or similar events, then as a condition to entering into such Deemed Liquidation Event or in the case of such liquidation, dissolution or winding up ( Subsequent Consideration ), the Corporation shall cause the definitive agreement or escrow agreement entered into in such Deemed Liquidation Event or in such voluntary or involuntary liquidation, dissolution or winding up to provide that (a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the Initial Consideration ) shall be allocated among the holders of capital stock of the Corporation in accordance with Section 2.1 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event or in such voluntary or involuntary liquidation, dissolution or winding up and (b) any Subsequent Consideration which becomes payable to the parties that held capital stock of the Corporation as of the closing of such Deemed Liquidation Event or in such voluntary or involuntary liquidation, dissolution or winding up by reason of their ownership of such capital stock shall be allocated among such holders of capital stock of the Corporation in accordance with Section 2.1 after taking into account all prior and simultaneous payments of Initial Consideration and Subsequent Consideration as part of the same transaction.
2.2.3 Amount Deemed Paid or Distributed . The funds and assets deemed paid or distributed to the holders of capital stock of the Corporation upon any such voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event 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. If the amount deemed paid or distributed under this Section 2.2.3 is made in property other than in cash, the value of such distribution shall be the fair market value of such property, as determined in good faith by the Board; provided , however , that the following shall apply. For securities not subject to investment letters or other similar restrictions on free marketability:
(i) if traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the 30-day period ending three days prior to the closing of such transaction;
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(ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three days prior to the closing of such transaction; or
(iii) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board.
The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a stockholders status as an affiliate or former affiliate) shall take into account an appropriate discount (as determined in good faith by the Board) from the market value as determined pursuant to clause (i) above so as to reflect the approximate fair market value thereof.
The foregoing methods for valuing non-cash consideration to be distributed in connection with a voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event shall, with the appropriate approval of the definitive agreements governing such voluntary or involuntary liquidation, dissolution or winding up or Deemed Liquidation Event by the stockholders under the General Corporation Law and Section 3.3, be superseded by the determination of such value set forth in the definitive agreements governing such voluntary or involuntary liquidation, dissolution or winding up or a Deemed Liquidation Event.
2.2.4 Effecting a Deemed Liquidation Event . The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.2.1(a)(i) unless the agreement or plan of merger or consolidation for such transaction 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 Section 2.1.
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 Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Except as provided by law or by the other provisions of this Restated Certificate, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class on an as-converted basis, shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders meeting in accordance with the Bylaws of the Corporation.
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3.2 Election of Directors .
3.2.1 Election . For so long as any shares of Preferred Stock remain outstanding, the holders of record of the shares of Preferred Stock (voting together as a single class on an as-converted basis), shall be entitled to elect four (4) directors of the Corporation (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 (the Common Director ). If the holders of shares of Preferred Stock or Common Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the foregoing sentences, then any directorship not so filled shall remain vacant until such time as the holders of the Preferred Stock or Common Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; provided, that if such director resigns, the remaining directors can replace such resigning director, subject to the rights of the appointing stockholders of such directorship. 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 every other class or series of voting stock (including the Preferred Stock), voting together as a single class on an as-converted basis, shall be entitled to elect the remaining number of directors of the Corporation (the Remaining Directors ).
3.2.2 Vacancies Not Caused by Removal . If any vacancy in the office of any Preferred Director, Common Director or Remaining Director exists, such vacancy may be filled (either contingently or otherwise) (i) by the stockholders as specified in Section 3.2.1, subject to any written agreement among the stockholders, or (ii) by at least a majority of the members of the Board then in office, although less than a quorum, or by a sole remaining member of the Board then in office, even if such directors or such sole remaining director were not elected by the holders of the class, classes or series that are entitled to elect a director or directors to office under the provisions of Section 3.2 (the Specified Stock ) and such electing director or directors shall specify at the time of such election the specific vacant directorship being filled. Any vacant directorship filled by the Board pursuant to Section 3.2.2(ii) shall serve only until his or her replacement has been duly elected by the holders of the Specified Stock pursuant to Section 3.2.2(i).
3.2.3 Vacancies Caused by Removal . Any director may be removed with or without cause by, and any vacancy in the office of any such removed director may be filled by, and only by, the affirmative vote of the holders of the shares of the Specified Stock entitled to elect such director or directors, subject to any written agreement among the stockholders, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders.
3.2.4 Procedure . 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 Specified Stock entitled to elect such director shall constitute a quorum for the purpose of electing such director and the candidate or candidates to be elected by such Specified Stock shall be those who receive the highest number of affirmative votes (on an as-converted basis) of the outstanding shares of such Specified Stock. In the case of an action taken by written consent without a meeting, the candidate or candidates to be elected by such Specified Stock shall be those who are elected by the written consent of the holders of a majority of such Specified Stock.
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3.3 Preferred Stock Protective Provisions . For so long as any shares of Preferred Stock remain outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Restated Certificate) the written consent, or affirmative vote at a meeting and evidenced in writing, of the Requisite Investors, and any such act or transaction entered into without such consent or vote shall be null and void ab initio , and of no force or effect:
(a) alter or change the rights, powers or preferences of the Preferred Stock set forth in the certificate of incorporation or bylaws of the Corporation, as then in effect; or
(b) increase or decrease the authorized number of shares of Preferred Stock (or any series thereof) or Common Stock; or
(c) authorize or create (by reclassification or otherwise) any new class or series of capital stock having rights, powers or preferences set forth in the Restated Certificate, as then in effect, that are senior to or on a parity with any series of Preferred Stock or authorize or create (by reclassification or otherwise) any security convertible into or exercisable for any such new class or series of capital stock; or
(d) redeem or repurchase (or permit any subsidiary to redeem or repurchase) any shares of Common Stock or Preferred Stock, other than (i) pursuant to an agreement with an employee, consultant, director or other service provider to the Corporation or any of its wholly owned subsidiaries (collectively, Service Providers ) giving the Corporation the right to repurchase shares at the lower of the original cost thereof or the then-current fair market value thereof (which fair market value has been approved by the Board) upon the termination of services, or (ii) an exercise of a right of first refusal in favor of the Corporation pursuant to an agreement with any Service Provider, which exercise has been approved by the Board; or
(e) declare or pay any dividend or distribution (or otherwise make or permit any subsidiary to declare or pay or make a distribution) to holders of Preferred Stock or Common Stock, other than a dividend on the Common Stock payable in shares of Common Stock; or
(f) either (i) issue any debt security (or increase the amount of indebtedness of the Corporation pursuant to any outstanding debt security), or permit any subsidiary to issue any debt security (or increase the amount of indebtedness of such subsidiary pursuant to any outstanding debt security), if the aggregate indebtedness of the Corporation and its wholly owned subsidiaries for borrowed money (other than intercompany indebtedness) following such issuance (or any increase) would exceed $500,000 or (ii) otherwise modify or amend the terms of any of the indebtedness of the Company or any subsidiary that would result in the maximum indebtedness specified in this clause (f) being exceeded; or
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(g) liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent, agree or commit to any of the foregoing without conditioning such consent, agreement or commitment upon obtaining the approval required by this Section 3.3; or
(h) increase or decrease the authorized number of directors constituting the Board; or
(i) otherwise amend, alter, restate, or repeal any provision of this Restated Certificate or the bylaws of the Corporation; or
(j) sell, lease, exclusively license or otherwise dispose of (in a single transaction or series of related transactions) the Corporations (or a subsidiarys) assets that constitutes the effective disposition of a material portion of the assets of the Corporation and its subsidiaries, taken as a whole, other than any such licenses that expire or can be terminated by the Corporation within two years and that are limited in scope to particular countries or other geographical regions and/or to particular fields of use; or
(k) amend this Section 3.3.
3.4 Series B Preferred Stock Protective Provisions . For so long as any of the initially issued shares of Series B Preferred Stock remain 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 this Restated Certificate) the written consent, or affirmative vote at a meeting and evidenced in writing, of the holders of 66.67% of the then outstanding shares of Series B Preferred Stock, voting as a separate series, amend, alter, repeal or waive any portion of this Restated Certificate or the bylaws of the Corporation in a manner that alters or changes the rights, powers or preferences of the Series B Preferred Stock adversely and in a manner disproportionate to any other series of Preferred Stock; provided that for the avoidance of doubt the authorization or issuance of any other series or class of capital stock ranking junior, pari passu or senior to the Series B Preferred Stock with respect to one or more powers, preferences or special rights shall not, in and of itself, be deemed to constitute an amendment, alteration or change of the powers, preferences or special rights of the Series B Preferred Stock that adversely affects the Series B Preferred Stock for purposes of this Section 3.4.
3.5 Series C Preferred Stock Protective Provisions . For so long as any of the initially issued shares of Series C Preferred Stock remain 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 this Restated Certificate) the written consent, or affirmative vote at a meeting and evidenced in writing, of the holders of 66.67% of the then outstanding shares of Series C Preferred Stock, voting as a separate series, amend, alter, repeal or waive any portion of this Restated Certificate or the bylaws of the Corporation in a manner that alters or changes the rights, powers or preferences of the Series C Preferred Stock adversely and in a manner disproportionate to any other series of Preferred Stock; provided that for the avoidance of doubt the authorization or issuance of any other series or class of capital stock ranking junior, pari passu or senior to the Series C Preferred Stock with respect to one or more
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powers, preferences or special rights shall not, in and of itself, be deemed to constitute an amendment, alteration or change of the powers, preferences or special rights of the Series C Preferred Stock that adversely affects the Series C Preferred Stock for purposes of this Section 3.5.
4. Conversion Rights . The holders of the Preferred Stock shall have conversion rights as follows:
4.1 Right to Convert .
4.1.1 Conversion Ratio . Each share of a series 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 Original Issue Price for such series of Preferred Stock by the Conversion Price (as defined below) for such series of Preferred Stock in effect at the time of conversion. The Conversion Price for the Series Seed Preferred Stock shall initially mean $1.00 per share. The Conversion Price for the Series A Preferred Stock shall initially mean $2.6786 per share. The Conversion Price for the Series B Preferred Stock shall initially mean $5.0203 per share. The Conversion Price for the Series C Preferred Stock shall initially mean $6.7386 per share. 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 in Section 5.
4.1.2 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 any 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 the Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent (a Contingency Event ). 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 reasonably satisfactory to the Corporation, duly executed by the registered holder or such holders 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 (or, if later, the date on which all Contingency Events have occurred) 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 time. The Corporation shall, as soon as practicable after the Conversion Time, (a) issue and deliver to such holder of Preferred Stock, or to such holders nominee(s), a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in
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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, (b) pay in cash such amount as provided in Section 5.7.3 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (c) pay all declared but unpaid dividends on the shares of Preferred Stock converted.
4.1.3 Effect of Voluntary Conversion . All shares of Preferred Stock that 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 Section 5.7.3 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, 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.
4.2 Mandatory Conversion .
4.2.1 Automatic Conversion . Upon either (a) the closing of the sale of shares of Common Stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the Securities Act ), resulting in at least $50,000,000 of gross proceeds to the Corporation at a price per share to the public of at least $10.7818 (as adjusted for Recapitalization Events with respect to the Common Stock) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the Requisite Investors (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 applicable ratio described in Section 4.1.1 as the same may be adjusted from time to time in accordance with Section 5, (ii) such shares may not be reissued by the Corporation, and (iii) 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.
4.2.2 Mandatory Conversion Procedural Requirements .
(a) All holders of record of shares of Preferred Stock to be converted 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 Sections 4.2.1 and 9. Unless otherwise provided in this Restated Certificate, 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 such holders 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 of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section 4.2.
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(b) If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form reasonably satisfactory to the Corporation, duly executed by the registered holder or by such holders attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to this Section 4.2, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will 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 Section 4.2.2(b). 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 such holders nominee(s), 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 Section 5.7.3 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 (and the applicable series thereof) accordingly.
5. Adjustments to Conversion Price .
5.1 Adjustments for Diluting Issuances .
5.1.1 Special Definitions . For purposes of this Article IV, the following definitions shall apply:
(a) Option shall mean any right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities from the Corporation.
(b) Original Issue Date for a series of Preferred Stock shall mean the date on which the first share of such series of Preferred Stock was issued.
(c) Convertible Securities shall mean any evidences of indebtedness, shares or other securities issued by the Corporation that are directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(d) Additional Shares of Common Stock with respect to a series of Preferred Stock shall mean all shares of Common Stock issued (or, pursuant to Section 5.1.2 below, deemed to be issued) by the Corporation after the applicable Original Issue Date for such series of Preferred Stock, other than the following shares of Common Stock and shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (collectively as to all such shares and shares deemed issued, Exempted Securities ):
(i) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on such series of Preferred Stock;
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(ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on or subdivision of shares of Common Stock that is covered by Section 5.2, 5.3, 5.4, 5.5 or 5.6;
(iii) shares of Common Stock or Options to acquire shares of Common Stock, including but not limited to stock appreciation rights payable in shares of Common Stock or in Options or Convertible Securities, issued to Service Providers pursuant to a plan, agreement or arrangement approved by the Board;
(iv) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options, or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided that such issuance is pursuant to the terms of such Option or Convertible Security;
(v) shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions pursuant to a debt financing or equipment leasing transaction approved by the Board;
(vi) shares of Common Stock, Options or Convertible Securities issued pursuant to a bona fide acquisition of another entity by the Corporation by merger or consolidation with, purchase of all or substantially all of the assets of, or purchase of more than fifty percent of the outstanding equity securities of, the other entity, or issued pursuant to a bona fide joint venture agreement, provided that such issuances are approved by the Board;
(vii) shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board;
(viii) shares of Common Stock, Options or Convertible Securities issued as a result of a decrease in the Conversion Price of any series of Preferred Stock resulting from the operation of Section 5.1.3;
(ix) shares of Common Stock issued in an offering to the public pursuant to a registration statement filed under the Securities Act with, and declared effective by, the Securities and Exchange Commission;
(x) with respect to the Series Seed Preferred Stock, the issuance or deemed issuance of Common Stock if the Corporation receives written notice from the holders of at least a majority of the then outstanding shares of Series Seed
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Preferred Stock, voting as a separate series, agreeing that no adjustment shall be made to the Conversion Price of the Series Seed Preferred Stock as a result of the issuance or deemed issuance;
(xi) with respect to the Series A Preferred Stock, the issuance or deemed issuance of Common Stock if the Corporation receives written notice from the holders of at least 66.67% of the then outstanding shares of Series A Preferred Stock, voting as a separate series, agreeing that no adjustment shall be made to the Conversion Price of the Series A Preferred Stock as a result of the issuance or deemed issuance;
(xii) with respect to the Series B Preferred Stock, the issuance or deemed issuance of Common Stock if the Corporation receives written notice from the holders of at least 66.67% of the outstanding shares of Series B Preferred Stock, voting as a separate series, agreeing that no adjustment shall be made to the Conversion Price of the Series B Preferred Stock as a result of the issuance or deemed issuance; or
(xiii) with respect to the Series C Preferred Stock, the issuance or deemed issuance of Common Stock if the Corporation receives written notice from the holders of at least 66.67% of the outstanding shares of Series C Preferred Stock, voting as a separate series, agreeing that no adjustment shall be made to the Conversion Price of the Series C Preferred Stock as a result of the issuance or deemed issuance.
5.1.2 Deemed Issue of Additional Shares of Common Stock .
(a) If the Corporation at any time or from time to time after the applicable Original Issue Date for a series of Preferred Stock shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted 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 (including the passage of time) but without regard to any provision contained therein for a subsequent adjustment of such number including by way of anti-dilution adjustment) 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 Conversion Price of a series of Preferred Stock pursuant to the terms of Section 5.1.3, 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 (i) 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 (ii) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase
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or decrease becoming effective, the Conversion Price of such series of Preferred Stock 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 Conversion Price of such series of Preferred Stock 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 Section 5.1.2(b) shall have the effect of increasing the Conversion Price of a series of Preferred Stock to an amount which exceeds the lower of (1) the Conversion Price for such series of Preferred Stock in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (2) the Conversion Price for such series of Preferred Stock 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 that are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Section 5.1.3 (either because the consideration per share (determined pursuant to Section 5.1.4) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Conversion Price of such series of Preferred Stock then in effect, or because such Option or Convertible Security was issued before the Original Issue Date of such series of Preferred Stock), are revised after the Original Issue Date of such series of Preferred Stock 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 (i) 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 (ii) 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 Section 5.1.2(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) that resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion Price of a series of Preferred Stock pursuant to the terms of Section 5.1.3, the Conversion Price of such series of Preferred Stock shall be readjusted to such Conversion Price of such series of Preferred Stock 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 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 Conversion Price of a series of Preferred Stock provided for in this Section 5.1.2 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
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subsequent adjustments (and any subsequent adjustments shall be treated as provided in Sections 5.1.2(b) and 5.1.2(c)). 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 such Conversion Price that would result under the terms of this Section 5.1.2 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 such Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
5.1.3 Issuance of Additional Shares of Common Stock . In the event the Corporation shall at any time after the applicable Original Issue Date of a series of Preferred Stock issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 5.1.2), without consideration or for a consideration per share less than the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue, then such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-thousandth 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:
CP 2 shall mean the applicable Conversion Price in effect immediately after such issue or deemed issue of Additional Shares of Common Stock
CP 1 shall mean the applicable Conversion Price in effect immediately prior to such issue or deemed issue of Additional Shares of Common Stock;
A shall mean the number of shares of Common Stock outstanding immediately prior to such issue or deemed 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);
B shall mean the number of shares of Common Stock that would have been issued or deemed 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
C shall mean the number of such Additional Shares of Common Stock actually issued or deemed issued in such transaction.
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5.1.4 Determination of Consideration . For purposes of this Section 5.1, the consideration received by the Corporation for the issue or deemed 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 Section 5.1.2, relating to Options and Convertible Securities, shall be determined by dividing
(i) 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
(ii) 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.
5.1.5 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 Conversion Price of a series of Preferred Stock pursuant to the terms of Section 5.1.2 and such issuance dates occur within a period of no more than 120 days after the first such issuance to the final such issuance, then, upon the final such issuance, the Conversion Price of such series of Preferred Stock 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 that are a part of such transaction or series of related transactions).
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5.2 Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Original Issue Date for a series of Preferred Stock effect a subdivision of the outstanding Common Stock, the Conversion Price for such series of Preferred Stock 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 for a series of Preferred Stock combine the outstanding shares of Common Stock, the Conversion Price for such series of Preferred Stock 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 Section 5.2 shall become effective at the close of business on the date the subdivision or combination becomes effective.
5.3 Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Original Issue Date for a series of Preferred Stock 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 Conversion Price for such series of Preferred Stock 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 such Conversion Price then in effect by a fraction:
(a) 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
(b) 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, (i) 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, such Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter such Conversion Price shall be adjusted pursuant to this Section 5.3 as of the time of actual payment of such dividends or distributions; and (ii) no such adjustment shall be made if the holders of such 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 such series of Preferred Stock had been converted into Common Stock on the date of such event.
5.4 Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Original Issue Date for a series of Preferred Stock shall make or issue, or fix a record date for the determination of holders of
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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), then and in each such event the holders of such series of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities in an amount equal to the amount of such securities as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.
5.5 Adjustment for Reclassification, Exchange and Substitution . If, at any time or from time to time after the Original Issue Date for a series of Preferred Stock, the Common Stock issuable upon the conversion of such series of Preferred Stock is changed into the same or a different number of shares of any class or classes of stock of the Corporation, whether by recapitalization, reclassification or otherwise ( other than by a stock split or combination, dividend, distribution, merger or consolidation covered by Sections 5.2, 5.3, 5.4 or 5.6 or by Section 2.2 regarding a Deemed Liquidation Event), then in any such event each holder of such series of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change.
5.6 Adjustment for Merger or Consolidation . Subject to the provisions of Section 2.2, if there shall occur any consolidation or merger involving the Corporation in which the Common Stock (but not a series of Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Sections 5.3, 5.4 or 5.5), then, following any such consolidation or merger, provision shall be made that 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 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 Section 4 and this Section 5 with respect to the rights and interests thereafter of the holders of such series of Preferred Stock, to the end that the provisions set forth in Section 4 and this Section 5 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.
5.7 General Conversion Provisions .
5.7.1 Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price of a series of Preferred Stock pursuant to this Section 5, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than 15 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which such series of Preferred Stock is convertible) and showing in detail
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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 any series of Preferred Stock (but in any event not later than 10 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (a) the Conversion Price of such series of Preferred Stock then in effect and (b) 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 such series of Preferred Stock.
5.7.2 Reservation of Shares . The Corporation shall at all times while any share of 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 this Restated Certificate. Before taking any action that would cause an adjustment reducing the Conversion Price of a series of Preferred Stock below the then par value of the shares of Common Stock issuable upon conversion of such series of Preferred Stock, the Corporation will 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 Conversion Price.
5.7.3 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 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 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.
5.7.4 No Further Adjustment after Conversion . Upon any conversion of shares of Preferred Stock into Common Stock, no adjustment to the Conversion Price of the applicable series of Preferred Stock shall be made with respect to the converted shares for any declared but unpaid dividends on such series of Preferred Stock or on the Common Stock delivered upon conversion.
6. No Reissuance of Redeemed or Otherwise Acquired Preferred Stock . Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately retired and shall not be reissued, sold or transferred.
7. Waiver . Except as otherwise set forth herein, any of the rights, powers, preferences and other terms of a series of the Preferred Stock or the Preferred Stock as a class
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that are set forth herein may be waived on behalf of all holders of such series of Preferred Stock or the Preferred Stock as a class by the affirmative written consent or vote of the Requisite Investors; provided, that except as otherwise provided in this Restated Certificate, any waiver of the rights, powers, preferences and other terms of a series of the Preferred Stock in a manner that alters or changes the rights, powers or preferences of such series of Preferred Stock adversely and in a manner disproportionate to any other series of Preferred Stock, shall require the affirmative written consent or vote of the holders of at least 66.67% of the outstanding shares of such series of Preferred Stock.
8. Notice of Record Date . In the event:
(a) the Corporation shall set 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 will 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 subscription right, and the amount and character of such dividend, distribution or subscription right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, 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 the Preferred Stock and the Common Stock. Such notice shall be sent (A) at least twenty (20) days prior to the earlier of the record date or effective date for the event specified in such notice or (B) such fewer number of days as may be approved by the Requisite Investors.
9. Notices . Except as otherwise provided herein, any notice required or permitted by the provisions of this Article IV 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 for such holder, given by the holder to the Corporation for the purpose of notice 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. If no such address appears or is given, notice shall be deemed given at the place where the principal executive office of the Corporation is located.
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ARTICLE V : PREEMPTIVE RIGHTS .
No stockholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and any stockholder.
ARTICLE VI : STOCK REPURCHASES .
Subject to any approvals otherwise required by this Restated Certificate, any repurchases by the Corporation of shares of its capital stock may be made without regard to any preferential dividends arrear amount or any preferential rights amount (as such terms are defined in Section 500(b) of the Corporations Code of the State of California).
ARTICLE VII : BYLAW PROVISIONS .
A. AMENDMENT OF BYLAWS. Subject to any additional vote required by this Restated Certificate or the 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.
B. NUMBER OF DIRECTORS. Subject to any additional vote required by this Restated Certificate, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
C. BALLOT. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
D. MEETINGS AND BOOKS. 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 or in the Bylaws of the Corporation.
ARTICLE VIII : DIRECTOR LIABILITY .
A. LIMITATION. 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 VIII 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 VIII 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.
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B. INDEMNIFICATION. 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.
C. MODIFICATION. Any amendment, repeal or modification of the foregoing provisions of this Article VIII 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.
ARTICLE IX : CORPORATE OPPORTUNITIES .
In the event that a director of the Corporation who is also a partner or employee of an entity that is a holder of Preferred Stock or any of its Affiliates and that is in the business of investing and reinvesting in other entities (each, a Fund ), acquires knowledge of a potential transaction or matter in such persons capacity as a partner or employee of the Fund and that may be a corporate opportunity for both the Corporation and such Fund, such director shall to the fullest extent permitted by law have fully satisfied and fulfilled such directors fiduciary duty to the Corporation and its stockholders with respect to such corporate opportunity, and the Corporation to the fullest extent permitted by law waives any claim that such business opportunity constituted a corporate opportunity that should have been presented to the Corporation or any of its affiliates, if such director acts in good faith in a manner consistent with the following policy: a corporate opportunity offered to any person who is a director of the Corporation, and who is also a partner or employee of a Fund shall belong to such Fund, unless such opportunity was expressly offered to such person solely in his or her capacity as a director of the Corporation.
ARTICLE X : CREDITOR AND STOCKHOLDER COMPROMISES
Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of §291 of Title 8 of the General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under §279 of Title 8 of the General Corporation Law order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.
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Exhibit 3.3
AUDENTES THERAPEUTICS, INC.
a Delaware Corporation
AMENDED AND RESTATED BYLAWS
As Adopted July 16, 2013
AUDENTES THERAPEUTICS, INC.
a Delaware Corporation
AMENDED AND RESTATED BYLAWS
As Adopted July 16, 2013
ARTICLE I: STOCKHOLDERS
Section 1.1 : Annual Meetings . Unless members of the Board of Directors of the Corporation (the Board ) are elected by written consent in lieu of an annual meeting, as permitted by Section 211 of the Delaware General Corporation Law (the DGCL ) and these Amended and Restated Bylaws ( Bylaws ), an annual meeting of stockholders shall be held for the election of directors at such date and time as the Board shall each year fix. The meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine. Any proper business may be transacted at the annual meeting.
Section 1.2 : Special Meetings . Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President, the holders of shares of the Corporation that are entitled to cast not less than ten percent (10%) of the total number of votes entitled to be cast by all stockholders at such meeting, or by a majority of the Whole Board , which shall mean the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships. Special meetings may not be called by any other person or persons. If a special meeting of stockholders is called by any person or persons other than by a majority of the members of the Board, then such person or persons shall request such meeting by delivering a written request to call such meeting to each member of the Board, and the Board shall then determine the time and date of such special meeting, which shall be held not more than one hundred twenty (120) days nor less than thirty-five (35) days after the written request to call such special meeting was delivered to each member of the Board. The special meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine.
Section 1.3 : Notice of Meetings . Notice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided by law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation (the Certificate of Incorporation ), such notice shall be given not less than ten (10), nor more than sixty (60), days before the date of the meeting to each stockholder of record entitled to vote at such meeting.
Section 1.4 : Adjournments . The chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any). Any meeting of stockholders may adjourn from time to time, and notice need not be given of any such adjourned meeting if the time, date and place (if any) thereof and the means of remote communications (if any) by which
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stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided , however , that if the adjournment is for more than thirty (30) days, or if a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. To the fullest extent permitted by law, the Board may postpone or reschedule any previously scheduled special or annual meeting of stockholders before it is to be held, in which case notice shall be provided to the stockholders of the new date, time and place, if any, of the meeting as provided in Section 1.3 above.
Section 1.5 : Quorum . At each meeting of stockholders the holders of a majority of the voting power of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, unless otherwise required by applicable law. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporations stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided , however , that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporations stock held by it in a fiduciary capacity and to count such shares for purposes of determining a quorum.
Section 1.6 : Organization . Meetings of stockholders shall be presided over by such person as the Board may designate, or, in the absence of such a person, the Chairperson of the Board, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the voting power of the shares entitled to vote who are present, in person or by proxy, at the meeting. Such person shall be chairperson of the meeting and, subject to Section 1.11 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such persons absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 1.7 : Voting; Proxies . Each stockholder entitled to vote at a meeting of stockholders, or to take corporate action by written consent without a meeting, may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the voting power of the shares of stock entitled to vote on such matter that are present in person or represented by proxy at the meeting and are voted for or against the matter.
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Section 1.8 : Fixing Date for Determination of Stockholders of Record .
1.8.1 Generally . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or to take corporate action by written consent without a meeting , or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, except as otherwise required by law, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which shall not be more than sixty (60), nor less than ten (10), days before the date of such meeting, nor, except as provided in Section 1.8.2 below, more than sixty (60) days prior to any other action. If no record date is fixed by the Board, then the record date shall be as provided by applicable law. To the fullest extent provided by law, a determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for the adjourned meeting.
1.8.2 Stockholder Request for Action by Written Consent . Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice to the Secretary of the Corporation, request the Board to fix a record date for such consent. Such request shall include a brief description of the action proposed to be taken. Unless a record date has previously been fixed by the Board for the written consent pursuant to this Section 1.8, the Board shall, within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. Such record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board within ten (10) days after the date on which such a request is received, then the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation as required by law. If no record date has been fixed by the Board and prior action by the Board is required by applicable law, then the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action.
Section 1.9 : List of Stockholders Entitled to Vote . A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either on a reasonably accessible electronic network as permitted by law (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the principal place of business of the Corporation. If the meeting is held at a location where stockholders may attend in person, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. If the meeting is held solely by means of remote communication, then the list shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of the meeting.
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Section 1.10 : Action by Written Consent of Stockholders .
1.10.1 Procedure . Unless otherwise provided by the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed in the manner permitted by law by the holders of outstanding stock having not less than the 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 shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, to its principal place of business or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the agent of the Corporations registered office in the State of Delaware shall be by hand or by certified or registered mail, return receipt requested. Written stockholder consents shall bear the date of signature of each stockholder who signs the consent in the manner permitted by law and shall be delivered to the Corporation as provided in Section 1.10.2 below. No written consent shall be effective to take the action set forth therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner required by law, written consents signed by a sufficient number of stockholders to take the action set forth therein are delivered to the Corporation in the manner required by law.
1.10.2 Form of Consent A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxy holder, or a person or persons authorized to act for a stockholder or proxy holder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (a) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxy holder or by a person or persons authorized to act for the stockholder or proxy holder and (b) the date on which such stockholder or proxy holder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporations registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board. 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.
1.10.3 Notice of Consent . Prompt notice of the taking of corporate action by stockholders without a meeting by less than unanimous written consent of the stockholders shall be given to those stockholders who have not consented thereto in writing and, who, if the action had been taken at a meeting, would have been entitled to notice of the meeting, if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation as required by law. If the action which is consented to is such as would have required the filing of a certificate under the DGCL (the Certificate of Action ) if such action had been voted on by stockholders at a meeting thereof, then if the DGCL so requires, the certificate so filed shall state, in lieu of any statement required by the DGCL concerning any vote of stockholders, that written stockholder consent has been given in accordance with Section 228 of the DGCL.
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Section 1.11 : Inspectors of Elections .
1.11.1 Applicability . Unless otherwise required by the Certificate of Incorporation or by the DGCL, the following provisions of this Section 1.11 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions of this Section 1.11 shall be optional, and at the discretion of the Board.
1.11.2 Appointment . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.
1.11.3 Inspectors Oath . Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspectors ability.
1.11.4 Duties of Inspectors . At a meeting of stockholders, the inspectors of election shall (a) ascertain the number of shares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
1.11.5 Opening and Closing of Polls . The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
1.11.6 Determinations . In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with any information provided pursuant to Section 211(a)(2)(B)(i) of the DGCL, or Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.11 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors belief that such information is accurate and reliable.
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Section 1.12 : Exclusive Forum .
Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the Delaware General Corporation Law or the Corporations Certificate of Incorporation or Bylaws (as either may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware).
ARTICLE II: BOARD OF DIRECTORS
Section 2.1 : Number; Qualifications . The Board shall consist of one or more members. The initial number of directors shall be Five (5), and, thereafter, unless otherwise required by law or the Certificate of Incorporation, shall be fixed from time to time by resolution of a majority of the Whole Board or the stockholders of the Corporation holding at least a majority of the voting power of the Corporations outstanding stock then entitled to vote at an election of directors. No decrease in the authorized number of directors constituting the Board shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation.
Section 2.2 : Election; Resignation; Removal; Vacancies . The Board shall initially consist of the person or persons elected by the incorporator or named in the Corporations initial Certificate of Incorporation. Each director shall hold office until the next annual meeting of stockholders and until such directors successor is elected and qualified, or until such directors
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earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Subject to the rights of any holders of Preferred Stock then outstanding: (a) any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors and (b) any vacancy occurring in the Board for any reason, and any newly created directorship resulting from any increase in the authorized number of directors to be elected by all stockholders having the right to vote as a single class, may be filled by the stockholders, by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
Section 2.3 : Regular Meetings . Regular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as the Board may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board.
Section 2.4 : Special Meetings . Special meetings of the Board may be called by the Chairperson of the Board, the President or a majority of the members of the Board then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally, in writing or by electronic transmission (including electronic mail), by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile, electronic mail or other means of electronic transmission. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.
Section 2.5 : Remote Meetings Permitted . Members of the Board, or any committee of the Board, may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or other communications equipment shall constitute presence in person at such meeting.
Section 2.6 : Quorum; Vote Required for Action . At all meetings of the Board a majority of the Whole Board (including at least Two (2) of the Preferred Directors (as defined in the Certificate of Incorporation) (the Preferred Director Requirement )) shall constitute a quorum for the transaction of business; provided, that if a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time without further notice thereof (any such new meeting, the New Meeting ); and provided, further, that if the New Meeting is held within ten (10) days of such adjourned meeting, a majority of the Whole Board shall constitute a quorum for the transaction of business in the New Meeting regardless if the Preferred Director Requirement is met in such New Meeting. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board.
Section 2.7 : Organization . Meetings of the Board shall be presided over by the Chairperson of the Board, or in such persons absence by the President, or in such persons absence by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in such persons absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
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Section 2.8 : Written Action by Directors . Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee (including in each case, at least One (1) of the Preferred Directors), as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee, respectively, in the minute books of the Corporation. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 2.9: Powers . The Board may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and manage and direct all such acts and things as may be exercised or done by the Corporation.
Section 2.10 : Compensation of Directors . Members of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board.
ARTICLE III: COMMITTEES
Section 3.1 : Committees . The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving, adopting, or recommending to the stockholders any action or matter (other than the election or removal of members of the Board) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation.
Section 3.2 : Committee Rules . Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV: OFFICERS
Section 4.1 : Generally . The officers of the Corporation shall consist of a Chief Executive Officer (who may be the Chairperson of the Board or the President), a Secretary and a Treasurer and may consist of such other officers, including a Chief Financial Officer, Chief
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Technology Officer and one or more Vice Presidents, as may from time to time be appointed by the Board. All officers shall be elected by the Board; provided , however , that the Board may empower the Chief Executive Officer of the Corporation to appoint any officer other than the Chairperson of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until such persons successor is appointed or until such persons earlier resignation, death or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board.
Section 4.2 : Chief Executive Officer . Subject to the control of the Board and such supervisory powers, if any, as may be given by the Board, the powers and duties of the Chief Executive Officer of the Corporation are:
(a) To act as the general manager and, subject to the control of the Board, to have general supervision, direction and control of the business and affairs of the Corporation;
(b) Subject to Article I, Section 1.6, to preside at all meetings of the stockholders;
(c) Subject to Article I, Section 1.2, to call special meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the Board shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board has not designated any other officer to be the Chief Executive Officer, then the Chairperson of the Board shall be the Chief Executive Officer.
Section 4.3 : Chairperson of the Board . The Chairperson of the Board shall have the power to preside at all meetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time to time prescribe.
Section 4.4 : President . The President shall be the Chief Executive Officer of the Corporation unless the Board shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board to the Chairperson of the Board, and/or to any other
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officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board.
Section 4.5 : Vice President . Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officers absence or disability.
Section 4.6 : Chief Financial Officer . The Chief Financial Officer shall be the Treasurer of the Corporation unless the Board shall have designated another officer as the Treasurer of the Corporation. Subject to the direction of the Board and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer.
Section 4.7 : Treasurer . The Treasurer shall have custody of all moneys and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board or the Chief Executive Officer may from time to time prescribe.
Section 4.8 : Chief Technology Officer . The Chief Technology Officer shall have responsibility for the general research and development activities of the Corporation, for supervision of the Corporations research and development personnel, for new product development and product improvements, for overseeing the development and direction of the Corporations intellectual property development and such other responsibilities as may be given to the Chief Technology Officer by the Board, subject to: (a) the provisions of these Bylaws; (b) the direction of the Board; (c) the supervisory powers of the Chief Executive Officer of the Corporation; and (d) those supervisory powers that may be given by the Board to the Chairperson or Vice Chairperson of the Board.
Section 4.9 : Secretary . The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or the Chief Executive Officer may from time to time prescribe.
Section 4.10 : Delegation of Authority . The Board may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
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Section 4.11 : Removal . Any officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or without cause, by the Board; provided that if the Board has empowered the Chief Executive Officer to appoint any Vice Presidents of the Corporation, then such Vice Presidents may be removed by the Chief Executive Officer. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.
ARTICLE V: STOCK
Section 5.1 : Certificates . The shares of capital stock of the Corporation shall be represented by certificates; provided , however , that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock may be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation (or the transfer agent or registrar, as the case may be). Notwithstanding the adoption of such resolution by the Board, every holder of stock that is a certificated security shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairperson or Vice-Chairperson of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. If any holder of uncertificated shares elects to receive a certificate, the Corporation (or the transfer agent or registrar, as the case may be) shall, to the extent permitted under applicable law and rules, regulations and listing requirements of any stock exchange or stock market on which the Corporations shares are listed or traded, cease to provide annual statements indicating such holders holdings of shares in the Corporation.
Section 5.2 : Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates . The Corporation may issue a new certificate of stock, or uncertificated shares, in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, , upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owners legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
Section 5.3 : Other Regulations . The issue, transfer, conversion and registration of stock certificates and uncertificated securities shall be governed by such other regulations as the Board may establish.
ARTICLE VI: INDEMNIFICATION
Section 6.1 : Indemnification of Officers and Directors . Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or
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proceeding, whether civil, criminal, administrative or investigative (a Proceeding ), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was a member of the Board or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor as a member of the board of directors, officer or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an Indemnitee ), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe the Indemnitees conduct was unlawful. Such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer and shall inure to the benefit of such Indemnitees heirs, executors and administrators. Notwithstanding the foregoing, the Corporation shall indemnify any such Indemnitee seeking indemnity in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board or such indemnification is authorized by an agreement approved by the Board. As used herein, the term the Reincorporated Predecessor means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger; (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware.
Section 6.2 : Advance of Expenses . The Corporation shall pay all expenses (including attorneys fees) incurred by such an Indemnitee in defending any such Proceeding as they are incurred in advance of its final disposition; provided , however , that (a) if the DGCL then so requires, the payment of such expenses incurred by such an Indemnitee in advance of the final disposition of such Proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all amounts so advanced if it should be determined ultimately by final judicial decision from which there is no appeal that such Indemnitee is not entitled to be indemnified under this Article VI or otherwise; and (b) the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a Proceeding, alleging that such person has breached such persons duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights . The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.
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Section 6.4 : Indemnification Contracts . The Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification or advancement rights to such person. Such rights may be greater than those provided in this Article VI.
Section 6.5: Right of Indemnitee to Bring Suit . The following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 above.
6.5.1 Right to Bring Suit . If a claim under Section 6.1 or 6.2 of this Article VI is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Indemnitee has not met any applicable standard for indemnification set forth in applicable law.
6.5.2 Effect of Determination . Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in applicable law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit.
6.5.3 Burden of Proof . In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI, or otherwise, shall be on the Corporation.
Section 6.6 : Nature of Rights . The rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitees heirs,
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executors and administrators. Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of an Indemnitee or an Indemnitees successors shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII: NOTICES
Section 7.1 : Notice .
7.1.1 Form and Delivery . Except as otherwise specifically required in these Bylaws (including, without limitation, Section 7.1.2 below) or by law, all notices required to be given pursuant to these Bylaws shall be in writing and may, (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, cablegram, overnight express courier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively be delivered to a stockholder when given by hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by the stockholder as described in Section 7.1.2 of this Article VII by sending such notice by telegram, cablegram, facsimile, electronic mail or other form of electronic transmission. Any such notice shall be addressed to the person to whom notice is to be given at such persons address as it appears on the records of the Corporation. The notice shall be deemed given (a) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (b) in the case of delivery by mail, upon deposit in the mail, (c) in the case of delivery by overnight express courier, when dispatched, and (d) in the case of delivery via telegram, cablegram, facsimile, electronic mail or other form of electronic transmission, when dispatched.
7.1.2 Electronic Transmission . Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given in accordance with Section 232 of the DGCL. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (a) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (b) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided , however , the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this Section 7.1.2 shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of such posting and the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.
7.1.3 Affidavit of Giving Notice . An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given in writing or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
Section 7.2 : Waiver of Notice . Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, a written waiver of notice, signed by the person entitled to notice, or waiver by electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any waiver of notice.
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ARTICLE VIII: INTERESTED DIRECTORS
Section 8.1 : Interested Directors . No contract or transaction between the Corporation and one or more of its members of the Board or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are members of the board of directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (b) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof, or the stockholders.
Section 8.2 : Quorum . Interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.
ARTICLE IX: MISCELLANEOUS
Section 9.1 : Fiscal Year . The fiscal year of the Corporation shall be determined by resolution of the Board.
Section 9.2 : Seal . The Board may provide for a corporate seal, which may have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board.
Section 9.3 : Form of Records . Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books,
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may be kept on or by means of, or be in the form of, diskettes, CDs, or any other information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the DGCL.
Section 9.4 : Reliance upon Books and Records . A member of the Board, or a member of any committee designated by the Board shall, in the performance of such persons duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporations officers or employees, or committees of the Board, or by any other person as to matters the member reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
Section 9.5 : Certificate of Incorporation Governs . In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern.
Section 9.6 : Severability . If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.
ARTICLE X: AMENDMENT
Unless otherwise required by the Certificate of Incorporation, stockholders of the Corporation holding at least a majority of the voting power of the Corporations outstanding voting stock then entitled to vote at an election of directors shall have the power to adopt, amend or repeal Bylaws. To the extent provided in the Certificate of Incorporation, the Board shall also have the power to adopt, amend or repeal Bylaws of the Corporation.
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Exhibit 4.2
Execution Version
AUDENTES THERAPEUTICS, INC.
AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
This Amended and Restated Investors Rights Agreement (this Agreement ) is made and entered into as of October 8, 2015 by and among Audentes Therapeutics, Inc., a Delaware corporation (the Company ), and each of the investors listed on Schedule A hereto, each of which is referred to in this Agreement as an Investor , any subsequent investor that becomes a party to this Agreement in accordance with Section 7.14 hereof and any holder of a Lender Warrant that becomes a party to this Agreement in accordance with Section 7.14 hereof.
RECITALS
WHEREAS, certain of the Investors (the Prior Investors ) are holders of (i) outstanding shares of the Companys Series Seed Preferred Stock (the Series Seed Preferred Stock ) issued by the Company to such Prior Investors pursuant to a Series Seed Preferred Stock Purchase Agreement, by and among the Company and certain of the Prior Investors, dated December 24, 2012, as amended from time to time, (ii) the Companys Series A Preferred Stock (the Series A Preferred Stock ) issued by the Company to such Prior Investors pursuant to a Series A Preferred Stock Purchase Agreement, by and among the Company and certain of the Prior Investors, dated July 16, 2013, and/or (iii) the Companys Series B Preferred Stock (the Series B Preferred Stock ) issued by the Company to such Prior Investors pursuant to a Series B Preferred Stock Purchase Agreement, by and among the Company and certain of the Prior Investors, dated November 21, 2014, and have also been granted certain rights under a Second Amended and Restated Investors Rights Agreement, by and among the Company, the Prior Investors and certain other parties thereto, dated November 21, 2014, as amended by Amendment No. 1 to the Investors Rights Agreement (the Prior Rights Agreement ).
WHEREAS, certain of the Investors (the Series C Investors ) have agreed to purchase from the Company, and the Company has agreed to sell to the Series C Investors, shares of the Companys Series C Preferred Stock (the Series C Preferred Stock and together with the Series Seed Preferred Stock, the Series A Preferred Stock, and the Series B Preferred Stock, the Preferred Stock ) on the terms and conditions set forth in that certain Series C Preferred Stock Purchase Agreement dated of even date herewith, by and among the Company and the Series C Investors, as amended from time to time (the Purchase Agreement ).
WHEREAS, the Company and the Prior Investors desire to enter into this Agreement in order to amend, restate and replace their rights and obligations under the Prior Rights Agreement with the rights and obligations set forth in herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto hereby agree as follows:
1. DEFINITIONS . For purposes of this Agreement:
Affiliate means, with respect to any specified Person, or any other Person who or which, directly or indirectly, controls, is controlled by, or is under common control with such
Person including without limitation any general partner, managing partner, managing member, officer or director of such Person or any venture capital or other investment fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company or investment advisor (or sub-advisor) with, such Person. For purposes of this definition, the terms controlling , controlled by , or under common control with shall mean the possession, directly or indirectly, of (a) the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise, or (b) the power to elect or appoint at least fifty percent (50%) of the directors, managers, general partners, or persons exercising similar authority with respect to such Person.
Automatic Shelf Registration Statement shall have the meaning given to that term in SEC Rule 405.
business day means a weekday on which banks are open for general banking business in San Francisco, California.
Cardiogen Holders means those stockholders of Cardiogen Sciences, Inc. ( Cardiogen ), whose shares of Cardiogen capital stock were exchanged for shares of the Companys capital stock pursuant to the Merger Agreement.
Cardiogen Registrable Securities means the shares of Common Stock originally issued by the Company, and the shares of Common Stock issued or issuable upon conversion of the shares of Series B Preferred Stock originally issued by the Company, to the Cardiogen Holders pursuant to that certain Agreement and Plan of Merger and Reorganization by and among the Company, Commodus Acquisition Corp, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, Maximus Acquisition Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company, Cardiogen Sciences, Inc., Delaware corporation, and Louis Lange as the Stockholders Agent (as defined therein), dated as of August 17, 2015 (the Merger Agreement ).
Code means the Internal Revenue Code of 1986, as amended.
Common Stock means shares of the Companys common stock.
Damages means any loss, damage, 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, or liability (or any action in respect thereof) arises out of or is based upon (a) 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, and any free-writing prospectus and any issuer information (as defined in Rule 433 of the Securities Act) filed or required to be filed pursuant to Rule 433(d) under the Securities Act or any other document incident to such registration prepared by or on behalf of the Company or used or referred to by the Company; (b) 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 (c) 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.
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Demand Notice means notice sent by the Company to the Holders specifying that a demand registration has been requested as provided in Section 3.1.1.
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.
Deemed Liquidation Event has the meaning set forth for such term in the certificate of incorporation of the Company most recently filed with the Delaware Secretary of State that contains such a definition, whether or not the holders of outstanding shares of Preferred Stock elect otherwise by written notice sent to the Company as provided in such definition.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Excluded Registration means (a) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to an equity incentive, stock option, stock purchase, or similar plan; (b) a registration relating to an SEC Rule 145 transaction; (c) 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 (d) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
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.
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.
Free Writing Prospectus means a free-writing prospectus, as defined in Rule 405 under the Securities Act.
Fully Exercising Investor shall have the meaning set forth in Section 4.2.
GAAP means generally accepted accounting principles in the United States.
Genethon means Genethon, a French non-profit organization organized under the French law of July 1, 1901.
Genethon Registrable Securities means the Common Stock issuable or issued pursuant to that certain Common Stock Purchase Agreement, by and between the Company and Genethon, dated as of January 24, 2014.
Holder means any holder of Registrable Securities who is a party to this Agreement.
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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.
Initiating Holders means, collectively, Holders who properly initiate a registration request under this Agreement.
Investor Notice shall have the meaning set forth in Section 4.2.
IPO means the Companys first underwritten public offering of its Common Stock under the Securities Act.
Lender Registrable Securities means (a) the Common Stock issuable or issued upon the exercise of any Lender Warrant and (b) the Common Stock issuable or issued upon conversion of the Preferred Stock issuable or issued pursuant to the exercise of any Lender Warrant; provided , however , that before the holder of any Lender Warrant shall be entitled to exercise any rights under this Agreement, such holder must either (i) become a party to this Agreement as a Lender or (ii) agree to be bound by the terms of this Agreement related to registration rights applicable to the Lender Registrable Securities in a separate written agreement between such holder and the Company (including, without limitation, in a Lender Warrant).
Lender Warrant means any warrant to purchase shares of capital stock of the Company issued to banks, equipment lessors or other financial institutions pursuant to a debt financing or equipment leasing transaction where the Companys Board of Directors (the Board ) has approved the grant to the holder thereof of piggyback registration rights.
Major Investor means any Investor that, individually or together with such Investors Affiliates, holds at least 500,000 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof).
New Securities means, collectively, equity securities of the Company, whether or not currently authorized, Derivative Securities and any 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 (in each case, directly or indirectly) such equity securities; provided however , that New Securities shall exclude: (a) Exempted Securities (as defined in the Restated Certificate); and (b) shares of Series C Preferred Stock issued pursuant to the Purchase Agreement.
Offer Notice shall have the meaning set forth in Section 4.1.
Person means any individual, corporation, partnership, trust, limited liability company, association or other entity.
Preferred Stock means shares of the Companys Series Seed Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock and all outstanding shares of any other series of the Companys Preferred Stock that may hereafter be issued by the Company.
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Pro Rata Amount means, for each Major Investor, that portion of the New Securities identified in an Offer Notice 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 Major 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).
Registrable Securities means (a) the Common Stock issuable or issued upon conversion of shares of the Preferred Stock held by the Investors; (b) the Lender Registrable Securities, provided , however , that such Lender Registrable Securities shall not be deemed Registrable Securities and the Lenders shall not be deemed Holders for the purposes of Sections 2.1, 2.2, 3.1, 3.10, 4 and 7.6; (c) the Genethon Registrable Securities, provided , however , that, for purposes of Section 4 only, (x) such Genethon Registrable Securities shall not be deemed Registrable Securities and (y) Genethon shall not be deemed a Holder; (d) the Cardiogen Registrable Securities, provided, however, that such Cardiogen Registrable Securities shall not be deemed Registrable Securities and the Cardiogen Holders shall not be deemed Holders for the purposes of Sections 2.1, 2.2, 3.1, 3.10, 4, 5 and 7.6; and (e) 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 (a) through (d) 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 7.1, and excluding for purposes of Section 3 any shares for which registration rights have terminated pursuant to Section 6.2 of this Agreement. Notwithstanding the foregoing, the Company shall in no event be obligated to register any Preferred Stock of the Company, and Holders of Registrable Securities will not be required to convert their Preferred Stock into Common Stock in order to exercise the registration rights granted hereunder, until immediately before the closing of the offering to which the registration relates.
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.
Requisite Investors means the holders of at least 66.67% of the shares of Common Stock (x) issued or issuable upon conversion of the then outstanding shares of the Preferred Stock held by the Investors and (y) then held by Genethon (voting as a single class and on an as-converted basis).
Restated Certificate means the Companys Restated Certificate of Incorporation (as may be amended from time to time).
Restricted Securities means the securities of the Company required to bear the legend set forth in Section 3.12.2 hereof.
SEC means the Securities and Exchange Commission.
SEC Rule 144 means Rule 144 promulgated by the SEC under the Securities Act.
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SEC Rule 145 means Rule 145 promulgated by the SEC under the Securities Act.
SEC Rule 405 means Rule 405 promulgated by the SEC under the Securities Act.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Selling 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 3.6.
Selling Holder Counsel means one counsel for the selling Holders.
Standoff Period means the period commencing on the date of the final prospectus relating to an underwritten public offering of the Companys Common Stock under the Securities Act and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days).
Stock Sale means a sale by the Companys stockholders, in one transaction or series of related transactions, of equity securities that represent, immediately prior to such transaction or transactions, at least a majority by voting power of the equity securities of the Company pursuant to an agreement approved by the Board and entered into by the Company.
T. Rowe Price Investor means any Investor that that receives, directly or indirectly, investment management or investment advisory services from T. Rowe Price Associates, Inc. (or its Affiliates and successors) ( T. Rowe Price ) with respect to its ownership interest in the Company.
Voting Agreement means that certain Amended and Restated Voting Agreement dated of even date hereof by and among the Company and the Investors.
2. INFORMATION RIGHTS .
2.1 Delivery of Financial Statements .
2.1.1 Information to be Delivered . The Company shall deliver the following to each Major Investor ( provided that the Board has not reasonably determined that such Major Investor is a competitor of the Company) and to Genethon:
(a) As soon as practicable, but in any event within fifteen (15) days of being made available to the Company after the end of each fiscal year of the Company, the Company shall deliver, (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 of which shall be prepared in accordance with GAAP (except that such financial statements may (x) be subject to normal year-end audit adjustments and (y) not contain all notes thereto that may be required in accordance with GAAP), provided , however , that such financial statements shall be audited and certified by independent public accountants of nationally recognized standing selected by the Company.
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(b) As soon as practicable, but in any event within forty-five (45) days after the end of each quarter of each fiscal year of the Company, the Company shall deliver, 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) Consolidation . 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 Section 2.1.1 shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
2.1.2 Suspension or Termination . Notwithstanding anything else in this Section 2.1 to the contrary but subject to Section 6.1, the Company may cease providing the information set forth in this Section 2.1 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 2.1 shall be reinstated at such time as the Company is no longer actively employing its reasonable efforts to cause such registration statement to become effective.
2.2 Inspection . The Company shall permit each Major Investor, at such Major Investors expense, and on such Major Investors written request, 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 shall not be obligated pursuant to this Section 2.2 to provide access to any information that it reasonably and in good faith considers to be confidential information (unless covered by an enforceable confidentiality agreement, in form reasonably acceptable to the Company), a trade secret or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
2.3 Confidentiality . Each Investor (which term, solely for purposes of this Section 2.3, shall include Genethon) agrees that such 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 Section 2 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 2.3 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Companys confidential information, (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, or (d) is possessed by Investor on a non-confidential basis from a source not subject to an obligation of confidentiality to the Company before receipt of such confidential information from the Company; provided , however , that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, investment advisors (and sub-advisors) and other professionals to the extent necessary to obtain their services in connection with monitoring its
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investment in the Company; (ii) to any existing Affiliate, partner, limited partner, general partner, member, stockholder or wholly owned subsidiary or prospective limited partner of such Investor in the ordinary course of business, but only if such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; (iii) as may otherwise be required by law if the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure; (iv) as required by any court or other governmental body, provided that the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure; or (v) to comply with applicable law, statutes, rules or regulations or pursuant to any direction, request or requirement (whether or not having the force of law but if not having the force of law being of a type with which institutional investors in the relevant jurisdiction are accustomed to comply) of any self-regulating organization or any governmental, fiscal, monetary or other authority if the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure. The Company further acknowledges that certain of the Investors are in the business of venture capital investing and/or are investment funds and therefore review, and/or are advised by entities that 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 shall 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. Nothing in this Agreement shall in any way restrict or impair the ability of T. Rowe Price to report the investment of the T. Rowe Price Investors in the Company in accordance with applicable laws and regulations, without any requirement of prior notice to the Company.
3. REGISTRATION RIGHTS .
3.1 Demand Registration .
3.1.1 Form S-1 Demand . If at any time after the earlier of (a) five (5) years after the date of this Agreement or (b) one hundred eighty (180) days after the effective date of the registration statement for the IPO, the Company receives a request from the Requisite Investors that the Company file a Form S-1 registration statement with respect to any Registrable Securities then outstanding (and the Registrable Securities subject to such request have an anticipated aggregate offering price, net of Selling Expenses, of at least $25,000,000), then the Company shall (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) use commercially reasonable efforts to as soon as practicable, and in any event within ninety (90) 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 after the date the Demand Notice is given, and in each case, subject to the limitations of Section 3.1.3 and Section 3.3.
3.1.2 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 any Holder of the Registrable
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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 $5,000,000, then the Company shall (a) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (b) use commercially reasonable efforts to 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 3.1.3 and Section 3.3.
3.1.3 Delay . Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 3.1 a certificate signed by the Companys chief executive officer stating that in the good faith judgment of the 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 (a) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (b) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (c) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than ninety (90) days after the request of the Initiating Holders is given; provided , however , that (i) the Company may not invoke this right more than once in any twelve (12) month period and (ii) the Company shall not register any securities for its own account or that of any other stockholder during such ninety (90) day period other than an Excluded Registration.
3.1.4 Limitations . The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 3.1.1: (a) during the period that is sixty (60) 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; (b) after the Company has effected two (2) registrations pursuant to Section 3.1.1; or (c) 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 3.1.2. The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 3.1.2: (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; (ii) if the Company has effected two (2) registrations pursuant to Section 3.1.2 within the twelve (12) month period immediately preceding the date of such request; or (iii) the registration is in any jurisdiction in which the Company would be required to qualify to do business as a foreign corporation or execute a general consent to service of process to effect such
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registration. A registration shall not be counted as effected for purposes of this Section 3.1.4 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 registration on Form S-1 or S-3, as applicable, pursuant to Section 3.6, in which case such withdrawn registration statement shall be counted as effected for purposes of this Section 3.1.4.
3.2 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 Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, 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 shall, subject to the provisions of Section 3.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 3.2 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 shall be borne by the Company in accordance with Section 3.6.
3.3 Underwriting Requirements .
3.3.1 Inclusion . If, pursuant to Section 3.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 3.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company, subject only to the reasonable approval of the holders of a majority of Registrable Securities held by the Initiating Holders. In such event, the right of any Holder to include such Holders Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 3.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section 3.3, if the managing 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 shall 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 shall 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 or held by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided , however , that the number of Registrable Securities owned or held by the Holders to be included in such underwriting shall 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 one hundred (100) shares.
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3.3.2 Underwriter Cutback . In connection with any offering involving an underwriting of shares of the Companys capital stock pursuant to Section 3.2, the Company shall 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. 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 shall be required to include in the 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 shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned or held by each selling Holder or in such other proportions as shall 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 one hundred (100) shares. Notwithstanding the foregoing, in no event shall (a) 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 (b) 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 3.3.2 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, shall be deemed to be a single selling Holder, and any pro rata reduction with respect to such selling Holder shall be based upon the aggregate number of Registrable Securities owned or held by all Persons included in such selling Holder, as defined in this sentence.
3.3.3 Registration Not Effected . For purposes of Section 3.1, a registration shall not be counted as effected if, as a result of an exercise of the underwriters cutback provisions in Section 3.3.1, 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.
3.4 Obligations of the Company . Whenever required under this Section 3 to effect the registration of any Registrable Securities, the Company shall, 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 as promptly as practicable, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such
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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 120-day period shall be extended for a period of time equal to the period 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 120-day period shall 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, the prospectus and, if required, any Free Writing 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 and any Free Writing 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 shall be reasonably requested by the selling Holders; provided that the Company shall 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 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 managing 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 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;
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(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 or Free-Writing Prospectus forming a part of such registration statement has been filed;
(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 or Free-Writing Prospectus;
(k) use its commercially reasonable efforts to obtain for the underwriters one or more cold comfort letters, dated the effective date of the related registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the Companys independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters;
(l) use its commercially reasonable efforts to obtain for the underwriters on the date such securities are delivered to the underwriters for sale pursuant to such registration a legal opinion of the Companys outside counsel with respect to the registration statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary form and covering such matters of the type customarily covered by legal opinions of such nature;
(m) to the extent the Company is a well-known seasoned issuer (as defined in SEC Rule 405 at the time any request for registration is submitted to the Company in accordance with Section 3.1, if so requested, file an Automatic Shelf Registration Statement to effect such registration; and
(n) if at any time when the Company is required to re-evaluate its well-known seasoned issuer status for purposes of an outstanding Automatic Shelf Registration Statement used to effect a request for registration in accordance with Section 3.1.2 the Company determines that it is not a well-known seasoned issuer and (i) the registration statement is required to be kept effective in accordance with this Agreement and (ii) the registration rights of the applicable Holders have not terminated, use commercially reasonable efforts to promptly amend the registration statement on a form the Company is then eligible to use or file a new registration statement on such form, and keep such registration statement effective in accordance with the requirements otherwise applicable under this Agreement.
3.5 Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 3 with respect to the Registrable Securities of any selling Holder that such Holder shall 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.
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3.6 Expenses of Registration . All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 3, 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 of one Selling Holder Counsel, not to exceed $30,000, shall be borne and paid by the Company; provided , however , that (a) the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 3.1 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 shall 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 3.1.1 or Section 3.1.2, as the case may be, and (b) 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 not 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 Section 3.1.1 or Section 3.1.2. All Selling Expenses relating to Registrable Securities registered pursuant to this Section 3 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
3.7 Delay of Registration . No Holder shall 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 3.
3.8 Indemnification . If any Registrable Securities are included in a registration statement under this Section 3:
3.8.1 Company Indemnification . 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 3.8.1 shall 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 shall not be unreasonably withheld, conditioned, or delayed nor shall 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.
3.8.2 Selling Holder Indemnification . To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company,
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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 (a) the indemnity agreement contained in this Section 3.8.2 shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld, conditioned or delayed, and (b) that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Sections 3.8.2 and 3.8.4 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.
3.8.3 Procedures . Promptly after receipt by an indemnified party under this Section 3.8 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 3.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall 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) shall 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 shall relieve such indemnifying party of any liability to the indemnified party under this Section 3.8, solely to the extent that such failure prejudices the indemnifying partys ability to defend such action.
3.8.4 Contribution . To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (a) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 3.8 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 3.8 provides for indemnification in such case, or (b) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 3.8, 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
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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 shall be determined by reference to, among other things, 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:
(i) in any such case, (A) 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 (B) 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
(ii) in no event shall a Holders liability pursuant to this Section 3.8.4, when combined with the amounts paid or payable by such Holder pursuant to Section 3.8.2, 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.
3.8.5 Underwriting Agreement Controls . Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
3.8.6 Survival . 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 3.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 3, and otherwise shall survive the termination of this Agreement.
3.9 Reports under the 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 shall:
(a) use commercially reasonable efforts to 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
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(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 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); and (ii) 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).
3.10 Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder to include such securities in any registration if such agreement (a) would allow such holder or prospective holder to include a portion of its securities in any piggyback registration if such inclusion could reduce the number of Registrable Securities that selling Holders could be entitled to include in such registration under Sections 3.2 and 3.3.2 hereof or (b) would allow such holder or prospective holder to initiate a demand for registration of any of its securities at a time earlier than the Holders of Registrable Securities can demand registration under Section 3.1 hereof. This Section 3.10 shall not apply with respect to the grant of piggyback registration rights to a holder of a Lender Warrant.
3.11 Market Stand-off Agreement . Each Holder hereby agrees that, during the Standoff Period, such Holder will not, without the prior written consent of the Company or the managing underwriter,
(a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of 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 for such offering; or
(b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise.
The foregoing provisions of this Section 3.11 shall not apply to Registrable Securities included in the registration statement for such offering, to shares acquired by an Investor or Genethon (as applicable) in an underwritten public offering or in an open market transaction following the underwritten public offering or to the transfer of any shares to any trust for the direct or indirect
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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 shall not involve a disposition for value, and shall be applicable to the Holders only if all officers, directors, and stockholders individually owning more than one percent (1%) of the Companys outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock) are similarly bound with respect to the securities of the Company they hold that are not included in such registration statement. For purposes of this Section 3.11, the term Company shall include any wholly-owned subsidiary of the Company into which the Company merges or consolidates. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section 3.11 and to impose stop transfer instructions with respect to such shares until the end of such period. The underwriters in connection with such registration are intended third-party beneficiaries of this Section 3.11 and shall have the right, power, and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 3.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.
3.12 Restrictions on Transfer .
3.12.1 Agreement Binding . The Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall 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.
3.12.2 Legends . Each certificate or instrument representing (a) the Preferred Stock, (b) the Registrable Securities, and (c) any other securities issued in respect of the securities referenced in clauses (a) and (b), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Section 3.12.3) be stamped or otherwise imprinted with a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
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THE SHARES REPRESENTED BY THIS CERTIFICATE 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 3.12.
3.12.3 Procedure . The holder of each certificate representing Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of this Section 3. 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 shall give notice to the Company of such Holders intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holders expense by either (a) a written opinion of legal counsel who shall, and whose legal opinion shall, 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; (b) 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 (c) 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 shall 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 (i) in any transaction in compliance with SEC Rule 144 or (ii) 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 3.12. Each certificate or instrument evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section 3.12.2, except that such certificate shall 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. Until the IPO, no Holder shall transfer any Restricted Securities to any person or entity that is determined to be a competitor of the Company, in the good faith judgment of the Board.
4. RIGHTS TO FUTURE STOCK ISSUANCES . Subject to the terms and conditions of this Section 4 and applicable securities laws, if the Company proposes to sell any New Securities, the Company shall offer to sell a portion of New Securities to each Major Investor as described in this Section 4. A Major Investor shall be entitled to apportion the right of first refusal hereby granted to it among itself and its Affiliates in such proportions as it deems appropriate. The right of first refusal in this Section 4 shall not be applicable with respect to any Major Investor, if at the time of such subsequent securities issuance, the Major Investor is not an accredited investor, as that term is then defined in Rule 501(a) under the Securities Act.
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4.1 Company Notice . The Company shall give notice (the Offer Notice ) to each Major Investor, stating (a) its bona fide intention to sell such New Securities, (b) the number of such New Securities to be sold and (c) the price and terms, if any, upon which it proposes to sell such New Securities.
4.2 Investor Right . By written notice (the Investor Notice ) to the Company within twenty (20) days after the Offer Notice is given, each Major Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to such Major Investors Pro Rata Amount. In addition, each Major Investor that elects to purchase or acquire all of its Pro Rata Amount (each, a Fully Exercising Investor ) may, in the Investor Notice, elect to purchase or acquire, in addition to its Pro Rata Amount, a portion of the New Securities, if any, for which other Major Investors were entitled to subscribe but that are not subscribed for by such Major Investors. The amount of such overallotment that each Fully Exercising Investor shall be entitled to purchase 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. A Major Investors election may be conditioned on the consummation of the transaction described in the Offer Notice. The closing of any sale pursuant to this Section 4.2 shall occur on the earlier of one hundred and twenty (120) days after the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Section 4.3.
4.3 Sale of Securities . If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Section 4.2, the Company may, during the ninety (90) day period following the expiration of the periods provided in Section 4.2, offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree 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 shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Section 4.
4.4 Alternate Procedure . Notwithstanding any provision hereof to the contrary, in lieu of complying with the provisions of Sections 4.1 and 4.2, the Company may elect to give notice to the Major Investors within thirty (30) days after the issuance of New Securities. Such notice shall describe the type, price, and terms of the New Securities, and the identities of the Persons to whom the New Securities were sold. Each Major Investor shall have twenty (20) days from the date notice is given to elect to purchase up to the number of New Securities that would, if purchased by such Major Investor, maintain such Major Investors Pro Rata Amount before giving effect to the issuance of such New Securities. Any Major Investors electing to purchase such New Securities shall also have rights of oversubscription to purchase New Securities that were purchasable by other Major Investors pursuant to the foregoing sentence but were not so purchased, and such rights of oversubscription shall be apportioned in a manner consistent with the apportionment among Fully Exercising Investors described in Section 4.2. The closing of such sale shall occur within sixty (60) days of the date notice is given to the Major Investors.
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5. ADDITIONAL COVENANTS .
5.1 Stock Options . All stock and stock equivalents issued to employees, directors, consultants and other service providers (other than equity securities issued and outstanding as of the date of this Agreement to Matthew Patterson, Thomas Schuetz or OrbiMed Private Investments IV, LP) will be subject to vesting as follows (unless different vesting is approved by the Board, including at least two (2) of the Preferred Directors (as defined in the Restated Certificate)): 25% to vest at the end of the first year following continued employment or service (or the date of such issuance in the case of a grant to an existing employee or service provider), with the remaining 75% to vest quarterly over the next three (3) years. If employees or other service providers are permitted to exercise unvested options, the Company shall issue restricted stock to such employees or service providers, whereby upon termination of the employment or other services of such stockholder, with or without cause, the Company or its assignee (to the extent permissible under applicable securities law qualification) shall have the right to repurchase at cost (or if less, at the fair market value) any unvested shares of such stock held by such stockholder.
6. TERMINATION .
6.1 Generally . The covenants set forth in Section 2.1, Section 2.2 and Section 4 shall terminate and be of no further force or effect upon the earliest to occur of: (a) immediately before the consummation of the IPO in connection with which all of the outstanding Preferred Stock of the Company is converted into Common Stock; (b) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act; or (c) upon a Deemed Liquidation Event or a Stock Sale.
6.2 Registration Rights . The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section 3.1 or Section 3.2 shall terminate upon the earliest to occur of: (a) when all of such Holders Registrable Securities could be sold without any restriction on volume or manner of sale in any three (3) month period under SEC Rule 144 or any successor; (b) upon a Deemed Liquidation Event or a Stock Sale; and (c) the fifth (5th) anniversary of the IPO.
7. GENERAL PROVISIONS .
7.1 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 (a) is an Affiliate, partner, member, limited partner, retired or former partner, retired or former member, or stockholder of a Holder or such Holders Affiliate; (b) 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; (c) after such transfer, holds at least two percent (2%) of the shares of Registrable Securities (or if the transferring Holder owns less than two percent (2%) of the Registrable Securities, then all Registrable Securities held by the transferring Holder); or (d) is a venture capital or other investment fund that is controlled by or under common control with one or more general partners or managing partners or managing members
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of, or shares the same management company or investment advisor (or sub-advisor) with, the Holder; provided , however , that (i) 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 (ii) 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 3.11. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (A) that is an Affiliate, limited partner, retired or former partner, member, retired or former member, or stockholder of a Holder or such Holders Affiliate; (B) who is a Holders Immediate Family Member; or (C) that is a trust for the benefit of an individual Holder or such Holders Immediate Family Member shall be aggregated together and with those of the transferring Holder. 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.
7.2 Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws.
7.3 Counterparts; Facsimil e . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
7.4 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.
7.5 Notices . All notices, requests, and other communications given, made or delivered pursuant to this Agreement shall be in writing and shall be deemed effectively given, made or delivered upon the earlier of actual receipt or: (a) personal delivery to the party to be notified; (b) when sent, if sent by facsimile during the recipients normal business hours, and if not sent during normal business hours, then on the recipients next business day; (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such address or facsimile number as subsequently modified by written notice given in accordance with this Section 7.5. If notice is given to Genethon, it shall be sent to the address set forth on Genethons signature page hereto. If notice is given to the Company, it shall be sent to 101 Montgomery Street, Suite 2650, San Francisco, CA 94104, marked Attention: Chief Executive Officer; and a copy (which shall not constitute notice) shall also be sent to Fenwick & West LLP, 555 California Street, 12th Floor, San Francisco, California 94104, Attn: Matthew Rossiter. If no facsimile number is listed on Schedule A for a party (or above in the case of the Company), notices and communications given or made by facsimile shall not be deemed effectively given to such party.
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7.6 Amendments and Waivers . This Agreement may only be amended or terminated and the observance of any term hereof may be waived (either generally or in a particular instance, and either retroactively or prospectively) only by a written instrument executed by the Company and the holders of at least 66.67% of the shares of Common Stock issued or issuable upon conversion of the then outstanding shares of the Preferred Stock held by the Investors (voting together as a single class and on an as-converted basis); provided, that (i) the Company may in its sole discretion waive compliance with Section 3.12 (and the Companys failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section 3.12 shall be deemed to be a waiver); (ii) any provision hereof may be waived by any waiving party on such partys own behalf, without the consent of any other party; (iii) any amendment, termination or waiver of Section 2.1.1, Section 2.3 or Section 3 shall require the approval of the Company and the Requisite Investors, and (iv) the Company may, without the consent or approval of any other party hereto, cause additional persons to become party to this Agreement as Investors or Lenders pursuant to Section 7.14 hereto and amend Schedule A hereto accordingly. Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereof may not be waived if such amendment, termination or waiver materially adversely affects the rights of any Investor or Genethon in a manner which is not the same as or similar in all material respects to the way in which it affects the respective rights of the other Investors or Genethon (as applicable) without the consent of such Investor or Genethon (as applicable) (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall not be deemed to apply similarly to Investors in all material respects if certain Investors, by agreement with the Company, purchase securities in such transaction). Any amendment, termination, or waiver effected in accordance with this Section 7.6 shall be binding on each party hereto and all of such partys successors and permitted assigns, regardless of whether or not any such party, successor or assignee entered into or approved such amendment, termination, or waiver. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
7.7 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 shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
7.8 Aggregation of Stock . All shares of Registrable Securities held or acquired by Affiliates shall 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.
7.9 Entire Agreement . This Agreement (including any Schedules and Exhibits 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 is expressly canceled and replaced with this Agreement.
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7.10 Third Parties . Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement.
7.11 Delays or Omissions . No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
7.12 Dispute Resolution . The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the federal or state courts located in the Northern District of California (or the State of Delaware with respect to Genethon) 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 federal or state courts located in the Northern District of California (or the State of Delaware with respect to Genethon), 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 a party is not subject to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution based upon judgment or order of such court(s), that any suit, action or proceeding arising out of or based upon this Agreement commenced in the federal or state courts located in the Northern District of California (or the State of Delaware with respect to Genethon) is brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Should any party commence a suit, action or other proceeding arising out of or based upon this Agreement in a forum other than the federal or state courts located in the Northern District of California (or the State of Delaware with respect to Genethon), or should any party otherwise seek to transfer or dismiss such suit, action or proceeding from such court(s), that party shall indemnify and reimburse the other party for all legal costs and expenses incurred in enforcing this provision.
7.13 Attorneys Fees . If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys fees.
7.14 Additional Investors and Lenders .
7.14.1 Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Companys Series C Preferred Stock after the date hereof, any purchaser of such shares of Series C Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an Investor for all purposes hereunder.
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7.14.2 Notwithstanding anything to the contrary contained herein, if the Company issues any Lender Warrant, any recipient of a Lender Warrant may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed a Lender for all purposes hereunder.
7.14.3 Notwithstanding anything to the contrary contained herein, each Cardiogen Holder may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and thereafter shall be deemed an Investor for all purposes hereunder.
7.14.4 No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor or Lender, so long as such additional Investor or Lender has agreed in writing to be bound by all of the obligations as an Investor or a Lender hereunder, as applicable.
7.15 Prior Rights Agreement . The Prior Rights Agreement is hereby amended and restated to read as set forth in this Agreement and the Prior Rights Agreement is hereby terminated, waived, released, replaced and superseded in its entirety by this Agreement and shall have no further force or effect.
[S IGNATURE P AGES F OLLOW ]
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Execution Version
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
COMPANY : | ||
AUDENTES THERAPEUTICS, INC. | ||
By: |
/s/ Matthew Patterson |
|
Name: |
Matthew Patterson |
|
Title: |
President and Chief Executive Officer |
[SIGNATURE PAGE TO AUDENTES THERAPEUTICS, INC. AMENDED AND
RESTATED INVESTORS RIGHTS AGREEMENT]
Execution Version
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
ORBIMED PRIVATE INVESTMENTS IV, LP | ||
By: |
/s/ Jonathan Silverstein |
|
Name: |
Jonathan Silverstein |
|
Title: |
Member |
[SIGNATURE PAGE TO AUDENTES THERAPEUTICS, INC. AMENDED AND
RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
5AM VENTURES III, L.P. | ||
By: 5AM Partners III, LLC, its General Partner | ||
By: |
/s/ Scott Rocklage |
|
Name: | Scott M. Rocklage | |
Title: | Managing Member |
Address: | ||
5AM CO-INVESTORS III, L.P. | ||
By: 5AM Partners III, LLC, its General Partner | ||
By: |
/s/ Scott Rocklage |
|
Name: | Scott M. Rocklage | |
Title: | Managing Member |
Address: | ||
[SIGNATURE PAGE TO AUDENTES THERAPEUTICS, INC. AMENDED AND
RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
VERSANT VENTURE CAPITAL IV, L.P. | ||
VERSANT SIDE FUND IV, L.P. | ||
By: | Versant Ventures IV, LLC | |
Its: | General Partner | |
By: |
/s/ Tom Woiwode |
|
Name: |
Tom Woiwode |
|
Title: |
Managing Director |
[SIGNATURE PAGE TO AUDENTES THERAPEUTICS, INC. AMENDED AND
RESTATED INVESTORS RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
VENROCK HEALTHCARE CAPITAL PARTNERS II, L.P. | ||
By: | VHCP Management II, LLC | |
Its: | General Partner | |
By: |
/s/ David L. Stepp |
|
Name: |
David L. Stepp |
|
Title: |
Authorized Signatory |
|
VHCP CO-INVESTMENT HOLDINGS II, LLC | ||
By: | VHCP Management II, LLC | |
Its: | Manager | |
By: |
/s/ David L. Stepp |
|
Name: |
David L. Stepp |
|
Title: |
Authorized Signatory |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
SOFINNOVA VENTURE PARTNERS IX, L.P. | ||
By: | Sofinnova Management IX, L.L.C. | |
Its: | General Partner | |
By: |
/s/ James Healy |
|
Name: |
James Healy |
|
Title: |
Managing Member |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
CORMORANT GLOBAL HEALTHCARE MASTER FUND, LP | ||
By: |
/s/ Bihua Chen |
|
Name: | Bihua Chen | |
Its: | Managing Member of the General Partner |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
COWEN PRIVATE INVESTMENTS LP | ||
By: | Cowen Private Investments GP LLC | |
Its: | General Partner | |
By: |
/s/ Owen Littman |
|
Name: |
Owen Littman |
|
Its: |
Authorized Signatory |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
FORESITE CAPITAL FUND III, L.P. | ||
By: | Foresite Capital Management III, LLC | |
Its: | General Partner | |
By: |
/s/ Dennis D. Ryan |
|
Name: | Dennis D. Ryan | |
Its: | Chief Financial Officer |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
RA CAPITAL HEALTHCARE FUND, L.P. | ||
By: | RA Capital Management, LLC | |
Its: | General Partner | |
By: |
/s/ Peter Kolchinsky |
|
Name: |
Peter Kolchinsky |
|
Its: |
Authorized Signatory |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
ROCK SPRINGS CAPITAL MASTER FUND LP | ||
By: | Rock Springs GP LLC | |
Its: | General Partner | |
By: |
/s/ Graham McPhail |
|
Name: | Graham McPhail | |
Its: | Managing Director |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||||||
DEERFIELD SPECIAL SITUATIONS FUND, L.P. | ||||||
By: | Deerfield Mgmt, L.P. | |||||
General Partner | ||||||
By: | J.E. Flynn Capital, LLC | |||||
General Partner | ||||||
By: |
/s/ David J. Clark |
|||||
Name: | David J. Clark | |||||
Title: | Authorized Signatory | |||||
DEERFIELD PRIVATE DESIGN FUND III, L.P. | ||||||
By: | Deerfield Mgmt III, L.P. | |||||
General Partner | ||||||
By: | J.E. Flynn Capital III, LLC | |||||
General Partner | ||||||
By: |
/s/ David J. Clark |
|||||
Name: | David J. Clark | |||||
Title: | Authorized Signatory |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
T. ROWE PRICE HEALTH SCIENCES FUND, INC. | ||
TD MUTUAL FUNDS TD HEALTH SCIENCES FUND | ||
VALIC COMPANY I HEALTH SCIENCES FUND | ||
T. ROWE PRICE HEALTH SCIENCES PORTFOLIO | ||
JOHN HANCOCK VARIABLE INSURANCE TRUST HEALTH SCIENCES TRUST | ||
JOHN HANCOCK FUNDS II HEALTH SCIENCES FUND |
Each fund, severally and not jointly | ||
By: | T. Rowe Price Associates, Inc., Investment Adviser or Subadviser, as applicable | |
By: |
/s/ Ziad Bakri |
|
Name: |
/s/ Ziad Bakri |
|
Title: |
Vice President |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
REDMILE CAPITAL FUND, LP | ||
By: |
/s/ Jeremy Green |
|
Name: |
Jeremy Green |
|
Its: |
Managing Member of the General Partner and the Investment Manager |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
REDMILE CAPITAL OFFSHORE FUND, LTD. | ||
By: |
/s/ Jeremy Green |
|
Name: |
Jeremy Green |
|
Its: |
Managing Member of the Investment Manager |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
REDMILE CAPITAL OFFSHORE FUND II, LTD. | ||
By: |
/s/ Jeremy Green |
|
Name: |
Jeremy Green |
|
Its: |
Managing Member of the Investment Manager |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
REDMILE SPECIAL OPPORTUNITIES FUND, LTD. | ||
By: |
/s/ Jeremy Green |
|
Name: |
Jeremy Green |
|
Its: |
Managing Member of the Investment Manager |
[S IGNATURE P AGE TO A UDENTES T HERAPEUTICS , I NC . A MENDED A ND
R ESTATED I NVESTORS R IGHTS A GREEMENT ]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Investors Rights Agreement as of the date first written above.
INVESTORS : | ||
REDMILE BIOTECHNOLOGIES INVESTMENTS I AF, LP | ||
By: |
/s/ Jeremy Green |
|
Name: |
Jeremy Green |
|
Its: |
Managing Member of the Investment Mngr./Mngt. Company (the Managing Member of the GP) |
SCHEDULE A
List of Investors
Name and Address of Investor |
Orbimed Private Investments IV, LP |
5AM Ventures III, L.P. |
5AM Co-Investors III, L.P. |
Versant Venture Capital IV, L.P. |
Versant Side Fund IV, L.P. |
Deerfield Special Situations Fund, L.P. |
Deerfield Private Design Fund III, L.P. |
Venrock Healthcare Capital Partners II, L.P. |
Genethon |
VHCP Co-Investment Holdings II, LLC |
Sofinnova Venture Partners IX, L.P. |
Redmile Capital Fund, LP |
Redmile Capital Offshore Fund, Ltd. |
Redmile Capital Offshore Fund II, Ltd. |
Name and Address of Investor |
Redmile Special Opportunities Fund, Ltd. |
Redmile Biotechnologies Investments I AF, LP |
Cowen Private Investments LP |
Foresite Capital Fund III, L.P. |
Rock Springs Capital Master Fund LP |
RA Capital Healthcare Fund, L.P. |
Blackwell Partners LLC Series A |
Cormorant Global Healthcare Master Fund, LP |
T. Rowe Price Health Sciences Fund, Inc. |
TD Mutual Funds TD Health Sciences Fund |
VALIC Company I Health Sciences Fund |
T. Rowe Price Health Sciences Portfolio |
John Hancock Variable Insurance Trust Health Sciences Trust |
Name and Address of Investor |
John Hancock Funds II Health Sciences Fund |
Lange Minors Trust |
Peter M. Joost & Lindsay M. Joost, Trustees U/T/A dated April 11, 2002 |
Oliver Reynolds Joost 1992 Trust |
Caroline Lapham Joost 1994 Trust |
Annabel Ward Joost 1997 Trust |
J. Leighton Read |
Adjuvant Partners, LLC |
Louis G. Lange |
Camp Lowell, LLC |
Asset Management Ventures Fund, L.P. |
The Diamond Revocable Trust |
Amygdala Lange Trust |
Alberto Auricchio |
Exhibit 10.2
AUDENTES THERAPEUTICS, INC.
2012 EQUITY INCENTIVE PLAN
As Adopted on December 21, 2012
1. PURPOSE . The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries by offering eligible persons an opportunity to participate in the Companys future performance through the grant of Awards covering Shares. Capitalized terms not defined in the text are defined in Section 14 hereof. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan that is required in law only because of Section 25102(o) need not apply if the Committee so provides.
2. SHARES SUBJECT TO THE PLAN .
2.1 Number of Shares Available . Subject to Sections 2.2 and 11 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 400,000 Shares. Subject to Sections 2.2 and 11 hereof, Shares subject to Awards that are cancelled, forfeited, settled in cash, used to pay withholding obligations or pay the exercise price of an Option or that expire by their terms at any time will again be available for grant and issuance in connection with other Awards. In the event that Shares previously issued under the Plan are reacquired by the Company pursuant to a forfeiture provision, right of first refusal, or repurchase by the Company, such Shares shall be added to the number of Shares then available for issuance under the Plan. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted and outstanding under this Plan. In no event shall the total number of Shares issued (counting each reissuance of a Share that was previously issued and then forfeited or repurchased by the Company as a separate issuance) under the Plan upon exercise of ISOs exceed 4,000,000 Shares (adjusted in proportion to any adjustments under Section 2.2 hereof) over the term of the Plan (the ISO Limit ). Subject to Sections 2.2 and 11 hereof, in the event that the number of Shares reserved for issuance under the Plan is increased, the ISO Limit shall be automatically increased by such number of Shares such that the ISO Limit equals (a) ten (10) multiplied by (b) the number of Shares reserved for issuance under the Plan.
2.2 Adjustment of Shares . In the event that the number of outstanding shares of the Companys Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or other change in the capital structure of the Company affecting Shares without consideration, then in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options and SARs, and (c) the Purchase Prices of and/or number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided , however , that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee.
3. PLAN FOR BENEFIT OF SERVICE PROVIDERS .
3.1 Eligibility . The Committee will have the authority to select persons to receive Awards. ISOs (as defined in Section 4 hereof) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 4 hereof) and all other types of Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction when Rule 701 is to apply to the Award granted for such services. A person may be granted more than one Award under this Plan.
3.2 No Obligation to Employ . Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary or limit in any way the right of the Company or any Parent or Subsidiary to terminate Participants employment or other relationship at any time, with or without Cause.
4. OPTIONS . The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ( ISOs ) or Nonqualified Stock Options ( NQSOs ), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following.
4.1 Form of Option Grant . Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ( Stock Option Agreement ), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.
4.2 Date of Grant . The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.
4.3 Exercise Period . Options may be exercisable within the time or upon the events determined by the Committee in the Award Agreement and may be awarded as immediately exercisable but subject to repurchase pursuant to Section 10 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided , however , that (a) no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and (b) no
ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary ( Ten Percent Stockholder ) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.
4.4 Exercise Price . The Exercise Price of an Option will be determined by the Committee when the Option is granted and shall not be less than the Fair Market Value per Share unless expressly determined in writing by the Committee on the Options date of grant; provided that the Exercise Price of an ISO granted to a Ten Percent Stockholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 8 hereof.
4.5 Method of Exercise . Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the Exercise Agreement ) in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (a) the number of Shares being purchased, (b) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and (c) such representations and agreements regarding Participants investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Each Participants Exercise Agreement may be modified by (i) agreement of Participant and the Company or (ii) substitution by the Company, upon becoming a public company, in order to add the payment terms set forth in Section 8.1 that apply to a public company and such other terms as shall be necessary or advisable in order to exercise a public company option. Upon exercise of an Option, Participant shall execute and deliver to the Company the Exercise Agreement then in effect, together with payment in full of the Exercise Price for the number of Shares being purchased and payment of any applicable taxes. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.2 of the Plan. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
4.6 Termination . Subject to earlier termination pursuant to Sections 11 and 13.1 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following terms and conditions.
4.6.1 Other than Death or Disability or for Cause . If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participants Options only to the extent that such Options are exercisable as to Vested Shares upon the Termination Date or as otherwise determined by the Committee. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO) but in any event, no later than the expiration date of the Options.
4.6.2 Death or Disability . If the Participant is Terminated because of Participants death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participants Options may be exercised only to the extent that such Options are exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such options must be exercised by Participant (or Participants legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, after the Termination Date as may be determined by the Committee, with any exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participants death or disability, within the meaning of Section 22(e)(3) of the Code, or (b) twelve (12) months after the Termination Date when the Termination is for Participants disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no later than the expiration date of the Options.
4.6.3 For Cause . If the Participant is terminated for Cause, the Participant may exercise such Participants Options, but not to an extent greater than such Options are exercisable as to Vested Shares upon the Termination Date and Participants Options shall expire on such Participants Termination Date, or at such later time and on such conditions as are determined by the Committee.
4.7 Limitations on Exercise . The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable.
4.8 Limitations on ISOs . The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 13.1 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.
4.9 Modification, Extension or Renewal . The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participants rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 4.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided , however , that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 4.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price.
4.10 No Disqualification . Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participants ISO under Section 422 of the Code.
5. RESTRICTED STOCK . A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following terms and conditions.
5.1 Form of Restricted Stock Award . All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ( Restricted Stock Purchase Agreement ) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The Restricted Stock Award will be accepted by the Participants execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.
5.2 Purchase Price . The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price must be made in accordance with Section 8 hereof.
5.3 Dividends and Other Distributions . Participants holding Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Committee provides otherwise at the time of award. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
5.4 Restrictions . Restricted Stock Awards may be subject to the restrictions set forth in Sections 9 and 10 hereof or, with respect to a Restricted Stock Award to which Section 25102(o) is to apply, such other restrictions not inconsistent with Section 25102(o).
6. RESTRICTED STOCK UNITS .
6.1 Awards of Restricted Stock Units . A Restricted Stock Unit ( RSU ) is an Award covering a number of Shares that may be settled in cash, or by issuance of those Shares at a date in the future. No Purchase Price shall apply to an RSU settled in Shares. All grants of Restricted Stock Units will be evidenced by an Award Agreement that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan.
6.2 Form and Timing of Settlement . To the extent permissible under applicable law, the Committee may permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned, provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code (or any successor) and any regulations or rulings promulgated thereunder. Payment may be made in the form of cash or whole Shares or a combination thereof, all as the Committee determines.
7. STOCK APPRECIATION RIGHTS .
7.1 Awards of SARs . Stock Appreciation Rights ( SARs ) may be settled in cash, or Shares (which may consist of Restricted Stock or RSUs), having a value equal to the value determined by multiplying the difference between the Fair Market Value on the date of exercise over the Exercise Price and the number of Shares with respect to which the SAR is being settled. All grants of SARs made pursuant to this Plan will be evidenced by an Award Agreement that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan.
7.2 Exercise Period and Expiration Date . A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such SAR. The Award Agreement shall set forth the Expiration Date; provided that no SAR will be exercisable after the expiration of ten years from the date the SAR is granted.
7.3 Exercise Price . The Committee will determine the Exercise Price of the SAR when the SAR is granted, and which may not be less than the Fair Market Value on the date of grant and may be settled in cash or in Shares.
7.4 Termination . Subject to earlier termination pursuant to Sections 11 and 13.1 hereof and notwithstanding the exercise periods set forth in the Award Agreement, exercise of SARs will always be subject to the following terms and conditions.
7.4.1 Other than Death or Disability or for Cause . If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participants SARs only to the extent that such SARs are exercisable as to vested
Shares upon the Termination Date or as otherwise determined by the Committee. SARs must be exercised by the Participant, if at all, as to all or some of the vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period after the Termination Date as may be determined by the Committee) but in any event, no later than the expiration date of the SARs.
7.4.2 Death or Disability . If the Participant is Terminated because of Participants death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participants SARs may be exercised only to the extent that such SARs are exercisable as to vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such SARs must be exercised by Participant (or Participants legal representative or authorized assignee), if at all, as to all or some of the vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period after the Termination Date as may be determined by the Committee) but in any event no later than the expiration date of the SARs.
7.4.3 For Cause . If the Participant is terminated for Cause, the Participant may exercise such Participants SARs, but not to an extent greater than such SARs are exercisable as to vested Shares upon the Termination Date and Participants SARs shall expire on such Participants Termination Date, or at such later time and on such conditions as are determined by the Committee.
8. PAYMENT FOR PURCHASES AND EXERCISES .
8.1 Payment in General . Payment for Shares acquired pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company owed to the Participant;
(b) by surrender of shares of the Company that are clear of all liens, claims, encumbrances or security interests and: (i) for which the Company has received full payment of the purchase price within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided , however , that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided , further , that the portion of the Exercise Price or Purchase Price, as the case may be, equal to the par value (if any) of the Shares must be paid in cash or other legal consideration permitted by the laws under which the Company is then incorporated or organized;
(d) by waiver of compensation due or accrued to the Participant from the Company for services rendered;
(e) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(f) subject to compliance with applicable law and solely in the discretion of the Committee, provided that a public market for the Companys Common Stock exists, by exercising through a same day sale commitment from the Participant and a broker-dealer whereby the Participant irrevocably elects to exercise the Award and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price or Purchase Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price or Purchase Price directly to the Company; or
(g) by any combination of the foregoing or any other method of payment approved by the Committee.
8.2 Withholding Taxes .
8.2.1 Withholding Generally . Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy applicable tax withholding requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy applicable tax withholding requirements.
8.2.2 Stock Withholding . When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum tax withholding obligation by electing to have the Company withhold from the Shares to be issued up to the minimum number of Shares having a Fair Market Value on the date that the amount of tax to be withheld is to be determined that is not more than the minimum amount to be withheld; or to arrange a mandatory sell to cover on Participants behalf (without further authorization) but in no event will the Company withhold Shares or sell to cover if such withholding would result in adverse accounting consequences to the Company. Any elections to have Shares withheld or sold for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.
9. RESTRICTIONS ON AWARDS .
9.1 Transferability . Except as permitted by the Committee, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to an inter vivos or testamentary trust in which the NQSOs are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to family member as that term is defined in Rule 701, and may not be made subject to execution, attachment or similar process.
For the avoidance of doubt, the prohibition against assignment and transfer applies to a stock option and, prior to exercise, the shares to be issued on exercise of a stock option, and pursuant to the foregoing sentence shall be understood to include, without limitation, a prohibition against any pledge, hypothecation, or other transfer, including any short position, any put equivalent position or any call equivalent position (in each case, as defined in Rule 16a-1 promulgated under the Exchange Act). During the lifetime of the Participant an Award will be exercisable only by the Participant or Participants legal representative and any elections with respect to an Award may be made only by the Participant or Participants legal representative. The terms of an Option shall be binding upon the executor, administrator, successors and assigns of the Participant who is a party thereto.
9.2 Securities Law and Other Regulatory Compliance . Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan which is required in law only because of Section 25102(o) need not apply with respect to a particular Award to which Section 25102(o) will not apply. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure so do.
9.3 Exchange and Buyout of Awards . The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. Without prior stockholder approval the Committee may reprice Options or SARs (and where such repricing is a reduction in the Exercise Price of outstanding Options or SARs, the consent of the affected Participants is not required provided written notice is provided to them). The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree.
10. RESTRICTIONS ON SHARES .
10.1 Privileges of Stock Ownership . No Participant will have any of the rights of a stockholder with respect to any Shares until such Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all
dividends or other distributions made or paid with respect to such Shares; provided , that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased as described in this Section 10.
10.2 Rights of First Refusal and Repurchase . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, provided that such right of first refusal terminates upon the Companys initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act and (b) a right to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participants Termination at any time.
10.3 Escrow; Pledge of Shares . To enforce any restrictions on a Participants Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificate. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participants obligation to the Company under the promissory note; provided , however , that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participants Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.
10.4 Securities Law Restrictions . All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.
11. CORPORATE TRANSACTIONS .
11.1 Acquisitions or Other Combinations . In the event that the Company is subject to an Acquisition or Other Combination, outstanding Awards acquired under the Plan shall be subject to the agreement evidencing the Acquisition or Other Combination, which need
not treat all outstanding Awards in an identical manner. Such agreement, without the Participants consent, shall provide for one or more of the following with respect to all outstanding Awards as of the effective date of such Acquisition or Other Combination:
(a) The continuation of such outstanding Awards by the Company (if the Company is the successor entity).
(b) The assumption of outstanding Awards by the successor or acquiring entity (if any) in such Acquisition or Other Combination (or by any of its Parents, if any), which assumption, will be binding on all Participants; provided that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) and Section 409A of the Code. For the purposes of this Section 10, an Award will be considered assumed if, following the Acquisition or Other Combination, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Acquisition or Other Combination, the consideration (whether stock, cash, or other securities or property) received in the Acquisition or Other Combination by holders of Shares for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Acquisition or Other Combination is not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Acquisition or Other Combination.
(c) The substitution by the successor or acquiring entity in such Acquisition or Other Combination (or by any of its Parents, if any) of equivalent awards with substantially the same terms for such outstanding Awards (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code).
(d) The full or partial exercisability or vesting and accelerated expiration of outstanding Awards.
(e) The settlement of the full value of such outstanding Award (whether or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity (or its Parent, if any) with a Fair Market Value equal to the required amount, followed by the cancellation of such Awards; provided however, that such Award may be cancelled without consideration if such Award has no value, as determined by the Committee, in its discretion. Subject to Section 409A of the Code, such payment may be made in installments and may be deferred until the date or dates when the Award would have become exercisable or vested. Such payment may be subject to vesting based on the Participants continued service, provided that without the Participants consent, the vesting schedule shall
not be less favorable to the Participant than the schedule under which the Award would have become vested or exercisable. For purposes of this Section 11.1(e), the Fair Market value of any security shall be determined without regard to any vesting conditions that may apply to such security.
(f) The cancellation of outstanding Awards in exchange for no consideration.
Immediately following an Acquisition or Other Combination, outstanding Awards shall terminate and cease to be outstanding, except to the extent such Awards, have been continued, assumed or substituted, as described in Sections 11.1(a), (b) and/or (c).
11.2 Assumption of Awards by the Company . The Company, from time to time, also may substitute or assume outstanding awards granted by another entity, whether in connection with an acquisition of such other entity or otherwise, by either (a) granting an Award under this Plan in substitution of such other entitys award or (b) assuming and/or converting such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other entity had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another entity, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option or SAR rather than assuming an existing option or stock appreciation right, such new Option or SAR may be granted with a similarly adjusted Exercise Price.
12. ADMINISTRATION .
12.1 Committee Authority . This Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;
(b) prescribe, amend, expand, modify and rescind or terminate rules and regulations relating to this Plan;
(c) approve persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to Awards granted under this Plan;
(f) determine the Fair Market Value in good faith and interpret the applicable provisions of this Plan and the definition of Fair Market Value in connection with circumstances that impact the Fair Market Value, if necessary;
(g) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;
(h) grant waivers of any conditions of this Plan or any Award;
(i) determine the terms of vesting, exercisability and payment of Awards to be granted pursuant to this Plan;
(j) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement;
(k) determine whether an Award has been earned;
(l) extend the vesting period beyond a Participants Termination Date;
(m) adopt rules and/or procedures (including the adoption of any subplan under this Plan) relating to the operation and administration of the Plan to accommodate requirements of local law and procedures outside of the United States;
(n) delegate any of the foregoing to a subcommittee consisting of one or more executive officers pursuant to a specific delegation as may otherwise be permitted by applicable law; and
(o) make all other determinations necessary or advisable in connection with the administration of this Plan.
12.2 Committee Composition and Discretion . The Board may delegate full administrative authority over the Plan and Awards to a Committee consisting of at least one member of the Board (or such greater number as may then be required by applicable law). Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (a) at the time of grant of the Award, or (b) subject to Section 4.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. To the extent permitted by applicable law, the Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan, provided that each such officer is a member of the Board.
12.3 Nonexclusivity of the Plan . Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to
adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
12.4 Governing Law . This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws.
13. EFFECTIVENESS, AMENDMENT AND TERMINATION OF THE PLAN .
13.1 Adoption and Stockholder Approval . This Plan will become effective on the date that it is adopted by the Board (the Effective Date ). This Plan will be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided , however , that: (a) no Option or SAR may be exercised prior to initial stockholder approval of this Plan; (b) no Option or SAR granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards for which only the exemption from Californias securities qualification requirements provided by Section 25102(o) can apply shall be canceled, any Shares issued pursuant to any such Award shall be canceled and any purchase of such Shares issued hereunder shall be rescinded; and (d) Awards (to which only the exemption from Californias securities qualification requirements provided by Section 25102(o) can apply) granted pursuant to an increase in the number of Shares approved by the Board which increase is not approved by stockholders within the time then required under Section 25102(o) shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall be rescinded.
13.2 Term of Plan . Unless earlier terminated as provided herein, this Plan will automatically terminate ten (10) years after the later of (i) the Effective Date, or (ii) the most recent increase in the number of Shares reserved under Section 2 that was approved by stockholders.
13.3 Amendment or Termination of Plan . Subject to Section 4.9 hereof, the Board may at any time (a) terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan and (b) terminate any and all outstanding Options or SARs upon a dissolution or liquidation of the Company, followed by the payment of creditors and the distribution of any remaining funds to the Companys stockholders; provided , however , that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval pursuant to Section 25102(o) or pursuant to the Code or the regulations promulgated under the Code as such provisions apply to ISO plans. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Award previously granted under the Plan.
14. DEFINITIONS . For all purposes of this Plan, the following terms will have the following meanings.
Acquisition , for purposes of Section 11, means:
(a) any consolidation or merger in which the Company is a constituent entity or is a party in which the voting stock and other voting securities of the Company that are outstanding immediately prior to the consummation of such consolidation or merger represent, or are converted into, securities of the surviving entity of such consolidation or merger (or of any Parent of such surviving entity) that, immediately after the consummation of such consolidation or merger, together possess less than fifty percent (50%) of the total voting power of all voting securities of such surviving entity (or of any of its Parents, if any) that are outstanding immediately after the consummation of such consolidation or merger;
(b) a sale or other transfer by the holders thereof of outstanding voting stock and/or other voting securities of the Company possessing more than fifty percent (50%) of the total voting power of all outstanding voting securities of the Company, whether in one transaction or in a series of related transactions, pursuant to an agreement or agreements to which the Company is a party and that has been approved by the Board, and pursuant to which such outstanding voting securities are sold or transferred to a single person or entity, to one or more persons or entities who are Affiliates of each other, or to one or more persons or entities acting in concert; or
(c) the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Company and/or any Subsidiary or Subsidiaries of the Company, of all or substantially all the assets of the Company and its Subsidiaries taken as a whole, (or, if substantially all of the assets of the Company and its Subsidiaries taken as a whole are held by one or more Subsidiaries, the sale or disposition (whether by consolidation, merger, conversion or otherwise) of such Subsidiaries of the Company), except where such sale, lease, transfer or other disposition is made to the Company or one or more wholly owned Subsidiaries of the Company (an Acquisition by Sale of Assets ).
Affiliate of a specified person means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified (where, for purposes of this definition, the term control (including the terms controlling , controlled by and under common control with ) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
Award means any award pursuant to the terms and conditions of this Plan, including any Option, Restricted Stock Unit, Stock Appreciation Right or Restricted Stock Award.
Award Agreement means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award as approved by the Committee.
Board means the Board of Directors of the Company.
Cause means Termination because of (a) Participants unauthorized misuse of the Company or a Parent or Subsidiary of the Companys trade secrets or proprietary information, (b) Participants conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude, (c) Participants committing an act of fraud against the Company or a Parent or Subsidiary of the Company or (d) Participants gross negligence or willful misconduct in the performance of his or her duties that has had or will have a material adverse effect on the Company or Parent or Subsidiary of the Company reputation or business.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board.
Company means Audentes Therapeutics, Inc., or any successor corporation.
Disability means a disability, whether temporary or permanent, partial or total, as determined by the Committee.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Exercise Price means the price per Share at which a holder of an Option may purchase Shares issuable upon exercise of the Option.
Fair Market Value means, as of any date, the value of a share of the Companys Common Stock determined as follows:
(a) if such Common Stock is then publicly traded on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal ;
(b) if such Common Stock is publicly traded but is not listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the Committee may determine); or
(c) if none of the foregoing is applicable to the valuation in question, by the Committee in good faith.
Option means an award of an option to purchase Shares pursuant to Section 4 of this Plan.
Other Combination for purposes of Section 11 means any (a) consolidation or merger in which the Company is a constituent entity and is not the surviving entity of such consolidation or merger or (b) any conversion of the Company into another form of entity; provided that such consolidation, merger or conversion does not constitute an Acquisition.
Parent of a specified entity means, any entity that, either directly or indirectly, owns or controls such specified entity, where for this purpose, control means the ownership of stock, securities or other interests that possess at least a majority of the voting power of such specified entity (including indirect ownership or control of such stock, securities or other interests).
Participant means a person who receives an Award under this Plan.
Plan means this 2012 Equity Incentive Plan, as amended from time to time.
Purchase Price means the price at which a Participant may purchase Restricted Stock pursuant to this Plan.
Restricted Stock means Shares purchased pursuant to a Restricted Stock Award under this Plan.
Restricted Stock Award means an award of Shares pursuant to Section 5 hereof.
Restricted Stock Unit or RSU means an award made pursuant to Section 6 hereof.
Rule 701 means Rule 701 et seq. promulgated by the Commission under the Securities Act.
SEC means the Securities and Exchange Commission.
Section 25102(o) means Section 25102(o) of the California Corporations Code.
Securities Act means the Securities Act of 1933, as amended.
Shares means shares of the Companys Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2.2 and 11 hereof, and any successor security.
Stock Appreciation Right or SAR means an award granted pursuant to Section 7 hereof.
Subsidiary means any entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns stock or other equity securities representing fifty percent (50%) or more of the total combined voting power of all classes of stock or other equity securities in one of the other entities in such chain.
Termination or Terminated means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services in the case of sick leave,
military leave, or any other leave of absence approved by the Committee; provided that such leave is for a period of not more than ninety (90) days (a) unless reinstatement (or, in the case of an employee with an ISO, reemployment) upon the expiration of such leave is guaranteed by contract or statute, or (b) unless provided otherwise pursuant to formal policy adopted from time to time by the Companys Board and issued and promulgated in writing. In the case of any Participant on sick leave, military leave or an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the Termination Date ).
Unvested Shares means Unvested Shares as defined in the Award Agreement for an Award.
Vested Shares means Vested Shares as defined in the Award Agreement.
* * * * * * * * * * *
NOTICE OF STOCK OPTION GRANT
A UDENTES T HERAPEUTICS , I NC .
2012 E QUITY I NCENTIVE P LAN
The Optionee named below ( Optionee ) has been granted an option (this Option ) to purchase shares of Common Stock, $0.00001 par value per share (the Common Stock ), of Audentes Therapeutics, Inc., a Delaware corporation (the Company ), pursuant to the Companys 2012 Equity Incentive Plan, as amended from time to time (the Plan ) on the terms, and subject to the conditions, described below and in the Stock Option Agreement attached hereto as Exhibit A , including its annexes (the Stock Option Agreement ).
Optionee: |
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Maximum Number of Shares Subject to this Option (the Shares ): |
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Exercise Price Per Share: |
$ per share |
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Date of Grant: |
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Vesting Start Date: |
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Exercise Schedule: |
This Option will become exercisable during its term with respect to portions of the Shares in accordance with the Vesting Schedule set forth below. |
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Expiration Date: | The date ten (10) years after the Date of Grant set forth above, subject to earlier expiration in the event of Termination as provided in Section 3 of the Stock Option Agreement. | |||
Tax Status of Option: (Check Only One Box): |
¨ Incentive Stock Option ( To the fullest extent permitted by the Code ) ¨ Nonqualified Stock Option. ( If neither box is checked, this Option is a Nonqualified Stock Option ). |
Vesting Schedule: For so long as Optionee continuously provides services to the Company (or any Subsidiary or Parent of the Company) as an employee, officer, director, contractor or consultant, this Option will vest (that is, become exercisable) with respect to the Shares as follows: (a) prior to the first one (1) year anniversary of the Vesting Start Date this Option will not be vested or exercisable as to any of the Shares; (b) this Option will become vested and exercisable with respect to 1/4 th of the Shares on the one (1) year anniversary of the Vesting Start Date; and (c) thereafter, this Option will become vested and exercisable with respect to an additional 1/16 th of the Shares at the end of each quarter after the one (1) year anniversary of the Vesting Start Date.
General; Agreement: By their signatures below, Optionee and the Company agree that this Option is granted under and governed by this Notice of Stock Option Grant (this Grant Notice ) and by the provisions of the Plan and the Stock Option Agreement. The Plan and the Stock Option Agreement are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings given to them in the Plan or in the Stock Option Agreement, as applicable. By signing below, Optionee acknowledges receipt of a copy of this Grant Notice, the Plan and the Stock Option Agreement, represents that Optionee has carefully read and is familiar with their provisions, and hereby accepts the Option subject to all of their respective terms and conditions. Optionee acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Optionee should consult a tax adviser prior to such exercise or disposition.
Execution and Delivery: This Grant Notice may be executed and delivered electronically whether via the Companys intranet or the Internet site of a third party or via email or any other means of electronic delivery specified by the Company. By Optionees acceptance hereof (whether written, electronic or otherwise), Optionee agrees, to the fullest extent permitted by law, that in lieu of receiving documents in paper format, Optionee accepts the electronic delivery of any documents that the Company (or any third party the Company may designate), may deliver in connection with this grant (including the Plan, this Grant Notice, the Stock Option Agreement, the information described in Rules 701(e)(2), (3), (4) and (5) under the Securities Act (the 701 Disclosures ), account statements, or other communications or information) whether via the Companys intranet or the Internet site of such third party or via email or such other means of electronic delivery specified by the Company.
Audentes Therapeutics, Inc.
By /Signature: |
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Optionee Signature: |
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Typed Name: |
Matthew Patterson |
Optionees Name: |
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Title: |
Chief Executive Officer |
A TTACHMENT : Exhibit A Stock Option Agreement
Exhibit A
Stock Option Agreement
EXHIBIT A
STOCK OPTION AGREEMENT
A UDENTES T HERAPEUTICS , I NC .
2012 E QUITY I NCENTIVE P LAN
This Stock Option Agreement (this Agreement ) is made and entered into as of the date of grant (the Date of Grant ) set forth on the Notice of Stock Option Grant attached as the facing page to this Agreement (the Grant Notice ) by and between Audentes Therapeutics, Inc., a Delaware corporation (the Company ), and the optionee named on the Grant Notice (the Optionee ). Capitalized terms not defined in this Agreement shall have the meaning ascribed to them in the Companys 2012 Equity Incentive Plan, as amended from time to time (the Plan ), or in the Grant Notice, as applicable.
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this Option ) to purchase up to the total number of shares of Common Stock of the Company, $0.00001 par value per share (the Common Stock ), set forth in the Grant Notice as the Shares (the Shares ) at the Exercise Price Per Share set forth in the Grant Notice (the Exercise Price ), subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan. If designated as an Incentive Stock Option in the Grant Notice, this Option is intended to qualify as an incentive stock option (the ISO ) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code ), except that if on the Date of Grant Optionee is not subject to U.S. income tax, then this Option shall be a NQSO.
2. EXERCISE PERIOD.
2.1 Exercise Period of Option . This Option is considered to be vested with respect to any particular Shares when this Option is exercisable with respect to such Shares. This Option will become vested during its term as to portions of the Shares in accordance with the Vesting Schedule set forth in the Grant Notice. Notwithstanding any provision in the Plan or this Agreement to the contrary, on or after Optionees Termination Date, this Option may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date.
2.2 Vesting of Option Shares . Shares with respect to which this Option is vested and exercisable at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are Vested Shares . Shares with respect to which this Option is not vested and exercisable at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are Unvested Shares .
2.3 Expiration . The Option shall expire on the Expiration Date set forth in the Grant Notice or earlier as provided in Section 3 below.
3. TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or Cause . Except as provided in subsection 3.2 in a case in which Optionee dies within three (3) months after Optionee is Terminated other than for Cause, if Optionee is Terminated for any reason (other than Optionees death or Disability or for Cause), then (a) on and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date and (b) this Option to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionees Termination Date, may be exercised by Optionee no later than three (3) months after Optionees Termination Date (but in no event may this Option be exercised after the Expiration Date).
3.2 Termination Because of Death or Disability . If Optionee is Terminated because of Optionees death or Disability (or if Optionee dies within three (3) months of the date of
Optionees Termination for any reason other than for Cause), then (a) on and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date and (b) this Option, to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionees Termination Date, may be exercised by Optionee (or Optionees legal representative) no later than twelve (12) months after Optionees Termination Date, but in no event later than the Expiration Date. Any exercise of this Option beyond (i) three (3) months after Optionees Termination Date when Optionees Termination is for any reason other than Optionees death or disability, within the meaning of Section 22(e)(3) of the Code; or (ii) twelve (12) months after Optionees Termination Date when the termination is for Optionees disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO.
3.3 Termination for Cause . If Optionee is Terminated for Cause, then Optionee may exercise this Option, but only with respect to any Shares that are Vested Shares on Optionees Termination Date, and this Option shall expire on Optionees Termination Date, or at such later time and on such conditions as may be affirmatively determined by the Committee. On and after Optionees Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionees Termination Date.
3.4 No Obligation to Employ . Nothing in the Plan or this Agreement shall confer on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionees employment or other relationship at any time, with or without Cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Notice and Agreement . To exercise this Option, Optionee (or in the case of exercise after Optionees death or incapacity, Optionees executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed Stock Option Exercise Notice and Agreement in the form attached hereto as Annex A , or in such other form as may be approved by the Committee from time to time (the Exercise Agreement ) and payment for the shares being purchased in accordance with this Agreement. The Exercise Agreement shall set forth, among other things, (i) Optionees election to exercise this Option, (ii) the number of Shares being purchased, (iii) any representations, warranties and agreements regarding Optionees investment intent and access to information as may be required by the Company to comply with applicable securities laws in connection with any exercise of this Option, (iv) any other agreements required by the Company and (v) Optionees obligation to execute and deliver certain Stock Powers and Assignments Separate from Stock Certificate to the Company. If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise this Option and such person shall be subject to all of the restrictions contained herein as if such person were Optionee.
4.2 Limitations on Exercise . This Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise.
4.3 Payment . The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the shares being purchased in cash (by check or wire transfer), or where permitted by law:
(a) by cancellation of indebtedness of the Company owed to Optionee;
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(b) by surrender of shares of the Company that are free and clear of all security interests, pledges, liens, claims or encumbrances and: (i) for which the Company has received full payment of the purchase price within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Optionee in the public market;
(c) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(d) provided that a public market for the Common Stock exists and subject to compliance with applicable law, by exercising as set forth below, through a same day sale commitment from Optionee and a broker-dealer whereby Optionee irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or
(e) by any combination of the foregoing or any other method of payment approved by the Committee that constitutes legal consideration for the issuance of Shares.
4.4 Tax Withholding . Prior to the issuance of the Shares upon exercise of the Option, Optionee must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Optionee may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; or to arrange a mandatory sell to cover on Participants behalf (without further authorization); but in no event will the Company withhold Shares or sell to cover if such withholding would result in adverse accounting consequences to the Company. In case of stock withholding or a sell to cover, the Company shall issue the net number of Shares to the Optionee by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares . Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares issuable upon a valid exercise of this Option registered in the name of Optionee, Optionees authorized assignee, or Optionees legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this Agreement are intended to comply with Section 25102(o) and Rule 701. Any provision of this Agreement that is inconsistent with Section 25102(o) or Rule 701 shall, without further act or amendment by the Company or the Committee, be reformed to comply with the requirements of Section 25102(o) and/or Rule 701. The exercise of this Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Common Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any manner other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to a testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor) or a revocable trust, or by gift to immediate family as that term is defined in 17 C.F.R. 240.16a-1(e), and may be exercised during the lifetime of Optionee only by Optionee or in the event of Optionees incapacity, by Optionees legal representative. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of Optionee.
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7. RESTRICTIONS ON TRANSFER.
7.1 Disposition of Shares . Optionee hereby agrees that Optionee shall make no disposition of any of the Shares (other than as permitted by this Agreement) unless and until:
(a) Optionee shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Shares;
(c) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or under any applicable state securities laws or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) or applicable state securities laws have been taken; and
(d) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the regulations promulgated under Section 25102(o), Rule 701 or under any other applicable securities laws or adversely affect the Companys ability to rely on the exemption(s) from registration under the Securities Act or under any other applicable securities laws for the grant of the Option, the issuance of Shares thereunder or any other issuance of securities under the Plan.
7.2 Restriction on Transfer . Optionee shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Companys Right of First Refusal described below, except as permitted by this Agreement.
7.3 Transferee Obligations . Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred Shares are subject to (i) the Companys Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 8 below, to the same extent such Shares would be so subject if retained by Optionee.
8. MARKET STANDOFF AGREEMENT. Optionee agrees that, subject to any early release provisions that apply pro rata to stockholders of the Company according to their holdings of Common Stock (determined on an as-converted into Common Stock basis), Optionee will not, if requested by the managing underwriter(s) in the initial underwritten sale of Common Stock of the Company to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act (the IPO ), for a period of up to one hundred eighty (180) days (plus up to an additional thirty five (35) days to the extent reasonably requested by the Company or such underwriter(s) to accommodate regulatory restrictions on the publication or other distribution of research reports or earnings releases by the Company, including NASD and NYSE rules) following the effective date of the registration statement relating to such IPO, directly or indirectly sell, offer to sell, grant any option for the sale of, or otherwise dispose of any Common Stock or securities convertible into Common Stock, except for: (i) transfers of Shares permitted under Section 9.6 hereof so long as such transferee furnishes to the Company and the managing underwriter their written consent to be bound by this Section 8 as a condition precedent to such transfer; and (ii) sales of any securities to be included in the registration statement for the IPO. For the avoidance of doubt, the provisions of this Section shall only apply to the IPO. The restricted period shall in any event terminate two (2) years after the closing date of the IPO. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the
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certificates representing the Shares subject to this Section and to impose stop transfer instructions with respect to the Shares until the end of such period. Optionee further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing restrictions on transfer. For the avoidance of doubt, the foregoing provisions of this Section shall not apply to any registration of securities of the Company (a) under an employee benefit plan or (b) in a merger, consolidation, business combination or similar transaction.
9. COMPANYS RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any transferee of such Shares (either sometimes referred to herein as the Holder ) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Shares to be sold or transferred (the Offered Shares ) on the terms and conditions set forth in this Section (the Right of First Refusal ).
9.1 Notice of Proposed Transfer . The Holder of the Offered Shares will deliver to the Company a written notice (the Notice ) stating: (i) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the Proposed Transferee ); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the Offered Price ); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Right of First Refusal at the Offered Price as provided for in this Agreement.
9.2 Exercise of Right of First Refusal . At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below.
9.3 Purchase Price . The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) then the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Committee. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Committee, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
9.4 Payment . Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 Holders Right to Transfer . If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (i) such sale or other transfer is consummated within ninety (90) days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such ninety (90) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
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9.6 Exempt Transfers . Notwithstanding anything to the contrary in this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Optionees lifetime by gift or on Optionees death by will or intestacy to any member(s) of Optionees Immediate Family (as defined below) or to a trust for the benefit of Optionee and/or member(s) of Optionees Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger, statutory consolidation of the Company with or into another corporation or corporations or a conversion of the Company into another form of legal entity (except that the Right of First Refusal will continue to apply thereafter to such Shares, in which case the surviving corporation of such merger or consolidation or the resulting entity of such conversion shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation or conversion expressly otherwise provides); or (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Optionees spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of Optionee or Optionees spouse, or the spouse of any of the above or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a Spousal Equivalent provided the following circumstances are true: (i) irrespective of whether or not the Optionee and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each others common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
9.7 Termination of Right of First Refusal . The Right of First Refusal will terminate as to all Shares: (i) on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan); (ii) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Exchange Act; or (iii) on any transfer or conversion of Shares made pursuant to a statutory conversion of the Company into another form of legal entity if the common equity (or comparable equity security) of entity resulting from such conversion is registered under the Exchange Act.
9.8 Encumbrances on Shares . Optionee may grant a lien or security interest in, or pledge, hypothecate or encumber Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not adversely affect or impair the Right of First Refusal or the rights of the Company and/or its assignee(s) with respect thereto and will not apply to such Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Agreement will continue to apply to such Shares in the hands of such party and any transferee of such party.
10. RIGHTS AS A STOCKHOLDER. Subject to the terms and conditions of this Agreement, Optionee will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Optionee pursuant to, and in accordance with, the terms of the Exercise Agreement until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal. Upon an exercise of the Right of First Refusal, Optionee will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
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11. ESCROW. As security for Optionees faithful performance of this Agreement, Optionee agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form attached to the Exercise Agreement (the Stock Powers ), both executed by Purchaser (and Purchasers spouse, if any) (with the transferee, certificate number, date and number of Shares left blank), to the Secretary of the Company or other designee of the Company (the Escrow Holder ), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Optionee and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement and will not be liable for any act or omission taken by Escrow Holder in good faith reliance on such documents, the advice of counsel or a court order. The Shares will be released from escrow upon termination of the Right of First Refusal.
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
12.1 Legends . Optionee understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Companys Certificate of Incorporation or Bylaws, any other agreement between Optionee and the Company, or any agreement between Optionee and any third party (and any other legend(s) that the Company may become obligated to place on the stock certificate(s) evidencing the Shares under the terms of any agreement to which the Company is or may become bound or obligated):
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON RESALE AND TRANSFER, INCLUDING THE RIGHT OF FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH SALE AND TRANSFER RESTRICTIONS, INCLUDING THE RIGHT OF FIRST REFUSAL, ARE BINDING ON TRANSFEREES OF THESE SHARES.
(c) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
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SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS (AND POSSIBLY LONGER) AFTER THE EFFECTIVE DATE OF CERTAIN PUBLIC OFFERINGS OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.
12.2 Stop-Transfer Instructions . Optionee agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
12.3 Refusal to Transfer . The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
13. CERTAIN TAX CONSEQUENCES. Set forth below is a brief summary as of the Effective Date of the Plan of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
13.1 Exercise of ISO . If the Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise.
13.2 Exercise of Nonqualified Stock Option . If the Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is a current or former employee of the Company, the Company may be required to withhold from Optionees compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
13.3 Disposition of Shares . The following tax consequences may apply upon disposition of the Shares.
(a) Incentive Stock Options . If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price.
(b) Nonqualified Stock Options . If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.
14. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the rights of a stockholder with respect to any Shares unless and until such Shares are issued to Optionee.
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15. GENERAL PROVISIONS.
15.1 Interpretation . Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Optionee.
15.2 Entire Agreement . The Plan, the Grant Notice and the Exercise Agreement are each incorporated herein by reference. This Agreement, the Grant Notice, the Plan and the Exercise Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior undertakings and agreements with respect to such subject matter.
16. NOTICES. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iii) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iv) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. Any notice for delivery outside the United States will be sent by facsimile or by express courier. Any notice not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile number set forth below the signature lines of this Agreement, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked Attention: Chief Financial Officer. Notices by facsimile shall be machine verified as received.
17. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement including its rights to purchase Shares under the Right of First Refusal. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionees heirs, executors, administrators, legal representatives, successors and assigns.
18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
19. FURTHER ASSURANCES. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
20. TITLES AND HEADINGS. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement.
21. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
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22. SEVERABILITY. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
* * * * *
Attachment: Annex A : Form of Stock Option Exercise Notice and Agreement
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ANNEX A
FORM OF STOCK OPTION EXERCISE NOTICE AND AGREEMENT
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
A UDENTES T HERAPEUTICS , I NC .
2012 E QUITY I NCENTIVE P LAN
* NOTE : You must sign this Notice on Page 3 before submitting it to Audentes Therapeutics, Inc. (the Company).
O PTIONEE I NFORMATION : Please provide the following information about yourself ( Optionee ) :
Name: |
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Social Security Number: |
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Address: |
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Employee Number: |
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O PTION I NFORMATION : Please provide this information on the option being exercised ( the Option ):
Grant No. | ||
Date of Grant: | Type of Stock Option: | |
Option Price per Share: $ | ¨ Nonqualified (NQSO) | |
Total number of shares of Common Stock of the Company subject to the Option: | ¨ Incentive (ISO) |
E XERCISE I NFORMATION :
Number of shares of Common Stock of the Company for which the Option is now being exercised . (These shares are referred to below as the Purchased Shares .)
Total Exercise Price Being Paid for the Purchased Shares: $
Form of payment enclosed [check all that apply] :
¨ | Check for $ , payable to Audentes Therapeutics, Inc. . | |
¨ | Certificate(s) for shares of Common Stock of the Company. These shares will be valued as of the date this notice is received by the Company. [Requires Company consent.] |
A GREEMENTS , R EPRESENTATIONS AND A CKNOWLEDGMENTS OF O PTIONEE : By signing this Stock Option Exercise Notice and Agreement, Optionee hereby agrees with, and represents to, the Company as follows:
1. | Terms Governing. I acknowledge and agree with the Company that I am acquiring the Purchased Shares by exercise of this Option subject to all other terms and conditions of the Notice of Stock Option Grant and the Stock Option Agreement that govern the Option, including without limitation the terms of the Companys 2012 Equity Incentive Plan, as it may be amended (the Plan ). |
2. |
Investment Intent; Securities Law Restrictions. I represent and warrant to the Company that I am acquiring and will hold the Purchased Shares for investment for my account only, and not with a view to, or for resale in connection with, any distribution of the Purchased Shares within the meaning of the Securities Act of 1933, as amended (the Securities Act ). I understand that the Purchased Shares have not been registered under the Securities Act by reason of a specific exemption from such |
registration requirement and that the Purchased Shares must be held by me indefinitely, unless they are subsequently registered under the Securities Act or I obtain an opinion of counsel (in form and substance satisfactory to the Company and its counsel) that registration is not required. I acknowledge that the Company is under no obligation to register the Purchased Shares under the Securities Act or under any other securities law. |
3. | Restrictions on Transfer: Rule 144. I will not sell, transfer or otherwise dispose of the Purchased Shares in violation of the Securities Act, the Securities Exchange Act of 1934, or the rules promulgated thereunder (including Rule 144 under the Securities Act described below Rule 144)) or of any other applicable securities laws. I am aware of Rule 144, which permits limited public resales of securities acquired in a non-public offering, subject to satisfaction of certain conditions, which include (without limitation) that: (a) certain current public information about the Company is available; (b) the resale occurs only after the holding period required by Rule 144 has been met; (c) the sale occurs through an unsolicited brokers transaction; and (d) the amount of securities being sold during any three-month period does not exceed specified limitations. I understand that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future. |
4. | Access to Information; Understanding of Risk in Investment. I acknowledge that I have received and had access to such information as I consider necessary or appropriate for deciding whether to invest in the Purchased Shares and that I had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the issuance of the Purchased Shares. I am aware that my investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss. I am able, without impairing my financial condition, to hold the Purchased Shares for an indefinite period and to suffer a complete loss of my investment in the Purchased Shares. |
5. | Rights of First Refusal; Market Stand-off. I acknowledge that the Purchased Shares remain subject to the Companys Right of First Refusal and the market stand-off covenants (sometimes referred to as the lock-up), all in accordance with the applicable Notice of Stock Option Grant and the Stock Option Agreement that govern the Option. |
6. | Form of Ownership. I acknowledge that the Company has encouraged me to consult my own adviser to determine the form of ownership of the Purchased Shares that is appropriate for me. In the event that I choose to transfer my Purchased Shares to a trust, I agree to sign a Stock Transfer Agreement. In the event that I choose to transfer my Purchased Shares to a trust that is not an eligible revocable trust, I also acknowledge that the transfer will be treated as a disposition for tax purposes. As a result, the favorable ISO tax treatment will be unavailable and other unfavorable tax consequences may occur. |
7. | Investigation of Tax Consequences. I acknowledge that the Company has encouraged me to consult my own adviser to determine the tax consequences of acquiring the Purchased Shares at this time. |
8. | Other Tax Matters. I agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes my tax liabilities. I will not make any claim against the Company or its Board, officers or employees related to tax liabilities arising from my options or my other compensation. In particular, I acknowledge that my options (including the Option) are exempt from section 409A of the Internal Revenue Code only if the exercise price per share is at least equal to the fair market value per share of the Common Stock at the time the option was granted by the Board. Since shares of the Common Stock are not traded on an established securities market, the determination of their fair market value was made by the Board and/or by an independent valuation firm retained by the Company. I acknowledge that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and I will not make any claim against the Company or its Board, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low. |
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9. | Spouse Consent. I agree to seek the consent of my spouse to the extent required by the Company to enforce the foregoing. |
10. | Tax Withholding. As a condition of exercising this Option, I agree to make adequate provision for foreign, federal, state or other tax withholding obligations, if any, which arise upon the grant, vesting or exercise of this Option, or disposition of the Purchased Shares, whether by withholding, direct payment to the Company, or otherwise. |
The undersigned hereby executes and delivers this Stock Option Exercise Notice and Agreement to agrees to be bound by its terms
S IGNATURE : | D ATE : | |||||||||
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Optionees Name: |
[Signature Page to Stock Option Exercise Notice and Agreement]
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Exhibit 10.9
OFFICE LEASE
BY AND BETWEEN
101 MONTGOMERY STREET CO.,
a California limited partnership
AS LANDLORD
AND
AUDENTES THERAPEUTICS, INC.,
a Delaware corporation
AS TENANT
PREMISES:
101 Montgomery Street, Suite 2650
San Francisco, California
OFFICE LEASE
THIS OFFICE LEASE (this Lease ) is made as of the 17th day of October, 2013, by and between 101 Montgomery Street Co., a California limited partnership ( Landlord ), and Audentes Therapeutics, Inc., a Delaware Corporation ( Tenant ).
SUMMARY OF BASIC LEASE INFORMATION
1. Premises (Article 1): | ||||
1.1 Building: |
101 Montgomery Street, San Francisco | |||
1.2 Property: |
The real property on which the Building is located. | |||
1.3 Premises: |
Approximately 4,996 rentable square feet of space located on the 26th Floor ( Tenants Floor ) of the Building, commonly known as Suite 2650 and shown on Exhibit A to this Lease. | |||
2. Lease Term (Article 2): | ||||
2.1 Term: |
Approximately three (3) years, two (2) months. | |||
2.2 Commencement Date: |
The earlier to occur of (i) the date Landlord delivers the Premises to Tenant with the work to be performed by Landlord pursuant to the Work Letter attached hereto as Exhibit D substantially complete, or (ii) the date Tenant commences business operations in any portion of the Premises. Landlord will make good faith efforts to inform Tenant of the date of substantial completion no less than five (5) days in advance thereof. | |||
2.3 Target Commencement Date: |
November 1, 2013 | |||
2.4 Expiration Date: |
The Expiration Date shall be the last day of the thirty eighth (38 th ) full month of the Term. | |||
3. Monthly Base Rent (Article 3): | Months of Term | Monthly Base Rent | ||
1 through 2 | $0 | |||
3 through 12 | $21,649 | |||
13 through 24 | $22,066 | |||
25 through 36 | $22,482 | |||
37 through end of term | $22,898 | |||
4. Security Deposit (Section 3.2): | $67,500. The amount of the Security Deposit may be reduced per the provisions of Section 3.2. |
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5. Payments Upon Execution : | ||||
Monthly Base Rent: | $21,649 | |||
Security Deposit: | $67,500 | |||
Total: | $89,149 | |||
6. Permitted Use (Article 4): | General office use consistent with office use in similar Class A Buildings in San Franciscos Financial District. | |||
7. Guarantors ): | None | |||
8. Broker(s) (Section 22.13): | Faller Real Estate (Tenants Broker) | |||
Cushman & Wakefield (Landlords Broker) | ||||
9. Addresses for Notice (Article 20): | ||||
9.1 Tenants Address: |
Before the Commencement Date: | |||
Audentes Therapeutics, Inc. 3045 Jackson Street #502 San Francisco, CA 94115 |
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Following the Commencement Date: | ||||
Audentes Therapeutics, Inc. 101 Montgomery Street, Suite 2650 San Francisco, CA 94104 |
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9.2 Landlords Address: |
CALFOX, Inc. Attn: Mr. Derek Taylor |
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With a copy to: | ||||
Cahill Montgomery Corp. Attn: Mr. William R. Cahill |
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10. Addenda and Exhibits (Section 22.18): | Addendum One | Lines and Equipment | ||
Addendum Two | Electronic Funds Transfer | |||
Exhibit A | Floor Plan | |||
Exhibit B | Expense and Taxes | |||
Exhibit C | Rules and Regulations | |||
Exhibit D | Work Letter | |||
Exhibit E | Disability Access Obligations |
The foregoing Summary of Basic Lease Information (the Summary ) is an integral part of this Lease. In the event of any conflict between the Summary and this Lease, this Lease shall govern.
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AGREEMENT :
1. PREMISES . Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises which are located in the Building. Tenant shall also have the right to use any portions of the Building and the Property that are designated by Landlord for the common use of tenants and others (the Common Areas ). Tenant acknowledges that the rentable area of the Premises set forth in Section 1.3 of the Summary is an approximation, which Tenant has had an opportunity to verify prior to execution of this Lease, and Tenant shall have no right to re-measure the Premises. Subject to Landlords obligation to perform the work ( Tenant Improvement Work ), if any, described in the work letter (the Work Letter ) attached to this Lease as Exhibit D , Tenant agrees to accept the Premises in as is condition and configuration, without any representations or warranties by Landlord or Landlords agents.
2. TERM . The provisions of this Lease are effective as of the date of this Lease. The term of this Lease ( Term ) shall commence on the Commencement Date and shall terminate on the Expiration Date as defined in Section 2.2. and 2.4 of the Summary, respectively, unless sooner terminated as hereinafter provided. If Landlord fails to deliver possession of the Premises on the Target Commencement Date set forth in Section 2.3 of the Summary for any reason, Landlord shall not be liable for any damages caused thereby, and this Lease shall not become void or voidable. Following the Commencement Date, Landlord may provide Tenant with a letter confirming the Commencement Date and the Expiration Date. The dates listed in the letter shall be binding upon the parties unless objected to in writing by Tenant within fifteen (15) days after receipt of said letter.
3. RENT AND SECURITY DEPOSIT .
3.1 Rent . Tenant shall pay Landlord the Monthly Base Rent and Additional Rent (defined below) (collectively Rent ) to Landlord at the place Landlord may designate from time to time without notice, setoff, deduction or demand. In addition to Monthly Base Rent, Tenant shall pay Tenants Share of increases in Escalations in accordance with Exhibit B attached hereto. The terms Tenants Share and Escalations are each defined in Exhibit B . All payments, except for Monthly Base Rent, required to be made by Tenant to Landlord under the provisions of this Lease, including Tenants Share of increases in Escalations, shall hereafter be referred to as Additional Rent . Monthly Base Rent and recurring monthly charges of Additional Rent shall be due and payable in advance on the first day of each calendar month, provided that the Monthly Base Rent for the third (3 rd ) calendar month of the Term shall be payable upon execution of this Lease by Tenant. All other items of Rent shall be due and payable within ten (10) business days after billing by Landlord. Tenants covenant to pay Rent is independent of every other covenant herein.
3.2 Security Deposit . Upon signing this Lease, Tenant shall deposit with Landlord the amount of the Security Deposit as security for the performance by Tenant of its obligations under this Lease to be performed or observed by Tenant. No trust relationship is created herein between Landlord and Tenant with respect to the Security Deposit, and Landlord shall not be required to keep the Security Deposit separate from its general accounts. If Tenant fails to pay any Rent, or otherwise defaults with respect to any provision of this Lease, Landlord may (but shall not be obligated to), and without prejudice to any other remedy available to Landlord, use, apply or retain all or any portion of the Security Deposit for the payment of any Rent in default or for the payment of any other sum to which Landlord may become obligated by reason of Tenants default, or to compensate Landlord for any loss or damage which Landlord may suffer thereby, including damages recoverable pursuant to California Civil Code Section 1951.2. Tenant waives the provisions of California Civil Code Section 1950.7, or any similar or successor laws now or hereinafter in effect, that restrict Landlords use or application of the Security Deposit, or that provide specific time periods for return of the Security Deposit. Without limiting the generality of the foregoing, Tenant expressly agrees that if Landlord terminates this Lease due to an Event of Default or if Tenant terminates this Lease in a bankruptcy proceeding, Landlord shall be entitled to hold the Security Deposit until the amount of damages recoverable is finally determined. If Landlord uses or applies all or any portion of the Security Deposit as provided above, Tenant shall within five (5) days after demand therefore deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full
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amount thereof, and Tenants failure to do so shall, at Landlords option, be an Event of Default. Upon termination of Landlords interest in this Lease, if Landlord transfers the Security Deposit (or the amount of the Security Deposit remaining after any permitted deductions) to Landlords successor in interest, and thereafter notifies Tenant of such transfer and the name and address of the transferee, then Landlord shall be relieved of any further liability with respect to the Security Deposit. Except as provided above, if Tenant performs all of Tenants obligations hereunder, the Security Deposit, or so much thereof as has not been applied by Landlord, shall be returned, without payment of interest or other increment for its use, to Tenant (or, at Landlords option, to the last assignee, if any, of Tenants interest hereunder) within forty-five (45) days after the later to occur (a) determination of final Rent due from Tenant or (b) the expiration of the Term or (c) Tenants vacation and surrender of the Premises in accordance with the requirements of this Lease. Landlords return of the Security Deposit or any part thereof shall not be construed as an admission that Tenant has performed all of its obligations under this Lease. Notwithstanding the foregoing, if no Event of Default, as hereinafter defined, has occurred during the first twenty-four (24) months of the Term then, upon the first day of the twenty-fifth (25 th ) month of the Term the amount of the Security Deposit shall be reduced to Forty five Thousand Dollars ($45,000).
4. USE .
4.1 Use Restrictions . The Premises shall be used for the purpose described in Section 6 of the Summary (the Permitted Use ) and for no other purpose without the prior written consent of Landlord. Tenant shall not use any part or all of the Premises for the following: any retail use (including a retail copy, desktop publishing or FAX service); medical or dental office; psychological, parole, substance abuse or employment counseling; education or training classes; operation of a Governmental or Quasi-Governmental Entity (as defined in Section 8.3(d) below), call center or telemarketing operation; or other similar uses. Tenant shall not do or permit anything to be done in or about the Premises, or bring or keep anything therein which will in any way (a) affect the fire or other insurance on the Building or any of its contents, (b) conflict with any Applicable Requirements, (c) constitute waste, (d) create a nuisance, (e) obstruct or interfere with the rights of other tenants of the Building, or injure or annoy them, or (f) emit any odors or smoke outside the Premises. The principal use of the Premises shall be Mondays through Fridays, from 8:00 a.m. to 6:00 p.m., excepting legal holidays ( Normal Business Hours ). Tenant will not use the Premises for evening or weekend shifts of personnel, excepting the occasional use of the Premises by personnel employed by Tenant. Tenants use of the Premises shall not place a greater burden on Building Systems (as defined in Section 7.2) than typical business office usage.
4.2 Hazardous Materials . Tenant shall not use, store, treat, transport, discharge or dispose of any Hazardous Material in the Premises, except for small quantities of general office supplies customarily used by office tenants in the ordinary course of their business, such as copier toner, glue, ink and cleaning solvents, provided that such supplies shall be used in strict compliance with all environmental laws and manufacturers recommendations. If the use, storage, treatment, transport, discharge or disposal of any Hazardous Material by Tenant or any Tenant Party results in or contributes to contamination of the Premises, the Building, or the Property, Tenant shall promptly take all actions at its sole expense, as are necessary to return the Premises, the Building, or the Property to the condition existing prior to the introduction of any such Hazardous Material to the Premises, the Building, or the Property, provided that Tenant first obtain Landlords written consent for such actions. The term Hazardous Material means any hazardous or toxic substance, material or waste, the storage, use or disposition of which is or becomes regulated by any local governmental authority, the State of California, or the United States government. In no event shall Tenant be liable for the presence of any Hazardous Materials in, on, under or about the Building not placed there by Tenant or by its employees, officers, directors, agents, licensee, customers, contractors or invitees.
5. COMPLIANCE WITH APPLICABLE REQUIREMENTS AND RULES .
5.1 Definition . For purposes of this Lease, the term Applicable Requirements means all applicable laws, statutes, ordinances, or other governmental rules, regulations or requirements now in force or which may hereafter be enacted or promulgated, including, but not limited to, the
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Americans with Disabilities Act, 42 USC Section 12181 et seq ., and the Unruh Civil Rights Act, California Civil Code Sections 51 through 51.3, and other governmental requirements related to disabled access, the requirements of any board of fire underwriters or other similar body now or in the future constituted, and all recorded covenants, conditions and restrictions.
5.2 Tenants Obligations . Tenant, at Tenants sole cost and expense, shall promptly comply with all Applicable Requirements relating to (a) the use, condition, configuration or occupancy of the Premises or (b) occupational, health or safety standards for employers or employees. In addition, if modifications to the structural portions of the Building, the Building Systems, or the Common Areas, are triggered under any Applicable Requirement as a result of any Alterations made by or at the request of Tenant or use of the Premises for other than the Permitted Use, then Tenant, at Landlords option, shall either (i) make such modifications at Tenants cost or (ii) reimburse Landlord, as Additional Rent, for the cost of making such modifications, together with a fee to Landlord for oversight and coordination of such work equal to ten percent (10%) of such cost. Notwithstanding the foregoing provisions of this Section 5.2, Landlord will be responsible for causing the Premises and the Common Areas located on Tenants Floor to comply with Applicable Requirements as of the Commencement Date; provided, however, that nothing contained herein shall be deemed to prohibit Landlord from obtaining a variance or relying upon a grandfathered right in order to achieve compliance with Applicable Requirements. Tenants obligation to comply with (or to pay for Landlords compliance with) Applicable Requirements includes the responsibility to make substantial or structural repairs and modifications regardless of, among other factors, the relationship of the cost of corrective action to the Rent, the length of the then remaining Term hereof, the relative benefit of the repairs to Landlord or Tenant, the degree to which the corrective action may interfere with Tenants use or enjoyment of the Premises, whether or not the Applicable Requirement is related to the Permitted Use, and the likelihood that the parties contemplated the particular Applicable Requirement involved. All work by Tenant pursuant to this Section 5.2 shall be performed in compliance with Section 7.3 of this Lease. Tenant shall promptly provide Landlord with copies of any notices it receives regarding an alleged violation of Applicable Requirements. The judgment of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant, whether or not Landlord is a party in such action or proceeding, that Tenant has violated any Applicable Requirement shall be conclusive of that fact as between Landlord and Tenant.
5.3 Landlords Obligations . Subject to reimbursement as an Expense to the extent not prohibited by Exhibit B of this Lease and Tenants obligations under Section 5.2 above, Landlord shall be responsible for causing the structure of the Building, the Building Systems, and the Common Areas to comply with all Applicable Requirements, except in cases where Landlords failure to comply therewith does not unreasonably and materially affect the safety of Tenants employees, create a significant health hazard for Tenants employees, or otherwise materially and adversely affect Tenants use of or access to the Premises and provided further, that nothing contained herein shall be deemed to prohibit Landlord from obtaining a variance or relying upon a grandfathered right in order to achieve compliance with Applicable Requirements.
5.4 Notice of Alterations . In addition to Tenants obligations under Section 7.3, Tenant hereby agrees to use reasonable efforts to notify Landlord if Tenant makes any Alterations or improvements to the Premises that might impact accessibility to the Premises or the Building under any disability access laws. Landlord hereby agrees to use reasonable efforts to notify Tenant if Landlord makes any alterations or improvements to the Premises that might impact accessibility to the Premises or the Building under any disability access laws.
5.5 Disability Access Obligations Notice and Access Information Notice . Landlord and Tenant hereby acknowledge that, prior to the execution of this Lease, Landlord and Tenant executed a Disability Access Obligations Notice pursuant to San Francisco Administrative Code Chapter 38 (an example of which is attached hereto and hereby made a part hereof as Exhibit E). Landlord and Tenant shall each, within three (3) business days following a request from the other party, execute a new Disability Access Obligations Notice in accordance with San Francisco Administrative Code Chapter 38 or any successor statute. In addition, Tenant acknowledges receipt from Landlord of an Access Information Notice as required by San Francisco Administrative Code Chapter 38. Tenant acknowledges that such notices comply with the requirements of San Francisco Administrative Code Chapter 38.
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5.6 Rules and Regulations . Tenant shall comply, and cause all Tenant Parties (defined in Section 10.1 below) to comply, with the rules and regulations attached to this Lease as Exhibit C and such other reasonable rules and regulations adopted by Landlord from time to time.
6. SERVICES .
6.1 Services Provided. Landlord shall furnish the following services to the Premises: (a) a reasonable amount of electricity to operate office machines as allowed in the Building; (b) non-attended automatic elevator service; (c) daily (one shift) janitor service Monday through Friday (except holidays); and (d) during Normal Business Hours, or such shorter period as may be prescribed by any applicable policies or regulations adopted by any utility or governmental agency, heat and air conditioning in such amounts and at such temperatures as Landlord in good faith determines are required for general office usage and reasonable occupant comfort. If Tenants use of the Premises results in consumption of electricity in excess of Landlords estimate of normal usage by an office tenant, as may be adjusted from time to time by Landlord, Landlord may install a separate meter or submeter at Tenants cost to measure Tenants electrical consumption and bill Tenant for Landlords estimate of the cost of Tenants electrical consumption in excess of Landlords estimate of normal office usage. Landlords estimate of the cost of Tenants excess electricity consumption shall be computed by using the average rate per applicable period being charged by Landlords electricity provider. Landlord shall provide additional heat and air conditioning service to the Premises outside Normal Business Hours, provided Tenant gives Landlord at least two (2) business days prior written notice of such request and agrees to pay the then applicable Building standard charge for such services as Additional Rent. Landlord will not be required to provide special treatment or services for above-standard improvements.
6.2 Lobby Attendant. Landlord shall provide a lobby attendant in the Building. By providing a lobby attendant, Landlord does not assume any responsibility for the security of Tenant or property in, upon or about the Premises or the Building and Tenant expressly assumes such responsibility.
6.3 Disruption in Services . Landlord reserves the right to stop any Building Systems or otherwise interrupt services when reasonably necessary; provided, however, that Landlord shall make good faith efforts to give Tenant advance notice of any scheduled interruption of services, and in any case Landlord shall restore such services as promptly as reasonably practical. Landlords failure to furnish, or any interruption or diminishment of services (collectively a Service Disruption ) 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 agreement. However, if the Premises, or a material portion of the Premises, are made untenantable as a result of a Service Disruption for a period in excess of five (5) consecutive business days after Tenants notice to Landlord of such disruption, and the Service Disruption results solely from Landlords gross negligence or willful misconduct, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Monthly Base Rent and Tenants Share of Escalations payable hereunder during the period beginning on the sixth (6th) consecutive business day after Tenants notice to Landlord of such disruption and ending on the day the service is restored. If the entire Premises have not been rendered untenantable by the Service Disruption, Monthly Base Rent and Tenants Share of increases in Escalations shall be abated in the proportion that the rentable area of the Premises that is untenantable bears to the total rentable area of the Premises.
7. REPAIRS AND ALTERATIONS .
7.1 Tenants Repair Obligations . Tenant shall periodically inspect the Premises to identify any conditions that are dangerous or in need of maintenance or repair, and shall promptly provide Landlord with notice of any such conditions. Tenant shall, at its sole cost and expense, perform all maintenance and repairs to the Premises that are not Landlords express responsibility under this Lease, and keep the Premises in good condition and repair, except for ordinary wear and tear. Tenants repair
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and maintenance obligations shall include repairs to: (a) floor coverings (including carpets and carpet padding); (b) interior partitions; (c) doors; (d) the interior side of demising walls; (e) supplemental air conditioning units, kitchens, including hot water heaters, plumbing, and similar facilities exclusively serving Tenant; and (f) Alterations. All repairs made by Tenant shall be made in compliance with Section 7.3 of this Lease. Landlord may make such repairs if Tenant fails to, within fifteen (15) days after notice from Landlord make such repair or in the event of an emergency and Tenant shall reimburse Landlord for the reasonable cost of the repairs plus an administrative charge of 10% of the cost of the repairs. Notwithstanding anything in this Lease to the contrary, Tenant shall not be required to make any repair to, modification of, or addition to the Building structure and/or the Building Systems except and to the extent required because of Tenants use of all or a portion of the Premises.
7.2 Landlords Repair Obligations . Subject to reimbursement pursuant to Exhibit B , Landlord shall maintain: (a) structural elements of the Building; (b) the electrical, mechanical (including heating, ventilation and air conditioning), plumbing, and life safety systems serving the Building in general ( Building Systems ); (c) Common Areas; (d) the roof of the Building; (e) exterior windows of the Building; and (f) elevators serving the Building; provided, however, that Tenant shall reimburse Landlord for the cost of repairing any damage to the foregoing caused by Tenant or Tenant Parties, subject to the provisions of Section 10.4, hereof. Tenant hereby waives the provisions of the California Civil Code Sections 1932 (1), 1941 and 1942, and of any similar Applicable Requirements now or hereinafter in effect.
7.3 Alterations .
(a) Tenant shall not make any alterations, repairs, additions or improvements or install any cable (collectively, Alterations ) without first obtaining the prior written consent of Landlord in each instance, which consent shall not be unreasonably withheld or delayed. Notwithstanding the generality of the foregoing, Landlord shall be entitled to withhold its consent to proposed Alterations if, in Landlords good faith judgment, any one or more of the following situations exist: (i) the proposed Alterations will adversely affect the exterior appearance of the Building; (ii) the proposed Alterations may impair the structural strength of the Building, adversely affect any Building Systems, or adversely affect the value of the Building; (iii) the proposed Alterations would trigger the necessity under Applicable Requirements or otherwise for work to be performed outside the Premises; or (iv) the proposed Alterations are not consistent with, or would detract from, the character or image of the Building. At least thirty (30) days before the commencement of Alterations, Tenant shall submit to Landlord plans, specifications, and product samples of the proposed Alterations for Landlords review. Landlords sole interest in reviewing and approving such documents is to protect Landlords interests, and no such review or approval by Landlord shall be deemed to create any liability of any kind on the part of Landlord, or constitute a representation on the part of Landlord or any person consulted by Landlord in connection with such review and approval that such plans or other documents are correct or accurate, or are in compliance with any Applicable Requirements. Tenant shall pay the reasonable out-of-pocket costs incurred by Landlord in reviewing Tenants plans, specifications and product samples, if any, within ten (10) days after receipt of an invoice therefore and reasonable supporting documentation.
(b) Landlord or its affiliate shall have the right to perform Alterations on behalf of Tenant. If Landlord does not elect to perform the Alterations, the contractor and all subcontractors and suppliers used by Tenant must be approved in writing by Landlord, which approval shall not be unreasonably withheld; provided, however, that Landlord reserves the right to require any work to be performed on the Building Systems (whether such Building Systems are located within or outside the Premises) to be performed by subcontractors specified by Landlord. Tenant shall not either directly or indirectly, use any non-union labor.
(c) All Alterations by Tenants contractor shall be diligently completed in a good and workmanlike manner and in compliance with all Applicable Requirements and any Building construction rules and regulations then in effect. Tenant and Tenants contractor, subcontractors and suppliers shall maintain such insurance as may be reasonably required by Landlord, and Tenant shall provide Landlord with evidence of such insurance prior to any such partys entry into the Building. If
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Tenant or any person who is in or about the Building with the consent of Tenant shall cause any damage to the Building or the Common Areas, Tenant shall reimburse Landlord for the cost of repairs. Promptly after completion of the Alterations, Tenant shall deliver to Landlord as built drawings in CAD format showing the Alterations. On the first day of the month following substantial completion of the Alterations, Tenant shall pay Landlord a fee of ten percent (10%) of the cost of the Alterations to compensate Landlord for its review and coordination of the Alterations, unless Landlord provides the Alterations under written contract with Tenant.
(d) Unless otherwise provided by written agreement, all Alterations (including, but not limited to, sink units, wall-to-wall carpets, and signs) shall become the property of Landlord at the end of the Term, and shall remain upon and be surrendered with the Premises, excepting however, that at Landlords election, Tenant shall, at Tenants expense, remove any or all Alterations and restore the Premises to the condition prior to such Alteration (reasonable wear and tear excepted) before the last day of the Term, provided that Landlord shall have included with its approval of such Alterations the statement that Landlord is reserving its right to require that any or all of such Alterations be so removed and the Premises so restored. If Tenant fails to so remove the Alterations or restore the Premises within the time limits provided above, Tenant shall pay Rent to Landlord as provided by Section 19.2 hereof as if Tenant had held possession of the Premises after the Term, until Tenant so removes the Alterations and restores the Premises.
7.4 Liens . Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant. Tenant shall require that each contractor and supplier to the Premises agrees in writing to waive and release all lien rights against the Building and any rights to receive payment from the owner of the Building for work performed in or products supplied to the Building. If Tenant fails to remove any lien within five (5) business days after demand, Landlord may, in addition to any other remedies, record a bond pursuant to California Civil Code Section 3143 and all amounts incurred by Landlord in so doing shall become immediately due and payable by Tenant to Landlord as Additional Rent. Tenant shall give Landlord at least ten (10) business days prior written notice of the commencement of any construction by Tenant. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by Applicable Requirements or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens.
8. ASSIGNMENT AND SUBLETTING .
8.1 Consent Required . Tenant shall not assign, sublease, transfer or encumber any interest in this Lease, or allow any third party to use any portion of the Premises, without the prior written consent of Landlord, which consent shall not be unreasonably withheld if Landlord does not exercise its recapture right under Section 8.4. Each of the foregoing is referred to as a Transfer and any person to whom any Transfer is made or sought to be made is sometimes referred to as a Transferee .
8.2 Procedure . If Tenant desires Landlords consent to any Transfer, Tenant shall submit to Landlord in writing at least twenty (20) business days prior to the proposed effective date of the Transfer: (a) the name of the Transferee; (b) a description of the business to be carried on in the Premises by the Transferee; (c) the portion of the Premises to be Transferred (the Subject Space ); (d) a copy of the proposed sublease or assignment or other documentation; (e) audited or certified financial statements of the proposed Transferee for the two (2) most recently completed fiscal years, and (f) bank and landlord references for the Transferee. Thereafter, Tenant shall furnish such supplemental information as Landlord may reasonably request concerning the proposed Transferee. Within fifteen (15) business days after Landlords receipt of all of the information specified above, Landlord shall by written notice to Tenant (i) elect to terminate this Lease with respect to the Subject Space or the entire Premises in accordance with Section 8.4 below, (ii) consent to the proposed Transfer by execution of a consent agreement in a form designated by Landlord, or (iii) reasonably disapprove of the proposed Transfer. Tenant shall furnish Landlord with true and complete copies of all assignments, subleases and any supplementary agreements or amendments thereto within five (5) business days after execution.
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8.3 Reasonable Conditions . By way of example and without limitation, it shall be deemed to be reasonable under this Lease and under any Applicable Requirements for Landlord to withhold consent to any proposed Transfer where, in the good faith judgment of Landlord, one or more of the following apply (or where Landlord has not been provided with sufficient information to determine that none of the following apply): (a) the proposed Transferee fails to satisfy Landlords then current credit and other standards for tenants of the Building, or does not have the financial strength and stability to perform all of the obligations of the Tenant under this Lease (as they apply to the Subject Space) as and when they fall due; (b) the Transferee is of a character or reputation or is engaged in a business which is not consistent with the quality of the Building or the existing tenant mix; (c) the proposed use of the Premises would (i) be unlawful or inappropriate to the location and configuration of the Premises; (ii) cause Landlord to be in violation of another lease or agreement to which Landlord is a party, or would give an occupant of the Building a right to cancel its lease; (iii) increase insurance premiums applicable to the Building; (iv) materially increase the services or utilities to be provided to the Premises or otherwise materially increase the burden on Building Systems or the Common Areas; or (v) impair the reputation of the Building; (d) the Transferee is a governmental entity, or is entitled, directly or indirectly, to diplomatic or sovereign immunity, or is not subject to the service of process in, or the jurisdiction of the courts of, the State of California, or holds any exemption from the payment of ad valorem or other taxes which would prohibit Landlord from collecting from such Transferee any amounts otherwise payable under this Lease (each, a Governmental or Quasi-Governmental Entity ); (e) the proposed Transfer would require demising the Premises into more than two (2) tenant spaces; (f) the Transferee is negotiating with Landlord to lease space in the Building at such time, or has negotiated with Landlord to lease space in the Building during the six (6) month period immediately preceding Tenants request for consent; (g) the proposed Transfer is to an existing tenant or subtenant of the Building; or (h) at the time of the proposed Transfer, an Event of Default shall have occurred hereunder, or an event shall have occurred that with notice, the passage of time, or both, would become an Event of Default.
8.4 Recapture . Notwithstanding anything to the contrary contained in this Article 8, and except for a Transfer to a Successor Company as defined in Section 8.11 herein, Landlord shall have the option to terminate this Lease with respect to (a) the Subject Space, or (b) if the Subject Space constitutes fifty percent (50%) or more of the total square footage of the Premises, either the Subject Space or the entire Premises, by giving notice to Tenant within the time period specified in Section 8.2 above. Tenant may at any time, by providing written notice to Landlord, request confirmation that Landlord will or will not exercise its option to terminate. Such confirmation by Landlord will remain in effect for a ninety (90) day period immediately following the date of said notice. Landlords termination pursuant to this Section 8.4 shall be effective as of the effective date of the proposed Transfer. If Landlord terminates this Lease with respect to less than the entire Premises: (i) Landlord, at Landlords expense, shall construct any demising walls required to segregate the Subject Space from the remaining Premises retained by Tenant; and Tenant shall be responsible, at its expense, for painting, covering or otherwise decorating the surfaces of the partitions facing the remaining Premises retained by Tenant; (ii) the Monthly Base Rent shall be adjusted based on the rentable area of the Premises retained by Tenant, (iii) Tenants share of Escalations shall be equitably adjusted; and (iv) this Lease as so amended shall continue thereafter in full force and effect (upon request of either party, the parties shall execute written confirmation of the same). In the event of such termination, Landlord shall have the right to enter into a direct lease with the Transferee on such terms as shall be acceptable to Landlord in its sole and absolute discretion, and Tenant hereby waives any claims against Landlord related thereto, including, any claims for compensation or profit related to such lease.
8.5 Transfer Premium . Tenant shall pay Landlord, on or before the first (1st) day of each month, fifty percent (50%) of any Transfer Premium payable to Tenant in connection with a Transfer. Transfer Premium shall mean all rent, additional rent or other consideration payable by the Transferee (including, but not limited to, payments in excess of fair market value for Tenants assets, trade fixtures, equipment and other personal property, goodwill, intangible property and any capital stock or other equity ownership of Tenant) in excess of the Rent payable by Tenant under this Lease (on a per rentable square foot basis, if less than all of the Premises is transferred), after deducting Permitted Transfer Costs. Permitted Transfer Costs means the actual and reasonable costs incurred and paid by Tenant in connection with the applicable Transfer for (a) brokerage commissions, (b) any Alterations to the Subject
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Space made by Tenant in connection with the Transfer, and (c) legal fees and expenses, provided that Tenant shall furnish Landlord with copies of bills or other documentation substantiating such costs. If the Transfer Premium is not paid to Tenant in a lump sum, all Permitted Transfer Costs shall be amortized on a straight-line basis, without interest, over the relevant term of the Transfer. If Tenant shall enter into multiple Transfers, the Transfer Premium payable to Landlord shall be calculated independently with respect to each Transfer. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof.
8.6 Additional Transfers . Without limiting other transactions or events that may constitute an assignment of this Lease, the following shall be deemed an assignment of this Lease: (a) the assignment or transfer by operation of law; (b) the transfer, in one or more transactions occurring within a period of twenty-four (24) months, whether by sale, assignment, bequest, inheritance, operation of law or other disposition, or by subscription of fifty percent (50%) or more of the corporate shares of or partnership or other ownership interest in Tenant (unless Tenants stock is listed on a recognized securities exchange); (c) the dissolution of Tenant, unless such dissolution is immediately followed by the reconstitution of a successor entity that continues the business of Tenant with the same ownership of shares or constituent partnership interests and the same or greater Net Worth as existed prior to such dissolution; or (d) the sale or other transfer or disposition of substantially all of the assets of Tenant. Net Worth shall mean the excess of total assets over total liabilities, determined in accordance with generally accepted accounting principles (GAAP), excluding, however, from the determination of total assets, goodwill and other intangibles. Without limiting the other events that may constitute a subletting, any occupancy of all or any portion of the Premises by any person, firm, partnership or corporation, or any groups of persons, firms, partnerships or corporations, or any combination thereof, other than Tenant and its employees and transient business guests, shall be deemed a subletting of the Premises.
8.7 Documentation . Each assignee shall assume and be deemed to have assumed this Lease and shall be and remain jointly and severally liable with Tenant for the payment of Rent and for the timely performance of all of the obligations of Tenant hereunder. No assignment shall be binding on Landlord until the assignee or Tenant shall deliver to Landlord a counterpart of an assignment that contains a covenant of assumption by the assignee, but the failure or refusal of the assignee to execute such assumption shall not release or discharge the assignee from its liability as set forth above. No sublease shall be effective until Tenant shall deliver to Landlord a counterpart of such sublease whereby the subtenant acknowledges receipt of this Lease and agrees that its use and occupancy of the Premises (or a portion thereof) shall be subject to the terms and conditions hereof.
8.8 Tenant Remedies . Notwithstanding anything to the contrary in this Lease, if Tenant claims that Landlord has unreasonably withheld or delayed its consent under this Article 8 or otherwise has breached or acted unreasonably under this Article 8, Tenants sole remedy shall be declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including any right provided under California Civil Code Section 1995.310 or other Applicable Requirements to terminate this Lease.
8.9 Costs . Any notice by Tenant to Landlord of a proposed Transfer shall be accompanied by a payment of $1,500 as a non-refundable fee for the processing of Tenants request for Landlords consent. In addition to said fee, Tenant shall reimburse Landlord for reasonable attorneys fees and costs incurred by Landlord in connection with review and the preparation of documents in connection with a proposed Transfer, whether or not Landlord consents thereto.
8.10 No Merger . The surrender of this Lease by Tenant, or a mutual cancellation hereof, or the termination of this Lease in accordance with its terms, shall not result in a merger and shall, at the option of Landlord, terminate all or any existing subleases or operate as an assignment to Landlord of any or all such subleases.
8.11 Ownership Change . Tenant may assign this Lease to a successor to Tenant by purchase, merger, consolidation or reorganization (an Ownership Change ) or assign this Lease or
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sublet all or a portion of the Premises to an Affiliate without the consent of landlord, provided that all of the following conditions are satisfied (a Permitted Transfer ); (a) Tenant is not in Default; (b) in the event of an Ownership Change, Tenants successor shall own substantially all of the assets of Tenant and have a Net Worth which is at least equal to Tenants Net Worth as of the date of this Lease; (c) the Permitted Use does not allow the Premises to be used for retail purposes; and (d) Tenant shall give Landlord written notice at least fifteen (15) business days prior to the effective date of the Permitted Transfer. Tenants notice to Landlord shall include information and documentation evidencing the Permitted Transfer and showing that each of the above conditions has been satisfied. If requested by Landlord, Tenants successor shall sign an assumption agreement in a form designated by Landlord. Affiliate shall mean an entity controlled by, controlling or under common control with Tenant.
9. INSURANCE .
9.1 Insurance . Tenant shall, at all times during the Term, maintain the following insurance: (a) Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $3,000,000; (b) Property Insurance written on an All Risk or Special Perils form, with coverage for broad form water damage, including earthquake sprinkler leakage, at replacement cost value and with a replacement cost endorsement covering all of Tenants business and trade fixtures, equipment, moveable partitions, furniture, merchandise and other personal property within the Premises ( Tenants Property ); (c) Business Income Insurance and extra expenses coverage in amounts that shall reimburse Tenant for all rental and other payment obligations of Tenant under this Lease for a period of no less than one (1) year; (d) Workers Compensation Insurance in amounts required by Applicable Requirements; and (e) Employers Liability Coverage of at least $1,000,000.00 per occurrence.
9.2 Other Requirements . Any company writing Tenants insurance shall have an A.M. Best rating of not less than A-X. All Commercial General Liability Insurance policies shall name as additional insureds Landlord, the managing agent for the Building, and other parties reasonably designated by Landlord. All insurance carried by Tenant shall: (a) be written as primary policies, not contributing with or in excess of coverage that Landlord may carry; (b) not contain a cross-suits exclusion; (c) provide for separation of insureds; and (d) if applicable, include a per location endorsement reasonably acceptable to Landlord so that the general aggregate and other limits apply separately to the Premises. All of Tenants insurance policies shall contain endorsements that the insurer(s) shall give Landlord and its designees at least thirty (30) days advance written notice of any cancellation, termination, material change or lapse of insurance. Tenant shall provide Landlord with a certificate of insurance evidencing Tenants required insurance coverage, along with a copy of the endorsement naming the required parties as additional insureds, within ten (10) business days after the mutual execution of this Lease, and thereafter as necessary to ensure that Landlord always has current certificates evidencing Tenants compliance hereunder. In addition, upon request by Landlord, Tenant shall provide copies of its insurance policies.
10. TENANTS WAIVER OF LIABILITY AND INDEMNIFICATION .
10.1 Waiver and Release . To the fullest extent permitted by Applicable Requirements, neither Landlord nor the holder of any Superior Interests (as defined in Section 16.1 hereof), Landlord affiliate, or any of their respective officers, directors, partners, members, shareholders, employees, agents, or contractors (individually, including Landlord, Landlord Party , and collectively, Landlord Parties ), shall be liable to Tenant or any other Tenant Parties for, and Tenant waives and releases Landlord and the other Landlord Parties from, any and all Claims for loss or damage to any property or injury, illness or death of any person in, upon or about the Premises and/or any other portion of the Building or the Property, arising at any time and from any cause whatsoever (including such Claims caused in whole or in part by any active or passive act, omission, or neglect of Landlord or any Landlord Party and any Claims in which liability without fault or strict liability is imposed or sought to be imposed). Without limiting the generality of the foregoing, the preceding waiver and release extends to Claims resulting from any unauthorized or criminal acts of third parties, or caused by earthquake or earth movement, gas, fire, oil, electricity or water leakage from the roof, walls, windows, basement or other
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portion of the Premises, the Building or the Property, but with respect to any Landlord Party, excluding Claims to the extent that a final judgment of a court of competent jurisdiction establishes that such Claim was proximately caused by the fraud, willful injury to person or property or violation of Applicable Requirements by such Landlord Party. Claims means any and all obligations, losses, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, suits, orders or judgments), causes of action, liabilities, penalties, damages (including consequential and punitive damages), costs and expenses (including reasonable attorneys and consultants fees and expenses). Tenant Party or Tenant Parties means individually or collectively, Tenant, all persons or entities claiming by, through or under Tenant, and their respective officers, directors, partners, members, shareholders, employees, agents, contractors, licensees, and invitees. The provisions of this Section 10.1 shall survive the expiration or earlier termination of this Lease until all Claims within the scope of this Section 10.1 are fully, finally, and absolutely barred by the applicable statutes of limitations.
10.2 Indemnification of Landlord . To the fullest extent permitted by Applicable Requirements, Tenant shall indemnify, defend, protect and hold Landlord and the other Landlord Parties harmless of and from Claims arising out of or in connection with, or related to any of the following, including Claims brought by or on behalf of employees of Tenant, with respect to which Tenant waives, for the benefit of the Landlord Parties, any immunity to which Tenant may be entitled under any workers compensation laws: (a) the use or occupancy of, or the conduct of business in, the Premises; (b) the performance of Alterations; (c) the use, generation, storage, handling, release, transport, or disposal by Tenant or any other Tenant Parties of any Hazardous Materials in or about the Premises or any other portion of the Building or the Property, including damages for diminution in the value of the Property and sums to remediate, clean up and remove such Hazardous Materials; (d) any other occurrence or condition in, on, or about the Premises; or (e) acts, neglect or omissions of Tenant or any other Tenant Parties in or about any portion of the Building or the Property. The foregoing indemnification shall apply regardless of the active or passive negligence of Landlord Parties and regardless of whether liability without fault or strict liability is imposed or sought to be imposed on the Landlord Parties, but shall not apply with respect to any Landlord Party to the extent that a final judgment of a court of competent jurisdiction establishes that a Claim was proximately caused by the willful misconduct of that Landlord Party. Landlord shall have the right to approve legal counsel proposed by Tenant for defense of any Claim indemnified against hereunder or under any other provision of this Lease. If Landlord disapproves the legal counsel proposed by Tenant for the defense of any Claim indemnified against hereunder, Landlord shall have the right to appoint its own legal counsel, the reasonable fees, costs and expenses of which shall be included as part of Tenants indemnity obligation hereunder. The provisions of this Section 10.2 shall survive the expiration or earlier termination of this Lease until all Claims within the scope of this Section 10.2 are fully, finally, and absolutely barred by the applicable statutes of limitations. Tenants indemnity obligations under the Lease are subject to the waiver of subrogation contained in Section 10.4 of the Lease.
10.3 Landlord Indemnification . To the fullest extent permitted by Applicable Requirements, Landlord shall indemnify and hold Tenant and the other Tenant Parties harmless of and from Claims arising out of or in connection with, or related to the gross negligence or willful misconduct of Landlord or Landlord Parties, but only to the extent that a final judgment of a court of competent jurisdiction establishes that the Claim(s) was proximately caused by the gross negligence or willful misconduct of Landlord or another Landlord Party
10.4 Mutual Waiver of Subrogation . Landlord and Tenant hereby waive and release any and all rights of recovery against the other party, including officers, employees, agents and authorized representatives (whether in contract or tort) of such other party, that arise or result from any and all loss of or damage to any property of the waiving party located within or constituting part of the Building, including the Premises, to the extent of amounts payable under a standard ISO Commercial Property insurance policy, or such additional property coverage as the waiving party may carry, whether or not the party suffering the loss or damage actually carries any insurance, recovers under any insurance or self-insures the loss or damage. Each party shall have its property insurance policies issued in such form as to waive any right of subrogation as might otherwise exist. This mutual waiver is in addition to any other waiver or release contained in this Lease.
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11. CASUALTY .
11.1 Landlords Obligation to Repair . If the Premises or any other portion of the Building necessary for Tenants use and occupancy of the Premises, are damaged or destroyed by fire, earthquake, or any other event of a sudden, unexpected, or unusual nature ( Casualty ), Landlord shall, promptly after Landlord obtains actual knowledge of such damage or destruction ( Casualty Discovery Date ), notify Tenant of Landlords reasonable estimate of the time required to repair such damage or destruction. If Landlord estimates that the necessary repairs can be completed within ninety (90) days after the commencement thereof, then subject to Sections 11.2 and 11.4, Landlord shall repair the Premises, and/or the portion of the Building necessary for Tenants use and occupancy of the Premises, to substantially the condition existing immediately before such damage or destruction, to the extent commercially reasonable, and as permitted by then Applicable Requirements.
11.2 Landlords Election to Repair . If (a) Landlord estimates that repairs to the Premises cannot be completed within ninety (90) days after the commencement thereof, or (b) insurance proceeds are insufficient for rebuilding the Premises or the holder of any Superior Interests requires the insurance proceeds to be applied to payment of debt, or (c) any material uninsured damage to the Building occurs (whether or not the Premises are affected), then in any such event Landlord may elect to terminate this Lease or to repair the Premises and/or the portion of the Building necessary for Tenants use and occupancy of the Premises.
11.3 Performance of Repairs . If this Lease is not terminated, Landlord shall diligently repair the Building and all improvements in the Premises, other than Alterations. Tenant, at Tenants cost and expense, shall diligently repair Alterations. Tenant shall also diligently replace or repair, at Tenants cost and expense, Tenants Property. During such repairs, Monthly Base Rent and Tenants Share of increases in Escalations, shall be abated in the proportion that the rentable area of the Premises that is untenantable bears to the total rentable area of the Premises.
11.4 Damage at End of Term . Notwithstanding the above, if the Premises, or any portion of the Building necessary for Tenants use and occupancy of the Premises, are damaged or destroyed by Casualty during the last twelve (12) months of the Term, and such damage will prevent Tenant from using the Premises for a period in excess of thirty (30) consecutive business days, either party shall have the right, in its sole discretion, to terminate this Lease by notice to the other party given within thirty (30) days after the Casualty Discovery Date.
11.5 Waiver of Statutes . The respective rights and obligations of Landlord and Tenant in the event of a Casualty are governed exclusively by this Lease. Accordingly, Tenant hereby waives the provisions of any law to the contrary, including California Civil Code Sections 1932(2) and 1933(4), providing for the termination of a lease upon destruction of the leased property.
12. CONDEMNATION . If all or any part of the Premises shall be taken as a result of the exercise of the power of eminent domain or agreement in lieu thereof, this Lease shall terminate as to the part so taken as of the date of taking, and the Monthly Base Rent shall be equitably reduced. In the case of a partial taking, if Tenant cannot reasonably conduct business in the remaining Premises, Tenant shall have the right to terminate this Lease by giving written notice to Landlord within sixty (60) days after the date of the taking. In addition, if a portion of the Building is taken, and Landlord determines that it is not economically feasible to continue operating the remaining portion of Building, Landlord may terminate this Lease by giving written notice to Tenant, whether or not any portion of the Premises is taken. Landlord shall be entitled to all compensation awarded or received in connection with a taking, and Tenant hereby assigns to Landlord any and all elements of said compensation that Tenant would, in the absence of such assignment, have been entitled to receive. Without limiting the generality of the foregoing, Tenant shall have no claim for the bonus value of this Lease, or the value of tenant improvements, whether paid for by Landlord or Tenant; provided, however, that Tenant shall be entitled to receive any award for the loss of goodwill of Tenants business (but only to the extent the same does not constitute bonus value) and for any relocation expenses that Tenant is entitled under Applicable Requirements to recover directly from the condemning authority. Tenant waives the provisions of California Code of Civil Procedure Sections 1265.110 through 1265.160, or any similar or successor Applicable Requirements.
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13. ENTRY; MODIFICATIONS TO COMMON AREAS .
13.1 Entry . Upon reasonable prior verbal notice (except in the case of emergency), Landlord may enter the Premises at any time to (a) inspect the same, (b) exhibit the same to prospective purchasers, lenders or tenants, (c) determine whether Tenant is complying with all of its obligations hereunder, (d) post notices of non-responsibility, (e) enforce the provisions of this Lease, and (f) perform maintenance or repairs, or construct alterations or improvements to the Premises or any portion of the Building; provided, however, that Landlord shall use good faith efforts to perform such work as promptly as reasonably practical and so as to cause as little interference with Tenants use of the Premises as reasonably practical (provided that Landlord shall not be required to employ labor at overtime or premium rates). Landlord shall at all times have and retain a key with which to unlock all of the doors in, or about the Premises (excluding Tenants vaults and similar areas designated in writing by Tenant in advance); and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises or any portion thereof. If applicable, Tenant shall notify its alarm company or security service provider of Landlords rights under this Article, and Tenant and its security service provider shall cooperate with Landlord and Landlords lobby attendant (for example, by issuing alarm keys or codes to Landlords lobby attendant) to facilitate the exercise of Landlords rights under this Article.
13.2 Modifications to Common Areas . Landlord shall have the right, in its sole discretion from time to time, to: (a) make changes in the Common Areas and/or the Property, including changes in the location, size, and number of entrances, doors and doorways, corridors and stairs; and (b) use or temporarily close Common Areas for maintenance purposes or in connection with the construction of additional improvements on the Property, so long as Tenant has access to the Premises. Without limiting the generality of the foregoing, Landlord reserves the right to erect scaffolding and to install, use, maintain, relocate and repair pipes, ducts, conduits, wires and equipment serving the Premises or other parts of the Building.
13.3 No Claims . Notwithstanding the provisions of Section 10.3 hereof, There shall be no abatement of Rent by reason of Landlords actions pursuant to this Article 13, and 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. Any actions by Landlord pursuant to this Article 13 shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises, or any portion thereof.
14. DEFAULT BY TENANT .
14.1 Events of Default . The occurrence of any one or more of the following events ( Events of Default ) shall constitute a breach of this Lease by Tenant: (a) if Tenant fails to pay any Monthly Base Rent or Additional Rent when due hereunder and such failure continues for more than three (3) days after written notice thereof from Landlord; provided, however, that after the second such failure in a calendar year, only the passage of time, but no notice shall be required to constitute an Event of Default during the same calendar year; (b) if Tenant abandons the Premises (as defined in California Civil Code Section 1951.3); (c) if Tenant fails to deliver any estoppel certificate, subordination documents, financial statements or evidence of insurance within the respective time periods specified elsewhere in this Lease; (d) if Tenant fails to restore or increase the Security Deposit within the time period specified in Section 3.2; (e) if Tenant fails to surrender the Premises in the condition required upon the expiration or earlier termination of this Lease; (f) if Tenant fails to perform or observe any other agreement or term hereof (except those listed in subparagraphs (a) through (e) above), and such failure continues for more than ten (10) business days after written notice thereof from Landlord, provided that if such failure cannot reasonably be cured within ten (10) business days, an Event of Default shall not exist as long as Tenant commences the curing of such failure within ten (10) business days and thereafter diligently prosecutes
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and completes the curing of such failure within sixty (60) days after Landlords notice; (g) if Tenant or any guarantor of this Lease shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due or shall file a petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent or shall file a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file an answer admitting or shall fail timely to contest the material allegations of a petition filed against it in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or any material part of its property; (h) if within sixty (60) days after the commencement of any proceeding against Tenant or any guarantor of this Lease seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed, or if, within ninety (90) days after the appointment without the consent or acquiescence of Tenant or any guarantor of this Lease, of any trustee, receiver or liquidator of Tenant or such guarantor or of any material part of its properties, such appointment shall not have been vacated; or (i) if this Lease or any estate of Tenant hereunder shall be levied upon under any attachment or execution and such attachment or execution is not vacated within ten (10) days.
Tenant agrees that notwithstanding the foregoing provisions of this Section 14.1, Tenant shall be in default for purposes of Section 1161 of the California Code of Civil Procedure immediately following Tenants failure to comply with any agreements, terms or conditions of this Lease to be performed or observed by Tenant, and that any notice required to be given by Landlord under this Section 14.1 shall, in each case, be in lieu of, and not in addition to, any notice required under Section 1161 of the California Code of Civil Procedure, and shall be deemed to satisfy the requirement, if any, that notice be given pursuant to said section.
14.2 Termination Upon Default . In any notice given pursuant to any one or more Events of Default, Landlord in its sole discretion, may elect to declare a forfeiture of this Lease as provided in Section 1161 of the California Code of Civil Procedure, and provided that Landlords notice states such an election, Tenants right to possession shall terminate and this Lease shall terminate, unless on or before the date specified in such notice all arrears of Rent, and all costs and expenses incurred by or on behalf of Landlord hereunder, including attorneys fees incurred in connection with such default, shall have been paid by Tenant and all other breaches of this Lease by Tenant shall have been fully remedied to the satisfaction of Landlord. Provided that Landlord serves notice, if required, in accordance with the provisions of this Article, Tenant hereby waives any notice required by Section 1161 of the California Code of Civil Procedure. Upon such termination, Landlord may recover from Tenant (a) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (b) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could reasonably have been avoided; (c) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (d) any other amounts 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 things would be likely to result therefrom. The worth at the time of award of the amounts referred to in clauses (a) and (b) above shall be computed by allowing interest at the interest rate set forth in Section 14.8. The worth at the time of award of the amount referred to in clause (c) 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 1%. Unpaid rent shall include Escalations as well as Monthly Base Rent. For the purpose of determining unpaid rent under clause (c) above, Escalations for the balance of the Term shall be projected based upon the annual average rate of increase, if any, in Escalations from the Commencement Date through the time of award.
14.3 Continuation After Default . Even though Tenant has breached this Lease, this Lease shall continue in effect for so long as Landlord does not terminate Tenants right to possession, and Landlord may enforce all its rights and remedies, including the right pursuant to Section 1951.4 of the California Civil Code to recover Rent as it becomes due under this Lease, if Tenant has the right to sublet or assign, subject only to reasonable limitations. Acts of maintenance or preservation or efforts to relet
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the Premises or the appointment of a receiver upon the initiative of Landlord to protect Landlords interest under this Lease shall not constitute a termination of Tenants right to possession unless written notice of termination is given by Landlord to Tenant.
14.4 Other Relief . In the event of re-entry or taking possession of the Premises, Landlord shall have the right but not the obligation to remove all or any part of the trade fixtures, furnishings, equipment and personal property located in the Premises and to place the same in storage at a public warehouse at the expense and risk of Tenant or to sell such property in accordance with applicable law. The remedies provided for in this Lease are in addition to any other remedies available to Landlord at law or in equity, by statute or otherwise.
14.5 Landlords Right to Cure Default . All agreements and provisions to be performed by Tenant under any of the terms of this Lease shall be at its sole cost and expense and without abatement of Rent. If an Event of Default occurs, Landlord may, but shall not be obligated to, and without waiving or releasing Tenant from any of its obligations hereunder, make any payment or perform any other obligation of Tenant under this Lease. All sums so paid by Landlord and all costs incurred by Landlord to perform such obligations shall be deemed Additional Rent hereunder and shall be payable to Landlord on demand.
14.6 Remedies Cumulative . The rights and remedies of Landlord under this Lease are cumulative and in addition to all other rights and remedies available to Landlord at law or in equity by statute or otherwise. Landlords pursuit of any such right or remedy shall not constitute a waiver or election of remedies with respect to any other right or remedy.
14.7 Waiver of Forfeiture . Tenant hereby waives California Code of Civil Procedure Section 1179, California Civil Code Section 3275, and all such similar laws now or hereinafter enacted which would entitle Tenant to seek relief against forfeiture in connection with any termination of this Lease.
14.8 Interest; Late Charge . All amounts of Rent not paid when due shall accrue interest at twelve percent (12%) per annum, but in no event in excess of the maximum rate of interest permitted by law. Tenant acknowledges that late payment by Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Therefore, if any Monthly Base Rent or Additional Rent is not received by Landlord when due, Tenant shall pay to Landlord an additional sum equal to the greater of (a) Five Hundred Dollars ($500.00) or (b) ten percent (10%) of the overdue amount as a late charge, provided that Tenant shall be entitled to a grace period of five (5) days on the first two occasions in a calendar year that Tenant is delinquent. The parties agree that this late charge represents a fair and reasonable estimate of Landlords costs to be incurred by reason of Tenants late payment, but does not relieve Tenant from its obligation to pay Rent when due. Acceptance of any late charge shall not constitute a waiver of Tenants default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord.
14.9 Chronic Delinquency . For the purpose of this Lease, Chronic Delinquency by Tenant shall mean failure by Tenant to pay Monthly Base Rent, Escalations, or any other payment required to be paid by Tenant under this Lease, within five (5) days after the date such payment is due hereunder (including if such delinquency results from a check presented by Tenant being returned by the drawee bank or an EFT transaction being refused by Tenants bank for any reason) on two (2) or more separate occasions during any consecutive twelve (12) month period. In the event of a Chronic Delinquency, Landlord shall have the right, in addition to all other remedies under this Lease and law, to require that subsequent installments of Rent be paid by Tenant quarterly in advance, by certified check, and that Tenant shall, within five (5) days after request, increase the Security Deposit by an amount equal to twice the then applicable Monthly Base Rent. This provision shall not limit in any way nor be construed as a waiver of the rights and remedies of Landlord provided herein or by law in the event of even one instance of delinquency.
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15. DEFAULT BY LANDLORD; LIMITATION ON LIABILITY .
15.1 Notice and Cure Period . Landlord shall not be in default in the performance of any obligation required to be performed by Landlord under this Lease unless Landlord has failed to perform such obligation within thirty (30) days after written notice of such failure (or such longer period as is reasonably necessary to remedy such default, provided that Landlord shall commence to cure within such thirty (30) days and diligently pursue such remedy until such default is cured). No default by Landlord under this Lease shall entitle Tenant to terminate this Lease or to obtain special, indirect or consequential damages, and Tenant hereby unconditionally waives the remedy of constructive eviction in respect of any such default by Landlord.
15.2 Limitation on Liability . Landlords liability to Tenant for any default by Landlord under this Lease or arising in connection with Landlords operation, management, leasing, repair, renovation, alteration or any other matter relating to the Building or the Premises shall be limited solely to the lesser of (a) the interest of Landlord in the Building, or (b) the equity interest Landlord would have in the Building if the Building were encumbered by third party debt in an amount equal to eighty percent (80%) of the value of the Building (as such value is determined in good faith by Landlord). Neither Landlord nor any other Landlord Party shall have any personal liability for any judgment or deficiency. Further, in no event shall Landlord or any Landlord Party be liable under any circumstances for any special, indirect or consequential damages or for any injury or damage to, or interference with, Tenants business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, arising from any cause whatsoever.
16. SUBORDINATION .
16.1 Subordination . This Lease shall be subject and subordinate to all ground or underlying leases, mortgages and deeds of trust ( Superior Interests ) that now or may hereafter affect or encumber the Building or the Property (including Superior Interests encumbering the leasehold estate in any ground lease or leases) and to all renewals, modifications, consolidations, replacements and extensions thereof, unless the holder of a Superior Interest elects to subordinate its Superior Interest to this Lease. Within ten (10) days after request by Landlord or the holder of any Superior Interest, Tenant shall execute documents to confirm the subordination or superiority of this Lease to any Superior Interest. Upon request, Tenant shall attorn to any successor to Landlords interest in this Lease without any offsets or defenses which Tenant might have against any prior Landlord.
16.2 Notice and Cure Rights . No notice from Tenant to Landlord of a Landlord default shall be effective unless and until a copy of the same is given to the holder of any Superior Interest of which Tenant has been notified, and the curing of any of Landlords defaults by the holder of such Superior Interest within a reasonable time after receipt of such notice from Tenant shall be treated as timely performance by Landlord.
17. ESTOPPEL CERTIFICATE . Within ten (10) days after notice from Landlord, Tenant shall execute and deliver to Landlord, in recordable form, a certificate certifying: (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, stating the date and nature of each modification); (b) the Commencement Date and the Expiration Date; (c) that Tenant has accepted the Premises and Landlord has properly completed any improvements required to be made by Landlord (or the reasons why Landlord has not done so); (d) the amount of the current Monthly Base Rent and Escalations, if any, and the date to which Rent has been paid; (e) that no default on the part of Tenant exists (except as to defaults specified in the certificate); (f) that no default of Landlord is claimed by Tenant and there are no defenses against enforcement of Tenants obligations under this Lease (except as specified in the certificate); and (g) such other matters as may be reasonably requested by Landlord. If requested, Tenant shall also attach to such certificate a copy of this Lease and any amendments, and include a certification by Tenant that such attachment is a true, correct and complete copy of this Lease. If Tenant fails to deliver such a certificate within said ten (10) day period, then the information contained in such certificate as submitted by Landlord shall conclusively be deemed correct for all purposes.
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18. RELOCATION . Landlord shall have the right to relocate Tenant to other space in the Building only if the following conditions are satisfied: (i) Landlord shall give Tenant at least six (6) months prior written notice of such relocation; (ii) the substitute space shall be on the same floor or higher, comparable in configuration, size and view to the Premises; (iii) the leasehold improvements in the substitute space shall be equal or better than those contained in the Premises; (iv) Landlord shall reimburse Tenant for all out-of-pocket expenses reasonably incurred by Tenant due to such relocation, including, without limitation, costs incurred in data cabling and reasonable costs for replacing stationery, business cards and similar items; (v) the physical relocation shall take place on a weekend; and (vi) Tenants monthly rent and Tenants share of Operating Expenses and Taxes shall be appropriately reduced if the substitute space is smaller than the Premises, but shall not be increased if the substitute space is larger than the Premises. Notwithstanding the foregoing, Tenant shall have the right, exercisable within thirty (30) days after receipt of Landlords relocation notice, to terminate the Lease as of the date that Landlord specifies for relocation in its relocation notice.
19. HOLDING OVER AND SURRENDER .
19.1 Surrender . Subject to Section 7.3(d), Tenant shall surrender the Premises upon the expiration or earlier termination of this Lease in the same condition as received, reasonable wear and tear and damage by the elements excepted. Any personal property of any kind remaining in the Premises after the expiration or earlier termination of this Lease shall become the personal property of Landlord. Tenant hereby relinquishes all right, title and interest in the personal property and agrees that Landlord may dispose of the personal property as it sees fit in its sole discretion. Tenant waives the provisions of California Civil Code Sections 1980 et seq . and 1993 et seq . governing the disposal of lost or abandoned property, and releases Landlord, its employees and agents from any and all claims, damages, liabilities and actions of every kind and nature whatsoever, whether now known or unknown, arising out of or relating to disposal of personal property remaining in the Premises after the expiration or earlier termination of this Lease. Notwithstanding anything in this Lease to the contrary, Tenant will have no obligation to remove the Tenant Improvements made pursuant to Exhibit D, hereof.
19.2 Holding Over . Any holding over after the expiration or other termination of this Lease with the written consent of Landlord shall be construed to be a tenancy from month to month at the Monthly Base Rent in effect on the date of such expiration or termination or such other Monthly Base Rent as shall be agreed upon in writing by the parties and otherwise on all the terms of this Lease. Any holding over after the expiration or other termination of this Lease without the written consent of Landlord shall be construed to be a tenancy at sufferance on all the terms of this Lease, except that the Monthly Base Rent shall, for the initial three (3) months following the commencement of Tenant holding over, be an amount equal to one hundred fifty percent (150%) of the Monthly Base Rent payable by Tenant immediately prior to such holding over. Should Tenant continue holding over at the time, commencing upon the fourth (4 th ) month following the commencement of Tenant holding over, Monthly Base Rent shall be increased to an amount equal to one two hundred percent (200%) of the Monthly Base Rent payable by Tenant immediately prior to such holding over. During any such holding over by Tenant, either with or without Landlords consent, Tenant shall continue to pay Escalations in accordance with Exhibit B . Acceptance by Landlord of Rent after the expiration or termination of this Lease shall not constitute Landlords consent to any such tenancy from month to month or result in any other tenancy or any renewal of the Term.
20. NOTICES . All notices, consents, demands and other communications from one party to the other given pursuant to the terms of this Lease or under the laws of the State of California, including notice under Section 1161 of the California Code of Civil Procedure, shall be in writing and delivered by hand or sent by U.S. certified mail, return receipt requested, or by same day or overnight courier service at the respective addresses for Landlord and Tenant set forth in Section 9 on the Summary. Each notice shall be deemed to have been received on the earlier to occur of actual delivery or the date on which delivery is refused, or, if Tenant has vacated the Premises or its last notice address without providing a new notice address, three (3) days after notice is deposited in the U.S. mail. Either party may, at any time, change its notice address (other than to a post office box) by giving the other party written notice of the new address. Tenant agrees that service of notice in accordance with the terms of this Lease shall be
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in lieu of the methods of service specified in Section 1162 of the California Code of Civil Procedure. Any notice required pursuant to any laws may be incorporated into, given concurrently with, or given separately from any notice required under this Lease. The provisions of subdivision (a) of Section 1013 of the California Code of Civil Procedure, extending the time within which a right may be exercised or an act may be done, shall not apply to a notice given pursuant to this Lease.
21. WAIVER OF TRIAL BY JURY; VENUE . LANDLORD AND TENANT EACH HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE REQUIREMENTS THAT ARE NOW IN FORCE OR ARE SUBSEQUENTLY ENACTED, TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANTS USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE OR ANY EMERGENCY OR STATUTORY REMEDY. IF LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NON-PAYMENT OF RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, AND ANY SUCH COUNTERCLAIM SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW. IN ADDITION, LANDLORD AND TENANT EACH WAIVES ANY OBJECTION TO VENUE IN THE CITY AND COUNTY OF SAN FRANCISCO, AND CONSENTS TO PERSONAL JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING IN CONNECTION WITH THIS LEASE.
22. MISCELLANEOUS .
22.1 Governing Law . This Lease shall be governed by and construed in accordance with the laws of the State of California.
22.2 Attorneys Fees . Should either party bring an action against the other party to enforce or interpret this Lease, including in state or federal court actions or proceedings, then the party which prevails in such action shall be entitled to its reasonable attorneys fees and expenses related to such action, in addition to all other recovery or relief. The non-prevailing party shall also be obligated to pay attorneys fees and costs incurred in any post-judgment proceedings to enforce and collect the judgment, which obligation shall survive the merger of this Lease into any judgment on this Lease. A party shall be deemed to have prevailed in any such action (without limiting the generality of the foregoing) if such action is dismissed upon the payment by the other party of the sums allegedly due or the performance of obligations allegedly not complied with, or if such party obtains substantially the relief sought by it in the action, irrespective of whether such action is prosecuted to judgment. Tenant shall also pay all attorneys fees and costs Landlord incurs in defending this Lease or otherwise protecting Landlords rights in any voluntary or involuntary bankruptcy case, assignment for the benefit of creditors, or other insolvency, liquidation or reorganization proceeding involving Tenant or this Lease, including all motions and proceedings related to relief from an automatic stay, lease assumption or rejection, use of cash collateral, claim objections, disclosure statements and plans of reorganization. In addition, if as a result of any breach or default on the part of Tenant under this Lease, Landlord uses the services of an attorney in order to secure compliance with this Lease, Tenant shall reimburse Landlord upon demand as Additional Rent for any and all attorneys fees and expenses incurred by Landlord, whether or not formal legal proceedings are instituted, including the costs of preparing and serving demand letters, default notices and similar non-judicial enforcement activities. Further, whenever Tenant provides notice to Landlord, requests Landlords consent, or submits documents for Landlords review, Tenant shall pay to Landlord all reasonable costs, including attorneys fees, incurred by Landlord in connection with such notice, request or submittal.
22.3 Administrative Fees . If Landlord makes any repairs that are the obligation of Tenant or repairs any damage caused by Tenant or Tenant Parties, as provided in Sections 7.1 and 7.2 respectively, in addition to reimbursing Landlord for the reasonable cost of such repairs, Tenant shall pay Landlord an administrative fee equal to ten percent (10%) of the cost of the repairs. Whenever Tenant provides notice to Landlord, requests Landlords consent, or submits documents to Landlord for Landlords review, Tenant shall pay to Landlord all reasonable out-of-pocket costs and expenses, including attorneys fees and disbursements, incurred by Landlord in connection therewith.
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22.4 No Waiver . Landlords failure to take advantage of any default or breach of covenant on the part of Tenant shall not be, or be construed, as a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this instrument be construed to waive or to lessen the right of Landlord to insist upon the performance by Tenant of any term, covenant or condition hereof, or to exercise any rights given him on account of any such default. A waiver of a particular breach or default shall not be deemed to be a waiver of the same or any other subsequent breach or default. The acceptance of Rent hereunder shall not be, nor be construed to be, a waiver of any breach or rights, including the right to possession, other than the failure of Tenant to pay the particular Rent so accepted.
22.5 Sale . Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations under this Lease and in the Building and the Property. Upon transfer, Landlord shall be released from all obligations under this Lease, and Tenant agrees to look solely to the successor-in-interest of Landlord, provided that any successor pursuant to a voluntary transfer (but not an involuntary transfer, including a transfer resulting from a foreclosure or deed in lieu thereof) shall assume Landlords obligations under this Lease.
22.6 Interpretation . The words Landlord and Tenant as used herein shall include the plural as well as the singular. The captions preceding Articles and Sections are solely for convenience of reference and shall have no effect upon the interpretation of this Lease. The words include, includes, and including shall be deemed to be followed by the phrase without limitation. The phrase business days shall mean Monday through Friday, excluding holidays. This Lease shall be interpreted in accordance with its fair meaning and not strictly for or against either party. If there be more than one Tenant, the obligations of Tenant hereunder are joint and several, and the act of or notice from, or notice or refund to, or the signature of, any one or more of them, with respect to the tenancy or this Lease, including but not limited to, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. If any provision of this Lease, or the application thereof to any person or circumstance, is determined to be illegal, invalid or unenforceable, the remainder of this Lease, or its application to other persons or circumstances, shall not be affected thereby and shall remain in full force and effect, unless such enforcement would be grossly inequitable. This Lease shall be construed as though the covenants between Landlord and Tenant are independent. Time is of the essence of each and every covenant contained in this Lease.
22.7 Successors and Assigns . Subject to the provisions hereof relating to assignment and subletting, this Lease is intended to and does bind the heirs, executors, administrators, successors and assigns of any and all of the parties hereto.
22.8 Force Majeure . Whenever a period of time is prescribed for the taking of an action by Landlord or Tenant (other than the payment of Rent or the Security Deposit), the period of time for the performance of such action shall be extended by the number of days that performance is actually delayed due to strikes, acts of God, shortages of labor or materials, war, terrorist acts, civil disturbances and other causes beyond the reasonable control of the performing party (each, a Force Majeure Event ).
22.9 Financial Statements . Within ten (10) business days after Landlords written request from time to time (not more than once per year), Tenant shall furnish Landlord with audited financial statements reflecting Tenants then-current financial condition, or, if audited financial statements are not available, then financial statements certified by an officer, partner, managing member or owner of Tenant, in such form and detail as Landlord may reasonably request. Tenant represents and warrants that the financial information and representations provided to Landlord in conjunction with the making of this Lease and provided hereafter are true and accurate in all material respects.
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22.10 No Light, Air, or View Easement . Nothing contained in this Lease shall be deemed, either expressly or by implication, to create any easement for light and air or access to any view. Any diminution or shutting off of light, air or view to or from the Premises by any structure which now exists or which may hereafter be constructed, whether by Landlord or any other person or entity, shall in no way affect this Lease or Tenants obligations hereunder, entitle Tenant to any reduction of Rent, or impose any liability on Landlord. Further, under no circumstances at any time during the Term shall any temporary darkening of any windows of the Premises or any temporary obstruction of the light or view therefrom by reason of any repairs, improvements, maintenance or cleaning in or about the Building in any way impose any liability upon Landlord or in any way reduce or diminish Tenants obligations under this Lease.
22.11 Recordation . Neither this Lease, nor any notice or memorandum regarding the terms hereof, shall be recorded by Tenant. Any such unauthorized recording shall be an Event of Default for which there shall be no cure or grace period.
22.12 Survival . The waivers of the right of jury trial, the other waivers of claims or rights, the releases and the obligations of Tenant under this Lease to indemnify, protect, defend and hold harmless Landlord and/or Landlord Parties shall survive the expiration or termination of this Lease, and so shall all other obligations or agreements of Landlord or Tenant which by their terms survive expiration or termination of this Lease.
22.13 Brokers . Tenant covenants and represents to Landlord that it has dealt with no brokers in connection with this Lease other than Landlords Brokers) and Tenants Broker(s) listed in Section 8 of the Summary. Tenant agrees to protect, defend, indemnify and hold Landlord harmless from any and all Claims resulting from a breach of the foregoing representation.
22.14 Authority . Tenant and each of the persons executing this Lease on behalf of Tenant, does hereby represent and warrant that: (a) Tenant is a duly authorized and existing entity; (b) Tenant has and is qualified to do business in the State of California; (c) Tenant has full right and authority to enter into this Lease; (d) each and both of the persons signing on behalf of Tenant are authorized to do so; and (e) Tenant is not, and the entities or individuals constituting Tenant or which may own or control Tenant or which may be owned or controlled by Tenant are not, identified on any list compiled pursuant to Executive Order 13224 for the purpose of identifying suspected terrorists. If Tenant is a corporation, within thirty (30) days after execution of this Lease by Tenant, Tenant shall deliver to Landlord a certified corporate resolution authorizing Tenant to execute this Lease and authorizing the persons who signed below on behalf of Tenant to execute this Lease.
22.15 Quiet Enjoyment . Landlord covenants, in lieu of any implied covenant of quiet possession or quiet enjoyment, that so long as Tenant is in compliance with the covenants and conditions set forth in this Lease, Tenant shall have the right to quiet enjoyment of the Premises without hindrance or interference from Landlord or those claiming through Landlord, subject to the covenants and conditions set forth in this Lease and to the rights of any holders of Superior Interests.
22.16 Name and Address . Landlord reserves the right, without any liability to Tenant, to change the name and/or street address of the Building.
22.17 No Offer . No contractual or other rights shall exist between Landlord and Tenant with respect to the Premises until both have executed and delivered this Lease, notwithstanding that rental deposits have been received by Landlord and notwithstanding that Landlord has delivered to Tenant an unexecuted copy of this Lease. The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or any option for the Tenant to lease, or otherwise create any interest by Tenant in the Premises or any other Premises situated in the Building. Execution of this Lease by Tenant and return to Landlord shall not be binding upon Landlord, notwithstanding any time interval, until Landlord has in fact executed and delivered this Lease to Tenant.
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22.18 Addenda and Exhibits . The Addenda and Exhibits listed in Section 10 of the Summary are attached hereto and are hereby made an integral part of this Lease.
22.19 Counterparts . This Lease may be executed in counterparts. All such executed counterparts shall constitute the same agreement, and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. The parties intend to sign and deliver this Lease by electronic or facsimile transmission. Each party agrees that the delivery of this Lease by electronic or facsimile transmission shall have the same force and effect as delivery of original signatures and that each party may use such electronic or facsimile signatures as evidence of the execution and delivery of this Lease by all parties to the same extent that an original signature could be used.
22.20 Entire Agreement . There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease or the Building. There are no representations between Landlord and Tenant other than those contained in this Lease and all reliance with respect to any representations is based solely upon the terms of this Lease.
22.21 Parking . At the commencement of the lease, Landlord will make available one (1) reserved parking space in the lower level of the Building at the current monthly parking rate of Five Hundred Dollars ($500) per space. Such rate is subject to change in accordance with market conditions. If Tenant does not rent such space at the commencement of this Lease or if Tenant ceases to rent the space during the Term of the lease, Landlord will be free to rent such space to another party, without further liability or obligation to Tenant. Tenant hereby agrees to follow all reasonable, nondiscriminatory garage rules and procedures established by Landlord or the garage operator. Tenant agrees to sign any and all documents, and to pay any and all fees and charges, required by Landlord or the garage operator of other parking renters to rent such parking spaces. Landlords obligation to make such parking space available to Tenant shall be subject to ordinances and regulations of the applicable governmental authority concerning off-street parking and loading facilities, either now existing or hereafter enacted. Landlord or the garage operator each reserve the right to change, reconfigure, or rearrange the garage and parking areas, to reconstruct or repair any portion thereof, and to restrict or eliminate the use of the garage and parking areas and do such other acts in and to the garage and parking areas as they deem necessary or desirable, without such actions being deemed an eviction of Tenant or a disturbance of Tenants use of the Premises, and without Landlord being deemed in default hereunder; provided, however, that Landlord shall use commercially reasonable efforts to minimize (to the extent consistent with Legal Requirements) the extent and duration of any resulting interference with Tenants parking rights. Landlord and the garage operator shall not be liable for any damage of any nature to, or any theft of, vehicles, or the contents thereof, in or about the garage and parking areas. At Landlords request, Tenant shall execute an agreement confirming the foregoing.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written.
LANDLORD : | ||||
101 Montgomery Street Co., a California limited partnership |
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By: | Cahill Montgomery Corp., | |||
a California corporation, | ||||
its general partner | ||||
By: |
/s/ William R. Cahill |
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William R. Cahill | ||||
President | ||||
TENANT : | ||||
Audentes Therapeutics, Inc. a Delaware corporation |
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By: |
/s/ Matthew Patterson |
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Name: |
Matthew Patterson |
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Title: |
CEO |
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By: |
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Name: |
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Title: |
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ADDENDUM ONE
LINES AND EQUIPMENT
1. Lines . Tenant agrees that any new or existing telephone or data wires and cables (collectively, Lines ) serving the Premises shall be its sole responsibility to maintain, repair, upgrade or replace. Lines shall include both copper and fiber-optic cable and wire, conduit, switchboard, splice box, riser and related items. Subject to Section 3 below, Tenant may install, maintain, replace, remove or use Lines, provided that (a) Tenant shall obtain Landlords prior written consent, use the contractor approved by Landlord, and comply with all of the other provisions of the Lease and such other rules and procedures as may be established by Landlord from time to time, (b) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Building, as determined in Landlords reasonable opinion, (c) any such Lines (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, and shall be surrounded by a protective conduit reasonably acceptable to Landlord, (d) all such Lines servicing the Premises shall comply with all Applicable Requirements, (e) as a condition to permitting the installation of new Lines, Landlord may require that Tenant remove existing Lines located in or serving the Premises and repair any damage caused by such removal, (f) in the case of the installation of new Lines, Tenant, at the time of installation, shall label such Lines, on each floor through which they pass, with an identification system reasonably approved by Landlord, (g) Landlord shall not be required to grant separate access to the Building to Tenants telecommunications services and equipment provider in connection with such Lines, and (h) Tenant shall pay all costs in connection with the foregoing.
2. Telecommunications Equipment . Subject to Section 3 below, Tenant may install, maintain, replace, remove or use telecommunications or other signal or data reception or transmission equipment (collectively, Equipment ) in the Premises, provided that (a) Tenant shall obtain Landlords prior written consent, use the contractor approved by Landlord, and comply with all of the other provisions of the Lease and such other rules and procedures as may be established by Landlord from time to time, (b) any such Equipment shall comply with all Applicable Requirements, and (c) Tenant shall pay all costs in connection with the foregoing.
3. Interference .
(a) Tenants Interference . Upon notice of any electrical, electromagnetic, radio frequency, or other interference with the Building Systems or any telecommunication or other signal or data reception or transmission equipment and/or system in or serving the Building and/or its occupants caused by Tenants Lines or Equipment ( Interference ), Tenant shall immediately cooperate with Landlord to identify the source of the Interference and shall, within twenty-four (24) hours, if requested by Landlord, cease all operations of Lines and Equipment (except for intermittent testing as approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed) until the Interference has been corrected to the reasonable satisfaction of Landlord, unless Tenant reasonably establishes prior to the expiration of such twenty-four (24) hour period that the Interference is not caused by Tenants Lines or Equipment, in which case Tenant may operate its Lines or Equipment pursuant to the terms of the Lease. Tenant shall be responsible for all costs associated with any tests deemed reasonably necessary to resolve any and all Interference as set forth in this Addendum One. If such Interference has not been corrected within ten (10) business days after notice to Tenant of its occurrence, Landlord may (i) require Tenant to remove the specific Line or Equipment causing such Interference pursuant to the terms of Section 4(d) below, or (ii) eliminate the Interference at Tenants expense, provided such Interference is actually caused by Tenants Lines or Equipment. If Tenant is required to stop using its Lines or Equipment to remedy Tenants Interference, Tenant shall not be entitled to compensation from Landlord nor shall there be an abatement in Rent therefor.
(b) Other Partys Interference . If the lines or equipment of any other party causes Interference with Tenants Lines or Equipment, Tenant shall reasonably cooperate with such other party to resolve such Interference in a mutually acceptable manner.
ADDENDUM ONE - 1
4. General Provisions .
(a) Consultation with Landlord . Tenant shall consult with Landlord in advance of any installation of any Lines or Equipment that may cause any electrical, electromagnetic, radio frequency, or other interference with the Building Systems or any telecommunication or other signal or data reception or transmission system and/or Equipment in or serving the Building and/or its occupants at the earliest practicable stage of consideration of such installation.
(b) Landlords Rights . Access to telephone risers, closets and equipment outside of the Premises may be controlled by Landlord. Landlord may, but shall not have the obligation to, reasonably direct, monitor, and/or supervise the installation, maintenance, replacement and removal of any Lines or Equipment.
(c) Damage . Tenant shall be responsible for any loss, damage or injury caused by Tenant, its employees, agents or subcontractors to Building communication lines. Without limiting the generality of the foregoing, if repair or replacement of a Line shall pierce a fire-rated separation, Tenant shall reimburse Landlord for cost of restoring the integrity of said separation.
(d) Removal . Landlord reserves the right to require that Tenant remove any Lines or Equipment located in or serving the Premises that (i) are installed in violation of these provisions, or (ii) are at any time in violation of any Applicable Requirements, or (iii) present a dangerous or potentially dangerous condition, or (iv) present a threat to the structural integrity of the Building, or (v) threaten to overload the capacity of, or affect the temperature otherwise maintained by, the air conditioning system, or the capacity of the Buildings electrical system. In addition, Landlord reserves the right to require Tenant to remove Lines and Equipment upon the expiration or earlier termination of the Lease. The removal of Lines or Equipment shall be performed by the contractor specified by Landlord. If Tenant fails to remove any Lines or Equipment as required by Landlord, or if Tenant violates any other provision of this Addendum One . Landlord may, after three (3) days written notice to Tenant, remove such Lines and/or Equipment, as the case may be, or remedy such other violation, at Tenants expense (without limiting Landlords other remedies available under this Lease or Applicable Requirements); provided, however, that Landlord shall have the right to remove any such Lines and/or Equipment immediately, without notice to Tenant, in the event of an emergency.
(e) Approval by Landlord . Landlords approval of, or requirements concerning, Lines and Equipment, the plans, specifications or drawings related thereto or Tenants contractors, subcontractors, or service provider, shall not be deemed a warranty as to the adequacy thereof, and Landlord hereby disclaims any responsibility or liability for the same. Landlord further disclaims all responsibility for the condition, security or utility of Lines and Equipment, and makes no representation regarding the suitability of any such Lines or Equipment for Tenants intended use or the adequacy or fitness of the Building Systems for any such Lines or Equipment.
(f) Waiver of Claims . Landlord shall have no liability for damages arising from, and Landlord does not warrant that Tenants use of any Lines or Equipment will be free from, the following: (i) any shortages, failures, variations, interruptions, disconnections, loss or damage caused by the installation, maintenance, replacement, use or removal of Lines and/or Equipment by or for other tenants or occupants of the Building, by any failure of the environmental conditions or the power supply for the Building to conform to any requirements for the Lines and/or Equipment, or any other problems associated with any Lines and/or Equipment by any other cause; (ii) any failure of any Lines and/or Equipment to satisfy Tenants requirements; or (iii) any eavesdropping or wire-tapping by unauthorized parties. Without limiting the generality of any other provision of this Lease, in no event shall Landlord be liable for damages by reason of loss of profits, business interruption or other consequential damage arising from the foregoing occurrences. Tenant further waives any right to claim that any occurrence described in clauses (i), (ii) and (iii) above constitutes grounds for a claim of abatement of Rent, actual or constructive eviction, or termination of this Lease.
ADDENDUM ONE - 2
ADDENDUM TWO
ELECTRONIC FUNDS TRANSFER
1. Landlord Potion to Collect Via Electronic Funds Transfer (EFT) . Instead of requiring Tenant to pay Rent, late fees and other charges at the location designated in the Lease, Landlord may, upon mutual agreement of Landlord and Tenant, upon not less than thirty (30) days prior notice to Tenant, require Tenant to promptly execute and deliver any documents, instruments, authorizations, or certificates required by Landlord to give effect to an EFT method of payment, whereby any or all payments by Tenant shall be debited monthly or from time-to-time, as determined by Landlord, from Tenants account in a bank or financial institution designated by Tenant and credited to Landlords designated bank account. Landlord may terminate the EFT method of payment upon thirty (30) days written notice to Tenant, after which payment shall be made at the location set forth in the Lease.
2. Fees and Charges . Tenant shall promptly pay all reasonable service fees and related bank charges to Landlord resulting from insufficient funds in Tenants designated bank account or de-authorized EFT transactions, together with late charges due under the Lease. Landlord shall credit Tenant for any bona fide bank charges imposed by Tenants bank or financial institution due to Landlords EFT system.
3. Tenant to Notify of Change in Bank . If Tenant elects to change the bank or financial institution from which any Rent and other charges under the Lease are automatically debited, notification of such change and the required documents, instruments, authorizations, and certificates specified in Paragraph 1 above must be received by Landlord no later than fifteen (15) days prior to the date of the next Rent payment.
4. Mistake in Debit . Tenant agrees that it shall remain responsible to Landlord for all payments of Rent, late fees and other charges pursuant to the Lease, even if Tenants bank account is incorrectly debited in any given month. If an error in the debit is made in the favor of Tenant, Tenant shall correct the underpayment within three (3) business days after receipt of notice from Landlord. If an error in the debit is made in favor of Landlord, Landlord shall refund the overpayment within the earlier of three (3) business days after Landlords discovery of the error or three (3) business days after receipt of notice from Tenant.
5. Tenant EFT Default . Tenants failure to properly designate a bank or financial institution, Tenants de-authorization of a bona fide debit, or Tenants failure to promptly provide appropriate information in accordance with this Addendum when requested by Landlord shall constitute an Event of Default if not cured within the applicable time set forth in the Lease. For purposes of this paragraph, cure of an EFT default shall mean timely delivery to Landlord of a cashiers check for all sums due and reactivation of EFT payments as required by this Addendum.
ADDENDUM TWO - 1
EXHIBIT A
FLOOR PLAN
EXHIBIT A - 1
EXHIBIT B
EXPENSES AND TAXES
This Exhibit is attached to and made a part of the Office Lease (the Lease ) by and between 101 Montgomery Street Co. ( Landlord ) and Audentes Therapeutics, Inc. ( Tenant ) for space in the Building located at 101 Montgomery Street. All capitalized terms not otherwise defined herein shall have the respective meanings given to them in the Lease.
1. Definitions .
(a) The term Base Year shall mean calendar year 2014.
(b) The term Escalations shall mean the sum of Expenses and Taxes.
(c) The term Expenses shall mean all costs and expenses incurred by Landlord in connection with the management, operation, maintenance and repair of the Property, including, without limitation, the following costs: (i) building maintenance and repairs (including maintenance contracts for the elevators, HVAC and other Building Systems and equipment); (ii) janitorial, lobby attendant, window washing, waste disposal, recycling, composting, and pest control services; (iii) wages, bonuses, payroll taxes, insurance, pension, vacation, and other benefits of employees of Landlord or its agents engaged in the management, operation, maintenance or repair of the Property; (iv) utilities and sewer charges; (v) supplies and tools; (vi) property management fees and expenses; (vii) insurance premiums (including deductible amounts); (viii) building office expenses and other administrative expenses; (ix) accounting and other professional services; (x) maintenance, repair or replacement of sidewalks, landscaping and other Common Areas (including any parking facilities); (xi) property management office rent or rental value; and (xii) construction, installation or acquisition of capital improvements or capital assets to comply with any Applicable Requirements, to protect the health and safety of the occupants of the Building or to reduce other Expenses, provided that such costs are amortized over the useful life thereof as reasonably determined by Landlord at an interest rate of nine percent (9%) per annum, or, if applicable, the rate paid by Landlord on funds borrowed for the purpose of constructing, installing or acquiring such capital improvements or capital assets (except that Landlord may include in any calendar year a portion of the cost of such capital improvement or capital asset equal to Landlords estimate of the amount of the reduction in other Expenses resulting from such capital improvement or capital asset during such calendar year).
Expenses shall not include: (1) interest on debt or amortization payments on any mortgages or deeds of trust, except as expressly provided in the preceding paragraph; (2) costs of restoration to the extent of net insurance proceeds received by Landlord with respect thereto; (3) costs incurred in renovating or otherwise improving, painting or redecorating usable space for tenants; (4) leasing commissions and other similar payments paid to agents or employees of Landlord, independent brokers and other persons incurred in connection with Landlords leasing of the Building; (5) costs for space planning of tenant space in the Building; (6) repairs or other work occasioned by fire, windstorm or other casualty or damage to the extent Landlord is reimbursed by insurance; (7) advertising and publicity expenditures; (8) reserve accounts; (9) any compensation paid to clerks, attendants or other persons in commercial concessions, if any, involved in the operation of any retail space or similar concessions; (10) the costs of abating or removing asbestos; (11) costs of any services sold or provided tenants or other occupants for which Landlord is reimbursed by such tenants or other occupants as an additional charge over and above the base rental and escalations payable under the lease with such tenant or other occupant; (12) the cost of capital improvements or capital assets, except as provided expressly in the preceding paragraph; (13) the cost of any political or charitable donations; (14) costs of purchasing, installing and replacing art work or decorative features to the extent the same materially exceed such costs charged by the owners of comparable buildings; (15) legal fees and costs incurred in connection with the negotiation of leases, or the sale, transfer, financing or re-financing of the Building; or (16) Landlords general corporate overhead related to the operation of other buildings owned by Landlord, provided that Landlords manager may aggregate general corporate overhead for the Building and other
EXHIBIT B - 1
buildings managed by Landlords manager and allocate to the Building a portion of the cost of such overhead that Landlord or Landlords manager determines in good faith properly represents the cost of overhead actually provided for the benefit of the Building.
(d) The term Taxes shall mean taxes, assessments and charges now or hereafter levied or assessed upon, or with respect to, the Property, or any personal property of Landlord used in the operation thereof or located therein, or Landlords interest in the Property or such personal property, by any Federal, State or local entity, including: (i) all real property taxes and general, special, supplemental and escape assessments; (ii) charges, fees or assessments for transit, public improvements, employment, job training, housing, day care, open space, art, police, fire or other governmental services or benefits; (iii) any tax, fee or excise on the use or occupancy of any part of the Property; (iv) any other tax, fee or excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Taxes; and (v) consultants and attorneys fees and expenses incurred in connection with proceedings to contest, determine or reduce Taxes. Taxes shall not include: franchise, transfer, or inheritance taxes; income taxes measured by the net income of Landlord from all sources; or penalties or interest due by virtue of late payment of Taxes by Landlord.
(e) The term Tenants Share shall mean [1.70%,] as may be adjusted by Landlord from time to time to take into account a re-measurement of or changes in the physical size of the Premises and/or the Building.
2. Payment of Additional Rent . In addition to the Monthly Base Rent, Tenant shall pay to Landlord, as Additional Rent, Tenants Share of (a) the amount, if any, by which Expenses allocable to any calendar year subsequent to the Base Year exceed the amount of Expenses allocable to the Base Year and (b) the amount, if any, by which Taxes allocable to any calendar year subsequent to the Base Year exceed the amount of Taxes allocable to the Base Year. If the Lease terminates on a day other than the last day of a calendar year, Expenses and Taxes for the calendar year in which such termination occurs shall be prorated on the basis which the number of days from the commencement of such calendar year, to and including the termination date, bears to 360. In no event shall any decrease in Expenses or Taxes below the respective amounts of Expenses and Taxes allocable to the Base Year entitle Tenant to any refund, decrease in Monthly Base Rent, or credit against sums due under the Lease.
3. Adjustments in Expenses . If the Building is substantially expanded or a portion of the Building is master leased to or from a third party, and such change results in Expenses for a calendar year not being reasonably comparable to the Expenses for the Base Year, Landlord shall equitably adjust the Expenses for the Base Year. Further, if the Building is less than 90% occupied in any year during the Term, including the Base Year, Expenses for such year may, at Landlords election, be adjusted to the amount such Expenses would have been if the Building had been 90% occupied. In addition, if in any year during the Term, any tenant in the Building contracts directly for services, the cost of which would otherwise be included as Expenses, the Expenses for such year may be grossed up to reflect the amount Landlord would have paid for such services if such tenants had not directly contracted for such services.
4. Billing .
(a) Estimated Payments . At or prior to the commencement of each calendar year during the Term after the Base Year, Landlord may reasonably estimate Expenses and Taxes for the ensuing calendar year and compute the annual amount of Expenses and Taxes payable by Tenant for such calendar year based on said estimate. On the first day of the month following the furnishing of a written estimate of Expenses and Taxes, Tenant shall pay to Landlord a sum equal to one-twelfth of Tenants Share of such estimated Expenses and Taxes multiplied by the number of months then elapsed, commencing with January first of such calendar year, including the current month, and thereafter, until a different billing shall be submitted, the monthly installments payable under the Lease shall be increased by an amount equal to one-twelfth of Tenants Share of such estimated Expenses and Taxes. If at any time Landlord reasonably determines that Expenses or Taxes for the current calendar year will vary from Landlords estimate, Landlord may but not more than twice per calendar year, by written notice to Tenant, revise its estimate for such calendar year, and subsequent payments by Tenant for such calendar year shall be based upon such revised estimate.
EXHIBIT B - 2
(b) Annual Statement . When the actual Expenses and Taxes for any calendar year after the Base Year are determined, Landlord shall deliver an annual statement ( Annual Statement ) to Tenant showing the (i) actual Expenses and Taxes payable by Tenant for such calendar year and (ii) estimated payments made by Tenant on account of Expenses and Taxes for such calendar year. If an unpaid balance remains, Tenant shall pay such balance within fifteen (15) days after receipt of the Annual Statement. If Tenant has overpaid, Landlord shall so credit Tenants Rent, or if the Lease is no longer in effect, shall refund the appropriate sum to Tenant. If Landlord shall, for any reason, fail to furnish an Annual Statement for any calendar year, Landlord may furnish such Annual Statement at a later date with the same force and effect as such Annual Statement would have had, if delivered in a timely manner; provided, however, that in such event, Tenant may elect to pay the amount specified therein in equal installments over the shorter of (A) the twelve (12) months after receipt of such Annual Statement or (B) the remainder of the Term. If Tenant does not object in writing to an Annual Statement within thirty (30) days after Landlord sends the same, such Annual Statement shall be final and binding upon Tenant. Tenant shall have thirty (30) days after Landlord sends an Annual Statement to notify Landlord in writing that Tenant disputes the correctness of the Annual Statement, specifying the particular respects in which the Annual Statement is claimed to be incorrect ( Expense Claim ). If Tenant delivers an Expense Claim to Landlord within said thirty (30) day period, Tenant shall have the right to examine Landlords books and records, subject to the terms and conditions set forth in Paragraph 5 below.
5. Audit Rights .
(a) Review By Tenant or Tenants CPA . Provided that (i) Tenant timely delivers an Expense Claim to Landlord and (ii) Escalations for the calendar year that is the subject of the Expense Claim are more than one hundred five percent (105%) of Escalations for the immediately preceding calendar year, Tenant and Tenants CPA (as defined below) shall have the right, at Tenants cost and expense, to examine, inspect, and copy the records of Landlord concerning the components of Expenses and/or Taxes for the calendar year in question that are disputed in the Expense Claim. Such examination shall take place upon reasonable prior written notice, at Landlords office, during normal business hours, within thirty (30) days after Landlords receipt of the Expense Claim. Any certified public accountant ( CPA ) engaged by Tenant to inspect Landlords records shall be compensated on an hourly basis and shall be subject to Landlords prior written approval, which shall not be unreasonably withheld or delayed. The inspection of Landlords records must be completed within three (3) business days after such records are made available to Tenant or its CPA. Tenant agrees to keep, and to cause its CPA to keep, all information obtained by Tenant or its CPA confidential. In no event shall Tenant be permitted to examine Landlords records or to dispute any Annual Statement unless Tenant has paid and continues to pay all Rent (including the amount disputed in the Expense Claim) when due.
(b) Selection of Independent Accounting Firm . If, following such examination of Landlords records, Tenant continues to object to the Annual Statement, and the parties are unable to resolve the dispute within forty-five (45) days after Landlords receipt of the Expense Claim, Tenant shall have the right to seek an independent determination of the Expense Claim in the following manner. Within sixty (60) days after Landlords receipt of the Expense Claim, Tenant shall provide Landlord with a list of five (5) independent, certified public accounting firms that are not currently providing, and have not within the three (3) previous years provided, services to Landlord or Tenant. All of the firms shall be nationally or regionally recognized firms with annual revenues in excess of Ten Million Dollars ($10,000,000.00) during the preceding two (2) fiscal years. Within thirty (30) days after receipt of the list of accounting firms from Tenant, Landlord shall choose one of the five (5) firms by written notice to Tenant, or notify Tenant that in Landlords opinion, none of the five (5) accounting firms proposed by Tenant meets the qualifications set forth in this paragraph.
(c) Final Determination . Within thirty (30) days after Landlords notice to Tenant of Landlords choice of firm, Landlord and Tenant shall each submit to the chosen accounting firm its position concerning the Expense Claim. The accounting firm shall promptly make a determination of the
EXHIBIT B - 3
Expense Claim. If the accounting firm determines that the Annual Statement was incorrect, the appropriate party shall pay to the other party the deficiency or overpayment, as applicable, within thirty (30) days after said determination. The determination of the accounting firm shall be limited to determination of the issues raised in the Expense Claim submitted by Tenant, and shall be final and binding upon the parties. All costs and expenses of the accounting firm shall be paid by Tenant unless the accounting firm determines that Landlord overstated Escalations for the applicable calendar year by more than five percent (5%), in which case Landlord shall pay the cost of the accounting firm.
EXHIBIT B - 4
EXHIBIT C
RULES AND REGULATIONS
1. | SIGNS : No movable or fixed sign, placard, banner, picture, advertisement, name or notice visible from the exterior of the Premises shall be inscribed, displayed, printed, painted, affixed or otherwise displayed by Tenant in or on the Premises or any part of the Building, without the prior written consent of Landlord. Landlord shall have the right to remove any objectionable sign, placard, banner, picture, advertisement, name or notice, without notice to, and at the expense of Tenant. Landlord reserves the right to impose uniform signage for all public areas of the Building and to change said signage standards from time to time. After approval by Landlord, Tenant shall affix signage to the wall as directed; no glue or screws will be used. If a sign is glued, the costs incurred to repair the damage resulting from removal of the sign will be paid by Tenant. |
2. | DIRECTORY : The directory of the Building will be provided for display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom. Landlord may charge Tenant for each name, in addition to the name of Tenant, listed in such directory, and for any change in the name or location of Tenant. |
3. | LOCKS : Tenant shall not alter any lock or install a new or additional lock on any door of the Premises, and Tenant shall not have any duplicate keys made, without the prior written consent of Landlord. If more than two keys for any door lock are desired, the additional keys shall be paid for by Tenant. Upon termination of the Lease, Tenant shall surrender all keys to the Premises. |
4. | WIRING : When wiring of any kind is introduced, it must be connected as directed by Landlord, and no boring or cutting for wires will be allowed, except with the prior written consent of Landlord. The location of telephones, call boxes, telephone boards, and other office equipment in the Premises shall be prescribed by Landlord. |
5. | WINDOWS : No curtains, draperies, blinds, shutters, shades, screens or other coverings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window in the Premises, without the prior written consent of Landlord. If Landlord consents, all such items shall be installed inside of Landlords standard draperies or blinds and shall in no way be visible from the exterior of the Building. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord. |
6. | OBSTRUCTING LIGHT : The doors, windows, skylights, and portions that reflect or admit light into the hails, passageways or other public places in the Building shall not be covered or obstructed by tenants, nor shall any article be placed on window sills. |
7. | HALLS AND STAIRWAYS : Tenant shall keep the doors to the Building corridors closed at all times, except when in actual use for ingress or egress. Sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways shall not be obstructed by Tenant, or used for any purpose other than for ingress to and egress from the Premises. The halls, passages, exits, entrances, elevators, escalators and stairways are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, would be prejudicial to the safety, character, reputation and interests of the Building and its tenants. |
8. | PLUMBING : The toilet rooms, toilets, urinals, wash bowls and other fixtures shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule by Tenant or any Tenant Party, shall be borne by Tenant. |
EXHIBIT C - 1
9. | ELECTRICITY : Tenant may operate a reasonable number of typical small office machines, including adding machines, calculators, clocks, coffee machines, facsimile machines, personal computers and small copy machines. Tenant may not install any electrical device requiring special transformers or circuits or drawing in excess of three (3) amperes of electrical current or operate large office machines, including large computers requiring special size, electrical or A/C requirements, extra air conditioning units and appliances, without Landlords prior written approval. All electrical ceiling fixtures, bulbs and tubes must be of a type, quality, design and color approved in advance in writing by Landlord. All electrical appliances must be grounded and must meet Underwriters Laboratory standards. |
10. | HEATING : Tenant shall not use or keep in the Building any kerosene, gasoline or other inflammable or combustible fluid, chemical, substance, or material that is considered hazardous. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. |
11. | FLOOR COVERINGS AND WALLS : Tenant shall not lay linoleum, tile, carpet or any other floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved in writing by Landlord. The expense of repairing any damage resulting from a violation of this rule or the removal of any floor covering shall be borne by Tenant. Landlord shall be responsible only for the vacuuming of carpets; Tenant shall be responsible for regular shampooing of carpets. Tenant shall not drive nails, screw or drill into, the partitions, woodwork or plaster in the Premises, except in connection with the installation of art work, or in any way deface the Premises or the Building. Wherever practical, Tenant shall place vinyl chair mats under rolling chairs in order to prolong the life of the carpet. |
12. | MOVING FURNITURE, SAFES, ETC .: No furniture, freight or equipment of any kind shall be brought into or removed from the Building without the consent of Landlord, and all moving of same, into or out of the Building, by Tenant, shall be done at such times and such manner as Landlord shall designate. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building, as well as the times and manner of moving the same into and out of the Building. Landlord will not be responsible for loss or for damage to any such safe or property from any cause. All damage done to the Building by moving or maintaining any such safe, furniture, freight, equipment or property shall be repaired at the expense of Tenant. Tenant shall advise Landlord at least (7) seven days in advance of any move of any furniture, freight or equipment. |
13. | FREIGHT ELEVATOR : The Building freight elevator must be used for all deliveries of supplies, packages, equipment, furniture and other deliveries. Landlord shall set the hours for use of the freight elevator. If Landlord permits deliveries on passenger elevators, such permission shall not be deemed a precedent for other deliveries in passenger elevators. |
14. | USE RESTRICTIONS : Tenant shall not use, keep or permit any foul or noxious gas or substance in the Premises, or permit the Premises to be used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors, vibrations or electronic disruption, or interfere with other tenants or those having business in the Building. Tenant shall not, without the prior written consent of Landlord, use any apparatus or device in connection with the Premises that will in any way injure, vibrate or shake the Premises or increase the amount of electricity or water usually furnished or supplied to the Premises, or connect to the water pipes any apparatus or device for the purpose of using water. Tenant shall not install any antenna, loudspeaker or any other device on the exterior walls, windows, or roof of the Building. The Premises shall not be used for any kind of eating house, the storage of merchandise, washing clothing, lodging, sleeping purposes, or any improper, objectionable or immoral purposes. Tenant shall not conduct any auction, liquidation, fire sale, going out-of business or bankruptcy sale in the Premises. |
EXHIBIT C - 2
15. | HEAVY INSTALLATIONS : Business machines and mechanical equipment which cause noise and/or vibration that may be transmitted from the Premises to the structure of the Building or to any leased space to such a degree as to be objectionable to Landlord or to any other tenants in the Building shall be placed and maintained by Tenant, at Tenants expense, in settings of cork, rubber or spring type noise and/or vibration eliminators sufficient to eliminate vibration and/or noise. Tenant shall not place a load upon any floor of the Premises that exceeds the floor load per square foot that such floor was designed to carry and that is allowed by law. |
16. | TRASH : Tenant shall store all its trash within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash in the City of San Francisco without violation of any law or ordinance governing such disposal. All trash disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. |
17. | CLEANING SERVICES : Tenant shall not engage any person or company other than Landlords janitorial service to perform cleaning services within the Premises, unless otherwise agreed in writing by Landlord. |
18. | COOKING : No cooking shall be done or permitted by Tenant in the Premises, except that Underwriters Laboratory-approved equipment and microwave ovens may be used for heating food and brewing coffee and similar beverages. |
19. | VENDING MACHINES : No vending machine of any kind shall be installed, maintained or operated in the Premises without the written permission of Landlord. |
20. | NO ANIMALS OR VEHICLES : Tenant shall not bring into or keep within the Building or the Premises any animal (except for seeing eye dogs), bird, or aquarium. Tenant shall not permit any skateboards, rollerblades or scooters to be used on the Property, and Tenant shall not bring into or keep within the Building or the Premises any bicycles or other vehicles, except that bicycles may be parked at the risk of the owner in the areas, if any, designated for such purpose by Landlord. |
21. | COMMON AREAS : Areas used in common by tenants, including mall areas, elevators, restrooms, corridors and exterior plazas shall be subject to these Rules and Regulations, to the extent applicable, and to any special regulations posted therein, including any no smoking regulations. |
22. | CLOSING PRECAUTIONS : Tenant shall see that the windows, transoms and doors of the Premises are closed and securely locked before leaving the Building, and shall exercise extraordinary care and caution that all water faucets or water apparatus are entirely shut off before Tenant or its employees leave the Building, and that all electricity, gas or air shall likewise be carefully shut off, so as to prevent waste or damage. |
23. | SAFETY PROCEDURES : Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. |
24. | NO SOLICITATION : Solicitations or promotions to other tenants in the Building are prohibited, except with the prior written approval of Landlord. If so approved, solicitations and promotions shall only be done by and through Landlord, at Tenants sole cost. |
25. |
ACCESS : Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 6 a.m. and at all hours on Saturdays, Sundays and holidays, all persons who do not present a pass to the Building signed by Landlord. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord also |
EXHIBIT C - 3
reserves the right to exclude or expel from the Building any person who, in Landlords good faith opinion, is intoxicated or under the influence of alcohol or drugs or poses a danger to persons or property, or who shall in any manner do any act in violation of any of the Rules and Regulations of the Building. Landlord shall in no case be liable for any error with regard to the admission to or exclusion from the Building of any person. During any invasion, mob, riot, civil unrest, demonstration, or other circumstance rendering such action advisable in Landlords good faith opinion, Landlord reserves the right to prevent access to the Building for the safety of tenants and protection of the Building and property in the Building. |
26. | REQUIREMENTS : The requirements of tenants will be attended to only upon application at the Building office. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instruction from the Building office. |
27. | COMPLIANCE : Tenant shall be liable to Landlord and to other tenants of the Building for any loss, cost, expense (including reasonable attorneys fees), damage or liability arising out of or in connection with the failure of Tenant or any Tenant Party to comply with these Rules and Regulations, but Landlord shall have no liability for such failure or for failing or being unable to enforce compliance therewith by any tenant, and such failure by Landlord or non-compliance by any other tenant shall not be grounds for damages or termination of the Lease. Landlord reserves the right at any time to change or rescind any one or more of these Rules or Regulations, or to make additional reasonable Rules and Regulations. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of said Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing such Rules and Regulations against any or all tenants in the Building. |
EXHIBIT C - 4
EXHIBIT D
WORK LETTER
Landlord: |
101 Montgomery Street Co. |
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Tenant: |
Audentes Therapeutics. Inc. |
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Premises: |
Suite 2650 |
The purpose of this Work Letter is to set forth the respective responsibilities of Landlord and Tenant with respect to the design and construction of all alterations, additions and improvements which Tenant may deem necessary or appropriate to prepare the Premises for occupancy by Tenant under the Lease. Such alterations, additions and improvements to the Premises are referred to in this Work Letter as the Tenant Improvements , and the work of constructing the Tenant Improvements is referred to as the Tenant Improvement Work .
Landlord and Tenant agree as follows:
1. General . Landlord shall undertake and complete the Tenant Improvement Work in accordance with the terms of this Work Letter. Except for the Tenant Improvement Work, Tenant shall accept the Premises in their AS IS condition on the Commencement Date.
2. Approved Drawings . Prior to the date hereof, Landlord retained Richard Pollack & Associates ( Landlords Architect ) to prepare preliminary drawings for the Premises. Tenant hereby approves of the preliminary drawings ( Approved Drawings ), the work outline ( Work Outline ) and building standards ( Building Standards ) all shown in this Exhibit.
3. Construction of Tenant Improvements .
3.1 Responsibility for Design and Construction Costs . Landlord, at its sole cost and expense, shall pay all costs of performing the Tenant Improvement Work, as depicted on the Approved Drawing and the Work Outline, except for those items, if any, as listed in Schedule A of the Work Outline (the Above Standard Work ). Tenant will be responsible for all costs of the Above Standard Work and improvements in excess of those described in the Approved Drawing and the Work Outline. Upon receipt of all invoices related to the Tenant Improvement Work, Landlord will send Tenant a letter with copies of such invoices (the Above Standard Work Notice ) notifying Tenant of the total cost of the Above Standard Work, if any, due from Tenant to Landlord and payable within thirty (30) days of Landlords submittal to Tenant of the Above Standard Work Notice.
All costs attributable to Change Orders (as hereinafter defined) requested or approved by Tenant shall be payable by Tenant, including costs incurred by Landlord in reviewing proposed Change Orders and an administrative fee in the amount of five percent (5%) of any increase in the cost of the Tenant Improvement Work resulting from Change Orders. Landlord shall have no obligation to commence or continue any Change Order work unless Tenant pays the estimated costs associated with such Change Order within ten (10) days after receipt of an invoice therefore. Upon request, Landlord shall supply reasonable supporting documentation for any such invoice, in each instance within a reasonable time following such request, but Tenant shall not be entitled to delay or withhold payment of any sums invoiced by Landlord, and payment of such sums shall not be deemed a waiver of any right on the part of Tenant to such reasonable supporting documentation. Any delay resulting from Tenants failure to timely pay such invoice or any portion thereof shall be a Tenant Delay (as defined below),
3.2 Construction . Landlord shall obtain any necessary building permits for construction of the Tenant Improvements ( Permits ), and shall engage a general contractor selected by
EXHIBIT D - 1
Landlord (the General Contractor ) to perform the Tenant Improvement Work substantially as shown on the Approved Drawings, excepting only minor variations (i.e., variations which are not inconsistent with the intent of the Approved Drawings) as Landlord may deem advisable and any Change Orders approved by Landlord. All work shall be performed during normal business hours and shall be installed using materials in conformance with Building Standards unless otherwise noted.
3.3 Additional Work . Any additional work in the Premises not specifically listed in the Approved Drawings is subject to Landlords approval in conformance with the Lease. If Landlord provides such additional work, Tenant shall reimburse Landlord for such additional work at Landlords cost plus Landlords mark-up within thirty (30) days after receipt of invoice. Failure by Tenant to make such timely reimbursement shall be deemed a default of the Lease and Landlord shall be entitled to all remedies set forth therein as if the default had been for non-repayment of Rent.
3.4 Substantial Completion . Subject to Paragraph 5 below, for purposes of this Work Letter and the Lease, the Tenant Improvement Work shall be substantially complete on the date (the Substantial Completion Date ) that Landlord determines that the Tenant Improvement Work has been completed, except for (a) items typically found on an architectural punchlist, and (b) any trade fixtures, workstations, telecommunications or computer cabling or built-in furniture or equipment to be installed by Tenant. Tenants acceptance of possession of the Premises shall conclusively evidence its agreement that the Premises are in the condition required hereunder, except for punchlist items. Landlord shall use commercially reasonable efforts to complete the punchlist items within thirty (30) days after the Substantial Completion Date; however, Landlord shall have no liability to Tenant for losses, costs or damages resulting from or attributable to delays in the completion by Landlord of punchlist items. Tenant shall cooperate with Landlord to facilitate completion of any punchlist items as quickly as possible.
3.5 Early Access by Tenant . Landlord shall allow Tenant access to the Premises commencing two (2) weeks prior to the Commencement Date for the purpose of installing Tenants cabling and telecommunications equipment and partitioned office furniture, provided that the employees, agents, contractors, subcontractors, suppliers or any other person performing such installation for Tenant (each, Tenants Representative and collectively, Tenants Representatives ) shall not interfere with, or delay, the construction of the Tenant Improvements or any other work in the Building. Tenant and Tenants Representatives shall work cooperatively with Landlord to coordinate the scheduling and performance of such cabling, telecommunications and partitioned office furniture installation work with the Tenant improvement Work. Tenants Representatives shall be subject to reasonable approval by Landlord prior to the commencement of their work, and shall be subject to Landlords policies and schedules while performing their work. Tenant shall cause Tenants Representatives to engage only labor that is harmonious and compatible with other labor working in the Building. If at any time any Tenants Representative hinders or delays the Tenant Improvement Work or any other work in the Building or performs any work that may or does impair the quality, integrity or performance of the Tenant Improvement Work or other work in any portion of the Building, upon verbal or written notice from Landlord, Tenant shall immediately cause such Tenants Representative to leave the Building and remove all of its tools, equipment and materials. In addition, Tenant shall reimburse Landlord for the cost of any repairs to the Premises or other portions of the Building or common areas necessitated by the acts or omissions of Tenants Representatives. All entries into the Premises by Tenants Representatives prior to the Substantial Completion Date shall be subject to all of the terms, covenants and conditions of the Lease, including Tenants insurance and indemnification obligations contained in Articles 9 and 10 of the Lease, but excluding Tenants obligation to pay Monthly Base Rent or Additional Rent.
4. Change Orders . Landlord will not unreasonably withhold its approval of any request by Tenant to amend or change the Approved Drawings (a Change Order ), provided such Change Order does not diminish the quality of construction of the Tenant Improvements.
5. Tenant Delay . To the extent any delay in the Substantial Completion Date is caused by or is attributable to (a) any Change Order, (b) Tenants request for materials, components, finishes or installations which are not readily available within industry-standard lead times (for instance, items which must be custom-made or specially ordered), to the extent such items require time to procure beyond that
EXHIBIT D - 2
taken for standard items, or (c) any act, neglect, failure or omission of Tenant or any of Tenants employees, agents or contractors, such delay shall constitute a Tenant Delay ; and, notwithstanding anything to the contrary set forth in the Lease or in this Work Letter and regardless of the actual date of substantial completion hereunder, the Tenant Improvement Work shall be deemed to be substantially complete and the Substantial Completion Date shall be the date on which the Tenant Improvement Work would have been substantially complete if no Tenant Delay(s) had occurred, as determined by Landlord. Tenant shall be responsible for and shall pay any costs and expenses incurred by Landlord in connection with, or as a consequence of, any Tenant Delay, as well as any increases in the cost of construction of the Tenant Improvements attributable to Tenant Delay.
6. One Year Warranty . If Tenant gives Landlord written notice of any material defects in workmanship or materials before the first anniversary of the Substantial Completion Date, Landlord shall use commercially reasonable efforts to correct such defects. Except for Landlords obligation in the preceding sentence, Tenant hereby waives all claims against Landlord relating to, or arising out of, the construction of the Tenant Improvements.
7. Advance . It is agreed that the Monthly Base Rent includes the repayment to Landlord of an advance to Tenant equal to the cost of constructing the Tenant Improvements and the Preparatory Work (as hereinafter defined), in the sum to be determined by Landlord when the Tenant Improvements are completed, which sum shall be repaid by applying the payment of the Monthly Base Rent to such repayment plus interest at five percent (5%) interest per annum from the Substantial Completion Date until such repayment plus interest is repaid in full. Such repayment and interest are included in the Monthly Base Rent. The Preparatory Work is work performed in preparation for the Tenant Improvements, including, without limitation, demolition, removal and replacement of systems and materials and common area and restroom work. If all or a part of the Preparatory Work benefits more than one tenant, the cost of such Preparatory Work shall be prorated by area to each tenant so benefited. In no event will this Paragraph 7 increase Tenants payment obligations under the Lease.
8. Surrender of Tenant Improvements . The Tenant Improvements shall be surrendered at the expiration or earlier termination of the Term, unless Landlord shall have conditioned its approval of the Approved Drawings or any Change Order on Tenants agreement to remove any items thereof, in which event, prior to the expiration or termination of the Term, the specified items shall be removed at Tenants expense, any damage caused by such removal shall be repaired, and the Premises shall be restored to their condition existing prior to the installation of the items in question, normal wear and tear excepted. The removal, repair and restoration described above shall, at Landlords sole election, be performed either by Tenant or by Landlord; and if such work shall be performed by Landlord, Tenant shall pay to Landlord, within twenty (20) days following Landlords demand, the reasonable cost and expense of such work.
EXHIBIT D - 3
Approved Drawing
Furniture, fixtures and equipment are shown for illustrative purposes only and are not included in the Tenant Improvements.
EXHIBIT D - 4
Work Outline
Room identifications are tied to Figure A of the Approved Drawing.
1. | Demolition |
a. | Demolish partitions enclosing the COPY room. |
2. | Painting |
a. | Repair any walls that need to be patched prior to painting (i.e. TV locations, scuffing, etc). |
b. | Provide and install new building standard paint throughout with one (1) mutually agreed accent color utilized for up to 20% of the Premises. |
3. | Carpet |
a. | Provide and install new building standard throughout the carpeted portions of the Premises and the area formerly identified as COPY. |
4. | Electrical |
a. | Provide and install up to three (3) additional duplex power outlets and string pull for installation of tel/data wiring by Tenants vendor |
b. | Hardwire junction box on column in order to supply power Tenants furniture systems per Figure B of the Approved Drawing. |
5. | Building Systems |
a. | Rebalance the HVAC systems, repair ceiling system, relocate sprinklers and adjust existing lighting in the areas affected by demolition. |
6. | Appliances |
a. | Provide building standard white refrigerator in BREAK AREA. |
It is acknowledged and agreed by Tenant that, except as specified above, Landlord is not obligated to provide:
| Any reception desks |
| Any furniture including conference tables, wood shelves or cabinets, equipment, panel systems or electrified workstation |
| Telephone and/or computer equipment |
| Lateral files, fireproof files or bookshelves |
| Additional electrical outlets, data or telecommunications wiring, or conduit for data or telecommunications wiring or data outlets (unless mentioned above) |
| Floor cores and monuments should Tenant require plumbing, power or data connections which cannot be provided through a wall or existing column (unless mentioned above) |
| Appliances (unless mentioned above) |
| Moving expenses |
EXHIBIT D - 5
Schedule A
Above Standard Work
None at this time.
EXHIBIT D - 6
BUILDING STANDARDS
Common Area Finish Standards
Flooring
| Hallway carpeting Inset Masland /Top Line #44503 Cavalier |
| Border DesignWeave Consider This-Z6403 See About 00343 |
Wall Covering
| Wall Paint All partitions furnished shall receive two coats of low VOC latex paint selected from the building standard color chart. Deep tone colors are not in the standard color range. Each major wall surface will be limited to one color with no more than two colors per room. (P1 Benjamin Moore #2143-60 Moonlight White.) |
| Wall Base Trim All partitions furnished shall receive 4 high resilient base selected from the building standard color chart. Carpeted areas shall receive straight (topset) material and resilient flooring area shall receive coved material. |
Doors, Frames & Hardware
| Pre-Finished Doors Solid core, 30 wide by 84 high, clear finished cherry wood veneer with a 20 minute fire rating. |
| Elevator Doors Paint the frames with Scuff Master #Sm891 Light Green |
| Door Frames Clear anodized aluminum with a 20 minute fire rating. |
| Handles & Hardware Corridor tenant entry door hardware shall consist of a Schlage L-Series L-9450 mortised lever type lockset, two pairs of butt hinges, a closer and a floor stop, all with brushed chrome finish style #626. |
Suspended Ceiling Chicago Metallic 24 x 24 x 3/4 ceiling tile, suspended at approximately 8- 6 above the slab.
Lighting
| Lighting Fixtures Light fixtures are Avante 2 x 4 fluorescent fixture with a direct/indirect diffuser and two fluorescent lamps. |
| Light Switches Building Standard lights shall be controlled by wall-mounted toggle style switches and standard height with white finish. All switches shall be equipped with Watt Stopper motion sensors, for afterhours lighting control. Afterhours lighting in 100% of open areas will be controlled by ceiling mounted motion sensors. |
| Exit SignsTCP Energy Efficient. Dual Voltage 120v and 277v. Green LED, Model #20745D |
Electrical Outlets Outlets shall be 120volt duplex receptacles, wall-mounted at standard height with white finish.
EXHIBIT D - 7
Tenant Area Standards
Suspended Ceiling Chicago Metallic 24 x 24 x 3/4 tile, suspended approximately 8-6 above the slab.
Window Covering The exterior windows of each tenant space shall receive horizontal mini-blinds installed in the building standard configuration.
Partitions Interior partitions shall be floor to ceiling with one layer of 5/8 gypsum board on each side of 2-1/2 metal studs at 24 on center with insulation. Surface shall be taped, sanded smooth and ready for paint. Demising partitions shall be floor to structure above with batt insulation and a one hour fire rating.
Carpet |
Green Scheme DesignWeave-Consider This-Z6403 See About 00343 Grey Scheme DesignWeave-Consider This-Z6403 Fall For 00557 Brown Scheme DesignWeave-Consider This-Z6403 Toss Around 00274 |
Wall Covering
| Wall Finish All partitions furnished shall receive two coats of low VOC eggshell latex paint selected from the building standard color chart. Deep tone colors are not in the standard color range. Each major wall surface will be limited to one color with no more than two colors per room. |
| Wall Base Trim All partitions furnished shall receive 4 high resilient base selected from the building standard color chart. Carpeted areas shall receive straight (topset) material and resilient flooring area shall receive coved material. |
Electrical Outlets Outlets shall be 120volt duplex receptacles, wall-mounted at standard height with white finish.
Telephone Outlets Outlets shall be wall-mounted a standard height with pull wire within partition cavity to ceiling plenum above.
Floor Covering Building standard flooring shall be vinyl composition tile (12 x 12 x 1/8) or 30oz. carpet over pad. Both shall be selected from the building standard color range.
Lighting
| Lighting Fixtures Light fixtures are 2 x 4 Avante fluorescent fixture with a direct/indirect diffuser and two fluorescent lamps. |
| Lighting Controls Building Standard lights shall be controlled by wall-mounted toggle style switches and standard height with white finish. All switches shall be equipped with Watt Stopper motion sensors, for afterhours lighting control. Afterhours lighting in 100% of open areas will be controlled by ceiling mounted motion sensors. |
Doors, Frames & Hardware
| Pre-Finished Doors Solid core, 30 wide by 84 high, clear finished cherry wood veneer. |
| Door Frames Clear anodized aluminum. |
| Handles & Hardware tenant interior door hardware shall consist of a Schlage D-Series hardware, D-53 lever type locksets or D-10 latches, two pairs of butt hinges and a floor stop, all with brushed chrome finish style #626. |
EXHIBIT D - 8
Building Equipment Standards .
HVAC SYSTEM
| Thermostats - Powers Controls, Model # 192-202. |
| Thermostat Cover - Powers Controls - Model # 192-203 |
| Pre-assembled loops Powers - Model 192-481 |
| VAV Velocity Controller - Kreuter, Model #CSC-3011-10 |
| VAV Damper Motor - Johnson Controls- Pneumatic Piston Actuator 5 to 10 PSI Spring range. Model # D-3062-2 |
LIFE SAFETY SYSTEM
| Smoke Detector - Gamewell Velocity Series, Mod # ASD-PL2F |
| Smoke Detector Base Gamewell Mod # ADB-FLF |
| Sprinklers Viking, Mirage QR Concealed Pendent Sprinkler, VK62, 155 degree, with white cover plate |
EXHIBIT D - 9
EXHIBIT E
DISABILITY ACCESS OBLIGATIONS UNDER
SAN FRANCISCO ADMINISTRATIVE CODE CHAPTER 38
Before you, as the Tenant, enter into a lease with us, the Landlord, for the following property: 101 Montgomery, San Francisco, CA (the Property), please be aware of the following important information about the lease:
You May Be Held Liable for Disability Access Violations on the Property . Even though you are not the owner of the Property, you, as the tenant, as well as the Property owner, may still be subject to legal and financial liabilities if the leased Property does not comply with applicable Federal and State disability access laws. You may wish to consult with an attorney prior to entering this lease to make sure that you understand your obligations under Federal and State disability access laws. The Landlord must provide you with a copy of the Small Business Commission Access Information Notice under Section 38.6 of the Administrative Code in your requested language. For more information about disability access laws applicable to small businesses, you may wish to visit the website of the San Francisco Office of Small Business or call 415-554-6134.
The Lease Must Specify Who Is Responsible for Making Any Required Disability Access Improvements to the Property . Under City law, the lease must include a provision in which you, the Tenant, and the Landlord agree upon your respective obligations and liabilities for making and paying for required disability access improvements on the leased Property. The lease must also require you and the Landlord to use reasonable efforts to notify each other if they make alterations to the leased Property that might impact accessibility under federal and state disability access laws. You may wish to review those provisions with your attorney prior to entering this lease to make sure that you understand your obligations under the lease.
PLEASE NOTE : The Property may not currently meet all applicable construction-related accessibility standards, including standards for public restrooms and ground floor entrances and exits.
By signing below I confirm that I have read and understood this Disability Access Obligations Notice.
LANDLORD : | TENANT : | |||||||||
101 Montgomery Street Co., a California limited partnership |
Audentes Therapeutics, Inc., a Delaware corporation |
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By: |
Cahill Montgomery Corp., a California corporation, its general partner |
By: |
/s/ Matthew Patterson |
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Name: |
Matthew Patterson |
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By: |
/s/ William R. Cahill William R. Cahill President |
Title: |
CEO |
January 5, 2015
Audentes Therapeutics, Inc.
Attention: Matthew Patterson
101 Montgomery, Suite 2650
San Francisco, CA 94104
Re: | Audentes Therapeutics, Inc. (Tenant) |
101 Montgomery, Suite 2600, San Francisco, CA 94104 (Expansion Premises)
Expansion Premises Commencement Date and Expiration Date
Dear Mr. Patterson,
On behalf of Calfox, Inc. (agent for Landlord), I would like to welcome you to Suite 2600 of the 101 Montgomery Street Building.
Pursuant to the Lease by and between 101 Montgomery Street Co., ( Landlord ), and Tenant, this letter shall serve to confirm the Expansion Premises Commencement Date and the Expiration Date of the Term.
Commencement Date: | January 1, 2015 | |
Expiration Date: | January 31, 2017 |
Per Section 1 of Lease Amendment Number One executed on August 6, 2014, the dates listed in this letter shall be binding upon the parties unless objected to in writing by Tenant within fifteen (15) days of the sending of this letter.
Section 2 of this Lease Amendment calls for Monthly Base Rent to commence on January 1, 2015 in the amount of $24,145 per month. Thereafter, Monthly Base Rent amounts will correspond with the following schedule:
Description |
Begin | End | Total | |||||
BMR- 2600 |
1/1/2015 | 12/31/2015 | $ | 24,145 | ||||
BMR- 2600 |
1/1/2016 | 12/31/2016 | $ | 24,576 | ||||
BMR- 2600 |
1/1/2017 | 1/31/2017 | $ | 25,007 |
Should you have any questions or concerns, please feel free to contact me at (415) 233-7183.
Kind regards,
/s/ Natalie Kearney
Natalie Kearney
Property Manager
CALFOX, INC.
cc: | Accounting, Lease File |
LEASE AMENDMENT NUMBER ONE
This Lease Amendment Number One (the Amendment ) is made on this 6th day of August, 2014, by and between 101 Montgomery Street Co., a California limited partnership ( Landlord ) and Audentes Therapeutics, Inc., a Delaware corporation ( Tenant ).
Reference is hereby made to that Lease dated the 17 th day of October, 2013 by and between Landlord and Tenant for Suite 2650 on the twenty sixth (26 th ) floor of the Building ( Premises ) located at 101 Montgomery Street, San Francisco, California (the Building ).
WHEREAS, Tenant and Landlord desire to expand the Premises to include Suite 2600 on the twenty sixth (26 th ) floor of the Building comprising of 5,174 Rentable Square Feet ( Expansion Premises ) as shown in Exhibit A hereof as Suite 2600,
NOW THEREFORE, Landlord and Tenant hereby agree to further amend the Lease by this Amendment as follows:
1. PREMISES: No less than fifteen (15) days prior thereto, Landlord will send notice to Tenant stating the date upon which the Expansion Premises will become available ( Expansion Premises Availability Date ). Effective upon the date (the Expansion Premises Commencement Date ) that is the earlier of: (a) thirty (30) days after Expansion Premises Availability Date, (b) the date Tenant commences business operations in any portion of the Expansion Premises as hereinafter defined, the definition of Premises set forth in Section 1.2 of the Summary of Basic Lease Information in the Lease shall be expanded to include the Expansion Premises.
2. BASE RENT DURING REMAINING TERM: The Monthly Base Rent for the original Premises shall continue as stated in the Lease. Commencing upon the Expansion Premises Commencement Date the Monthly Base Rent for the Expansion Premises shall be Twenty Four Thousand One Hundred Forty Five Dollars ($24,145) and will increase by Four Hundred Thirty One Dollars ($431) on each anniversary of the Expansion Premises Commencement Date. Once the Expansion Premises Commencement Date is known Landlord will provide to Tenant a letter confirming the schedule for payment of Monthly Base Rent for the remainder of the Term of the Lease.
3. ESCALATIONS: Effective upon the Expansion Premises Commencement Date Tenants Share, as defined in Exhibit B of the Lease shall be changed from 1.70% to 3.46%.
4. TENANT IMPROVEMENTS: Upon the Expansion Premises Availability Date, Landlord will deliver the Expansion Premises free of furniture and in broom swept, but otherwise as-is condition.
5. TENANT RIGHT TO CANCEL: Should the Expansion Premises Availability Date not have occurred prior to January 1 st , 2015 for any reason other than a Force Majeure Event, at any time prior to the Expansion Premises Availability Date Tenant shall may exercise a one-time right to cancel this Amendment by providing written Notice of such cancellation to Landlord.
6. NO BROKER: Tenant covenants and represents to Landlord that it has dealt with no brokers in connection with this Lease other than Faller Real Estate. Tenant agrees to protect, defend, indemnify and hold Landlord harmless from any and all Claims resulting from a breach of the foregoing representation.
7. NO OFFER : No contractual or other rights shall exist between Landlord and Tenant with respect to the provisions of this Amendment until both parties have executed this Amendment and Landlord has delivered to Tenant a fully executed copy of this Amendment. The submission of this Amendment to Tenant shall be for examination purposes only. Execution of this Amendment by Tenant and return to Landlord shall not be binding upon Landlord or Tenant, notwithstanding any time interval, until Landlord has in fact executed and delivered this Amendment to Tenant.
8. CONFIDENTIALITY: Tenant agrees to keep all terms and conditions of this Amendment and the negotiations that have led up to this Amendment strictly confidential except as required by tax laws and financial institutions, or as potential donors stipulate.
9. COUNTERPARTS: This Amendment may be executed in counterparts. All such executed counterparts shall constitute the same agreement, and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. The parties may sign and deliver this Lease by electronic or facsimile transmission. Each party agrees that the delivery of this Lease by electronic or facsimile transmission shall have the same force and effect as delivery of original signatures and that each party may use such electronic or facsimile signatures as evidence of the execution and delivery of this Lease by all parties to the same extent that an original signature could be used.
10. TERMS REMAIN: Except as expressly amended hereby, all of the terms, covenants, conditions, provisions and agreements of the Lease, as amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties agree to the foregoing by executing this Amendment, dated the date and year first above written.
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LANDLORD | TENANT | |||||||
101 Montgomery Street Co a California limited partnership |
Audentes Therapeutics, Inc. a Delaware corporation |
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By: |
Cahill Montgomery Corp., a California corporation, its General Partner |
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/s/ William R. Cahill |
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Name: |
William R. Cahill |
Name: |
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Title: |
President |
Title: |
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LANDLORD | TENANT | |||||||
101 Montgomery Street Co a California limited partnership |
Audentes Therapeutics, Inc. a Delaware corporation |
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By: |
Cahill Montgomery Corp., a California corporation, its General Partner |
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By: |
/s/ Matthew R Patterson |
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Name: |
William R. Cahill |
Name: |
Matthew R Patterson |
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Title: |
President |
Title: |
President & CEO |
EXHIBIT A
Exhibit 10.10
EXECUTION COPY
SUBLEASE
THIS SUBLEASE ( Sublease ) is dated as of July 30, 2015, by and between Solstice Neurosciences, LLC , a Delaware limited liability company ( Sublessor ), and Audentes Therapeutics, Inc. , a Delaware corporation ( Sublessee ).
RECITALS
A. Sublessor and Sublessee desire to enter into this Sublease pursuant to which Sublessor shall lease approximately 21,960 rentable square feet of the Leased Premises known as 528B Eccles Avenue, South San Francisco, California, as shown on EXHIBIT A attached hereto (the Subleased Premises ) to Sublessee, subject to the terms and conditions of this Sublease.
B. Sublessor (successor in interest to Athena Neurosciences, Inc. and Elan Pharmaceuticals, Inc.) is the lessee of 528B Eccles Avenue, South San Francisco, California, (the Leased Premises ) pursuant to that certain Lease Agreement dated as of May 22, 1997, as amended from time to time (the lease, together with all amendments thereto, (the Prime Lease ), between Sublessor, as tenant, and JCN Partners, a California limited partnership, as successor in interest to John C. Nickel, as landlord (the Prime Landlord ). A copy of the Prime Lease together with seven (7) prior Addenda is appended hereto as EXHIBIT B .
C. Capitalized terms used in this Sublease and not otherwise defined herein shall have the meanings ascribed to such terms in the Prime Lease.
ARTICLE I
TERMS AND CONDITIONS
1.1 Sublease of Subleased Premises . Sublessor hereby leases the Subleased Premises to Sublessee, and Sublessee hereby leases the Subleased Premises from Sublessor, pursuant to the terms and conditions of this Sublease. In addition to the Subleased Premises, Sublessee shall have the right to the non-exclusive use during such tenancy, of other areas designated for the common use and convenience of occupants of the Subleased Premises, if any (collectively, the Common Areas ), subject to such rules and regulations as Prime Lessor may adopt for such use from time to time.
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1.2 Parking . At no cost to Sublessee, and subject to the terms of the Prime Lease, Sublessee will be entitled to the use of the pro rata share of the designated parking spaces serving the entire premises leased by Sublessor; i.e. 55.5% of such parking spaces
1.3 Term . Subject to Sublessors receipt of the written consent of the Prime Landlord as required by Paragraph 16 of the Prime Lease and subject to the terms and conditions of this Sublease, Sublessor sublets the Subleased Premises to Sublessee and Sublessee subleases the Subleased Premises from Sublessor, for a term commencing on the later of the date on which this Sublease is fully executed or the date of Prime Landlords Consent. (the Commencement Date ) and ending on May 31, 2017 (the Term , see Addendum Seven), unless sooner terminated pursuant to any of the terms, covenants or conditions of this Sublease or pursuant to law.
Sublessor covenants and agrees to give Sublessee access to the Premises on the Commencement Date.
1.4 Base Rent . During the first twelve (12) months of this Sublease, Sublessee shall pay to Sublessor, without demand, deduction, offset, set off or recoupment, on or before the first day of each month in advance, commencing on the Commencement Date, an amount determined by multiplying the rentable square feet in the Subleased Premises by One and 75.100ths Dollars ($1.75) (the Base Rent ), which is $38,430.00 per month. For the balance of the Lease Term, the square footage rental rate is One and 80/100 ths Dollars ($1.80), or $39,528.00 per month. The actual number of rentable square feet contained in the Subleased Premises is approximately 21,960 rentable square feet as determined in accordance with the Building Owners and Managers Association International standards (ANSI/BOMA Z65.1-2010). Rent for any partial calendar months at the beginning or end of the Sublease term shall be prorated based on a thirty (30) day month. Rent may be paid by Sublessee to Sublessor, at Sublessees election, by ACH transfer.
1.5 Additional Rent . In addition to the Base Rent, Sublessor is obligated under the Prime Lease for additional payments and reimbursement to the Prime Landlord in respect of
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Common Area Maintenance, utility, insurance, real estate taxes and other expenses together with an independent obligation to maintain the Subleased Premises, all as more specifically set for in the Prime Lease attached as Exhibit B . Any and all such sums as may be or shall become due during the Term of this Sublease are the responsibility of Sublessee and shall be deemed Additional Rent (together with the Base Rent, Rent ) due hereunder. All payments due under this Sublease shall be considered rent for all purposes. Pursuant to the terms of the Prime Lease, Prime Landlord is required to reconcile the actual expenses for the Premises as compared to the estimated payments made throughout the preceding calendar year. Following Sublessors receipt of such reconciliation from Prime Landlord, Sublessor shall promptly forward a copy of such reconciliation to Sublessee, and there shall be an adjustment between Sublessor and Sublessee for any over or under payment of such Additional Rent items for the preceding calendar year, with payment to Sublessor or credit to Sublessee against the next installment of Additional Rent (or refund following the expiration of the Sublease term), as the case may require, within thirty (30) days after Sublessors delivery of such reconciliation to Sublessee. A summary of the Additional Rent is annexed hereto as Exhibit C .
1.6 Late Charge . If the Rent (Base Rent and Additional Rent, as the case may be) is not received by Sublessor on or before the tenth (10 th ) day of each month, Sublessee shall, in addition to the Rent and any other rights and remedies Sublessor may have, pay to Sublessor a late charge equal to ten percent (10%) of the Rent. Sublessee hereby acknowledges that late payment by Sublessor of Rent or other sums due hereunder may cause Sublessor to incur costs not contemplated by this Sublease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Sublessor by the terms of the Prime Lease. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Sublessor will incur by reason of late payment by Sublessee. Acceptance of such late charge by Sublessor shall in no event constitute a waiver of Sublessees default with respect to such overdue amount, nor prevent Sublessor from exercising any of the other rights and remedies granted hereunder.
1.7 Security Deposit . Upon the full execution of this Sublease, Sublessee shall deliver Eight Hundred Fifty Thousand Dollars ($850,000.00) in the following manner: (a) cash or immediately available funds in the amount of One Hundred Twenty Thousand and 00/100ths
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Dollars ($120,000.00) ( Replacement Cash ), to reimburse Sublessors cash Security Deposit (as defined in the Prime Lease) with Prime Landlord, the right to recover such cash Security Deposit from Prime Landlord being hereby assigned to Sublessee as Sublessees sole property and such recovery being dependent upon the satisfaction of all terms under the Prime Lease. The Replacement Cash is not refundable to Sublessee and Sublessees rights with respect to any sums paid pursuant to this clause (a) are limited to the extent that Prime Landlord refunds some of all of Sublessors cash Security Deposit pursuant to the terms of the Prime Lease; and (b) a letter of credit (the Letter of Credit ) in the sum of Seven Hundred Thirty Thousand Dollars ($730,000.00). The Letter of Credit shall be delivered to Sublessor as protection for the full and faithful performance by Sublessee of all of its obligations under this Sublease and for all losses and damages Sublessor may suffer as a result of any breach or default by Sublessee under this Sublease. The Letter of Credit shall be an unconditional, clean, irrevocable negotiable standby letter of credit payable to the order of Sublessor, drawn on a bank (the Bank ) reasonably approved by Sublessor and at a minimum having a long term issuer credit rating from Standard and Poors Professional Rating Service of A or a comparable rating from Moodys Professional Rating Service (the Credit Rating Threshold ), and otherwise conforming in all respects to the requirements of this Section 1.11 , including, without limitation, all of the requirements of Section 1.11(a) below, all as set forth more particularly hereinbelow. For the purposes of this Sublease, Silicon Valley Bank is hereby approved as the issuing bank. Sublessee shall pay all expenses, points and/or fees incurred by Sublessee in obtaining and maintaining the Letter of Credit. In the event of an assignment by Sublessee of its interest in the Sublease (and irrespective of whether consent is required for such assignment), the acceptance of any replacement or substitute letter of credit by Sublessor from the assignee shall be subject to Sublessors prior written approval, in Sublessors reasonable discretion.
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a) In general . The Letter of Credit shall be callable at sight, permit partial draws and multiple presentations and drawings, and be otherwise subject to the Uniform Customs and Practices for Documentary Credits (1993-Rev), International Chamber of Commerce Publication #500, or the International Standby Practices-ISP 98, International Chamber of Commerce Publication #590. Sublessee further covenants and warrants as follows:
i. Sublessor Right to Transfer . The Letter of Credit shall provide that Sublessor, its successors and assigns, may, at any time and without notice to Sublessee and without first obtaining Sublessees consent thereto, transfer (one or more times) all or any portion of its interest in and to the Letter of Credit to another party, person or entity, regardless of whether or not such transfer is separate from or as a part of the assignment by Sublessor of its rights and interests in and to this Sublease. In the event of a transfer of Sublessors interest in the Building or the Project, Sublessor shall transfer the Letter of Credit, in whole or in part, to the transferee and thereupon Sublessor shall, without any further agreement between the parties, be released by Sublessee from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said Letter of Credit to a new Sublessor. In connection with any such transfer of the Letter of Credit by Sublessor, Sublessee shall, at Sublessees sole cost and expense, execute and submit to the Bank such applications, documents and instruments as may be necessary to effectuate such transfer, and Sublessee shall be responsible for paying the Banks transfer and processing fees in connection therewith.
ii. No Assignment by Sublessee . Sublessee shall neither assign nor encumber the Letter of Credit or any part thereof. Neither Sublessor nor its successors or assigns will be bound by any assignment, encumbrance, attempted assignment or attempted encumbrance by Sublessee in violation of this Section.
iii. Renewal; Replacement . If the Letter of Credit expires earlier than the date (the LC Expiration Date ) that is one hundred twenty (120) days after the expiration of the Sublease Term, Sublessee shall deliver a new Letter of Credit or certificate of renewal or extension to Sublessor at least thirty (30) days prior to the expiration of the Letter of Credit then held by Sublessor, without any action whatsoever on the part of Sublessor, which new Letter of Credit shall be irrevocable and automatically renewable through the LC Expiration Date upon the same terms as the expiring Letter of Credit or such other terms as may be acceptable to Sublessor in its sole discretion. In furtherance of the foregoing, Sublessor and Sublessee agree that the Letter of Credit shall contain a so-called
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evergreen provision, whereby the Letter of Credit will automatically be renewed unless at least thirty (30) days prior written notice of non-renewal is provided by the issuer to Sublessor; provided, however, that the final expiration date identified in the Letter of Credit, beyond which the Letter of Credit shall not automatically renew, shall not be earlier than the LC Expiration Date.
iv. Banks Financial Condition . If, at any time during the Sublease Term, the Banks long term credit rating is reduced below the Credit Rating Threshold, or if the financial condition of the Bank changes in any other materially adverse way (either, a Bank Credit Threat ), then Sublessor shall have the right to require that Sublessee obtain from a different issuer a substitute Letter of Credit that complies in all respects with the requirements of this Section 1.9 , and Sublessees failure to obtain such substitute Letter of Credit within ten (10) business days following Sublessors written demand therefor (with no other notice or cure or grace period being applicable thereto, notwithstanding anything in this Sublease to the contrary) shall entitle Sublessor, or Sublessors then managing agent, to immediately draw upon the then existing L- C in whole or in part, without notice to Sublessee, as more specifically described in Section 1.11(c) , below. Sublessee shall be responsible for the payment of any and all costs incurred with the review of any replacement Letter of Credit (including without limitation Sublessors reasonable attorneys fees), which replacement is required pursuant to this Section or is otherwise requested by Sublessee.
b) Application of Letter of Credit . Sublessee hereby acknowledges and agrees that Sublessor is entering into this Sublease in material reliance upon the ability of Sublessor to draw upon the Letter of Credit as protection for the full and faithful performance by Sublessee of all of its obligations under this Sublease and for all losses and damages Sublessor may suffer (or which Sublessor reasonably estimates that it may suffer) as a result of any breach or default by Sublessee under this Sublease. Sublessor, or its then managing agent, shall have the right to draw down an amount up to the face amount of the Letter of Credit if any of the following shall have occurred or be applicable: (A) such amount is due to Sublessor under the terms and conditions of this Sublease; or (B) Sublessee has filed a voluntary petition under the U. S. Bankruptcy Code or any state
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bankruptcy code (collectively, Bankruptcy Code ); or (C) an involuntary petition has been filed against Sublessee under the Bankruptcy Code; or (D) the Bank has notified Sublessor that the Letter of Credit will not be renewed or extended through the LC Expiration Date; or (E) a Bank Credit Threat or Receivership (as defined below below) has occurred and Sublessee has failed to comply with the requirements of either Section 1.11(b)(v) or Section 1.11(f) , as applicable. If Sublessee shall breach any provision of this Sublease or otherwise be in default hereunder or if any of the foregoing events identified in Section 1.11(c)(ii) through (v) shall have occurred, Sublessor may, but without obligation to do so, and without notice to Sublessee, draw upon the Letter of Credit, in part or in whole, and the proceeds may be applied by Sublessor: (i) to cure any breach or default of Sublessee and/or to compensate Sublessor for any and all damages proximately caused by a Sublessees breach or default; (ii) against any Rent payable by Sublessee under this Sublease that is not paid when due; and/or (iii) to pay for all losses and damages that Sublessor has suffered which were proximately caused by a breach or default by Sublessee under this Sublease. The use, application or retention of the Letter of Credit, or any portion thereof, by Sublessor shall not prevent Sublessor from exercising any other right or remedy provided by this Sublease or by any applicable law, it being intended that Sublessor shall not first be required to proceed against the Letter of Credit, and shall not operate as a limitation on any recovery to which Sublessor may otherwise be entitled. Sublessee agrees not to interfere in any way with payment to Sublessor of the proceeds of the Letter of Credit, prior to a draw by Sublessor of any portion of the Letter of Credit, regardless of whether any dispute exists between Sublessee and Sublessor as to Sublessors right to draw upon the Letter of Credit. No condition or term of this Sublease shall be deemed to render the Letter of Credit conditional to justify the issuer of the Letter of Credit in failing to honor a drawing upon such Letter of Credit in a timely manner. Sublessee agrees and acknowledges that: (i) the Letter of Credit constitutes a separate and independent contract between Sublessor and the Bank; (ii) Sublessee is not a third party beneficiary of such contract; , and (iii) in the event Sublessee becomes a debtor under any chapter of the Bankruptcy Code, neither Sublessee, any trustee, nor Sublessees bankruptcy estate shall have any right to restrict or limit Sublessors claim and/or rights to the Letter of Credit and/or the proceeds thereof by application of Section 502(b)(6) of the U. S. Bankruptcy Code or otherwise.
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c) Letter of Credit not a Security Deposit . Sublessor and Sublessee acknowledge and agree that in no event or circumstance shall the Letter of Credit or any renewal thereof or any proceeds thereof be: (i) deemed to be or treated as a security deposit within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a security deposit within the meaning of such Section 1950.7. The parties hereto: (A) recite that the Letter of Credit is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context ( Security Deposit Laws ) shall have no applicability or relevancy thereto: and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.
d) Proceeds of Draw . In the event Sublessor draws down on the Letter of Credit pursuant to Section 1.11(c)(iv) or (v) above, the proceeds of the Letter of Credit may be held by Sublessor and applied by Sublessor against any Rent payable by Sublessee under this Sublease that is not paid when due and/or to pay for all losses and damages that Sublessor has suffered which were proximately caused by a breach or default by Sublessee under this Sublease. Any unused proceeds shall constitute the property of Sublessor and need not be segregated from Sublessors other assets. Sublessee hereby agrees that such proceeds shall not be deemed to be or treated as a security deposit under the Security Deposit Law and waives all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. Sublessor agrees that the amount of any proceeds of the Letter of Credit received by Sublessor, and not: (a) applied against any Rent payable by Sublessee under this Sublease that was not paid when due; or (b) used to pay for any losses and/or damages suffered by Sublessor which were proximately caused by a breach or default by Sublessee under this Sublease (the Unused Letter of Credit Proceeds ), shall be paid by Sublessor to Sublessee: (x) upon receipt by Sublessor of a replacement Letter of Credit in the full Letter of Credit Amount, which replacement Letter of Credit shall comply in all respects with the requirements of this Section 1.11 , or (y) within thirty (30) days after the LC Expiration Date; provided, however, that if prior to the LC Expiration Date a voluntary petition is filed by Sublessee, or an involuntary petition is filed against Sublessee by any
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of Sublessees creditors, under the Bankruptcy Code, then Sublessor shall not be obligated to make such payment in the amount of the Unused Letter of Credit Proceeds until either all preference issues relating to payments under this Sublease have been resolved in such bankruptcy or reorganization case or such bankruptcy or reorganization case has been dismissed.
e) Bank Placed Into Receivership .
i. Bank Placed Into Receivership . In the event the Bank is placed into receivership or conservatorship (any such event, a Receivership ) by the Federal Deposit Insurance Corporation or any successor or similar entity (the FDIC ), then, effective as of the date such Receivership occurs, the Letter of Credit shall be deemed to not meet the requirements of this Section 1.11 , and, within fifteen (15) business days following Sublessors notice to Sublessee of such Receivership (the LC Replacement Notice ), Sublessee shall replace the Letter of Credit with a substitute Letter of Credit from a different issuer reasonably acceptable to Sublessor and that complies in all respects with the requirements of this Section 1.11 . If Sublessee fails to replace such Letter of Credit with a substitute Letter of Credit from a different issuer pursuant to the terms and conditions of this Section 1.11(f)(i) , then, notwithstanding anything in this Sublease to the contrary, Sublessor shall have the right, at Sublessors option, to either: (i) declare Sublessee in default of this Sublease for which there shall be no notice or grace or cure periods being applicable thereto other than the aforesaid fifteen (15) business day period), in which event, Sublessor shall have the right to pursue any and all remedies available to it under this Sublease and at law, including, without limitation, treating any Receivership as a Bank Credit Threat and exercising Sublessors remedies under Section 1.11(b)(v) above, to the extent possible pursuant to then-existing FDIC policy. Sublessee shall be responsible for the payment of any and all costs incurred with the review of any replacement L- C which replacement is required pursuant to this Section or is otherwise requested by Sublessee.
f) Termination of Letter of Credit . Provided that, as of the fifteen (15) month anniversary of the Commencement Date: (i) no event of Sublessee default, after expiration of any notice and cure period, has occurred; (ii) no event exists, which, with the giving of notice, passing of time, or both, would constitute an event of Sublessee default; and (iii) there exists no uncured event of Sublessee default, whether before or after expiration of any applicable cure period; the Sublessees obligation to maintain the Letter of Credit set forth in this Section 1.11 shall automatically terminate; provided, however, if any of the events described in clauses (i), (ii) or (iii) of this subsection exist as of such date, the Letter of Credit shall remain in effect throughout the remaining Sublease term.
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ARTICLE II
INSURANCE AND INDEMNITY
2.1 Insurance . Sublessee shall provide evidence of all coverages required under Paragraph 16 of the Prime Lease as of the Commencement Date and shall, in all instances cause Prime Landlord, Sublessor and such other parties as either Prime Landlord or Sublessor shall require to be named as additional insureds on all such policies of insurance.
2.2 Indemnity . Sublessee shall indemnify, defend and hold harmless Sublessor, its agents, assigns, employees and contractors from any and all losses, costs and damages arising from claims asserted by or on behalf of any person, firm, or corporation arising out of, resulting from, or in any way connected with, the act(s) or omission(s) of Sublessee, or the violation by Sublessee of any law, ordinance, or statute, or any injury to person or property occurring in or about the Subleased Premises during the Term of this Sublease arising from the business of the Sublessee or its use and occupancy of the Subleased Premises.
Sublessor shall indemnify, defend and hold Sublessee harmless from and against any and all loss, liability, cost or expense (including reasonable attorneys fees and costs) incurred by Sublessee by reason of: (a) Sublessors breach or default under the Prime Lease; (b) the use of the Subleased Premises by Sublessee or Sublessee Parties to the extent the permitted use under this Sublease is not permitted under the Prime Lease; (c) any activities of Sublessor or any of
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Sublessors shareholders, partners, owners, employees, agents, consultants, contractors, subcontractors, laborers, materialmen, invitees or licensees (collectively, the Sublessor Parties ) in or about the Subleased Premises; (d) any breach or default in the performance of Sublessors obligations under this Sublease; (e) any misrepresentation or breach of warranty by Sublessor under this Sublease; or (f) any negligence, gross negligence or intentional misconduct of Sublessor or any of the Sublessor Parties in connection with the Subleased Premises or this Sublease.
ARTICLE III
REPRESENTATIONS BY SUBLESSOR
3.1 Representations . Sublessor makes the following representations and warranties as of the date hereof for the benefit of Sublessee:
(a) There are no existing or unexpired subleases, conveyances or liens of any kind or description affecting Sublessors leasehold interest in the Subleased Premises.
(b) Sublessor has full right, power and authority to enter into this Sublease.
(c) The Prime Lease is in full force and effect and there is no existing Event of Default by Sublessor or, to Sublessors knowledge, by Prime Landlord under the Prime Lease.
(d) The Prime Lease has not been amended or modified except as set forth herein, and that there are no Events of Defaults (as defined in the Prime Lease) on Sublessors part under the Prime Lease as of the execution of this Sublease.
Sublessor hereby covenants that during the Term, provided that Sublessee is not in default under this Sublease beyond applicable notice and cure periods, Sublessor will: (i) pay, when and as due, all Base Rent and Additional Rent and any other charges properly payable by Sublessor under the Prime Lease; (ii) not exercise any voluntary right to terminate the Prime Lease prior to the Expiration Date without the consent of Sublessee; and (iii) not modify the Prime Lease in any respect which creates additional material obligations of Sublessee under this Sublease, or materially decreases Sublessees rights under this Sublease, without the prior written consent of Sublessee. If: (A) Sublessor breaches any of the representations or covenants in this Section; and (B) such breach was not caused, in whole or in part, by a breach by Sublessee of any of its obligations under this Sublease, Sublessor shall be liable to Sublessee for all damages suffered by Sublessee as a result of such breach. If Prime Landlord sends to Sublessor any notice
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of default or potential default under the Prime Lease, Sublessor will send a copy of such notice to Sublessee promptly after Sublessors receipt thereof. Subject to this Sublease terminating as provided in the Prime Lease and in this Sublease, Sublessor represents that if Sublessee performs all the provisions in this Sublease to be performed by Sublessee, subject to all applicable notice and cure periods, Sublessee will have and enjoy throughout the Term the quiet and undisturbed possession of the Subleased Premises, subject to the terms and conditions of this Sublease.
To the best of Sublessors knowledge, the Subleased Premises and the building are in compliance with all governmental laws, ordinances, regulations or orders relating to but not limited to compliance with the Americans with Disabilities Act (ADA) and other state and local laws governing access by the disabled.
In addition, Sublessor represents and warrants to Sublessee that, to Sublessors knowledge: (i) Sublessor has disclosed to Sublessee any and all information which Sublessor has regarding the condition of the Subleased Premises and the Building including, but not limited to, the presence and location of asbestos, lead paint, petroleum hydrocarbon, PCB transformers or other hazardous materials (as defined in Paragraph 9 of the Prime Lease) and underground storage tanks in, on or about the Subleased Premises; (ii) there have been no notices, directives, violations, reports or actions by any legal, state or federal department or agency concerning Environmental Laws and any matters relating to Environmental Laws applicable to the Subleased Premises; and (iii) except as stated in Section 6.2 below, the Subleased Premises is in compliance with all federal, state and local laws, including but not limited to, all Environmental Laws. For the purposes of this Sublease, Environmental Laws means any and all laws, statutes, ordinances or regulations pertaining to health, industrial hygiene or the environment including, without limitation, CERCLA (Comprehensive Environmental Response Compensation and Liability Act of 1980) and RCRA (Resources Conservation and Recovery Act of 1976).
ARTICLE IV
MAINTENANCE
4.1 Maintenance . Sublessee shall, at its own expense, maintain the Subleased Premises in good condition, repair, and working order, to the same extent as currently exists, and shall, at its own expense: (a) make any and all repairs to the Subleased Premises and the equipment and systems exclusively serving the Subleased Premises; (b) make other such
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necessary repairs and maintenance to the Subleased Premises not otherwise the obligation of Prime Landlord under the Prime Lease: (c) replace and maintain any and all things necessary to keep the Subleased Premises in the same state of repair and operating order as currently exists, including, without limitation, all fixtures, furnishings, lighting and signs of Sublessee; (d) keep the Subleased Premises and all exterior entrances, exterior walls, glass and show molding, partitions, doors, floor surfaces, fixtures, equipment and appurtenances thereof in the same order, condition and repair as currently exists, and in a reasonably satisfactory condition of cleanliness; and (e) replace all broken or damaged glass or substances therefor, as the case may be. All repairs made by Sublessee shall utilize materials of quality at least equal to the original materials, and all repairs shall be made by contractors reasonably approved by Sublessor and in accordance with code. If any repairs, maintenance or replacements are required under this Section, then Sublessee shall, within a reasonable period of time, arrange for the same either through Sublessor for such reasonable charges as Sublessor may establish, or through such contractor as Sublessor shall reasonably approve in writing, which approval shall not be unreasonably withheld, conditioned or delayed. If Sublessee does not make or cause to be made such repairs, maintenance or replacements within thirty (30) days after receipt of a detailed written notice from Sublessor, then Sublessor may, but shall not be obligated to, make such repairs, maintenance and replacements, and the reasonable costs paid or incurred by Sublessor therefor plus five percent (5%) for overhead shall be reimbursed by Sublessee promptly upon demand by Sublessor, as Additional Rent.
4.2 AS IS Condition . Sublessor shall not be responsible for performing any improvements or work to the Subleased Premises, and Sublessee shall otherwise accept the same in their AS IS condition. Notwithstanding the foregoing, the Subleased Premises shall be broom clean with all debris removed and with all Building systems in good working order. Occupancy of the Subleased Premises by Sublessee shall constitute formal acceptance thereof and acknowledgment by Sublessee that Sublessors Work has been completed in the required condition.
4.3 Alterations . Sublessee shall not make any alterations to the Subleased Premises without the consent of Prime Landlord and Sublessor, which consent may be granted or withheld in their sole discretion. Sublessee may, without further notice to or approval of Sublessor or
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Prime Landlord, install and maintain data and voice cabling required by Sublessee in order to utilize the Subleased Premises for its intended use in accordance with plans previously approved by Sublessor (which approval will not be unreasonably withheld, conditioned or delayed) and may change the locks as discussed below. If Sublessees telecommunications provider installs telecommunications equipment and/or related connecting equipment (i.e., cables, conduits, inner ducts and connecting hardware) in the building in connection with the provision of telecommunications services to Sublessee (collectively, the Telecommunications Equipment ), then: (a) immediately following the installation of same, throughout the Term and following the expiration or earlier termination of this Sublease, all such Telecommunications Equipment shall be properly labeled (identifying both the service provider and Sublessee) at Sublessees sole cost and expense; and (b) at the expiration or earlier termination of this Sublease, Sublessee shall, at Sublessees sole cost and expense, without liens, cause all such Telecommunication Equipment to be removed from the Building. Any such property not so removed within thirty (30) days after the expiration or earlier termination of this Sublease may, at Sublessors sole option: (i) be removed and stored by Sublessor at Sublessees expense; or (ii) become the property of Sublessor without compensation to Sublessee. Sublessee shall, at its sole cost and expense, repair all damage caused by the installation, operation and/or removal of the Telecommunications Equipment. If Sublessee fails to repair any such damage, Sublessor may, in its sole discretion, repair such damage and Sublessee shall, within thirty (30) after Sublessors written request for payment, reimburse Sublessor for all costs and expenses reasonably relating to such damage.
Sublessee may make alterations to the Subleased Premises only in accordance with Paragraph 12 of the Prime Lease.
4.4 Locks and Security System . Sublessee shall have the same right to lock and security system changes as the Sublessor does under Paragraph 4.9 of the Prime Lease, subject to the same conditions set forth therein, except that Sublessee shall provide master keys and security codes to both Sublessor and Prime Landlord, except as to Sublessees secure areas.
Prior to the Commencement Date, Sublessor shall provide Sublessee with all information in its possession concerning the security system of the Subleased Premises. Sublessee, at its sole cost and expense will be responsible for repurposing any existing security system for Sublessees own use following the Commencement Date.
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4.5 Surrender of Subleased Premises . Upon expiration or other termination of this Sublease, Sublessee shall surrender the Subleased Premises to Sublessor in the restored condition required under the Prime Lease. Any holding over by Sublessee after the expiration or earlier termination of the Sublease term shall be governed by Paragraph 33 of the Prime Lease, including the adjustment of Rent; provided , however , that Sublessee shall also pay on demand to Sublessor all other amounts that Sublessor may become liable for under the Prime Lease as a result of such holding over by Sublessee.
ARTICLE V
ACTIONS AFFECTING TITLE TO PROPERTY
AND SUBLEASEHOLD ESTATE
5.1 Liens by Sublessee . Sublessee shall not create or permit the creation of any lien, encumbrance, or charge upon the Subleased Premises. Any liens, encumbrances, or charges so created or permitted by Sublessee shall be promptly discharged by Sublessee.
5.2 Assignment and Subleasing . Sublessee shall not voluntarily or by operation of law assign this Sublease or enter into license or concession agreement, sublet all or any part of the Sublease Premises, or otherwise transfer, mortgage, pledge, hypothecate or encumber all or any part of Sublessees interest in this Sublease or in the Sublease Premises or any part thereof (collectively, a Transfer ), without the prior written consent of the Prime Landlord (pursuant to the terms of the Prime Lease) and Sublessor (whose consent shall not be unreasonably withheld, conditioned or delayed). Any attempt to do so without such consent being first had and obtained shall be wholly void and shall constitute a default by Sublessee under this Sublease. Sublessee hereby irrevocably assigns to Sublessor all Rent and other sums or consideration in any form, from any Transfer, net of all reasonable attorneys fees, construction costs and brokerage fees incurred by Sublessee in order to effect such Transfer (the Net Transfer Proceeds ). Sublessee agrees that Sublessor, as assignee and as attorney-in-fact for Sublessee, or a receiver for Sublessee appointed upon Sublessors application, may collect such Rent and other sums and
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apply the same against amounts owing to Sublessor in the event of Sublessees default beyond any applicable notice, grace or cure periods; provided, however, that until the occurrence of any such default by Sublessee or Sublessees subtenant, Sublessee shall have the right to collect such sums, provided that the Net Transfer Proceeds shall belong solely and exclusively to Sublessor. Notwithstanding any Transfer, Sublessee shall not be relieved of its obligations hereunder, and a consent to one Transfer shall not constitute a consent to any other Transfer or a waiver of the provisions of this section.
5.3 Permitted Transfers . Subject to the terms of and compliance with the Prime Lease, Sublessee shall be entitled to effect the following permitted transfers of this Sublease: (i) an assignment or subletting of all or a portion of the Subleased Premises to an affiliate of Sublessee (an entity which is controlled by, controls, or is under common control with, Sublessee); or (ii) an assignment of the Sublease to an entity acquiring substantially all the assets of Sublessee or into which Sublessee is merged.
5.4 Furniture, Fixtures and Equipment . By separate Bill of Sale in the form annexed hereto as Exhibit D and executed simultaneously herewith, Sublessor will assign and convey to Sublessee all of its right title and interest in and to all furniture, fixtures and equipment situated on or in the Subleased Premises for the sum of $1.00. Sublessor represents that all manufacturing equipment and the Premises were decontaminated in accordance with the Decommissioning Report delivered to Sublessee by Sublessor prior to the Commencement Date. In addition, Sublessor represents that all of the equipment located in the Subleased Premises was in good working condition as of March 31, 2015. Sublessee shall have the right to inspect all equipment prior to the Commencement Date.
ARTICLE VI
FURTHER OBLIGATIONS OF SUBLESSEE
6.1 Compliance with Laws . Sublessee shall promptly comply or cause compliance with all laws applicable to Sublessees use and occupancy of the Subleased Premises.
6.2 Hazardous or Toxic Materials . Use and storage of hazardous or toxic materials is governed by the Prime Lease and shall be in accordance with all governmental laws, rules and
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regulations. Sublessor hereby discloses that Sublessor used hazardous or toxic materials in the Leased Premises and had various hazardous materials permits with governing agencies for such use. Sublessors use and permits, some of which remain open, are more particularly described in that certain Laboratory Facilities Decommissioning Report prepared by Technical Safety Services, Inc., Project Numbers NC-ANS155303A-1, NC-ANS155503A-1 and NC- ANS155703A-1, Project dates February 26, 2015 to April 21, 2015, including Closure Application and Closure Plan, a copy of which Sublessee hereby acknowledges having received and reviewed.
6.3 Use . Sublessees use of the Subleased Premises is governed by any applicable terms of the Prime Lease and is not further restricted or expanded by this Sublease, and Sublessee shall comply with the Prime Lease regarding Sublessees use and occupancy of the Subleased Premises as modified by this Sublease and the Prime Landlords Consent.
6.4 Sublessors Reasonable Access . Sublessee shall allow Sublessor and its employees and representatives reasonable access, during normal business hours, through the Subleased Premises as is reasonably necessary for Sublessor to monitor compliance with the terms of this Sublease.
6.5 Signage . All Sublessee signage is subject to the terms of the Prime Lease and shall be in accordance with all governmental laws, rules and regulations.
6.6 Attornment . If Sublessor assigns its rights under this Sublease to a third party, then such transferee shall thereupon be landlord hereunder and shall be deemed to have fully assumed all duties and obligations of this Sublease to be performed by Sublessor which first arise after the date of conveyance. Sublessee shall attorn to such transferee, provided that such transferee agrees to recognize Sublessees rights under this Sublease so long as Sublessee is not in default hereunder. Sublessor shall, from and after the date of conveyance, be free of all liabilities and obligations not then incurred.
6.7 Sublessees Obligations . For the benefit of Prime Landlord and Sublessor, Sublessee hereby expressly agrees from and after the Commencement Date to assume, to be bound
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by, and to perform all the terms, conditions and covenants of the Prime Lease to be fulfilled, performed or observed by Sublessor with respect to the Sublease Premises and/or Sublessees activities in, on or around the Sublease Premises and the common areas of the Sublease Premises, except for provisions relating to the payment of rent or the initial construction of tenant improvements, and except as otherwise expressly provided in this Sublease. Sublessee shall not commit or suffer at any time any act or omission that would violate any provision of the Prime Lease. Sublessees obligations hereunder include any and all obligations of Sublessor, under the Prime Lease, to remove any alterations, modifications or improvements and restoring the Sublease Premises, and performing all surrender obligations of Sublessor for the Sublease Premises under the Prime Lease.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default . The occurrence of any of the following events shall constitute a Sublessee Event of Default:
(a) Three business days after Sublessor provides Sublessee with notice of a breach of a payment obligation hereunder, or thirty (30) days after Sublessor provides Sublessee with notice of any other breach or default, and in either case Sublessee fails to either: (i) cure any such breach by Sublessee of any representation, warranty, or covenant made in this Sublease; or (ii) perform any such obligation or observe any covenant or condition to be performed or observed on its part pursuant to this Sublease, including payment of Rent.
(b) Sublessee makes an assignment for the benefit of its creditors.
(c) Filing by or against Sublessee of a petition to have Sublessee adjudged a bankrupt or a petition for reorganization or arrangement under any Law relating to bankruptcy (unless, in the case of a petition filed against Sublessee, the same is dismissed within thirty (30) days).
(d) Appointment of a trustee or receiver to take possession of substantially all of Sublessees assets, where possession is not restored to Sublessee within thirty (30) days.
(e) Attachment, execution or other judicial seizure of substantially all of Sublessees assets.
(f) Sublessees insolvency or admission of an inability to pay its debts as they become due.
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Any notice of default given pursuant to this Section shall be in lieu of, and not in addition to, any notice required by law or statute.
7.2 Sublessor Remedies Upon a Sublessee Event of Default . In addition to all the rights and remedies provided to Sublessor at law, in equity, or under the terms of this Sublease: (i) upon the occurrence of any Sublessee Event of Default, Sublessor shall have all of the rights and remedies with respect to such breach that are available to the Prime Landlord in the event of any breach under the Prime Lease; and (ii) as a further remedy, if Sublessee fails to perform any act on its part to be performed pursuant to the requirements of the Prime Lease or as otherwise required by this Sublease, then Sublessor may, but shall not be obligated to, fulfill such obligations of Sublessee, including entering the Sublease Premises to perform any such act, and all costs and expenses reasonably incurred by Sublessor in doing so shall be deemed Additional Rent payable by Sublessee to Sublessor within thirty (30) days after receipt of a written demand accompanied by appropriate backup.
7.3 Sublessor Events of Default . The occurrence of any of the following shall constitute a Sublessor Event of Default : (i) any breach of Sublessors warranties as set forth in Section 3.1 above; (ii) Sublessors failure to perform or observe any covenant or condition to be performed or complied with by Sublessor under this Sublease; or (iii) Sublessors default under the Prime Lease in a manner that adversely affect Sublessees use and occupancy of the Subleased Premises; and in either case, the failure continues for twenty (20) days after written notice by Sublessee to Sublessor, provided, however, that if the term, condition, covenant or obligation to be performed by Sublessor is of such a nature that the same cannot reasonably be performed within such twenty-day period, such default shall be deemed to have been cured if Sublessor commences such performance within said twenty day period and thereafter diligently undertakes to complete the same, provided such cure is completed within an additional twenty (20) day period. In addition to the foregoing, in the event the Sublessor Event of Default occurs as a result of the action or inaction of Prime Landlord, Sublessor shall be provided a reasonable time in which to cure such Sublessor Event of Default.
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7.4 Sublessees Remedies Upon Sublessor Event of Default . Upon the occurrence of any Sublessor Event of Default, in no event shall Sublessee have the right to terminate this Sublease as a result of Sublessors default; however, upon the occurrence of any Sublessor Event of Default under Section 7.3(iii) above, Sublessee may take any actions which Sublessee reasonably determines are the most efficient actions reasonably necessary to cure such Sublessors breach in a cost efficient manner that will allow Sublessee to continue to conduct its business in a reasonable and customary manner (i.e., curing Sublessors monetary or nonmonetary defaults), in which case, Sublessee shall be entitled to offset costs incurred in connection with such Sublessor Event of Default including interest thereon at the rate of ten percent (10%) per annum against the next installments of Rent due under this Sublease. Sublessee hereby waives its right to recover consequential damages (including, but not limited to, lost profits) or punitive damages arising out of a Sublessor Event of Default.
7.5 Waivers and Limitation on Waivers . Any waivers by Sublessor or Sublessee of Sublessee or Sublessor Events of Default shall be limited to the particular Sublessee or Sublessor Event of Default so waived and shall not be deemed to waive any other Sublessee or Sublessor Event of Default nor be deemed a waiver of the same Sublessee or Sublessor Event of Default on another occasion.
7.6 Delay in Exercise of Rights . No delay or failure to exercise any right occurring upon any Sublessee or Sublessor Event of Default shall impair any such right or shall be construed to be a waiver thereof, but any such right may be exercised from time to time as often as may be deemed expedient.
7.7 Course of Dealing . No course of dealing between Sublessor and Sublessee or any failure or delay on the part of Sublessor or Sublessee in exercising any of their respective rights under this Section or under any other provisions of this Sublease shall operate as a waiver of any of their respective rights hereunder or under any other provisions of this Sublease.
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ARTICLE VIII
SUBLEASE SUBJECT TO PRIME LEASE
8.1 Subordinate to Prime Lease . This Sublease is subject and subordinate to the Prime Lease. Sublessor shall perform all obligations under the Prime Lease applicable to the Subleased Premises and shall defend, indemnify, and hold Sublessee harmless from any such obligations. If Sublessee takes any action which is prohibited by the Prime Lease, Sublessor shall so notify Sublessee of such fact, including evidence of the applicable provision of the Prime Lease, and Sublessee shall, as soon as reasonably possible, discontinue any such action.
8.2 Consent of Prime Landlord . This Sublease and the obligations of the parties hereunder are expressly conditioned upon Sublessors obtaining the prior written consent to this Sublease by Prime Landlord pursuant to Section 19 of the Prime Lease. Sublessee shall promptly deliver to Sublessor any information reasonably requested by Prime Landlord (in connection with Prime Landlords approval of this Sublease) with respect to the nature and obligation of Sublessees business and/or the financial condition of Sublessee. If Prime Landlord fails to consent to this Sublease within thirty (30) days after the execution and delivery of this Sublease, Sublessee shall have the right to terminate this Sublease by giving written notice thereof to Sublessor at any time thereafter, but before the Prime Landlord grants such consent.
ARTICLE IX
MISCELLANEOUS
9.1 Notices . Any notice which either party may or is required to give, will be given by mailing the same, postage prepaid, to Sublessee or Sublessor at the following addresses or at such other places as may be designated by either party from time to time:
To Sublessor: | Solstice Neurosciences, LLC |
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Date of Plant Closing: March 31, 2015.
|
||
With a copy to: | US WorldMeds, LLC | |
To Sublessee | ||
Audentes Therapeutics, Inc. |
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101 Montgomery Street, Suite 2650 | ||
San Francisco, ca 94104 | ||
Attn: David Nagler |
Such notice or other communication may be mailed by registered mail, return receipt requested, postage prepaid and may be deposited in a post office or a depository for the receipt of mail regularly maintained by the post office. Such notices, demands or consents may also be delivered by hand, by overnight courier service or by any other method or means permitted by law. For purposes of this Sublease, notices will be deemed to have been given upon receipt if given by personal delivery or overnight courier service or three (3) days after mailing, if mailed.
9.2 Amendment . No amendment to this Sublease shall be binding upon either party hereto until such amendment is in writing and executed by both parties thereto.
9.3 Direct Lease . Sublessor shall use its commercially reasonable best efforts to assist Sublessee if Sublessee elects to enter into a new lease with the Prime Landlord, and shall work to reasonably accommodate Sublessees preference to execute a new lease and have a direct relationship with the Prime Landlord.
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9.4 Entire Agreement . This Sublease contains all agreements between the parties and there are no other representations, warranties, promises, agreements, or understandings, oral, written or inferred, between the parties, unless reference is made thereto in this Sublease.
9.5 Binding Effect . This Sublease shall be binding upon the parties hereto and upon their respective successors and assigns, and the words Sublessor and Sublessee shall include the parties hereto and their respective successors and assigns.
9.6 Severability . If any clause, provision, or section of this Sublease be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision, or section shall not affect any of the remaining clauses, provisions, or sections.
9.7 Captions . The captions or headings in this Sublease are for convenience of reference only and in no way define, limit, or describe the scope or intent of any provisions of this Sublease.
9.8 Governing Law . This Sublease shall be governed by and construed in accordance with the laws of the State of California. Any action arising hereunder or in connection herewith shall be brought only in a state or federal court of competent jurisdiction located in San Mateo County, California, Sublessor and Sublessee hereby each consenting to the jurisdiction of said courts.
9.9 Confidentiality . Sublessor and Sublessee acknowledge that the nature of each of their businesses may concern confidential and privileged information ( Confidential Information ). Sublessor and Sublessee further agree to take any and all reasonable steps for the implementation of appropriate safeguards to protect and assure the confidentiality and to prevent the unauthorized disclosure, of any Confidential Information.
9.10 Disclosure Regarding Accessibility Inspection . The Subleased Premises have not undergone an inspection by a Certified Access Specialist ( CASp ) to determine whether or not the Subleased Premises meets all applicable construction-related accessibility standards pursuant to California Civil Code Section 55.51 et. seq.
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9.11 Energy Bills . Sublessor shall have the right to require Sublessee to provide Sublessor with copies of bills from electricity, natural gas or similar energy providers (collectively, Energy Providers ) Sublessee receives from Energy Providers relating to Sublessees energy use at the Premises ( Energy Bills ) within fifteen (15) business days after Sublessors written request.
9.12 Damage, Destruction and Condemnation . In the event of any damage, destruction or condemnation of the Subleased Premises, the terms of the Prime Lease shall govern the rights, duties and obligations of the parties.
9.13 Brokerage Commissions . The parties represent and warrant to each other that they have dealt with no brokers, finders, agents or other person in connection with the transaction contemplated hereby to whom a brokerage or other commission or fee may be payable other than Michael Davis, Colliers International and Jon Faller, Faller Real Estate. Each party shall indemnify, defend and hold the other harmless from any claims arising from any breach by the indemnifying party of the representation and warranty in this Section 9.13 .
9.14 Counterparts and Electronic Signatures . This Sublease may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. A copy of a signature received through telefax transmission or other electronic means (including files in Adobe .pdf or similar format) shall bind the party whose signature is so received, and shall be considered for all purposes, as if such signature were an original.
[Remainder of page left intentionally blank; signature page to follow]
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IN WITNESS WHEREOF , the parties hereto have caused this Sublease to be duly executed on the day and year first above written.
SUBLESSOR : | ||
Solstice Neurosciences, LLC , a Delaware limited liability company | ||
By: |
/s/ P.B. Jones |
|
Name: |
P.B. Jones |
|
Title: |
CEO |
|
SUBLESSEE : | ||
Audentes Therapeutics, Inc. , a Delaware corporation | ||
By: |
/s/ Matthew R Patterson |
|
Name: |
Matthew R Patterson |
|
Title: |
President and CEO |
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EXHIBIT A
[See Attached Plan of Subleased Premises]
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EXHIBIT B
[See Attached Copy of Prime Lease]
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NET COMMERCIAL LEASE
JOHN C. NICKEL, Lessor
ATHENA NEUROSCIENCES, INC., Lessee
528 ECCLES AVENUE, SOUTH SAN FRANCISCO
NET COMMERCIAL LEASE
TABLE OF CONTENTS
1. | Definitions | 1 | ||||
2. | Term; Delivery of Possession | 3 | ||||
3. | Rent and General Provisions Regarding Payments | 4 | ||||
4. | Offer of New Space in Building | 6 | ||||
5. | Use | 6 | ||||
6. | Security Deposit | 8 | ||||
7. | Option to Extend Term | 9 | ||||
8. | Limitations on Use | 13 | ||||
9. | Personal Property Taxes | 19 | ||||
10. | Taxes Payable by Lessee | 19 | ||||
11. | Repairs | 22 | ||||
12. | Alterations | 25 | ||||
13. | Utilities and Services | 27 | ||||
14. | Exculpation of Lessor | 28 | ||||
15. | Indemnity | 28 | ||||
16. | Insurance | 28 | ||||
17. | Destruction | 31 | ||||
18. | Condemnation Definitions | 33 | ||||
19. | Assignment and Subletting | 36 | ||||
20. | Lessees Default | 43 | ||||
21. | Lessors Remedies | 44 | ||||
22. | Lessors Default | 47 | ||||
23. | Limitation of Lessors Liability | 48 | ||||
24. | Lessors Entry on Premises | 48 | ||||
25. | Subordination | 49 |
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26. | Rights to Estoppel Certificate | 50 | ||||
27. | Notice | 50 | ||||
28. | Waiver | 51 | ||||
29. | Right to Purchase Building | 52 | ||||
30. | Sale of Building | 54 | ||||
31. | Attorneys Fees | 55 | ||||
32. | Surrender of Premises | 55 | ||||
33. | Holding Over | 56 | ||||
34. | Consent of Parties | 57 | ||||
35. | Time of Essence | 57 | ||||
36. | Successors and Assigns | 57 | ||||
37. | Covenants and Assigns | 57 | ||||
38. | California Law | 57 | ||||
39. | Captions | 57 | ||||
40. | Number | 57 | ||||
41. | Joint and Several Obligations | 57 | ||||
42. | Corporate Authority | 57 | ||||
43. | Complete Agreement | 58 | ||||
44. | Real Estate Brokers | 58 | ||||
45. | Recording | 58 | ||||
46. | Counterparts | 59 |
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NET COMMERCIAL LEASE
This Lease dated May 22, 1997, for reference purposes only, is by and between JOHN C. NICKEL (Lessor) and ATHENA NEUROSCIENCES, INC., a Delaware corporation (Lessee).
IT IS HEREBY AGREED:
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises described in paragraph 1 below for the terms, and subject to the covenants, agreements and conditions hereinafter set forth. Lessee and Lessor covenants as a material part of the consideration for this Lease to keep and perform all said covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance.
1. Definitions . Unless the context otherwise specifies or requires, the following terms shall have the following meanings:
A. Building. The term Building shall mean the land and other real property and improvements located in 526-534 Eccles Avenue, South San Francisco, California, the surrounding grounds and parking and driveway areas, including the easement driveway area as more particularly depicted on Exhibit A attached hereto and incorporated herein by this reference.
B. Premises. The term Premises shall mean that section of the Building shown as the cross-hatched area on Exhibit A , commonly referred to as 528 Eccles Avenue, consisting of 21,960 square feet.
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C. Lessees Percentage Share. The term Lessees Percentage Share, except when said term refers to the cost of maintaining the easement roadway, shall mean twenty and 14/100 percent (20.14%). Lessor and Lessee acknowledge that Lessees Percentage Share, except when said term refers to the cost of maintaining the easement roadway, has been obtained by dividing the net rental area of the Premises, which Lessor and Lessee agree is 21,960 square feet, by the total net rental area of the Building, which Lessor and Lessee agree is 109,056 square feet, and multiplying such quotient by 100.
D. Lessees Percentage Share of Easement Roadway. The term Lessees Percentage Share, when said term refers to the cost of maintaining the easement roadway, shall mean eleven and 69/100 percent (11.69%). Lessor and Lessee acknowledge that Lessees Percentage Share, when said term refers to the cost of maintaining the easement roadway, has been obtained by dividing the net rental area of the Premises, which Lessor and Lessee agree is 21,960 square feet, by the total square footage of the two buildings which use the easement roadway (the Building and 546 Eccles Avenue, South San Francisco, CA), which Lessor and Lessee agree is 187,788, and multiplying such quotient by 100.
E. Common Area Maintenance and Repair Costs. The term Common Area Maintenance and Repair Costs shall mean all costs of maintaining and repairing, including the cost of any maintenance or service contract, the Buildings water, sewer, ventilating and air-conditioning systems (unless such system only serves the Premises, or any part thereof, in which event Lessee shall maintain said system), common entryways, doors and passage ways, plumbing and sewer lines which extend from the Premises, the grounds surrounding the Building and the driveways (including landscaping
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whether located adjacent to the Building or elsewhere on the parcel on which the Building is located), parking areas, driveways, the easement roadway or driveway, fences, the drain and gutter pipes at the roof level, and all other common areas. Such term shall also include the cost of washing the exterior walls or painting or repairing such walls for the purpose of removing any graffiti which may appear thereon. Such term shall also include the cost of any needed replacements of such equipment or systems or any other replacements or capital improvements. Such capital costs shall be amortized over the useful life of the improvement, which Lessor shall determine in his sole discretion, together with interest on the unamortized balance at the rate of ten (10%) per annum if Lessor has used his own funds or the interest rate as may have been paid by Lessor on funds borrowed for the purpose of constructing or installing such replacements or improvements. Lessor agrees that he will not collect or be entitled to collect Common Area Maintenance and Repair Costs from all of its tenants in the Building in an amount which is in excess of one hundred percent (100%) of the Common Area Maintenance and Repair Costs actually paid by Lessor in connection with the operation of the Building and the surrounding areas and grounds.
2. Term; Delivery of Possession .
A. Except as otherwise provided in this Lease, the term of this Lease for the rental of the Premises shall commence on May 21, 1997, or on such later date as possession of the Premises is delivered to Lessee (Lease Commencement Date), and, unless sooner terminated, as hereinafter provided, shall end ten years following such date.
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B. Lessor shall deliver possession of the Premises to Lessee on the Lease Commencement Date. If Lessor, for any reason whatsoever, cannot deliver possession of the Premises on the Lease Commencement Date, this Lease shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss or damage resulting therefrom. Notwithstanding the foregoing, if possession of the Premises has not been delivered to Lessee on or before June 3, 1997, Lessee at any time thereafter, but prior to the delivery of possession, may terminate this Lease by notice to Lessor, and Lessor and Lessee shall thereupon be released from all obligations under this Lease and Lessor shall return to Lessee all amounts previously paid to Lessor by Lessee hereunder.
C. The words delivery of possession or deliver possession, or similar combination of words, for purposes of this Lease shall mean the day on which Lessor notifies Lessee that the Premises are ready for Lessees occupancy. The failure, however, of Lessor to so notify Lessee shall not constitute a default hereunder by Lessor.
3. Rent and General Provisions Regarding Payments .
A. Lessee shall pay to Lessor the following sums of money (Base Monthly Rent) in advance, no later than the first day of each month, for the rental of the Premises commencing on the Lease Commencement Date:
(1) Months 1 through 30 inclusive: $10,760.40 per month;
(2) Months 31 through 60 inclusive: $11,858.40 per month;
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(3) Months 61 through 90 inclusive: $13,176.00 per month; and
(4) Months 91 through 120 inclusive: $14,493.60 per month.
B. If the term of this Lease commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, all rent due for such fractional month or months shall be appropriately prorated based on a 30-day month.
C. All payments of Base Monthly Rent and all other sums due to be paid by Lessee to Lessor under this Lease, all of which is sometimes collectively referred to as rent, shall be paid to Lessor, without prior demand, prior notice, deduction or offset, in lawful money of the United States of America at Lessors address for notices hereunder (or to such other person or at such other place as Lessor may from time to time designate in writing). All rent, if not received by Lessor at said address within five calendar days of the date the payment is due, shall bear interest, from the due date until so received, at the rate of ten percent (10%) per annum. Lessee shall pay to Lessor the sum of Twenty Dollars ($20.00) for each check tendered by Lessee which is not honored for payment by Lessees bank for whatever reason and the statutory penalties if Lessor elects to pursue said remedy. In addition, Lessee shall pay to Lessor a late charge of ten percent (10%) of the total amount of the payment due for each payment of Base Monthly Rent or other sum due pursuant to this Lease if said sum is not received by Lessor within five calendar days of the date the payment is due. Lessor and Lessee agree that Lessor will incur
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damages and expenses on account of any such late payment, including but not limited to added staff time to collect the sums due, accounting and legal expenses and interest or other charges, and that the amount of such damages and expenses will be extremely difficult and impractical to ascertain. Accordingly, the parties agree that the ten percent (10%) late charge is a reasonable estimate of said expenses and damages.
D. All sums received by Lessor from Lessee shall be applied first to the oldest outstanding monetary obligation owed by Lessee to Lessor and any other designation of the manner in which said payment is to be applied by Lessee shall be void and of no effect.
4. Offer of New Space in Building . Lessor shall have the right, at his election, to lease any unleased portion of the Building or any portion thereof to any third party, on terms and conditions acceptable to Lessor at his sole discretion. Lessor agrees, however, to give to Lessee any listing information for any such space at least five calendar days prior to releasing such listing information to the brokerage community or the public and to give to Lessee a complete copy of any unsolicited offers to lease any such space received by Lessor at least one full business day prior to Lessor responding to said offer. Nothing, however contained herein should be construed as the grant of an option or a right of first refusal to lease any such space.
5. Use . The Premises shall be used exclusively for the research, development and manufacture of botulinum toxin pharmaceutical products for use in the treatment of neurological diseases and conditions, and directly related activities and
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related office uses and no other purpose, without the prior written consent of Lessor which consent shall not be unreasonably withheld, conditioned or delayed. Said permitted use is expressly conditioned upon Lessee obtaining and maintaining throughout the term of this Lease and any extension thereof all necessary approvals from, and giving notice to, the United States Food and Drug Administration (FDA) which are required for the activities being undertaken by Lessee in the Premises, and Lessee obtaining and maintaining throughout the term of this Lease and any extension thereof all such other approvals from, and giving notices to, the FDA and any other governmental agency which has or may have jurisdiction over such activities which are required from time to time during the term of this Lease and any extension thereof in connection therewith. Lessors approval of any other use of the Premises, including research regarding any other substance or the manufacture of any other drug or biologic product, may be conditioned upon Lessee fully disclosing the nature of any other research or manufacturing activity and Lessee obtaining all necessary approvals and permits for such new use. Lessors consent may be denied, and such denial will be deemed to be reasonable, if Lessor determines in Lessors solo discretion that the proposed use will materially increase Lessors risks of loss or liability above those risks of loss or liabilities resulting from Lessees permitted use of the Premises, including, but not limited to, risk of contamination of the Building or any part thereof or risk of adverse health consequences to any person who might enter the Building or the Premises, with or from any substance that reasonably could be determined either to cause significant adverse health consequences or to interfere substantially with the operation of any other tenant in the Building.
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In connection with Lessees use of the Premises, Lessee shall have (a) the exclusive use of those twenty (20) parking spaces designated on Exhibit A so long as Lessee abides by all reasonable rules and regulations promulgated by Lessor regarding such use and (b) the non-exclusive use of the common areas of the Building.
6. Security Deposit . On or before the date when Lessee signs this Lease, Lessee shall deposit with Lessor the sum of $11,000.00 as a Security Deposit. The Security Deposit shall be held by Lessor as security for the faithful performance by Lessee of all of the provisions of this Lease to be performed or observed by Lessee. No portion of the Security Deposit may be used for any monetary obligation owed by Lessee during the term of this Lease and any extension thereof, particularly the rental for the last month of the term of this Lease or any extension thereof. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of the Security Deposit for the payment of said obligation or of any other sum to which Lessor may become obligated by reason of Lessees default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of the Security Deposit during the term hereof or any extension, Lessee shall within fifteen (15) days after demand therefor deposit cash with Lessor in an amount sufficient to restore the Security Deposit to the full amount thereof. Lessees failure to do so shall be deemed a failure to pay rent and shall constitute a
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material breach of this Lease. Lessor shall not be required to keep the Security Deposit separate from his general accounts. If Lessee performs all of Lessees obligations hereunder, the Security Deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessors option, to the last assignee, if any, of Lessees interest hereunder) within a reasonable time after the expiration of the term hereof and after Lessee has vacated the Premises and they are returned to Lessor in the condition in which they are obliged to be returned to Lessor, whichever is later. No trust relationship is created herein between Lessor and Lessee with respect to the Security Deposit.
7. Option to Extend Term . Lessor hereby grants to Lessee options (the Options) to extend the term of this Lease for two five (5) year terms (the Extension Periods). The first Extension Period (the First Extension Period) shall commence upon the expiration of the initial term hereof and the second Extension Period (the Second Extension Period) shall commence upon the expiration of the First Extension Period. The terms and conditions of the Options are as follows.
A. Exercise of Options. The Options shall be exercised by Lessee giving to Lessor written notice of such exercise at least one hundred fifty (150) days prior to the expiration of the original term as to the First Extension Period and at least one hundred fifty (150) days prior to the expiration of the First Extension Period as to the Second Extension Period.
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B. Terms and Conditions. All terms and conditions of this Lease shall continue to be binding upon Lessor and Lessee during the First Extension Period and the Second Extension Period except that the Base Monthly Rent during each Extension Period shall be at ninety-five percent (95%) of the fair market rent (as defined below), which fair market rent shall be determined as follows:
(1) Within thirty (30) days after the date on which Lessee exercises either option (Exercise Date), the parties shall negotiate in good faith and attempt to agree on the amount of Base Monthly Rent to be paid during the corresponding Extension Period. If the parties fail to agree during said time period on the amount of Base Monthly Rent to be paid, then the following process shall be followed.
(2) Within forty-five (45) days after the Exercise Date, each party shall designate one representative who shall be a licensed California real estate agent in good standing, actively engaged in the sale and leasing of properties comparable to the Building in the northern San Mateo County market area and who has been so engaged for at least five (5) years prior to the date on which he/she is designated as a representative of Lessor or Lessee. These representatives shall within sixty-five (65) days after the Exercise Date select a third person (the neutral representative) who possesses the same minimum qualifications as the representatives. Thereafter and before the expiration of the ninetieth (90th) day after the Exercise Date, the representatives shall appraise the Premises and meet and confer. If two of the representatives agree as to the amount of the fair market rent, then the amount equal to ninety-five percent (95%) of their determination shall be the Base Monthly Rent for the Extension
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Period for which the services of the representatives were secured. If no two representatives can agree as to the amount of the fair market rent for the subject Extension Period, the fair market rent shall be established by the appraisal of the neutral representative acting alone and the amount equal to ninety-five percent (95%) of the neutral representatives determination of the amount of the fair market rent shall be accepted as the amount of the Base Monthly Rent for the subject Extension Period. Each party shall pay the cost of its representative and shall share equally the cost of the neutral representative. If either party fails to designate a representative ready, willing and be able to serve in the just described rent setting process, or fails promptly to appoint a successor if there is an inability to serve, within the time deadlines set forth above, said party shall forfeit and waive the right to have a representative participate in the just described rent setting process and the rent shall be set according to the appraisal of the other partys representative.
(3) As used in this Lease, the term fair market rent with respect to each Extension Period shall mean the monthly amount (determined by reference to the market for comparable buildings in the northern San Mateo County area) that a willing landlord would offer and a willing tenant would accept, as of the first day of such Extension Period, in an arms-length transaction for a lease of the Premises (i) for use as warehouse space and without regard to Lessees permitted use of the Premises, (ii) commencing on first day of such Extension Period, (iii) with or without right of renewal (as the case may be), (iv) without considering the value of tenant improvements constructed by Tenant (including, without
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limitation, seismic improvements to the Building, the heating, ventilation and air conditioning systems and equipment installed by Lessee and the increased electrical systems, equipment and capacity installed by Lessee), and (v) otherwise on all of the terms and conditions of this Lease. In determining fair market rent, there shall be taken into consideration the rental rate for leases of warehouse space in comparable buildings in the northern San Mateo County market area and the location of the Premises.
C. Option Not Assignable Separate From Lease. The Options herein granted to Lessee are not assignable separate and apart from this Lease and may not be exercised in the event of an assignment of the Lease by anyone other than the successors or assigns of Lessee.
D. Effect of Events of Default on Option(s). Lessee shall have no right to exercise either option, notwithstanding any provision in the grant of option to the contrary, if an Event of Default as defined in paragraphs 20.A and 20.B (with the exception of any payment due from Lessee for Lessees Percentage Share of Common Area Maintenance and Repair costs) occurs on ten separate occasions during the term of this Lease with respect to the First Extension Period or during the term of this Lease as extended by the First Extension Period with respect to the Second Extension Period. All rights of Lessee under the provisions granting the options shall terminate and be of no further force and effect if after Lessee has exercised an option and before the term of that Extension Period has begun, a tenth Event of Default as defined in paragraphs 20.A and 20.B, (with the exception of the payment of Lessees Percentage Share of Common Area Maintenance and Repair
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Costs) occurs. The termination of the option for the First Extension Period automatically terminates the Option for the Second Extension Period. The parties expressly agree that Lessors grant of the options to extend the term of this Lease for the two Extension Periods was given in consideration of Lessees payment when due of all of Base Monthly Rent, Lessees Percentage Share of real property taxes and Lessees Percentage Share of insurance premiums undertaken by Lessee under this Lease. Said consideration will be deemed to have failed on the tenth time when Lessee has failed to pay when due Base Monthly Rent, Lessees Percentage Share of real property taxes or Lessees Percentage Share of insurance premiums. The loss of any such options pursuant to this paragraph shall not be considered to be a forfeiture voidable at the request of Lessee.
8. Limitations on Use . Lessees use of the Premises shall be in accordance with the following:
A. Cancellation of insurance; increase in insurance rates . Lessee shall not do, bring, or keep anything in or about the Premises that will cause a cancellation of any insurance described in paragraph 16 (excluding earthquake insurance). If the rate of any insurance carried by Lessor is increased primarily as a result of any activity of Lessee at the Premises, or if any lender to Lessor shall require Lessor to carry additional insurance as a result of any activity of Lessee at the Premises, Lessor shall notify Lessee of said event at least twenty (20) days prior to the date on which such premium is due and Lessee shall pay a sum equal to the total difference, between the original premium and the increased premium to Lessor within ten (10) days before the date
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Lessor is obligated to pay said premium on the insurance. If Lessee should so request, Lessor shall deliver to Lessee a certified statement from Lessors insurance carrier or lender stating that the rate increase or requirement of additional insurance was caused primarily by an activity of Lessee on the Premises.
B. Compliance with Laws . Lessee shall at Lessees solo cost and expense comply with all laws, governmental regulations and restrictions of record concerning the Premises or Lessees use of the Premises, including without limitation, the obligation at Lessees cost to alter, maintain, or restore the Premises in compliance and conformity with all laws and governmental requirements relating to the condition, use, or occupancy of the Premises during the term of this Lease or any extension thereof, whether foreseen or unforeseen, regardless of the cost, and regardless of when during the term the work is required, including, without limitation, the Federal Americans With Disabilities Act, California Title 24 (the California Building Code), and all laws regulating the production of pharmaceuticals or drugs and regulations issued by the FDA or any other governmental agency with jurisdiction with respect thereto.
C. Limits on Hazardous Materials . Lessee shall not store, or permit the storage, or use, or permit the use, of hazardous materials in such a manner which would result in contamination, in violation of any law or regulation, described in paragraph 8.c.(1) below, of the Building, the Premises, or the surrounding soil or air, or cause a substantial risk of fire, explosion, or release of noxious or corrosive fumes in or about the
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Premises or the Building or within fifty (50) feet thereof, or conduct, or permit to be conducted, any hazardous activities which would involve contamination of the Building, Premises or surrounding soil or air in violation of any law or regulation described in paragraph 8.C. (1) below, or cause a substantial risk of fire, explosion, flood or noxious or corrosive fumes in or about the Premises or Building or within fifty (50) feet thereof or endanger the good health of any occupant or invitee to the Building or Premises. In addition to, and not by way of limitation of, Lessees obligations set forth in this Lease, Lessee shall at all times comply with all local, state and national laws regarding the manufacture, transportation, storage, use and disposal of all hazardous materials.
(1) As used in this Lease, the term hazardous material(s) shall Include the following: any substance or material defined as hazardous or toxic by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et. seq .), as amended from time to time; the Hazardous Materials Transportation Act (42 U.S.C. Section 1801 et. seq .), as amended from time to time; the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et. seq .), as amended from time to time; the Hazardous Waste Control Law, California Health & Safety Code Section 25100 et. seq ., as amended from time to time; the Safe Drinking Water and Toxic Enforcement Act of 1986, as amended from time to time; any rules and regulations promulgated under the foregoing statutes; rules and regulations of the Environmental Protection Agency, the California Water Quality Control Board, the Department of Labor, the California Department
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of Industrial Relations, the Department of Transportation, the Department of Agriculture, the Consumer Product Safety Commission, the Department of Health and Human Services, the FDA or any other governmental agency now or hereafter authorized to regulate or protect the environment or human health or safety; and any other federal, state, or local law, statute, ordinance, or regulation now in effect or later enacted to protect the environment or human health or safety.
(2) Lessee shall keep adequate records to demonstrate that all hazardous materials are being properly handled, used, stored, transported and disposed of in accordance with all applicable laws and regulations and shall make said records available to Lessor promptly after receiving a request therefor from Lessor. Lessor shall have the right to appoint a consultant to conduct an investigation to determine whether hazardous materials have been released in such a manner as would violate applicable laws and regulations, provided, however, that the cost of hiring any such consultant shall not be a part of Common Area Maintenance and Repair Costs.
(3) Without limiting the applicability of any other indemnity provision of this Lease, Lessee shall indemnify, defend and hold Lessor harmless from all costs, expenses and liabilities, including reasonable attorneys fees as incurred by Lessor arising from any violation by Lessee of the provisions of this paragraph 8.C.
(4) Without limiting the foregoing, in the event hazardous materials brought onto the Premises by Lessee result in contamination of the Building, the Premises or any air, water or
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soil in or about the Building or the Premises in violation of any law or regulation described in paragraph 8.C.(1), Lessee shall, at its sole cost, promptly take all actions necessary to bring the Premises and/or the Building into compliance with all laws and regulations described in paragraph 8.C.(1). Any remedial action or disposal shall be undertaken in accordance with all applicable laws and regulations.
(5) Lessee shall immediately notify Lessor in writing of any discovery by Lessee, its agents or employees, of the release of any hazardous material onto the Premises or the Building and transmit to Lessor copies of all non-routine reports from any governmental agency having jurisdiction over any activity of Lessee in the premises regarding any violations or suspected violations of any laws or regulations governing Lessees use of and activities within the Premises. Lessee shall furthermore immediately notify in writing Lessor of any non-routine inquiry, test, investigation or enforcement proceeding by or against Lessee or the Premises concerning a hazardous material (a Proceeding). Lessee shall transmit to Lessor copies of any reports from any governmental agency having jurisdiction in connection with any such Proceeding to the extent such reports are not subject to either the attorney work product or attorney-client privileges. Lessee agrees that Lessor, as owner of the Building, shall have the right to take such actions as Lessor believes are necessary to protect his interest in the Building with respect to any such Proceeding so long as such actions do not interfere with any actions Lessee may take with respect to such Proceeding (including, without limitation, Lessees negotiations regarding, or resolution, settlement, defense or
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appeal of, any such Proceeding); provided, however, the foregoing shall not permit Lessor to take any action on Lessees behalf or to participate in, approve or disapprove of, or control any actions that Lessee may elect to take with respect to any such Proceeding.
D. Waste; Nuisance . Lessee shall not use the Premises in any manner that will constitute waste or nuisance (including, without limitation, the use of loudspeakers or sound or light apparatus that can be heard or seen outside the Premises, or the emission of noxious odors) or interference with use or access of other tenants in the Building or of owners or occupants of adjacent properties. In the event any use of the Premises by Lessee attracts the attention of the public and the public enters or attempts to enter the Premises, the Building or the grounds surrounding the Building in a manner that would, if done by Lessee or any of Lessees invitees, violate the provisions of subparagraph E below, Lessee shall take all reasonable steps to abate such activities which shall be deemed to be a nuisance and Lessor shall allow Lessee a reasonable time to address such issues and take corrective measures. If, however, it becomes necessary for Lessor to take any action to insure that ingress and egress roadways to the Building are not blocked from a cause directly related to the activities of Lessee in the Premises, the cost of such action, including Lessors attorneys fees and costs, shall be reimbursed by Lessee to Lessor within 15 days of Lessor giving Lessee notice of the amount paid by Lessor to abate such nuisance.
E. Compliance with Rules Issued by Lessor . Lessee shall not use the driveway (s) so as to impede any ingress or egress by other vehicles, and shall park all vehicles only in areas
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designated for such vehicles. Lessee shall also comply with all reasonable rules which have been or which way hereinafter be promulgated by Lessor regarding the use of the driveways and parking areas provided Lessor has delivered a copy of any such rule which Lessor intends to enforce. Lessee hereby consents to Lessor towing any such vehicles which do not comply with this paragraph or the just described rules. Lessee shall also refrain from storing any property on the grounds surrounding the Premises or on driveways or parking areas or allowing the use of any such grounds except as means for ingress and egress from the Premises or the Building.
9. Personal Property Taxes . Lessee shall pay or contest before delinquency all taxes, assessments, license fees and other charges that are levied and assessed against Lessees personal property installed or located in or on the Premises, and that become payable during the term. On demand by Lessor, Lessee shall furnish Lessor with satisfactory evidence of these payments.
10. Taxes Payable by Lessee .
A. Lessee shall pay to Lessor in accordance with paragraph 10.C, Lessees Percentage Share of all taxes, assessments and other governmental levies and charges of any kind or nature which at any time during the term of this Lease or any extension thereof may be assessed, levied or imposed by a governmental authority upon or with respect to the Premises or any part thereof (including any personal property located therein), or with respect to the conduct of the business therein, or any use or occupancy thereof, or with respect to the ownership by Lessor of the Premises, without regard to the person, firm or corporation against
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which any such taxes may be assessed. It is intended that the taxes to be paid by Lessee hereunder shall include (without limitation) (i) any real or personal property (except taxes levied on personal property belonging to other tenants in the Building) taxes and any special and general assessments assessed against Lessor or the Premises to the extent that they are based upon or measured by the size or value of the Premises; (ii) in lieu of, or in substitution for, or in addition to, any real or personal property taxes on the Premises; (iii) taxes upon the gross or net rental income of Lessor (or otherwise measured by rental income) derived from the Premises (including, without limitation, any excise tax); and (iv) any increase in any of the foregoing described taxes which may occur on any account of a change in use of the Premises by Lessee, the execution of this Lease by the parties, or any subsequent sale or lease of the Building by Lessor. Nothing contained in this Lease, however, shall require Lessee to pay any interest, penalties or premiums on any such amount unless imposed as a result of Lessees default in payment, or any estate, inheritance, succession, capital levy, or income tax of Lessor.
B. Lessees liability hereunder to pay any tax shall be prorated on a daily basis to account for any fractional portion of a tax period included in the term of this Lease or any extension thereof at its commencement and expiration.
C. Lessor shall notify Lessee, at least thirty (30) days before any taxes must be paid without incurring a penalty, of Lessees Percentage Share of the real property taxes and any other taxes described above in paragraph 10.A and whether Lessor has elected to pay said taxes in the permitted installments or in one
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lump sum prior to the date on which the first installment in due. Such notice shall include a complete copy of the applicable tax bills. Lessee shall pay Lessees Percentage Share of said taxes as shown in Lessors notice at least ten (10) days prior to the date said taxes must be paid without incurring a penalty. If Lessee is given at least thirty (30) days notice prior to the date on which said taxes must be paid without incurring a penalty and Lessee fails to pay the sums required within ten (10) days of the date of the notice, Lessee shall pay to Lessor, as additional rent, all interest and penalties assessed by the taxing authority if Lessor has failed to make the timely payment of said taxes, in addition to the late charge provided for in paragraph 3.
D. Lessor shall pay before execution on any tax lien all real property taxes due for the Building.
E. Lessee at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Building or to contest any real property taxes that are to be paid by Lessee, but any such contest or action shall not relieve Lessee of the obligation on the part of Lessee to pay Lessees Percentage Share of said taxes to Lessor when due. Lessor shall not be required to join in any proceeding or contest brought by Lessee, although said proceedings may be brought in the name of Lessor provided that Lessor does not have to appear personally or bear any cost. Lessor shall cooperate in such efforts by Lessee by providing to any consultant hired by Lessee (and not directly to Lessee or any of its employees or Directors) and who agrees to keep said information confidential in a manner determined by Lessor, reasonable information regarding the Building and its income so that such a
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contest or action way be prosecuted. If Lessee, its consultant, and Lessor cannot agree as to the information to be provided, Lessor shall be relieved of his obligation to provide any such information to Lessee.
11. Repairs .
A. Lessees Responsibilities .
(1) On the Lease Commencement Date, Lessor shall deliver possession of the Premises to Lessee broom swept, free of debris, and with a working light bulb in each light fixture. Lessee shall, at all times during the term hereof, and at Lessees sole cost and expense, keep the Premises and every part thereof in good condition and repair, ordinary wear and tear, damage by fire, earthquake, or act of God excepted, Lessee hereby waiving all rights to make repairs at the expense of Lessor or in lieu thereof to vacate the Premises as provided by California Civil Code Section 1942 or any other law, statute or ordinance now or hereafter in effect. Said obligation on the part of Lessee includes, but is not limited to, maintaining, repairing and/or replacing internal columns, windows, fixtures, and the plumbing, electrical, and heating, ventilating and air-conditioning systems located in the Premises (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee and whether or not the need for such repairs occurs as a result of Lessees use, any prior use, the elements or the age of such portion of the Premises).
(2) Lessee shall at the end of the term hereof surrender to Lessor the Premises and all alterations, additions and improvements thereto, pursuant to the provisions of paragraph 12,
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in the same condition as when received, ordinary wear and tear and damage by fire, earthquake, or act of God excepted, but including, without limitation, replacement of burnt-out lamps and ballasts and all interior walls in good repair. Except as provided in paragraph 11.B, Lessor has no obligation and has made no promise to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. No representations respecting the condition of the Premises or the Building have been made by Lessor to Lessee, except as specifically herein set forth.
(3) Lessee shall pay to Lessor Lessees Percentage Share of Common Area Maintenance and Repair Costs as additional rent during the term of this Lease or any extension thereof as additional rent hereunder within ten (10) days of receiving a written notification from Lessor of Lessees Percentage Share of said costs. Lessor shall provide Lessee with copies of all invoices which support all charges for common Area Maintenance and Repair Costs. If any such billing from Lessor to Lessee exceeds $1500 in any one calendar quarter, Lessee may have forty-five (45) days from Lessors notice to pay any amounts in excess of $1500.
B. Lessors Responsibilities .
(1) Lessor shall at Lessors expense maintain the foundation, exterior walls and roof of the Building in which the Premises are located in good condition and repair. Lessor shall have no obligation to make repairs under this paragraph 11.B. until a reasonable time after receipt of written notice of the need for such repairs from Lessee. The parties acknowledge that Lessee prior to the Lease Commencement Date had the roof of the Building inspected and received a report describing the condition of the roof. Lessee accepts the condition of the roof as disclosed in the report as being in good condition and repair.
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(2) Lessor, at Lessees expense pursuant to the provisions of paragraph 11.A.(3), shall maintain and repair all common areas (including lobbies and passage ways), grounds (including landscaping, parking areas, driveways and fences), drain pipes from the roof or other structures appurtenant thereto, any utility systems or services or portions thereof which serve the Building as well as the Premises and any damage caused by vandalism to the roof or exterior walls. If Lessee damages the internal columns in the Premises and fails within fifteen (15) days of notice from Lessor to commence the repair/replacement of said columns, Lessor at Lessors option may enter the Premises and cause said repairs to be made. Lessee shall reimburse Lessor for the full cost of said repairs to the columns in the Premises within ten (10) days of being given written notice by Lessor of the amount of said repairs, together with invoices, bills and other reasonably satisfactory evidence of such costs:
(3) Lessor shall deliver the Premises to Lessee clean and free of debris.
(4) As of the Lease Commencement Date, Lessor hereby represents to Lessee that Lessor has no actual knowledge that the Building or any part thereof is in violation of any applicable building codes or any other applicable laws, rules or regulations, including, without limitation, the Americans with Disabilities Act and the laws described in paragraph 8.C.(1). In addition, Lessor further represents to Lessee that as of the Lease Commencement Date Lessor has not received any written notification that the Building or the Premises violated any laws or regulations which violations remained uncured.
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12. Alterations .
A. Lessee shall not wake any alterations or additions to the Premises without first delivering to Lessor a copy of all plans and specifications for such alterations or additions and obtaining Lessors prior written consent, which consent shall not be unreasonably withheld or conditioned. Lessor agrees to provide notice of its decision to Lessee within 20 days after Lessor has received all plans and specifications required to be delivered by Lessee to Lessor and upon which a decision is to be made. Lessors failure to deliver to Lessee notice withholding Lessors consent thereto or requesting additional information within the 20 day period shall be deemed Lessors granting of consent. Notwithstanding the foregoing, subject to Lessees compliance with the other requirements of this paragraph 12, Lessor hereby consents to Lessee making its initial tenant improvements to the Premises provided Lessee delivers to Lessor, within 30 days of Lessees receipt of such documents, copies of all government approvals and permits, plans, specifications and the Certificate of Final Completion and Occupancy or its equivalent. In addition, after the completion of the alterations and additions to the Premises in connection with Lessees initial occupation of the Premises, Lessee shall have the right, without Lessors consent, to make non-structural alterations and additions to the Premises, provided that the aggregate cost of such alterations and additions made without consent shall not exceed $500,000 over the term of this Lease and no one alteration or addition shall cost more than $50,000. Any
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permitted alterations or additions, other than Lessees equipment and trade fixtures, shall remain on and be surrendered with the Premises on expiration or termination of the term or any extension thereof, unless Lessor elects to require Lessee to remove all of its alterations or additions that Lessee has made to the Premises, in which event Lessee shall remove all such alterations or additions at its sale cost shall restore the Premises to the condition when received by Lessee on the Lease Commencement Date, ordinary wear and tear and damage by fire, earthquake, or act of God excepted. If Lessee fails to so restore and to remove such alterations and additions and its equipment and trade fixtures from the Premises and Lessor incurs costs to restore the Premises or to remove additions or alteration made by Lessee or Lessees equipment and trade fixtures and to remove any hazardous materials as defined in paragraph 8.C.(1) of this Lease and remediate any contamination as required by paragraph 8.C.(4) of this Lease, Lessee shall reimburse Lessor for all such costs incurred and shall also reimburse Lessor for the Base Monthly Rent prorated for each day after the expiration of the term that Lessor must occupy the Premises for the purpose of removing Lessees alterations, additions, equipment and trade fixtures or making repairs.
B. If Lessee makes any alterations or additions to the Premises as provided in this paragraph 12, the alterations or additions shall not be commenced until five (5) business days after Lessor has received written notice from Lessee stating the date the installation of the alterations or additions is to commence so that Lessor may post and record an appropriate notice(s) of non-responsibility.
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C. Lessees right to make additions and alterations, and the consent of Lessor given as set forth or required by this paragraph 12, shall be deemed conditioned upon Lessees acquiring every permit required to make such alterations, additions or improvements from all governmental agencies whose approval is required. Lessee shall furnish a copy of each and every permit to Lessor prior to beginning any such work and shall complete said work according to applicable building codes and other applicable governmental regulations and permitting requirements in a worker-like and expeditious manner.
D. Lessee shall pay all costs for any and all alterations or additions done by it or caused to be done by it on the Premises as permitted by this Lease. Lessor shall have no obligation or responsibility to make any alterations or improvements to the Premises, except as specifically provided in this Lease. Lessee shall keep the Premises free and clear of all mechanics liens resulting from any alterations or additions done by or for Lessee. Lessee shall have the right to contest the correctness or the validity of any such lien if, immediately on demand by Lessor, Lessee procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half times the amount of the claim of lien. The bond shall meet the requirements of Civil Code Section 3143 and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action).
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13. Utilities and Services . Lessee shall make all arrangements for and pay for all utilities and services furnished to or used by it at or about the Premises, including, without limitation, gas, electricity, water, telephone service, meter fees, and trash collection, and for all connection charges.
14. Exculpation of Lessor . Lessor shall not be liable to Lessee for any damage to Lessee or Lessees property from any cause. Lessee waives all claims against Lessor for damage to person or property arising in any manner and for any reason, except that Lessor shall be liable to Lessee for damage to Lessee resulting from the willful misconduct or neglect of Lessor or its authorized representatives.
15. Indemnity . Lessee shall indemnify, defend and hold Lessor, his agents, assigns, employees and contractors, harmless from all damages arising out of any damage to any person or property occurring in or about the Premises during the term of this Lease or any extension thereof and from all claims arising from the business of Lessee or its use and occupancy of the Premises, except that Lessor shall be liable to Lessee for damage resulting from the willful misconduct or neglect of Lessor or his authorized representatives. Lessor shall hold Lessee harmless from all liability arising out of any such damage. A partys obligation under this paragraph to indemnify and hold the other party harmless shall be limited to the sum that exceeds the amount of insurance proceeds, if any, received by the party being indemnified.
16. Insurance .
A. Lessees Liability Insurance . At all times during the term of this Lease or any extension thereof, Lessee shall, at its sole expense, maintain insurance coverage of the following types and amounts: primary commercial general liability insurance,
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including coverage for Bodily Injury, Property Damage, and Personal Injury. Said insurance shall have a combined single limit of not less than $3 million commencing no later than 60 days after the Lease Commencement Date.
B. Lessees Property Insurance . At all times during the term of this Lease or any extension thereof, Lessee shall, at its sole expense, maintain on all its personal property, improvements, and alterations in, on, or about the Premises a policy of standard property insurance providing all risk coverage (including coverage for vandalism and malicious mischief), to the extent of at least 100% of their full replacement value. The proceeds of any such policy shall be used by Lessee for the replacement of its personal property or the restoration of its improvements or alterations to the Premises. Lessor shall be named as an additional insured on such insurance.
C. It is the intent of Lessor and Lessee that all insurance obtained by Lessee pursuant to this Lease shall be primary and noncontributory with respect to any other insurance that may be available to Lessor. All public liability insurance and property damage insurance required to be carried by Lessee shall insure performance by Lessee of the indemnity provisions of paragraph 15 of this Lease. Lessor (and Lessors lenders, if required by any such lender holding a security interest in the Building at any time during the term of this Lease or any extension thereof) shall be named as additional insureds under such policy or policies, and every policy shall contain cross-liability endorsements.
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D. Fire, Multi-Peril Insurance on Premises . Lessor shall maintain on the Building a policy of standard fire, multi-peril and excess liability insurance, to the extent of at least full replacement value of the Building and commercial general Liability coverage of not less than $1,000,000.00. Lessor may also obtain earthquake insurance and Lessee shall be required to pay Lessees Percentage Share of any such premium provided that Lessor was required to obtain such insurance by any lender holding a security interest in the Building and the cost of said insurance is commercially reasonable as reasonably determined by Lessor. The insurance policy or policies shall be issued in the name of Lessor, and Lessors lender, if required.
E. Payment of Premiums . Lessee shall pay to Lessor Lessees Percentage Share of all premiums paid by Lessor for maintaining the insurance described in subparagraph D above during the term of this Lease or any extension thereof. Reimbursement shall be made by Lessee within ten (10) days after Lessor notifies Lessee of Lessees Percentage Share of such costs. Lessees obligation to pay the insurance premium costs shall be prorated for any partial year at the commencement and expiration of the term.
F. Waiver of Subrogation . The parties release each other, and their respective authorized representatives, from any claims for damage to any person or to the Premises and to the fixtures, personal property, Lessees improvements, and alterations of either Lessor or Lessee in or on the Premises that are caused by or result from risks insured against under any insurance policies carried by the parties and in force at the time of any such damage. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection
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with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease.
G. Other Insurance Matters . All the insurance required under this Lease shall:
(1) Be issued by insurance companies authorized to do business in the state of California, with a financial rating of at least an A status as rated in the most recent edition of Bests Insurance Reports.
(2) Be issued as a primary policy.
(3) Contain an endorsement requiring thirty (30) days written notice from the insurance company to both parties, and Lessors lender if so required by Lessor, before cancellation or change in the coverage, scope, or amount of any policy.
Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with the other party within 20 days of the Lease Commencement Date, and on renewal of the policy not less than 20 days before expiration of the term of the policy.
17. Destruction .
A. If the Building or the Premises, or any part thereof, is damaged by fire or other casualty during the term of this Lease, or any extension thereof, and this Lease is not terminated pursuant to paragraph 17.B, Lessor shall repair such damage and restore the Building and the Premises but none of Lessees leasehold improvements, additions or alterations made by Lessee to the Premises, to substantially the same condition in
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which the Building and the Premises existed on the Lease Commencement Date and this Lease shall, subject to this paragraph 17.A, remain in full force and effect. If such fire or other casualty damages the Premises or common areas of the Building necessary for Lessees use and occupancy of the Premises, then, during the period the Premises is rendered unusable by such damage, Lessee shall be entitled to a reduction in Base Monthly Rent and all other rent in the proportion that the area of the Premises rendered unusable by such damage bears to the total area of the Premises.
B. If the Building or the Premises, or any part thereof, is damaged by fire or other casualty during the term of this Lease or any extension thereof and (a) such fire or other casualty occurs during the last twelve (12) months of the term of this Lease or any extension thereof and Lessee has not exercised an Option to extend the term, or (b) the insurance proceeds received by Lessor with respect to such damage are not adequate to pay the entire cost, as reasonably estimated by Lessor, of the repair and restoration work to be performed by Lessor in accordance with paragraph 17.A, or (c) the repair and restoration work to be performed by Lessor in accordance with paragraph 17.A cannot, as reasonably estimated by Lessor, be completed within four (4) months after the occurrence of such fire or other casualty, then, in any such event, Lessor shall deliver notice thereof to Lessee within sixty (60) days after the occurrence of such fire or other casualty. Each party shall have the right, by giving written notice to the other party within twenty (20) days after the giving of Lessors notice, to terminate this Lease as of the date of such
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termination notice. If neither party exercises the right to terminate this lease in accordance with this paragraph 17.B, Lessor shall repair such damage and restore the Building and the Premises in accordance with paragraph 17.A and this Lease shall, subject to paragraph 17.A, remain in full force and effect. A total destruction of the Building shall automatically terminate this Lease effective as of the date of such total destruction. For purposes of this Lease, the term total destruction shall mean destruction which results in more than 75% of the total square footage of the Building being rendered unusable for any purpose and which damage cannot be repaired within ninety (90) days as determined by Lessor.
C. Lessee waives the provisions of Civil Code Section 1932(2) and Civil Code Section 1933(4) with respect to any destruction of the Premises.
18. Condemnation - Definitions .
A. Definitions.
(1) Condemnation means (a) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor (as defined below) and (b) a voluntary sale or transfer by Lessor to any condemnor, either under threat of Condemnation or while legal proceedings for Condemnation are pending.
(2) Date of taking means the date the Condemnor has the right to possession of the property being condemned.
(3) Award means all compensation, sums, or anything of value awarded, paid, or received on a total or partial condemnation.
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(4) Condemnor means any public or quasi-public authority, or private corporation or individual, having the power of condemnation.
B. If, during the term or during the period of time between the execution of this Lease and the date the term commences, there is any taking of all or any part of the Premises, or any interest in this Lease, by Condemnation the rights and obligations of the parties shall be determined pursuant to this paragraph.
If the Premises are totally taken by condemnation, this Lease shall terminate on the Date of taking.
If any portion of the Premises is taken by Condemnation this Lease shall remain in effect, except that Lessee can elect to terminate this Lease if the remaining portion of the Premises, the Building or other improvements or the parking areas on the land on which the Building is located is rendered unsuitable for Lessees continued use of the Premises. If Lessee elects to terminate this Lease, Lessee must exercise, its right to terminate pursuant to this paragraph 18.B by giving notice to Lessor within thirty (30) days after the nature and the extent of the Condemnation have been finally determined. If Lessee elects to terminate this Lease as provided in this paragraph, Lessee also shall notify Lessor of the termination which date shall not be earlier than thirty (30) days nor later than ninety (90) days after Lessee has notified Lessor of its election to terminate; except that this Lease shall terminate on the Date of taking if the Date of taking falls on a date before the date of termination as designated by Lessee. If Lessee does not terminate this Lease within the thirty (30) day
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period, this Lease shall continue in full force and effect except that Base Monthly Rent and all other rent under this Lease shall be proportionately reduced as provided in paragraph 18.C.
C. If any portion of the Premises is taken by Condemnation and this Lease remains in full force and effect, on the Date of taking, all rent shall be reduced by an amount that is in the same ratio as the area of the Premises taken bears to the total area of the Premises immediately before the date of taking.
D. Each party waives the provisions of Code of Civil Procedure Section 1265.130 allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises.
E. If there is a partial taking of the Premises and this Lease remains in full force and effect, Lessor at its cost shall accomplish all necessary restoration. Rent shall be abated or reduced during the period from the Date of taking until the completion of restoration, but all other obligations of Lessee under this Lease shall remain in full force and effect. The abatement or reduction of rent shall be based on the extent to which the restoration interferes with Lessees use of the Premises.
F. The Award shall belong to and be paid to Lessor, except that Lessee shall receive from the Award, if included in the Award, a sum attributable to Lessees improvements or alterations made to the Premises by Lessee in accordance with this Lease, for any trade fixtures and equipment which Lessee has the right to remove from the Premises pursuant to the provisions of this Lease but elects not to remove; or, if Lessee elects to remove any such Lessees improvements or alterations, a sum for reasonable removal and relocation costs not to exceed the market value of such improvements or alterations.
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G. The taking of the Premises or any part thereof by military or other public authority shall constitute a taking of the Premises by Condemnation only when the use and occupancy by the taking authority has continued for longer than one hundred eighty (180) consecutive days. During the one hundred eighty (180) day period all the provisions of this Lease shall remain in full force and effect, except that all rent shall be abated or reduced during such period of taking based on the extent to which the taking interferes with Lessees use of the Premises, and Lessor shall be entitled to whatever Award may be paid for the use and occupation of the Premises for the period involved.
19. Assignment and Subletting .
A. Definitions . The occurrence of any of the following, whether voluntarily or involuntarily, because of death, divorce or disability, or by operation of law or otherwise, shall constitute a Transfer of this Lease: (i) any direct or indirect sale, assignment, conveyance, alienation, sublease, hypothecation, encumbrance, mortgaging or other transfer of Lessees interest in this Lease or in the Premises, or any part thereof or interest therein, (ii) if Lessee is a Legal Entity (as defined below), the direct or indirect sale, assignment, conveyance, alienation, encumbrance, mortgaging or other transfer of any of the Ownership Interests (as defined below) in such Legal Entity, (iii) if Lessee is a Legal Entity, some or all of whose Ownership Interests are owned by another Legal Entity, the occurrence of any of the events described in the preceding phrase (ii) with respect to such
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constituent Legal Entity, or (iv) if any other person or entity (except Lessees authorized representatives, agents, contractors, employees, invitees or guests) occupies or uses all or any part of the Premises. As used herein, the term Legal Entity means any corporation, partnership, limited liability company, trust, association or other legal entity, and the term Ownership Interest means any share of stock, general or limited partnership interest, membership interest, beneficial interest or other ownership interest therein, as the case may be. A Transfer includes a transfer of any interest in this Lease held by an subtenant, assignee, transferee or other person claiming an interest in the Lessees interest in this Lease. The provisions of this paragraph 19 apply fully to any Transfer by any subtenant, assignee or other holder of any interest in the Lessees interest in this Lease. Notwithstanding the foregoing, a Transfer shall not include (i) if and for so long as Lessee, or its direct or indirect parent Legal Entity, is a Legal Entity whose Ownership Interests are traded on any public securities exchange, the Transfer of any of the Ownership Interests of such Legal Entity, or (ii) if Lessee is a corporation or limited partnership, the cumulative transfer of up to twenty percent (20%) of the stock or limited partnership interests therein, or (iii) the Transfer of this Lease to a Legal Entity wholly owned or controlled by Lessee, or under common control with Lessee, or (iv) the Transfer of this Lease to a Legal Entity that acquires all of the issued and outstanding stock of Lessee or all the assets of Lessee, provided that at the time of such acquisition the acquiring Legal Entity possess a not worth equal to or greater than that of Lessee as of the date of execution
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of this Lease, has been in business for not less than five (5) years and possesses the requisite business experience to operate successfully the business of Lessee, or (v) any other event that results in an immaterial change in the ownership and control of the Lessee or the Lessees interest in this Lease.
B. Lessee shall not engage in or permit any Transfer of this Lease absent full compliance with all of the terms and provisions of this paragraph 19. Any Transfer of this Lease occurring without compliance with all of the terms and conditions of this paragraph 19 shall be voidable at the option of the Lessor, and shall constitute a material and incurable default on the part of Lessee hereunder.
C. Prior to engaging in or permitting any Transfer, Lessee shall give notice of any intended Transfer to Lessor and shall provide Lessor with the following information in writing: (i) the name, address and ownership of the proposed transferee, (ii) the current balance sheet, statement of cash flows, report of any litigation in which the proposed Transferee is a party or is a judgment debtor, aged schedule of accounts receivable and payable, profit and loss statements, statement that all taxes payable by the proposed transferee are current, and all notes if any to all financial statements for the proposed transferee or any other person to be liable for the Lessees obligations under this Lease covering the prior three years (or for such shorter period as the proposed transferee or other person may have been in existence), all certified as true and correct by the proposed transferee, other person or an authorized officer thereof, (iii) a full description of the terms and conditions of the proposed Transfer, including
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copies of any and all documents and instruments, any purchase and sale agreements, sublease agreements, assignment agreements and all other writings concerning the proposed Transfer, (iv) a description of the proposed use of the Premises by the proposed transferee, including any required or desired alterations or improvements to the Premises that may be undertaken by such transferee in order to facilitate its proposed use, (v) a business plan for the proposed transferees operations at the Premises, including a statement of projected income, expense, and cash flow for such operation for the two years following the proposed effective date of the Transfer, (vi) similar information for any guarantor or other person who will be liable in any manner for the payment of any amounts under this Lease, and (viii) any other information, documentation or evidence that may be reasonably requested by Lessor. In connection with any proposed or requested consent to Transfer this Lease, Lessee shall pay to Lessor a transfer fee of $1,000 (payment on which shall accompany Lessees request for Transfer), plus all of Lessors reasonable attorneys fees expended in connection with the proposed Transfer. Within ten (10) business days after the submission of all required information described in the preceding sentence, Lessor shall give notice to Lessee of its election under subparagraph D below. If Lessor fails to give such notice, Lessor shall be presumed to have denied Lessees request for such Transfer.
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D. Upon receiving a request for Transfer of this Lease, and compliance with paragraph 19.C above, Lessor shall have the right to do any of the following:
(a) Lessor way consent to the proposed Transfer, subject to any reasonable conditions on such Transfer, which reasonable conditions may include without limitation, (i) that the proposed transferee assume in writing Lessees obligations under this Lease from and after the effective date of the Transfer (without, however, releasing Lessee therefrom), (ii) in the case of a proposed sublease, that the subtenant agree that Lessor shall have the right to enforce any and all of the terms of the sublease directly against such subtenant and, if this Lease is terminated prior to the expiration of the sublease, that at the election of Lessor, the sublease shall not terminate and the subtenant will attorn to the Lessor, (iii) that the terms of this Lease be modified to assure that Lessor will receive, in Lessors reasonable judgment, at least substantially the same rent and other economic benefits as the Lessor would have received had the Lessee remained in business at the Premises under this Lease and the proposed Transfer not taken place and (iv) that any existing monetary defaults under the Lease be cured prior to the effective date of the Transfer.
(b) Lessor may deny its consent to the proposed Transfer on any reasonable ground. Such grounds may include, without limitation, any one or more of the following:
(1) That the proposed transferees financial condition is insufficient to support all of the financial and other obligations of Lessee under this Lease;
(2) That the use to which the Premises will be put by the proposed transferee is inconsistent with the terms of this Lease or otherwise will materially and adversely affect any interest of Lessor in the Building or in any adjacent property;
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(3) That the nature of the proposed transferees proposed or likely use of the Premises would involve any increased risk of the use, release or mishandling of hazardous materials;
(4) That the business reputation or character of the proposed transferee is not reasonably acceptable to Lessor;
(5) That Lessor has not received assurances acceptable to Lessor in its sole discretion that all past due amounts owing from Lessee to Lessor (if any) will be paid and all other defaults on the part of Lessee (if any) will be cured prior to the effective date of the proposed Transfer; or
(6) That Lessor is not satisfied that the proposed transferees assets, businesses or inventory would not be subject to seizure or forfeiture under any laws related to criminal or illegal activities.
If Lessor denies his consent to the proposed Transfer pursuant to this paragraph 19.D.(b), and if Lessee shall so request in writing, Lessor shall provide to Lessee a statement of the basis on which Lessor denied his consent within a reasonable time after the receipt of Lessees notice. Lessor and Lessee agree that Lessee shall have the burden of proving, and that such burden shall be to prove the matter by clear and convincing evidence, that Lessors consent to the proposed Transfer was withheld unreasonably, and that such burden may be satisfied if Lessor fails to provide a statement of a reasonable basis for withholding its consent within a reasonable time after Lessees request therefor.
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(c) Lessor shall have the right to consent to the proposed Transfer and, in addition to imposing any other reasonable condition thereon, Lessor shall have the right to increase the rent payable under this Lease as of the effective date of such Transfer by an amount equal to one half of all sums paid or payable to Lessee by the transferee in excess of the then-existing rent payable by Lessee hereunder, including, without limitation, any Base Monthly Rent, transfer or sales prices, and all other sums or other consideration received by Lessee as a result of the Transfer, however denominated. Such excess rent shall be paid to Lessor upon demand as additional rent hereunder. In the event of any approved Transfer of this Lease in connection with the sale of all or substantially all of the assets of Lessee used in connection with the business operated at the Property by Lessee, the amount of the consideration attributable to the assignment of this Lease shall be as reasonably determined by Lessor.
E. Lessee acknowledges and agrees that each of the rights of Lessor set forth in subparagraph D above in the event of a proposed Transfer is a reasonable restriction on Transfer for purposes of California Civil Code Section 1951.4.
F. Any consent to any proposed Transfer, whether conditional or unconditional, shall not be deemed to be a consent to any other or further Transfer of this Lease, or any other Transfer of this Lease on the same or other conditions (if any). No Transfer of this Lease shall in any way diminish, impair or release any of the liabilities and obligations of Lessee, any guarantor or any other person liable for all or any portion of the Lessees obligations under this Lease.
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20. Lessees Default . The occurrence of any one of the following events (each an Event of Default) shall constitute a material breach of this Lease by Lessee:
A. Lessees failure to pay Base Monthly Rent within five (5) calendar days of the date when due.
B. If Lessee shall fail to pay any other sum (all of which sums shall be deemed to be additional rent hereunder) to Lessor within five (5) calendar days of the date when due.
C. Lessees failure to perform any other provisions of this Lease if the failure to perform is not cured within fifteen (15) days after notice has been given to Lessee. If the default cannot reasonably be cured within fifteen (15) days, Lessee shall not be in default of this Lease if Lessee commences to cure the default within the fifteen (15) day period and diligently and in good faith continues to cure the default thereafter.
D. If this Lease or any estate of Lessee hereunder shall be levied upon under any attachment or execution and such attachment or execution is not vacated within sixty (60) days.
E. If within sixty (60) days after the commencement of any proceeding against Lessee seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed, or if, within sixty (60) days after the appointment of a receiver or liquidator of Lessee and such appointment shall not have been vacated.
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21. Lessors Remedies . If an Event of Default shall occur, Lessor shall have the following remedies. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law.
A. Lessor may continue this Lease in full force and effect, and this Lease will continue in effect as long as Lessor does not terminate Lessees right to possession, and Lessor shall have the right to collect rent when due. During the period Lessee is in default, Lessor may enter the Premises and relet them, or any part of them, to third parties for Lessees account. Lessee shall be liable immediately to Lessor for all costs Lessor incurs in reletting the Premises, including, without limitation, brokers commissions, expenses of remodeling the Premises required by the reletting, and like costs. Reletting can be for a period shorter or longer than the remaining term of this Lease or any extension thereof. Lessee shall pay to Lessor the rent due under this Lease on the dates the rent is due, less the rent Lessor receives from any reletting. No act by Lessor allowed by this subparagraph A shall terminate this Lease unless Lessor notifies Lessee that Lessor elects to terminate this Lease.
B. Lessor may terminate Lessees right to possession of the Premises at any time by giving a written termination notice to Lessee, and on the date specified in such notice (which shall be not less than three days after the giving of such notice) Lessees right to possession shall terminate and this Lease shall terminate, unless on or before such date all arrears of rent and all other sums payable by Lessee under this Lease and all costs and expenses incurred by or on behalf of Lessor and chargeable to Lessee hereunder shall have been paid by Lessee and all other breaches of this Lease by Lessee at the time existing shall have
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been fully remedied to the reasonable satisfaction of Lessor. No act by Lessor other than giving notice to Lessee shall terminate this Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on Lessors initiative to protect Lessors interest under this Lease shall not constitute a termination of Lessees right to possession. On termination, Lessor has the right to recover from Lessee:
i. The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this Lease;
ii. The worth, at the time of the award, of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of rent that Lessee 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 the loss of rent that Lessee proves could have been reasonably avoided; and
iv. Any other amount, and court costs, necessary to compensate Lessor for all detriment proximately caused by Lessees default.
The worth, at the time of the award as used in (i) and (ii) of this subparagraph B is to be computed by allowing interest at the rate of ten percent (10%) per annum. The worth, at the time of award, as referred to in (iii) of this subparagraph is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%).
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C. Lessor, at any time after an Event of Default, may cure said default at Lessees cost. If Lessor at any time, by reason of Lessees default, pays any sum or does any act that requires the payment of any sum, the sum paid by Lessor shall be due on demand from Lessee to Lessor at the time the sum is paid, and if paid at a later date shall bear interest at the rate of ten percent (10%) per annum from the date the sum is paid by Lessor until Lessor is reimbursed by Lessee. The sum, together with interest on it, shall be deemed to be additional rent.
D. Lessor shall have the following additional remedies:
(1) In the event that a late charge is payable hereunder, whether or not collected, for the late payment of three (3) installments of Base Monthly Rent or if Lessee fails to pay any other monetary obligation of Lessee under this Lease (except the payment of Lessees Percentage Share of Common Area Maintenance and Expense Costs), Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the Base Monthly Rent, as estimated by Lessor, for real property tax and insurance premium expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of Lessees Percentage Share of the real property taxes and insurance premiums. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. If Events of Default occur which remain uncured, any
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balance remaining from funds paid to Lessor under the provisions of this paragraph way, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property taxes and insurance premiums.
(2) In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of Base Monthly Rent in any one calendar year, Lessor may demand and Lessee shall pay to Lessor an amount equal to the amount of Base Monthly Rent due in the month in which the third late payment of Base Monthly Rent occurred as an addition to the Security Deposit to be held pursuant to the terms of paragraph 6 of this Lease.
(3) Upon the eleventh Event of Default as defined in paragraph 20.A and 20.B (with the exception of the payment of Lessees Percentage Share of Common Area Maintenance and Repair Costs), Lessee shall pay to Lessor Base Monthly Rent in advance on a quarterly basis (i.e., for three months) on or before the first day of each Quarter as defined in this paragraph. The term Quarter shall mean each three calendar month period commencing with the first day of the calendar month following the month in which the eleventh Event of Default occurred. Except as modified by this paragraph, all such payments of Base Monthly Rent shall be subject to the provisions of paragraph 3 hereof.
E. Lessee hereby waives its rights to demand a trial by jury in any action between the parties, including but not limited to any proceeding for unlawful detainer filed by Lessor.
22. Lessors Default . Lessor shall be in default of this Lease if he fails or refuses to perform any provision of this Lease that he is obligated to perform if the failure to perform is not
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cured within thirty (30) days after notice of the default has been given by Lessee to Lessor. If the default cannot reasonably be cured within thirty (30) days, Lessor shall not be in default of this Lease if Lessor commences to cure the default within the thirty (30) day period and diligently and in good faith continues to cure the default.
23. Limitation of Lessors Liability . If Lessor is in default of this Lease, and as a consequence Lessee recovers a money judgment against Lessor, the judgment shall be satisfied only out of the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Lessor in the Building or out of rent or other income from the Building receivable by Lessor or out of the consideration received by Lessor from the sale or other disposition of all or any part of Lessors right, title and interest in the Building. Lessor shall not be personally liable for any deficiency.
24. Lessors Entry on Premises . Except in the case of an emergency, Lessor and his authorized representatives shall have the right to enter the Premises following at least two (2) business days prior notice to Lessee, between the hours of 8:30 a.m. and 5:00 p.m. Monday through Friday, and 9:00 a.m. and noon on Saturday, for any of the following purposes:
A. To determine whether the Premises are in good condition and whether Lessee is complying with its obligations under this Lease.
B. To do any necessary maintenance, repair, replacement or alteration to the Premises.
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C. To serve, post, or keep posted any notices required or allowed under the provisions of this Lease.
D. To post for sale signs and for rent or for lease signs on the exterior of the Building at any time during the term.
E. To place signs on the exterior of the Building identifying the owner or manager or managing agent of the Building or complex.
F. To show the Premises to prospective brokers, agents, buyers, tenants or persons interested in an exchange, at any time during the term.
Lessor shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance, or other damage arising out of Lessors entry on the Premises as provided in this paragraph 23, except damage resulting from the gross negligence or willful misconduct of Lessor or its authorized representatives. Lessee shall not be entitled to an abatement or reduction of rent if Lessor exercises any rights reserved in this paragraph. Lessor shall conduct its activities on the Premises as allowed in this paragraph in a manner that will cause the least possible inconvenience or disturbance to Lessee.
25. Subordination . On or before the Lease Commencement Date, Lessor shall use his best efforts to deliver to Lessee a non-disturbance and attornment agreement, executed and acknowledged by Lessor and its lender(s), in a recordable form reasonably acceptable to Lessee, providing in substance that this Lease shall not be terminated by Lessors lender(s) so long as Lessee is not in default hereunder and that, if any lender instructs Lessee to
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pay any rent to said lender, said payment will be deemed to be the payment of such rental obligation under this Lease. Provided that such agreement is so delivered to Lessee, this Lease is and shall be subordinate to any encumbrance now of record or recorded after the date of this Lease affecting the Building and such subordination shall thereafter be effective without any further act of Lessee. Lessee shall from time to time on request from Lessor execute and deliver any documents or instruments that may be required by a lender to effectuate any subordination; provided, however, Lessee shall not be obligated to subordinate this Lease to any encumbrance unless Lessee receives a non-disturbance agreement as described above.
26. Right to Estoppel Certificates . Within ten (10) days after notice, either party shall execute and deliver to the other party a certificate (which if requested by a lender is acceptable to that lender) stating that this Lease is unmodified and in full force and effect, or in full force and effect as modified, and state the modifications. The certificate also shall state the amount of Base Monthly Rent, the date to which Base Monthly Rent has been paid in advance, and the amount of any prepaid rent. Failure to deliver the certificate within the ten (10) days shall be conclusive on the party who failed to deliver such certificate that this Lease is in full force and effect and has not been modified except as may be represented by the other party.
27. Notice . Any notice demand, request, consent, approval, or communication that either party desires or is required to give to the other party or any other person shall be in writing and either served personally or sent by prepaid, first class mail. Any
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notice demand, request, consent, approval, or communication that either party desires or is required to give to the other party shall be addressed to the other party at the address set forth in this paragraph 27. Either party may change its address by notifying the other party of the change of address in the manner provided for in this paragraph. Notice shall be deemed communicated within forty-eight (48) hours from the time of mailing if mailed as provided in this section. Lessee shall notify Lessor of the name and address of its agent for service of process and notify Lessor of any changes in the identity of or address of its agent for service of process. Notices to Lessee shall be addressed to Lessee to the attention of its General Counsel at . Notices to Lessor shall be given to Lessor c/o John C. Nickel Properties, .
28. Waiver . The waiver by either party of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant, or condition herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be construed to waive or to lessen the right of either party to insist upon performance by Lessee in strict accordance with said terms. The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any term, covenant or condition of this Lease, regardless of Lessors knowledge of such preceding breach the time of acceptance of such rent.
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29. Right to Purchase Building .
A. If Lessor determines to sell the Building, Lessor shall so notify Lessee. For a period of ten (10) days following such notice, the parties shall attempt to agree on the terms and conditions pursuant to which Lessee shall purchase, and Lessor shall sell, the Building. Said terms may include a provision that Lessor will not pay any real estate commission if the Building is sold to Lessee. If the parties are unable to agree within such ten (10) day period, subject to subparagraph B. below, Lessees right to purchase the Building shall terminate and Lessor shall have the right to sell the Building to a third party.
B. If Lessor receives a bona fide offer to buy, transfer or otherwise dispose of the Building, which offer Lessor intends to accept, or if Lessor and said thirty party agree as to the terms of a sale of the Building to such third party, Lessee shall have the first right to purchase the Building in the manner specified in this paragraph B. Lessor shall give a notice conforming to this paragraph to Lessee. Such notice shall contain a disclosure of the proposed transaction and the identity of the purchaser, together with copies of all documents revealing the material terms and conditions under which Lessor would sell or otherwise transfer the Building to said third party. Upon receipt of such notice, Lessee shall have the right to purchase the Building on the following terms and conditions:
(1) The purchase price shall be the same as that set forth in the offer or other documents for the purchase.
(2) Lessee shall make a deposit into an escrow opened at title company located in northern San Mateo County, CA
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equal to ten percent (10%) of the purchase price calculated in accordance with subparagraph (1) within 24 hours of Lessee giving notice to Lessor of its exercise of its right to purchase.
(3) The purchase price shall be payable in lawful money of the United Stated to Lessor by Lessee at close of escrow for the purchase and sale.
(4) The purchase and sale shall not be subject to any contingencies whatsoever, regardless of whether there were contingencies set forth in the offer or other agreement which Lessor intended to accept.
(5) Escrow for the purchase and sale of the Building shall close within thirty (30) days of the date on which Lessee exercises its right to purchase.
Lessee shall have ten (10) days after the giving of the notice to it by Lessor to notify Lessor whether Lessee wishes to exercise its right to purchase as described in this paragraph 29. If Lessee fails to exercise its right to purchase, Lessor shall be free for a period of one (1) year after the date on which Lessees first right to purchase expired to sell the Building to the disclosed offeror or any other purchaser provided that the terms are substantially the same as those contained in Lessors notice to Lessee, which terms may be altered to account for information revealed in inspections of the Building or to accommodate financing needs, or to provide terms more advantageous to Lessor. If requested by Lessor, Lessee shall execute a Quitclaim Deed relinquishing its first right to purchase if such a deed is reasonably required to accomplish the sale of the Building to a purchaser during said one (1) year period. If Lessor does not sell
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the Building within said one (1) year period, any further transactions shall be deemed a new determination by Lessor to sell the Building, and the provisions of this paragraph 12 shall be applicable.
C. Lessee shall have no first right to purchase or any other option to purchase the Building and all rights provided in this paragraph 29 shall be null and void and of no effect (i) if Lessor is deceased, (ii) if the any proposed purchaser is a relative of Lessor, a general or limited partnership of which Lessor is a managing partner or a limited liability company of which Lessor is a manager, or (iii) if the purchaser intends to acquire in addition to the Building at approximately the same time other properties belonging to Lessor, partnerships of which Lessor is a managing partner or limited liability companies of which Lessor is the manager having values of at least 30% of the then fair market value of the Building.
D. Lessee shall have no right to purchase the Building, notwithstanding any provision in this paragraph 29 to the contrary, if prior to or during the time within which Lessee has to exercise its first right to purchase the Building ten (10) Events of Default as defined in paragraphs 20.A and 20.B (with the exception of any payment due from Lessee for Lessees Percentage Share of Common Area Maintenance and Repair Costs) have occurred during the term of this Lease or any extension thereof.
30. Sale of Building . If Lessor sells or transfers its interest in the Premises, upon the consummation of the sale or transfer, Lessor shall be released from any liability thereafter accruing under this Lease if Lessors successor has assumed in
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writing, for the benefit of Lessee, Lessors obligations under this Lease. Lessor shall transfer the Security Deposit to Lessors successor and on such transfer Lessor shall be discharged from any further liability in reference to the Security Deposit.
If Lessee purchases the Building, this Lease shall terminate on the date title vests in Lessee, and Lessor shall remit to Lessee the Security Deposit and all prepaid and unearned rent.
31. Attorneys Fees . If either party becomes a party to any litigation concerning this Lease, the Premises, the Building, or other improvements in the Building in which the Premises are located, by reason of any act or omission of the other party or its authorized representatives, (and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its authorized representatives) 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.
32. Surrender of Premises . On expiration of the term, Lessee shall surrender to Lessor the Premises, and all alterations and additions pursuant to paragraph 12, in good condition and repair, ordinary wear and tear, damage by fire, earthquake, or act of God excepted. Such surrender will only be deemed to have occurred when Lessee delivers the keys to the Premises to Lessor. Lessee shall remove all of its personal property and trade fixtures prior to the
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expiration of the term. Lessee shall perform at its expense all restorations made necessary by the removal of any alterations made by Lessee to the Premises.
After Leasees surrender of the Premises to Lessor, Lessor may elect to retain or dispose of in any manner Lessees personal property that Lessee does not remove from the Premises on expiration or termination of the term as allowed or required by this Lease by giving at least ten (10) days notice to Lessee. Title to any such personal property that Lessor elects to retain or dispose of, on expiration of the ten (10) day period, shall vest in Lessor. Lessee waives all claims, against Lessor for any damage to Lessee resulting from Lessors retention or disposition of any such personal property. Lessee shall be liable to Lessor for Lessors costs for storing, removing, and disposing of any personal property.
33. Holding Over . If Lessee, with Lessors consent, remains in possession of the Premises after expiration or, termination of the term, or after the date in any notice given by Lessor to Lessee terminating this Lease, such possession by Lessee shall be deemed to be a month-to-month tenancy terminable on thirty (30) days notice given at any time by either party. All provisions of this Lease except that pertaining to term shall apply to the month-to-month tenancy, and except that Base Monthly Rent shall be equal to one hundred and twenty-five percent (125%) of Base Monthly Rent payable immediately prior to the expiration or termination of this Lease. If Lessee holds over without Lessors consent, Lessors damages shall also include the per diem rental value of the Premises measured either by (a) one hundred and twenty-five
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percent (125%) of the Base Monthly Rent due in the last month of term divided by 30 plus the daily cost of Common Area Maintenance and Repair Costs, real estate taxes and insurance or (b) the fair market value of the Premises as reasonably determined by Lessor, whichever is higher.
34. Consent of Parties . Whenever consent or approval of either party is required, that party shall not unreasonably withhold or delay such consent or approval.
35. Time of Essence . Time is of the essence of each provision of this Lease.
36. Successors and Assigns . This Lease shall be binding on and inure to the benefit of the parties and their successors and assigns except as provided in paragraph 19.
37. Covenants and Conditions . All provisions, whether covenants or conditions, on the part of the Lessee shall be deemed to be both covenants and conditions.
38. California Law . This Lease shall be construed and interpreted in accordance with the laws of the state of California.
39. Captions . The captions of this Lease shall have no effect on its interpretation.
40. Number . When required by the context of this Lease, the singular shall include the plural, and vice versa.
41. Joint and Several Obligations . If more than one person or entity is Lessor or Lessee, the obligations imposed on that party shall be joint and several.
42. Corporate Authority . If Lessee signs as a corporation, each of the persons executing this Lease on behalf of Lessee does hereby covenant and warrant that Lessee is a duly authorized and
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existing corporation of the State of Delaware, that the corporation has full right and authority to enter into this Lease, that the Board of Directors has authorized the signing of this Lease and that every person signing on behalf of the corporation was and is authorized to do so.
43. Complete Agreement . There are no oral agreements between Lessor and Lessee affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Lessor and Lessee or displayed by one party to the other, with the exception of the insurance policy furnished by Lessee to Lessor prior to the execution of this Lease, with respect to the subject matter of this Lease. There are no representations between Lessor and Lessee other than those contained in this Lease, and all reliance with respect to any representations is solely upon the representations contained in this Lease.
44. Real Estate Brokers . Each party represents that it has not had dealings with any real estate broker, finder or other person with respect to this Lease in any manner, except John C. Nickel and Belvedere Associates, Inc. Lessor shall be solely responsible for payment of all commissions earned on account of the rental of the Premises by Lessor to Lessee. Each party shall indemnify, defend and hold the other party harmless from all damages and costs resulting from any claims that may be asserted against the other party by any broker, finder or other person with which the party has or purportedly has dealt.
45. Recording . Concurrently with the execution of this Lease, Lessor and Lessee shall execute and acknowledge a memorandum of this Lease, in the form attached hereto as Exhibit B and incorporated herein by this reference. Lessee, at its expense, may record such memorandum in the Official Records of the San Mateo County Recorders office.
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46. Counterparts . This Lease may be signed in multiple counterparts which, when signed by all parties, shall constitute a binding agreement.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date first set forth above.
Lessor: | ||||||||||||
Dated: |
6/2/97 |
/s/ JOHN C. NICKEL |
||||||||||
JOHN C. NICKEL | ||||||||||||
Lessee: | ||||||||||||
Dated: |
5/23/97 |
ATHENA NEUROSCIENCES, INC., a | ||||||||||
Delaware corporation | ||||||||||||
BY: | /s/ Illegible | |||||||||||
|
||||||||||||
Its: |
PRESIDENT & CHIEF OPERATING OFFICER |
NICJ3\Z-ATHENA.LSE
5/21/97
59
EXHIBIT B
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Pillsbury Madison & Sutro LLP
P.O. Box 7880
San Francisco, CA 94120-7880
Attn: Mark A. Beskind, Esq.
(Space Above Line for Recorders Use)
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE (the Memorandum), is made as of May 22, 1997, by and between JOHN C. NICKEL , an individual (Landlord), and ATHENA NEUROSCIENCES, INC. , a Delaware corporation (Tenant), with reference to the following facts:
A. Landlord and Tenant are concurrently entering into that certain unrecorded Net Commercial Lease (the Lease) with respect to certain Premises (as defined in the Lease) commonly known as 528 Eccles Avenue, South San Francisco, California, located on certain real property more particularly described on Exhibit A attached hereto and incorporated herein by reference (the Property).
B. Pursuant to the Lease, Landlord agrees to grant to Tenant certain rights to lease additional space in the buildings located on the Property and certain rights to purchase the Property (collectively, the Preferential Rights), all on the terms and conditions set forth in the Lease.
C. Landlord and Tenant desire to give public notice of the terms and conditions of the Lease.
NOW, THEREFORE, the parties agree as follows:
1. Lease . Pursuant to the Lease, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises on all of the terms and conditions of the Lease, which are incorporated herein by reference, for an initial term of ten (10) years commencing on the Lease Commencement Date (as defined in the Lease). Tenant has the right to extend the initial term for two (2) consecutive additional periods of five (5) years each.
2. Preferential Rights . Pursuant to the Lease, Landlord hereby grants to Tenant the Preferential Rights on all of the terms and conditions set forth in the Lease, which are incorporated herein by reference.
12515205 | -1- | |||
3. Purpose of Memorandum . The purpose of this Memorandum is to give public notice of the Lease and the terms and conditions related thereto set forth in the Lease, and for no other purpose. The provisions of this Memorandum shall not in any way change or affect the provisions of the Lease, express reference to which is hereby made and the terms and conditions of which remain in full force and effect.
Landlord: |
/s/ JOHN C. NICKEL |
|||||||
JOHN C. NICKEL | ||||||||
Tenant: |
ATHENA NEUROSCIENCES, INC., a Delaware corporation |
|||||||
By | /s/ Illegible | |||||||
|
||||||||
Its |
Vice President & General Counsel |
12515205 | -2- |
EXHIBIT A
Legal Description of the Property
CITY OF SOUTH SAN FRANCISCO
PARCEL I :
LOT 1 IN BLOCK 1, AS SAID LOT AND BLOCK ARE SHOWN ON THAT CERTAIN MAP ENTITLED, CABOT, CABOT & FORBES INDUSTRIAL PARK, UNIT NO. 2, SOUTH SAN FRANCISCO, SAN MATEO COUNTY, CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE OF CALIFORNIA, ON OCTOBER 10, 1969, IN BOOK 70 OF MAPS, AT PAGES 12 TO 15, INCLUSIVE.
PARCEL II :
AN EASEMENT, 30 FEET IN WIDTH, BEING EASEMENT AREA 4 AS RESERVED IN THE DEED FRON CABOT, CABOT & FORBES CALIFORNIA PROPERTIES, INC., TO I. SCHUMAN, RECORDED MARCH 30, 1984, IN BOOK 4677 OF OFFICIAL RECORDS, AT PAGE 467, RECORDS OF SAN MATEO COUNTY, CALIFORNIA, FOR THE PURPOSES STATED THEREIN, AND AS MODIFIED BY AGREEMENT BETWEEN CABOT, CABOT & FORBES CALIFORNIA PROPERTIES, INC., A DELAWARE CORPORATION, I. SCHUMAN AND XEROX CORPORATION, A NEW YORK CORPORATION, DATED SEPTEMBER 10, 1969 AND RECORDED FEBRUARY 17, 1970, IN BOOK 5749 OF OFFICIAL RECORDS, AT PAGE 259, UNDER FILE NO. 99566-AC, RECORDS OF SAN MATEO COUNTY, CALIFORNIA, SAID EASEMENT LYING IMMEDIATELY ADJACENT TO AND NORTHEASTERLY OF THE SOUTHWESTERLY LINE OF LOT 14 IN BLOCK 16, AS SHOWN ON THAT CERTAIN MAP ENTITLED, SOUTH SAN FRANCISCO INDUSTRIAL PARK UNIT NO. 3-A, BEING A RESUBDIVISION OF PORTION OF LOT 13 AND LOTS 14 THROUGH 20, PORTION OF LOT 29, PORTION OF LOT 30 AND LOTS 31 THROUGH 41, BLOCK 16 OF SOUTH SAN FRANCISCO INDUSTRIAL PARK UNIT NO. 3 AND PORTION OF LANDS OF CABOT, CABOT & FORBES, SOUTH SAN FRANCISCO, SAN MATEO COUNTY, CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE OF CALIFORNIA, ON JUNE 30, 1964, IN BOOK 60 OF MAPS, AT PAGES 27 AND 28.
THE SOUTHEASTERLY TERMINUS OF SAID EASEMENT BEING THE SOUTHEASTERLY LINE OF SAID LOT 14, AND THE NORTHWESTERLY TERMINUS OF SAID EASEMENT BEING THE NORTHWESTERLY LINE OF SAID LOT 14.
JOINT PLANT NO. 015-000-082-16A
12515205 |
STATE OF CALIFORNIA | ) | |||
) | ss. | |||
County of ALAMEDA | ) |
On JUNE 2, 1997, before me, Lawrence E. Moll, a Notary Public in and for the State of California, personally appeared JOHN C. NICKEL , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he executed the within instrument in his authorized capacity and that, by his signature on the within instrument, the person or entity upon behalf of which he acted executed the within instrument.
WITNESS my hand and official seal.
Signature |
/s/ Lawrence E. Moll |
|
STATE OF CALIFORNIA | ) | |||
) | ss. | |||
County of San Mateo | ) |
On June 12, 1997, before me, Sandra N. Hirose, a Notary Public in and for the State of California, personally appeared Donald R. Joseph, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he executed the within instrument in his authorized capacity and that, by his signature on the within instrument, the person or entity upon behalf of which he acted executed the within instrument.
WITNESS my hand and official seal.
Signature |
/s/ Sandra N. Hirose |
(Seal) | ||||
|
12515205 |
ADDENDUM ONE TO NET COMMERCIAL LEASE
This Addendum One to Net Commercial Lease, dated as of June 5, 1997 (this Addendum), is by and between John C. Nickel, (Lessor) and Athena Neurosciences, Inc., a Delaware (Lessee). Capitalized terms used in this Addendum and not otherwise defined have the meaning specified in the Lease (as hereinafter defined).
Whereas, Lessor and Lessee have entered into that certain Net Commercial Lease, dated May 22, 1997 (the Lease); and
Whereas, Lessor deliver possession of the Premises, and Lessee accepted such delivery, on June 2, 1997; and
Whereas, there has been a change in the street address of the Premises; and
Whereas, Lessor and Lessee now wish to amend the Lease as a result of the foregoing,
NOW, THEREFORE, Lessor and Lessee agree:
1. Lessor and Lessee agree that the Lease Commencement Date is June 2, 1997, and the initial term of the Lease shall expire on May 31, 2007.
2. Paragraph 1.B. of the Lease is hereby amended by deleting the address 528 Eccles Avenue and substituting therefor the address 528B Eccles Avenue.
3. Except as provided herein, the terms and conditions of the Lease remain unmodified and are affirmed.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first set forth above.
LESSOR: | ||||||||||||
Dated: |
6/19/97 |
/s/ JOHN C. NICKEL |
||||||||||
JOHN C. NICKEL | ||||||||||||
LESSEE: | ||||||||||||
Dated: |
6/12/97 |
ATHENA NEUROSCIENCES, INC., a | ||||||||||
Delaware corporation | ||||||||||||
BY: | /s/ Illegible | |||||||||||
|
||||||||||||
Its: |
Vice President & General Counsel |
NICJ3\ADD-ATH.6E7
ADDENDUM TWO TO NET COMMERCIAL LEASE
This Addendum Two to Net Commercial Lease, dated as of June 12, 1997 (this Addendum), is by and between John C. Nickel, (Lessor) and Athena Neurosciences, Inc., a Delaware (Lessee). Capitalized terms used in this Addendum and not otherwise defined have the meaning specified in the Lease (as hereinafter defined).
Whereas, Lessor and Lessee have entered into that certain Net Commercial Lease, dated May 22, 1997, as modified by that certain Addendum One to Net Commercial Lease, dated as of June 5, 1997 (collectively, the Lease); and
Whereas, Lessor and Lessee now wish to amend the Lease in certain regards,
NOW, THEREFORE, Lessor and Lessee agree:
1. Paragraph 7.B(3) of the Lease is hereby amended by deleting the parenthetical phrase (determined by reference to the market for comparable buildings in the northern San Mateo County area) in the third line of such Paragraph, and substituting therefor the following:
(determined by reference to the market for comparable buildings equipped with at least three (3) dock doors and one (1) drive-in door, situated in South San Francisco, San Mateo County).
2. Except as provided herein, the terms and conditions of the Lease remain unmodified and are affirmed.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first set forth above.
LESSOR: | ||||||||||||
Dated: |
June 16, 97 |
/s/ John C. Nickel |
||||||||||
JOHN C. NICKEL | ||||||||||||
LESSEE: | ||||||||||||
Dated: |
July 2, 1997 |
ATHENA NEUROSCIENCES, INC., a Delaware corporation | ||||||||||
BY: | /s/ Illegible | |||||||||||
|
||||||||||||
Its: |
VP & General Counsel |
NICJ3\ADD2-ATH.6T7
ADDENDUM THREE TO NET COMMERCIAL LEASE
This Addendum Three to Net Commercial Lease, dated as of July 10, 1997 (this Addendum), is by and between John C. Nickel, (Lessor) and Athena Neurosciences, Inc., a Delaware corporation (Lessee). Capitalized terms used in this Addendum and not otherwise defined have the meaning specified in the Lease (as hereinafter defined).
Whereas, Lessor and Lessee have entered into that certain Net Commercial Lease, dated May 22, 1997, as modified by that certain Addendum One to Net Commercial Lease, dated as of June 5, 1997 and that certain Addendum Two to Net Commercial Lease, dated as of June 12, 1997 (collectively, the Lease); and
Whereas, Lessor and Lessee now wish to amend the Lease in certain regards,
NOW, THEREFORE, Lessor and Lessee agree:
1. The third sentence of Paragraph 10.C of the Lease is hereby deleted in its entirety, and the following is substituted therefor:
If Lessee is given at least thirty (30) days notice prior to the date on which said taxes must be paid without incurring a penalty and Lessee fails to pay the sums required within twenty (20) days of the date of the notice, Lessee shall pay to Lessor, as additional rent, all interest and penalties assessed by the taxing authority if Lessor has failed to make the timely payment of said taxes, in addition to the late charge provided for in paragraph 3.
2. Except as provided herein, the terms and conditions of the Lease remain unmodified and are affirmed.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first set forth above.
LESSOR: | ||||||||||||
Dated: |
9/1/97 |
/s/ John C. Nickel |
||||||||||
JOHN C. NICKEL | ||||||||||||
LESSEE: | ||||||||||||
Dated: |
8/29/97 |
ATHENA NEUROSCIENCES, INC., a Delaware corporation | ||||||||||
BY: | /s/ Illegible | |||||||||||
|
||||||||||||
Its: |
VP & General Counsel |
NICJ3\ADD3-ATH.7J7
ADDENDUM FOUR TO NET COMMERCIAL LEASE
This Addendum Four to Net Commercial Lease, dated as of May 27, 1999 (this Addendum), is by and between JCN PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP (Lessor), successor in interest to John C. Nickel (Nickel), as lessor under that certain Net Commercial Lease, dated May 22, 1997, as modified by that certain Addendum One to Net Commercial Lease, dated as of June 5, 1997, that certain Addendum Two to Net Commercial Lease, dated as of June 12, 1997 and that certain Addendum Three to Net Commercial Lease, dated as of July 10, 1997 (collectively, the Lease), and ELAN PHARMACEUTICALS, INC., a Delaware corporation (Lessee), successor in interest to Athena Neurosciences, Inc., a Delaware (Athena), as lessee under the Lease, and is intended to amend and modify the Lease. Capitalized terms used in this Addendum and not otherwise defined have the meaning specified in the Lease.
Whereas, Nickel and Athena have entered into the Lease, and Lessor has succeeded to the interest of Nickel as lessor under the Lease, and Lessee has succeeded to the interest of Athena as lessee under the Lease; and
Whereas, pursuant to the Lease, Lessee currently leases from Lessor the Premises, consisting of 21,960 square feet (the Original Premises); and
Whereas, Lessee wishes to lease from Lessor, and Lessor is willing to Lease to Lessee, an additional portion of the Building, consisting of 17,599 square feet (the Additional Premises); and
Whereas, Lessor and Lessee now wish to amend the Lease as set forth above and in certain other regards.
NOW, THEREFORE, Lessor and Lessee agree that the Lease is amended as follows:
1. Condition Precedent . If on or before June 30, 1999, Lessor and Fritz Companies, Inc., a Delaware corporation (Fritz), have not entered into an addendum to that certain Net commercial Lease, dated December 27, 1996 (the Fritz Lease), between Nickel, as Lessors predecessor in interest, as lessor, and Fritz, as lessee, whereby all of Fritz right, title and interest to the Additional Premises are terminated on terms and conditions acceptable to Lessor. Lessor at any time thereafter, but prior to June 30, 1999, may terminate this Addendum by notice to Lessee, and Lessor and Lessee shall thereupon be released from all obligations under this Addendum and Lessor shall return to Lessee all amounts previously paid to Lessor by Lessee hereunder. In addition, in the event Lessor does not terminate this Addendum pursuant to the immediately preceding sentence, and if such addendum is not entered
ELAN
-1-
into by Lessor and Fritz on or before June 30, 1999, this Addendum shall automatically terminate and Lessor and Lessee shall thereupon be released from all obligations under this Addendum, Lessor shall return to Lessee all amounts previously paid to Lessor by Lessee hereunder and the Lease shall continue in full force and effect and unmodified.
2. Definitions .
a. The term Premises as used in the Lease shall mean the Original Premises, as defined in Section 1.B of the Lease, and shown on Exhibit A attached to the Lease, together with the Additional Premises. The Additional Premises contain 17,599 square feet, consisting of that portion of the Building shown as the red cross-hatched area designated ELAN Additional Premises on Attachment A attached to this Addendum, previously referred to as a portion of premises commonly 534 Eccles Avenue. The Premises shall consist of a total of 39,559 square feet, and shall include the two exterior concrete blocks as shown on Attachment A hereto. The Premises specifically include the walkway located adjacent to the east and north exterior walls of the Premises.
b. Section 1.C. of the Lease is deleted, and the following substituted therefor:
C. Lessees Percentage Share. The term Lessees Percentage Share, except when said term refers to the cost of maintaining the easement roadway, shall mean thirty-six and 27/100 percent (36.27%). Lessor and Lessee acknowledge that Lessees Percentage Share, except when said term refers to the cost of maintaining the easement roadway, has been obtained by dividing the net rental area of the Premises, which Lessor and Lessee agree is 39,559 square feet, by the total net rental area of the Building, which Lessor and Lessee agree is 109,056 square feet, and multiplying such quotient by 100.
c. Section 1.D. of the Lease is deleted, and the following substituted therefor:
D. Lessees Percentage Share of Easement Roadway. The term Lessees Percentage Share, when said term refers to the cost of maintaining the easement roadway, shall mean twenty-one and 07/100 percent (21.07%). Lessor and Lessee acknowledge that Lessees Percentage Share, when said term refers to the cost of maintaining the easement roadway, has been obtained by dividing the net rental area of the Premises, which Lessor and Lessee agree is 39,559 square feet, by the total square footage of the two buildings which use the easement roadway (the Building and 546 Eccles Avenue, South San Francisco, CA), which Lessor and Lessee agree is 187,788, and multiplying such quotient by 100.
ELAN
-2-
d. Lessees obligation to pay Lessees Percentage Share shall commence on July 8, 1999.
e. Upon notification by Lessor to Lessee of the death or incapacity of the general partner of Lessor, the term Common Area Maintenance and Repair Costs shall include all reasonable fees, charges and other costs for incurred by Lessor for a property manager engaged by Lessor in connection with the Building and the Premises.
3. Term; Delivery of Possession .
a. Except as otherwise provided in the Lease and subject to paragraph 1 above, the term of the Lease for the rental of the Additional Premises shall commence on July 8, 1999, or on such later date as possession of the Premises is delivered to Lessee (Additional Premises Commencement Date), and, unless sooner terminated, as hereinafter provided, shall end on May 31, 2007.
b. Lessor shall deliver possession of the Additional Premises to Lessee on the Additional Premises Commencement Date. If Lessor, for any reason whatsoever, cannot deliver possession of the Additional Premises on the Additional Premises Commencement Date, this Addendum shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss or damage resulting therefrom. Notwithstanding the foregoing, if possession of the Additional Premises has not been delivered to Lessee on or before July 31, 1999. Lessee at any time thereafter, but prior to the delivery of possession, may terminate this Lease by notice to Lessor, and Lessor and Lessee shall thereupon be released from all obligations under this Lease and Lessor shall return to Lessee all amounts previously paid to Lessor by Lessee hereunder.
c. The words delivery of possession or deliver possession, or similar combination of words, for purposes of this Addendum shall mean the day on which Lessor notifies Lessee that the Additional Premises are ready for Lessees occupancy. The failure, however, of Lessor to so notify Lessee shall not constitute a default hereunder by Lessor.
4. Entry Upon the Additional Premises . Commencing on July 8, 1999, Lessee and its authorized representatives shall have the right during normal business hours to enter upon the premises leased to Fritz pursuant to the Fritz Lease for the purpose of making improvements in connection with its leasing of the Additional Premises from Lessor, including, without limitation, the construction of a demising wall for the Additional Premises and the installation of a separate electrical meter and system for the
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Additional Premises. Lessee shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance, or other damage arising out of Lessees entry on the Premises as provided in this paragraph, except damage resulting from the negligence or willful misconduct of Lessee or its authorized representatives. Lessee shall conduct its activities on the Additional Premises as allowed in this paragraph in a manner that will cause the least possible inconvenience or disturbance to Fritz.
5. Rent . The provisions of Section 3.A. relating to Base Monthly Rent payable by Lessee to Lessor are amended as follows:
Lessee shall pay to Lessor the following sums of money as Base Monthly Rent commencing on July 8, 1999:
(1) Commencing July 8, 1999 to and including November 30, 1999: $20,145.40 per month.
(2) Commencing December 1, 1999 to and including December 31, 1999: $21,243.40 per month.
(3) Commencing January 1, 2000 to and including June 30, 2000: $25,937.40 per month.
(4) Commencing July 1, 2000 to and including June 30, 2001: $26,641.40 per month.
(5) Commencing July 1, 2001 to and including May 31, 2002: $27,345.40 per month.
(6) Commencing June 1, 2002 to and including June 30, 2002: $28,663.00 per month.
(7) Commencing July 1, 2002 to and including June 30, 2003: $29,367.00 per month.
(8) Commencing July 1, 2003 to and including June 30, 2004: $30,247.00 per month.
(9) Commencing July 1, 2004 to and including November 30, 2004: $31,127.00 per month.
(10) Commencing December 1, 2004 to and including June 30, 2005: $32,444.60 per month.
(11) Commencing July 1, 2005 to and including May 31, 2007: $33,324.60 per month.
6. Security Deposit . On or before the date when Lessee signs this Addendum, Lessee shall increase the Security Deposit made pursuant to paragraph 6 of the Lease by $15,000.00 so that the
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total Security Deposit held by Lessor shall be $26,000.00. The Security Deposit, increased as set forth herein, shall be held by Lessor as security for the faithful performance by Lessee of all of the provisions of the Lease and this Addendum to be performed or observed by Lessee, in accordance with the terms of said Section 6, with no distinction between the Lease and this Addendum or the Original Premises and the Additional Premises.
7. Parking . In addition to the twenty (20) parking spaces specified in Section 5 of the Lease, Lessee shall have the exclusive use of thirty-six (36) additional parking spaces to be designated by Lessor, the majority of which shall be located in the area marked common area parking on Attachment A, for a total of fifty-six (56) parking spaces, so long as Lessee abides by all reasonable rules and regulations promulgated by Lessor regarding such use. Upon designation by Lessor of Lessees fifty-six (56) parking spaces in connection with the preparation of a Master Parking Plan for the Building, Lessor and Lessee shall initial and attach to the Lease such Master Parking Plan, setting forth the specific parking spaces designated for Lessees use.
8. Option to Extend Term . The Options to extend the term of the Lease for two five (5) year terms provided in Section 7 of the Lease shall apply to the Additional Premises as well as the Original Premises. All of the terms and conditions of Section 7 shall apply to both the Original Premises and the Additional Premises, except as follows:
a. The Options shall be exercised only with respect to both the Original Premises and the Additional Premises, and may not be exercised with respect to either without the other.
b. Section 7.B(3) of the Lease is hereby deleted and the following substituted therefor:
(3)-1 As used in this Lease, the term fair market rent for the Original Premises with respect to each Extension Period shall mean the monthly amount (determined by reference to the market for comparable buildings in the northern San Mateo County area) that a willing landlord would offer and a willing tenant would accept, as of the first day of such Extension Period, in an arms-length transaction for a lease of the Original Premises (i) for use as warehouse space and without regard to Lessees permitted use of the Original Premises, (ii) commencing on first day of such Extension Period, (iii) with or without right of renewal (as the case may be), (iv) without considering the value of tenant improvements constructed by Lessee (including, without limitation, seismic improvements to the Building, the heating, ventilation and air conditioning systems and equipment installed by Lessee and the increased
ELAN
-5-
electrical systems, equipment and capacity installed by Lessee), and (v) otherwise on all of the terms and conditions of this Lease. In determining fair market rent, there shall be taken into consideration the rental rate for leases of warehouse space in comparable buildings in the northern San Mateo county market area and the location of the Original Premises.
(3)-2 As used in this Lease, the term fair market rent for the Additional Premises with respect to each Extension Period shall mean the monthly amount (determined by reference to the markets for comparable buildings in the South San Francisco, Brisbane, San Carlos or Burlingame area) that a willing landlord would offer and a willing tenant would accept, as of the first day of such Extension Period, in an arms-length transaction for a lease of the Additional Premises (i) for use as improved office space and without regard to Lessees permitted use of the Additional Premises, (ii) commencing on first day of such Extension Period, (iii) with or without right of renewal (as the case may be), (iv) without considering the value of tenant improvements constructed by Lessee (including, without limitation, seismic improvements to the Building, the heating, ventilation and air conditioning systems and equipment installed by Lessee and the increased electrical systems, equipment and capacity installed by Lessee), and (v) otherwise on all of the terms and conditions of this Lease. In determining fair market rent, there shall be taken into consideration the rental rate for leases of improved office space in comparable buildings in the South San Francisco, Brisbane, San Carlos or Burlingame market areas, and the location of the Additional Premises.
9. Condition; No Representations or Warranties . On the Additional Premises Commencement Date, Lessor shall deliver the Additional Premises to Lessee broom swept and free of debris. Notwithstanding anything contained in the Lease to the contrary, Lessor has made no representations or warranties whatsoever, express or impled, with respect to the Additional Premises, and Lessee shall accept the Additional Premises in their as is condition as of the Additional Premises Commencement Date.
10. Effective Date . Subject to paragraph 1 above, this Addendum shall be effective on the Additional Premises Commencement Date.
11. Affirmation of Lease . Except as provided herein, the terms and conditions of the Lease remain unmodified and are affirmed.
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IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first set forth above.
LESSOR: | ||||||||||
Dated: |
6-29-99 |
JCN Partners, A California Limited Partnership | ||||||||
By: |
/s/ John C. Nickel |
|||||||||
John C. Nickel | ||||||||||
General Partner | ||||||||||
LESSEE: | ||||||||||
Dated: |
7-6-99 |
ELAN PHARMACEUTICALS, INC., a Delaware corporation | ||||||||
BY: | /s/ Illegible | |||||||||
|
||||||||||
Its: |
SR VP of Fin & Admin |
|||||||||
BY: | /s/ Illegible | |||||||||
|
||||||||||
Its: |
VP, COMMERCIAL & LEGAL AFFAIRS |
NICJ3\ADD4-ATH.5X9
ELAN
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ADDENDUM FIVE TO NET COMMERCIAL LEASE
This Addendum Five to Net Commercial Lease, dated as of June , 2004 (this Addendum), is entered into by and between JCN PARTNERS, a California limited partnership (Lessor), successor in interest to John C. Nickel (Nickel), as lessor under that certain Net Commercial Lease, dated May 22, 1997, as modified by that certain Addendum One to Net Commercial Lease, dated as of June 5, 1997, that certain Addendum Two to Net Commercial Lease, dated as of June 12, 1997, that certain Addendum Three to Net Commercial Lease dated as of July 10, 1997, and that certain Addendum Four to Net Commercial Lease dated as of May 27, 1999 (collectively, the Lease), and SOLSTICE NEUROSCIENCES, INC., a Delaware corporation (Solstice), successor in interest to Elan Pharmaceuticals, Inc., a Delaware corporation (Elan), successor in interest to Athena Neurosciences, Inc., a Delaware corporation (Athena) as lessee under the Lease, and is intended to amend and modify the Lease. Capitalized terms used in this Addendum and not otherwise defined have the meaning specified in the Lease.
WHEREAS, pursuant to that certain Asset Purchase Agreement (the Asset Purchase Agreement) dated May 12, 2004 by and between Solstice (formerly known as Solstice NeuroSciences, LLC, a Delaware limited liability company), on the one hand, and Elan and Elan Pharma International Limited, a private limited company organized under the laws of Ireland (collectively with Elan, the Elan Parties), on the other hand, Solstice will acquire all of the Elan Parties rights to the pharmaceutical product Myobloc (also know as Neurobloc in certain countries) (the Transaction). The Transaction is anticipated to close in June of 2004 (the Closing);
WHEREAS, in connection with the Transaction and pursuant to that certain Assignment of Lease (the Assignment) dated on even date herewith by and between Solstice, Elan and Lessor, Elan is assigning all of its right, title and interest in the Lease to Solstice contingent upon, and effective as of, the Closing. The Assignment will be executed and delivered concurrently with the parties execution of this Addendum;
WHEREAS, as a condition to Lessor consenting to the Assignment, Lessor is requiring Solstice to cause to be issued, and Solstice has agreed to cause to be issued, as security for the payment of rent and other sums due under the Lease by Solstice, a letter of credit from a reputable bank reasonably satisfactory to Landlord in the amount of $850,000; and
WHEREAS, Lessor and Solstice now wish to amend the Lease to provide for the issuance of the letter of credit and the conditions upon which the Lessor will be permitted to draw upon the same.
NOW THEREFORE, Lessor and Solstice agree that the Lease is amended as follows:
1. Security Deposit . Section 6 of the Lease (Security Deposits) shall be amended to add the following provisions:
6.1 Amount of Additional Security Deposit; Application . Concurrently with Lessors consent to the assignment of the Lease from Elan Pharmaceuticals, Inc. to Solstice
Neurosciences, Inc. (Solstice), Solstice shall cause to be issued by Silicon Valley Bank (Issuer) an unconditional, irrevocable letter of credit (the LOC) in the amount of $850,000 (the Initial Amount) with Lessor listed as beneficiary thereof. The LOC Shall be used solely as security for Solstices faithful performance of its respective obligations under the Lease and any Addendum thereto. At any time that Solstice is in default of its obligation to pay rent or any other sums due under the Lease or any Addendum thereto, Lessor shall have the right to draw upon the LOC the amount of money in default. Lessors request to Issuer shall be accompanied by a certificate from the Lessor that certifies that the amount of the drawing represents an amount Lessor is entitled to receive from Solstice under the Lease. If Lessor draws upon all or any portion of the LOC, Lessee shall immediately restore the LOC to the Initial Amount. Solstice shall pay all costs, points, or fees incurred in connection with the issuance and maintenance of the LOC. If the term of the LOC shall expire prior to the expiration of the Lease term, Solstice shall deliver to Lessor, at least thirty (30) days prior to the expiration date of the LOC, a renewal of the LOC or a replacement LOC which satisfies the conditions set forth above. If Solstice fails to renew or replace the LOC at least thirty (30) days prior to its expiration, Lessor may draw down the entire amount of the LOC in which event the amount so received by the Lessor shall be held by the Lessor as an additional Security Deposit pursuant to Section 6 of the Lease. The Lessor may, from time to time, consider reducing the amount required under the LOC, provided any such reduction shall be at the sole discretion of the Lessor.
2. Effective Date . This Addendum and the Assignment shall be contingent upon, and effective as of, the Closing.
3. Affirmation of Lease . Except as provided herein, the terms and conditions of the Lease remain unmodified and are affirmed, including without limitation, the provisions of Paragraph 12.A regarding removal of alterations and additions to the Premises. Notwithstanding anything to the contrary herein or in the Lease, Solstice agrees to accept the Premises in its current as-is condition; provided, however that such acceptance shall not in any way effect, modify or decrease the Lessors duties and responsibilities under the Lease (as amended).
4. Financial Statements . Upon reasonable request by Lessor, and in any event not more frequently than quarterly, Solstice shall provide Lessor with its most recent updated financial statements.
5. Notice . The address to which notices shall be sent to Solstice under Section 27 (Notice) to the Lease shall be 3830 Valley Center Drive, Suite 705-553, San Diego, California 92130-3307.
6. Miscellaneous . This Addendum shall be binding upon and inure to the benefit of the parties and their successors and assigns. This Addendum may be executed in one or more counterparts. Facsimile copies of this Addendum shall be treated the same as wet ink originals to the maximum extent permitted by law. This Addendum shall be governed by the laws of the State of California.
[Remainder of Page Intentionally Left Blank]
2
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first Set
forth above.
LESSOR: |
||||||
Dated: June , 2004 | JCN P ARTNERS , | |||||
a California limited partnership | ||||||
By: |
/s/ John C. Nickel |
|||||
Print Name: |
John C. Nickel |
|||||
Title: |
General Partner |
|||||
SOLSTICE: | ||||||
Dated: June , 2004 | S OLSTICE N EUROSCIENCES , I NC ., | |||||
a Delaware corporation |
||||||
By: |
/s/ John Bruens |
|||||
Print Name: |
John Bruens |
|||||
Title: |
President |
[Signature Page to Addendum Five to Net Commercial Lease]
4
RESTATED ADDENDUM FIVE TO NET COMMERCIAL LEASE
This Restated Addendum Five to Net Commercial Lease, dated for reference purposes only, June 15, 2005 (this Restated Addendum Five), is entered into by and between JCN P ARTNERS , a California limited partnership (Lessor), successor in interest to John C. Nickel (Nickel), as lessor under that certain Net Commercial Lease, dated May 22, 1997, as modified by that certain Addendum One to Net Commercial Lease, dated as of June 5, 1997, that certain Addendum Two to Net Commercial Lease, dated as of June 12, 1997, that certain Addendum Three to Net Commercial Lease dated as of July 10, 1997, and that certain Addendum Four to Net Commercial Lease dated as of May 27, 1999 (collectively, the Lease), and S OLSTICE N EUROSCIENCES , I NC ., a Delaware corporation (Solstice), successor in interest to Elan Pharmaceuticals, Inc., a Delaware corporation (Elan), successor in interest to Athena Neurosciences, Inc., a Delaware corporation (Athena) as lessee under the Lease, and is intended to amend and modify the Lease. Capitalized terms used in this Addendum and not otherwise defined have the meaning specified in the Lease.
WHEREAS, pursuant to that certain Asset Purchase Agreement (the Asset Purchase Agreement) dated May 12, 2004 by and between Solstice (formerly known as Solstice NeuroSciences, LLC, a Delaware limited liability company), on the one hand, and Elan and Elan Pharma International Limited, a private limited company organized under the laws of Ireland (collectively with Elan, the Elan Parties), on the other hand, Solstice acquired all of the Elan Parties rights to the pharmaceutical product Myobloc (also know as Neurobloc in certain countries) (the Transaction). The Transaction closed in July 6, 2004;
WHEREAS, in connection with the Transaction and pursuant to that certain Assignment of Lease (the Assignment) between Solstice, Elan and Lessor, Elan assigned all of its right, title and interest in the Lease to Solstice, which Assignment was to be delivered as part of the closing of the Transaction and contingent upon the parties signing the original Addendum Five to Net Commercial Lease;
WHEREAS, as a condition to Lessor consenting to the Assignment, Lessor required Solstice to cause to be issued and delivered to Lessor, and Solstice agreed to cause to be issued and delivered to Lessor, as security for the payment of rent due under the Lease by Solstice, (including, but not limited to, costs incurred to restore the Premises pursuant to Paragraphs 12.A and 32 of the Lease) an irrevocable, unconditional letter of credit from a reputable bank reasonably satisfactory to Lessor in the amount of $850,000;
WHEREAS, in negotiating the original Addendum Five to Net Commercial Lease, Lessor requested, and believed Solstice had agreed to provide, certain financial information and to develop a standard under which Lessor could draw down the letter of credit prior to an actual default on the part of Solstice. Solstice believes that although it did agree to provide certain financial information to Lessor, it did not agree to develop a standard in an anticipated Addendum Six pursuant to which Lessor could draw down the letter of credit prior to an actual default;
WHEREAS, as a result of the foregoing miscommunication, neither party signed the same original Addendum Five to Net Commercial Lease although Solstice obtained and had issued in favor of Lessor an irrevocable standby letter of credit in the amount of $850,000;
WHEREAS, pursuant to further negotiations, each party now wishes to enter into this Restated Addendum Five to resolve their differences and to amend the Lease.
NOW THEREFORE, Lessor and Solstice agree that the Lease is amended as follows:
1. Security Deposit . Paragraph 6 of the Lease (Security Deposits) shall be amended to add the following provisions:
6.1 Amount of Additional Security Deposit; Application . Upon execution of this Restated Addendum Five, Solstice shall deposit with Lessor an additional cash deposit in the amount of $94,000.00 so that the total cash Security Deposit shall be $120,000.00 and concurrently Lessor shall release and return to Silicon Valley Bank the original Letter of Credit in the amount of $850,000.00 and Solstice shall promptly thereafter cause to be issued by Silicon Valley Bank (Issuer) an unconditional, irrevocable letter of credit (the Replacement LOC) in the amount of $350,000 (Initial Amount) with Lessor listed as beneficiary thereof. The Replacement LOC shall have a term equal to the term of the Lease or any extension thereof plus 30 days. The LOC shall be used solely as security for Solstices faithful performance of its respective obligations under the Lease, this Restated Addendum Five and any other and further amendments thereto during the term of the Lease and any extension thereof. At any time that Solstice is in default of its obligation to pay rent or any other monetary obligation under the Lease. Lessor shall have the right to draw upon the Replacement LOC the amount of money in default or as authorized by this Restated Addendum Five. Lessors request to Issuer shall be accompanied by a certificate from the Lessor that certifies that the amount of the drawing represents an amount Lessor is entitled to receive from Solstice under the Lease or this Restated Addendum Five. If Lessor draws upon all or any portion of the Replacement LOC, Solstice shall immediately restore the Replacement LOC to the Initial Amount. Solstice shall pay all costs, points, or fees incurred in connection with the issuance and maintenance of the Replacement LOC. If the term of the Replacement LOC shall expire prior to 30 days following the expiration of the Lease term or 30 days after any extension thereof, Solstice shall deliver to Lessor, at least thirty (30) days prior to the expiration date of the Replacement LOC, a renewal of the Replacement LOC or a further replacement LOC which satisfies the conditions set forth above. If Solstice fails to renew or replace the Replacement LOC at least thirty (30) days prior to its expiration, Lessor may draw down the entire amount of the LOC in which event the amount so received by the Lessor shall be held by the Lessor as an additional Security Deposit pursuant to Section 6 of the Lease.
2. Affirmation of Lease . Except as provided herein, the terms and conditions of the Lease remain unmodified and are affirmed, including without limitation, the provisions of Paragraphs 12.A and 32 regarding removal of alterations and additions to the Premises. Notwithstanding anything to the contrary herein or in the Lease, Solstice agrees to accept the Premises in its current as-is condition; provided, however that such acceptance shall not in any way effect, modify or decrease Lessors duties and responsibilities under the Lease.
3. Financial Statements . Upon reasonable request by Lessor, and in any event not more frequently than quarterly, Solstice shall promptly provide Lessor with its most recent updated financial statements and supplement said delivered statements with audited copies if such statements are audited.
4. Acknowledgement of Effectiveness of Assignment of Lease. Lessor hereby acknowledges and agrees that the Lease was duly assigned to Solstice pursuant to the terms and conditions of the Assignment, which is in full force and effect and valid and binding on Lessor and Lessee in accordance with the terms thereof.
5. Notice . The address to which notices shall be sent to Solstice under Paragraph 27 of the Lease shall be .
6. Miscellaneous . This Addendum shall be binding upon and inure to the benefit of the parties and their successors and assigns. This Addendum may be executed in one or more counterparts. Facsimile copies of this Addendum shall be treated the same as wet ink originals to the maximum extent permitted by law. This Addendum shall be governed by the laws of the State of California.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first set forth above.
LESSOR: | ||||||
Dated: July , 2005 | JCN P ARTNERS , | |||||
a California limited partnership | ||||||
By: |
|
|||||
Print Name: |
|
|||||
Title: |
|
|||||
SOLSTICE: |
Dated: July , 2005 | S OLSTICE N EUROSCIENCES , I NC ., | |||||
a Delaware corporation | ||||||
By: |
/s/ Shawn Patrick OBrien |
|||||
Shawn Patrick OBrien, | ||||||
President & Chief Executive Officer | ||||||
By: |
/s/ Mike Pagnotta |
|||||
Mike Pagnotta, Chief Financial Officer |
[Signature Page to Restated Addendum Five to Net Commercial Lease]
ADDENDUM SIX TO NET COMMERCIAL LEASE
This Addendum Six to Net Commercial Lease, dated for reference purposes only, March 6, 2007, (this Addendum Six), is entered into by and between JCN Partners, a California limited partnership (Lessor), successor in interest to John C. Nickel (Nickel), as lessor under that certain Net Commercial Lease, dated May 22, 1997, as modified by that certain Addendum One to Net Commercial Lease, dated as of June 5, 1997, that certain Addendum Two to Net Commercial Lease, dated as of June 12, 1997, that certain Addendum Three to Net Commercial Lease dated as of July 10, 1997, that certain Addendum Four to Net Commercial Lease dated as of May 27, 1999, and that certain Restated Addendum Five dated June 15, 2005 (collectively, the Lease), and Solstice Neurosciences, Inc., a Delaware corporation (Solstice), successor in interest to Elan Pharmaceuticals, Inc., a Delaware corporation (Elan), successor in interest to Athena Neurosciences, Inc., a Delaware corporation (Athena) as Lessee under the Lease, and is intended to amend and modify the Lease. Capitalized terms used in this Addendum and not otherwise defined herein have the meaning specified in the Lease.
WHEREAS, Solstice has duly exercised the Option to extend the term of the Lease pursuant to Section 7 of the Lease by way of the notice letter dated December 12, 2006; and
WHEREAS, the parties have reached agreement regarding the Base Monthly Rent to be charged during the First Extension Period,
NOW THEREFORE, Lessor and Solstice agree as follows:
1. The Base Monthly Rent shall be $37,581.05 per month from June 1, 2007, through and including May 1, 2008; $38,708.48 per month from June 1, 2008 through and including May 1, 2009; $39,869.73 per month from June 1, 2009 through and including May 1, 2010; $41,065.82 per month from June 1, 2010 to and including May 1, 2011; and $42,297.79 per month from June 1, 2011 to and including May 1, 2012.
2. Solstice shall commencing June 1, 2007, relinquish to Lessor those 10 parking spaces shown on Exhibit 1 attached hereto and incorporated herein by this reference. There shall be no reduction in Base Monthly Rent or any other rent on account of the surrender of the 10 parking spaces. The 10 parking spaces shall be returned to Solstice only if Solstice begins construction of additional office space within the Premises. Solstice shall notify Lessor that it has received all required permits for the construction of any such additional offices and specify the date on which the construction of the offices will begin. Lessor will surrender and return to Solstice those parking spaces on the date specified in Solstices notice. If for any reason the offices are not completed or if the office space construction is abandoned by Solstice, the parking spaces shall revert to Lessor. The failure to provide Lessor with evidence within a reasonable period of time after the commencement of construction that the construction has been completed and approved by the City of South San Francisco will constitute notice that the construction of the offices has not been completed or has been abandoned.
Page 1 of 2
3. Except as provided herein, the terms and conditions of the Lease remain unmodified and are affirmed.
Signature Page Follows
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first set forth above.
LESSOR: | ||||||
Dated: April 20, 2007 |
JCN Partners, a California limited partnership |
|||||
By: |
/s/ John C. Nickel |
|||||
Print Name: |
John C. Nickel |
|||||
Title: |
General Partner |
|||||
SOLSTICE: | ||||||
Dated: April 18, 2007 |
Solstice Neurosciences, Inc., a Delaware corporation |
|||||
By: |
/s/ Shawn Patrick OBrien |
|||||
Print Name: |
Shawn Patrick OBrien |
|||||
Title: |
President and CEO |
|||||
By: |
/s/ Michael A. Pagnotta |
|||||
Print Name: |
Michael A. Pagnotta |
|||||
Title: |
CFO |
Page 2 of 2
ADDENDUM SEVEN TO NET COMMERCIAL LEASE
This Addendum Seven to Net Commercial Lease, dated March 29, 2012, for reference purposes only (this Addendum Seven), is entered into by and between JCN Partners, a California limited partnership (Lessor) successor in interest to John C. Nickel (Nickel) as Lessor under that certain Net Commercial Lease, dated May 22, 1997, as modified by that certain Addendum One to New Commercial Lease, dated as of June 5, 1997, that certain Addendum Two to Net Commercial Lease, dated as of June 12, 1997, that certain Addendum Three to Net Commercial Lease dated as of July 10, 1997, that certain Addendum Four to Net Commercial Lease dated as of May 27, 1999, that certain Restated Addendum Five dated June 15, 2005, and that certain Addendum Six to Net Commercial Lease dated as of March 6, 2007 (collectively referred to as the Lease) and Solstice Neurosciences, LLC, a Delaware limited liability company (Solstice), successor in interest to Solstice Neurosciences, Inc., a Delaware corporation, successor in interest to Elan Pharmaceuticals, Inc., a Delaware corporation, who was successor in interest to Athena Neurosciences, Inc., a Delaware corporation as Lessee under the Lease, and is intended to amend and modify the Lease. Capitalized terms used in this Addendum Seven and not otherwise defined shall have the meaning specified in the Lease.
WHEREAS, the parties have agreed that Solstice has duly exercised the Option to extend the term of the Lease; and
WHEREAS, Lessor and Solstice, through their real estate brokers (Mike Davis of Grubb & Ellis Company representing Solstice and Marshall Hydorn of Cassidy Turley representing Lessor) have reached an agreement regarding the Base Monthly Rent to be paid by Solstice to Lessor during the Option Term and have elected not to pursue the arbitration provisions set forth in the Lease;
NOW, THEREFORE, the parties agree as follows:
1. The Base Monthly Rent shall be as follows:
From June 1, 2012 to and including May 1, 2013 - $30,064.84
From June 1, 2013 to and including May 1, 2014 - $30,966.79
From June 1, 2014 to and including May 1, 2015 - $31,895.79
From June 1, 2015 to and including May 1, 2016 - $32,852.66
From June 1, 2016 to and including May 1, 2017 - $33,838.24
2. The parties acknowledge and agree that Solstice has no further right to extend the Lease Term beyond May 31, 2017.
Page 1 of 2
3. Except as provided herein, the terms and conditions of the Lease remain unmodified and are affirmed.
Dated: |
June 29, 12 |
LESSOR: | ||||||||
JCN Partners, A California limited partnership |
||||||||||
By: |
/s/ John C. Nickel |
|||||||||
John C. Nickel, General Partner | ||||||||||
Dated: | June 19, 2012 | LESSEE: | ||||||||
Solstice Neurosciences, LLC, A Delaware limited liability company |
||||||||||
By: |
/s/ P. Breckinridge Jones |
|||||||||
P. Breckinridge Jones, Chief Executive Officer | ||||||||||
By: |
/s/ H. Lee Warren |
|||||||||
H. Lee Warren, Chief Operating Officer |
Page 2 of 2
EXECUTION COPY
EXHIBIT C
[See Attached Summary of Operating Expenses]
- 28 -
Solstice Proposed Pass-Through % of Eccles Operating Expenses to Audentes
Total Building Sq ft |
39,559 | |||
Total Lease to Audentes |
21,960 | |||
Total Audentes % for CAM |
55.5 | % |
Description |
Type |
% Allocation to
Audentes |
2014 Total for
Reference Only |
|||||||
Property Taxes |
CAM Invoiced to Solstice by JCN | 55.5 | % | $ | 60,974 | |||||
Property Insur Alloc |
CAM Invoiced to Solstice by JCN | 55.5 | % | $ | 4,437 | |||||
CAM Expenses * |
CAM Invoiced to Solstice by JCN | 55.5 | % | $ | 21,245 | |||||
Earthquake Insurance |
Paid Directly by Solstice | 100 | % | $ | 60,000 | |||||
ADT Security ** |
Paid Directly by Solstice | 100 | % | $ | 13,596 | |||||
Terminix ** |
Paid Directly by Solstice | 100 | % | $ | 1,353 | |||||
PG&E |
Paid Directly by Solstice | 100 | % | $ | 239,905 | |||||
|
|
|||||||||
Totals |
$ | 401,510 | ||||||||
|
|
* | Refer to Section 1E of master lease for description of Common Area Maintenance and Repair Costs. |
** | If Solstice can cancel contract, we would prefer Audentes enter into their own contract. Will confirm Tuesday. |
EXECUTION COPY
EXHIBIT D
[See Attached form of Bill of Sale]
- 29 -
Execution Copy
BILL OF SALE
This Bill of Sale (this Bill of Sale ) dated as of July 30, 2015, from Solstice Neurosciences, LLC, a Delaware limited liability company ( Solstice ), to Audentes Therapeutics, Inc., a Delaware corporation ( Audentes ), is being delivered pursuant to that certain Sublease dated July 30, 2015, between Solstice and Audentes (the Sublease Agreement ). Capitalized terms used in this Bill of Sale but not defined herein shall have the meanings assigned to them in the Sublease Agreement.
1. In consideration of the covenants, agreements, terms and provisions contained in the Sublease Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Solstice does hereby grant, sell, assign, convey, transfer and deliver to Audentes and its successors and assigns, free and clear of all claims, charges, liens, contracts, rights, options, security interests, mortgages, encumbrances and restrictions whatsoever, except for those existing under the Sublease Agreement and the Prime Lease, all of Solstices right, title, and interest in and to all of the manufacturing equipment owned by Solstice and located at the Subleased Premises, which approximately consists of the assets set forth on Exhibit A attached hereto (the Transferred Assets ).
2. Solstice warrants to Audentes that Solstice has good and marketable title to the Transferred Assets and the unqualified right to sell, assign, transfer, convey, and deliver the Transferred Assets to Audentes.
3. The representations, warranties, and covenants of Audentes and Solstice contained in the Sublease Agreement are incorporated into this document by reference. Any conflict between the terms of this Bill of Sale and the Sublease Agreement are to be resolved in favor of the terms of the Sublease Agreement.
4. Solstice will execute and deliver any further instruments of sale, conveyance, transfer, and assignment and take any other actions reasonably requested by Audentes in order to more effectively sell, assign, transfer, and convey to and vest in Audentes all of Solstices right, title, and interest in and to the Transferred Assets as specified in the Sublease Agreement.
[Signature page follows]
IN WITNESS WHEREOF, Solstice has caused this Bill of Sale to be executed and delivered by its duly authorized agent on the date first set forth above.
SOLSTICE NEUROSCIENCES, LLC | ||
By: | /s/ P.B. Jones | |
|
||
Name: |
P.B. Jones |
|
Title: |
CEO |
Acknowledged and Agreed:
AUDENTES THERAPEUTICS, INC. |
||
By: | /s/ Matthew Patterson | |
|
||
Name: |
Matthew Patterson |
|
Title: |
President and CEO |
EXHIBIT A
(See Attached Asset Listing)
Equipment List
Smart Name |
Equipment |
Equipment
|
Location(Room#) |
Manufacturer |
Model Number |
Serial Number |
||||||||
AUT | 1002 | Autoclave | Finn Aqua GMP Sterilizer | Room 145 | Finn-Aqua Oy | 669-C-GMP-ABS5 | 38414 | |||||||
AUT | 1301 | Autoclave | BioWaste Decontamination Unit | Waste Decontamination/Waste Collection | Getinge | 6912 | 82542-01-02 | |||||||
AUT | 1502 | Autoclave | Autoclave, HiVac Sterilizer | Testing Facility | Getinge | 6912 | N/A | |||||||
AUT | 1605 | Autoclave | Hi-Vac Effluent Sterilizer | QC Lab, Room #134 | Getinge | 6912 AR1 | 30657 | |||||||
AUT | 1703 | Autoclave | Hi-Vac Effluent Sterilizer | Development Lab, Room #161/ Mechanical Room Access, Rm#163 | Getinge | 6912 | 30660 | |||||||
BAS | 0000 | BAS | Building Automation System | NBF | Yamas | N/A | N/A | |||||||
BZH | 1601 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet | Room 134, QC Lab | Baker | SGII-600 | 60653 | |||||||
BZH | 1602 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet | Room 134, QC Lab | Baker | SGII-600 | 60662 | |||||||
BZH | 1701 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet | Room 161, Development Lab | Baker | SGII-600 | 60631 | |||||||
BZH | 204 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet, 115V, 60Hz, 15.9 Amps | Room 159, Fermentation Prep. | Baker | SGII-600 | 60656 | |||||||
BZH | 502 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet | Room 160, Fermentation Room | Baker | SGII-600 | 60646 | |||||||
BZH | 604 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet | Room 154, Recovery | Baker | SGII-600 | 60654 | |||||||
BZH | 701 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet | Room 148, Purification | Baker | SGII-600 | 60628 | |||||||
BZH | 801 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet | Room 150, Bulk Dilution | Baker | SGII-600 | 60641 | |||||||
BZH | 902 | Bio Safety Cabinet | Steril Guard II Bio Safety Cabinet | 139 | Baker | SGll-400 | 60645 | |||||||
CGW | 1501 | Cage Washer | Steam Heated with acid detergent system. | 103 | Basil | 3500 | N/A | |||||||
CWTS | CHTS | Cooling Water Chemical Treatment | Chemical Treatment Subsystem | 163 | N/A | N/A | N/A | |||||||
CWTS | CTRS | (See Manual for Components) | 163 | Baltimore Air Coil | VT0 | N/A | ||||||||
CWTS | CWRS | Chilled Water System | Piping and Components for Return of Water for heat removal. | Rms 145 & 160, Mezzanine Level, Mech Rm 163 | N/A | N/A | N/A | |||||||
CWTS | CWSS | Chilled Water System | Chilled Water Supply Piping and Components | Delivery to Rm 160 Fermenter Room, Rm 145 Mechanincal Access Rm (AUT-1002) | N/A | N/A | N/A | |||||||
CWTS | 0000 | Chilled Water System | Cooling Tower, Chiller, Chemical Treatment, Supply & Return Piping | Rm 163 Mechanical Rm, Rm 169 Chiller Room, Mezzanine Level, Delivery to Rms. 160 & 145 | Trane | *** | *** | |||||||
DIW | 1401 | Puridied Water System | DIW System incorporating RO system and UV filter. | Mechanical Room #163 | Therma | N/A | N/A | |||||||
EME | 16 | Emergency Generator | Emergency Generator, Transfer Switch, Panels HE-1, LE-1, & MCC-2; Load Bank | Outside facility, Electrical Room, and MCC Room | Petersen Electric Inc. | Gen Set CD 150 | n/a | |||||||
FRX | 401 | Fermentor | 30L Fermentor | Room 160 | B. Braun Biotech, Inc. | D-30 | B45-D30 | |||||||
FZ | 102 | Freezer | Refrigerant Charge R-502,120 psi, Range 0 to -40C, 115V, 60Hz, Single Phase, 6.75 amps full load | Waste Egress Room #112 | Environmental Equipment | C40-7 | 9596551 | |||||||
FZ | 202 | Freezer | Undercounter, 5.4 cu ft, 8.0 amps | Room 159 | Revco | ULT430A19 | R17S-128571-RS |
Page 1 of 4
Equipment List
Smart Name |
Equipment |
Equipment
|
Location(Room#) |
Manufacturer |
Model Number |
Serial Number |
||||||||
FZ | 262 | Freezer | -80 deg C, 115V, 16 amp, 1phase 60Hz, -50 deg Cto -86 deg C | Room 159 | Revco | ULT 1386-9-A34 | N17L-513435-NL | |||||||
FZ | 690 | Freezer | 115v, 11.2amps, 1phase 60Hz, single stage system, -40C | Rm. 162 Development Lab Airlock | Revco | ULT2540-7-A14 | R27H-379588-SH | |||||||
FZ | 7092 | Freezer | 115V, 12 amp, 1 phase 60Hz, 0 deg Cto -40 deg C | Room 165 | Revco | ULT2540-9-A37 | N11P-275603-NP | |||||||
FZ | 910 | Freezer | Dual Cascade System 115V, 15amp, 1phase 60Hz, -60 to-86 C | Corridor #118 | Revco | ULT 2586-7-A14 | V11H-395703VH | |||||||
FZ | 950 | Freezer | Undercounter, 5.4 cu ft, 8.0 amps | Corridor #118 | Revco | UFP530A12 | U31H-394060-VH | |||||||
FZ | 964 | Freezer | 115V, 12 amp, 1phase 60Hz, 0 deg Cto -40 deg C | Room 161 | Revco | ULT 750-9-A31 | X10L-551027-X7 | |||||||
FZ | 965 | Freezer | -80 deg C, 115V, 16 amp, 1phase 60Hz, -50 deg Cto -86 deg C | Room 161 | Revco | ULT 1386-9-A35 | X12L-551392-XL | |||||||
HHW | HBLR | Heating Hot Water Boiler | 115V, 60Hz, 1phase, <12amps, Max 160 psi, 240F | Boiler Room #168 | Teledyne Laars | PH 1825 I N 09 A C LW | C97106756 | |||||||
HHW | Heating Hot Water Boiler | Hot water supply for AHU heating coils | Boiler Room #168, Mechanical Room #163, Mezzanine Catwalk | N/A | n/a | n/a | ||||||||
HPSS | FWS | Plant Steam Feedwater System | 316L, 70 Gallon, Modified for Chemical Treatments | Feedwater Skid | Quick Tanks | N/A | N/A | |||||||
HPSS | WS | Feedwater Chemical Treatment | Feedwater Pretreatment | Water softener Feedwater Pretreatment | Heat Transfer Equipment | N/A | N/A | |||||||
HPSS | 0000 | Steam Boilers (6ea) | High Pressure Steam System | Mechanical Room #163, Mezzanine Level | Heat Transfer Equipment | N/A | N/A | |||||||
HVAC | AHU1 | HVAC Unit | Air Handling System | Mechanical Room | Air Enterprises | Size #10 | n/a | |||||||
HVAC | AHU2 | HVAC Unit | Air Handling System | Mechanical Room | Air Enterprises | N/A | N/A | |||||||
HVAC | AHU3 | HVAC Unit | Air Handling System | Mechanical Room# 163 | York | AP170 | CKFM021147 | |||||||
HVAC | AHU4 | HVAC Unit | Air Handling System | Mechanical Room #163 | Therma | N/A | N/A | |||||||
ICA | 0000 | Air Compressor | Instrument and Process compressed air | Mechanical Room #163 | Therma | N/A | N/A | |||||||
INC | 1003 | Incubator | Mechanical Convection, 5.5 cubic feet, microprocessor controlled | Media/ Buffer Prep Room #144 | Precision Scientific | 6DM | 697091382 | |||||||
INC | 1605 | Incubator | Microprocessor Controlled, 10 cubic ft, 120V | QC Lab Room #134 | Precision Scientific | 6LM | 697090602 | |||||||
INC | 1606 | Incubator | Low Temperature Incubator | QC Lab, Room #134 | Precision Scientific | 815 | 2077090421522 | |||||||
INC | 1607 | Incubator | Mechanical Convection, 5.5 cubic feet, microprocessor controlled | QC Lab, Room #134 | Precision Scientific | 6DM | Not Locatable | |||||||
INC | 1608 | Incubator | Automatic CO2 Incubator, 5.4 cu ft, 115V | QC Lab, Room #134 | Precision Scientific | 5425-0 | N/A | |||||||
INC | 1650 | Incubator | Napco Water Jacketed CO2 Incubator, 5.4 cu.ft, 115V, 50/60Hz, 4.5 Amp | Sample Lab, Room #139 | Precision Scientific | 6101F-0 | 398010080 | |||||||
INC | 203 | Incubator | Sanyo Incubator | Fermentation Prep Room #159 | Sanyo | MIR-262 | 61220369 |
Page 2 of 4
Equipment List
Smart Name |
Equipment |
Equipment
|
Location(Room#) |
Manufacturer |
Model Number |
Serial Number |
||||||||
INC | 7093 | Incubator | Range: -10 to 70 degC. 10 to 96% RH | Room 165 | Environmental Specialties | ES2000CDM | 0412212363 | |||||||
INC | 7094 | Incubator | Range: -10 to 70 degC. 10 to 96% RH | Room 165 | Environmental Specialties | ES2000CDM | 0412212362 | |||||||
INC | 960 | Incubator | 115 V, 4.5 Amp, 1.95 cu ft | Rm. 161 | VWR Scientific | 1525 | 0801598 | |||||||
IWC | ICWP | Industrial Water | Industrial Cold Water Piping Subsystem | Mezzanine Level & Mechanical Room. | N/A | n/a | n/a | |||||||
IWC | OPSS | Industrial Water | Pressurization of city water utility feed | Outside of facility inside back-up generator fencing | N/A | n/a | n/a | |||||||
IWC | Industrial Water | Water supply to industrial systems. | Outside pumping, Mezzanine & Mechanical Room supply piping. | N/A | n/a | n/a | ||||||||
NITR | 0000 | Nitrogen System | 316 L-welded 1/2 distribution line | RM 163, Catwalk to RM 160 |
Therma (Contractor/Fabricator) |
N/A | N/A | |||||||
POW | CPOW | Potable Water | Cold Potable Water Subsystem | Neurobloc Facility | n/a | n/a | n/a | |||||||
POW | EWSS | Potable Water | Emergency Eyewash and Shower Stations | 5 Stations, Mechanical Room #163, Corridors #155, #152, #136, and Testing Facility | Haws | N/A | N/A | |||||||
POW | Potable Water | Potable Water System | Neurobloc Facility | n/a | n/a | n/a | ||||||||
PRSS | SDP | Sewer System | Sewer Drainage Piping | Neurobloc Facility | n/a | n/a | n/a | |||||||
PRSS | SPS | Sewer System | Sump Pump Subsystem | Mechanical Room #163 | n/a | n/a | n/a | |||||||
PRSS | Sewer System | Process Sewer System | Eccles Facility | n/a | n/a | n/a | ||||||||
RF | 101 | Refrigerator | Undercounter, Bloodbank Refrigerator, 5.4 cu ft, 5.0 amps. 115 V. 60 Hz. Single phase. Single stage. | Room #161 | Revco | REB404A19 | R26R-122968-SR | |||||||
RF | 1103 | Refrigerator | 115V 19 Amp 1phase 60 Hz 4 Deg. Cel. Reach in Ref. 51 cubic feet | Rm 132 | VWR Scientific | VCR449A20 | X23K-502119-YK | |||||||
RF | 1104 | Refrigerator | 115V 13.4 Amp 1phase 60 Hz 4 Deg. Cel. Reach in Ref. 23.3 cubic feet | Rm 132 | VWR Scientific | REC2304A20 | X09L-550S46-XL | |||||||
RF | 1105 | Refrigerator | Laboratory Refrigerator 2-8 C | Eccles Rm 107 | Revco | REC 3004A20 | S06M-580884-SM | |||||||
RF | 1609A | Refrigerator | 115V 14.5amp 1phase 60 Hz 4C reach in Ref. | QC Lab Rm. #134 | Revco | VCR449 A14 | T24H-388370-UH | |||||||
RF | 302 | Refrigerator | Undercounter, Bloodbank Refrigerator, 5.4 cu ft, 5.0 amps. 115 V. 60 Hz. Single phase. Single stage. | Room #160 | Revco | REB404A20 | 0114983501100824 | |||||||
RF | 602 | Refrigerator | Undercounter, Bloodbank Refrigerator, 5.4 cu ft, 5.0 amps. 115 V. 60 Hz. Single phase. Single stage. | Room #154 | Revco | REB404A19 | R18R-122855-RR |
Page 3 of 4
Equipment List
Smart Name |
Equipment |
Equipment
|
Location(Room#) |
Manufacturer |
Model Number |
Serial Number |
||||||||
RF | 704 | Refrigerator | Undercounter, Bloodbank Refrigerator, 5.4 cu ft, 5.0 amps. 115 V. 60 Hz. Single phase. Single stage. | Room #148 | Revco | REB404A19 | R26R-122967-SR | |||||||
RF | 7100 | Refrigerator | 208V 3 phase. Cold Storage Room (2 to 8 degC) | Room 165 | Climate Controls | 435 | n/A | |||||||
RF | 802 | Refrigerator | 20 cubic ft, 115V, 60Hz, Refrigerant: R134A - amt:7oz | NBF RM 148 | Continental | SIR-SSGDHD | A97J7517 | |||||||
RF | 802A | Refrigerator | 115V 14.5amp 1phase 60 Hz 4C reach in Ref., 49 cubic ft. | Bulk Fill Rm. #150 | Revco | REB-5004A14 | P04H-371652PH | |||||||
RF | 901 | Refrigerator | Revco Refrigerator | NBF RM 139 | Revco | MR25SS-SAEE-TS | 0121571401130517 | |||||||
RF | 920 | Refrigerator | 115V 14.5 Amp 1 phase 60 Hz 4 Deg. Cel. Reach in Ref. | Corridor 118 | VWR Scientific | VCR449A14 | X22H-406409-YH | |||||||
RF | 990 | Refrigerator | Laboratory Refrigerator 2-8 C | NBF Corridor 118 | Revco | REC 2304A18 | P16J-426811-PJ | |||||||
SCHS | CSG | Clean Steam Generator | P2000 Series | Room 145 | Mueller | MES-630-5 | 198560 | |||||||
N/A | Lab Clean Water System | Milli-Q Water System | 134 | Millipore | Elix 3 and Gradient A-10 | F8CM75917D | ||||||||
N/A | Lab Clean Water System | Milli Q Water System | 107 | Millipore | ELIX-5 | N/A | ||||||||
OV | 6923 | Oven | Gravity Convection Oven | 107 | Thermo | G01350-A-1 | R26R-507329-SR |
Page 4 of 4
Exhibit 10.11
OFFICE LEASE
THIS LEASE (this Lease ) is made as of September 21, 2015 (the Delivery Date ), by and between
Landlord | MEPT 600 CALIFORNIA STREET LLC, a Delaware limited liability company | |
and |
||
Tenant | AUDENTES THERAPEUTICS, INC., a Delaware corporation |
TABLE OF CONTENTS
SECTION 1: DEFINITIONS |
1 | |||
Access Laws |
1 | |||
Base Rent |
1 | |||
Broker |
1 | |||
Building |
1 | |||
Business Day |
1 | |||
Building Standard Hours |
1 | |||
Claims |
1 | |||
Commencement Date |
1 | |||
Construction Management Fee |
1 | |||
Delivery Date |
1 | |||
Extension Period |
1 | |||
Green Agency Ratings |
2 | |||
Hazardous Substance(s): |
2 | |||
Insurance Base Amount |
2 | |||
Initial Lease Term |
2 | |||
Landlords Agents |
2 | |||
Landlords Work |
2 | |||
Lease Security Deposit |
2 | |||
Lease Term |
2 | |||
Lease Year |
2 | |||
Manager |
2 | |||
Operating Costs |
2 | |||
Operating Costs Allocable to the Premises |
2 | |||
Operating Costs Base Amount |
2 | |||
Qualified Expenses |
2 | |||
Permitted Use |
2 | |||
Plans and Specifications |
3 | |||
Premises |
3 | |||
Prepaid Rent |
3 | |||
Property Tax Base Amount |
3 | |||
Property Taxes |
3 | |||
Punch List Work |
3 | |||
Rentable Area of Building |
3 | |||
Rentable Area of Premises |
3 | |||
Restrictions |
3 | |||
Space Planning Allowance |
3 | |||
Substantial Completion |
3 | |||
Telecommunication Facilities |
3 | |||
Telecommunication Services |
3 | |||
Tenant Alterations |
4 | |||
Tenant Improvement Allowance |
4 | |||
Tenant Improvements |
4 | |||
Tenants Agents |
4 | |||
Tenants Pro Rata Share |
4 |
SECTION 2: PREMISES AND TERM |
4 | |||||
2.1 |
Lease of Premises |
4 | ||||
2.2 |
Rentable Areas |
4 | ||||
2.3 |
Lease Term |
4 | ||||
2.4 |
Physical Condition of Premises |
4 | ||||
2.5 |
Tenant Improvements |
4 | ||||
2.6 |
Tenant Improvement Allowance |
5 | ||||
2.7 |
Removal of Specialty Improvements and Telecommunication Facilities |
7 | ||||
2.8 |
Lease Memorandum |
7 | ||||
2.9 |
Use and Conduct of Business |
7 | ||||
2.10 |
Compliance with Governmental Requirements and Rules and Regulations |
8 | ||||
2.11 |
Sustainable Building Operations |
8 | ||||
2.12 |
Recycling and Waste Management |
8 | ||||
2.13 |
Right of First Offer |
9 | ||||
2.14 |
Holdover |
9 | ||||
2.15 |
Parking |
10 | ||||
SECTION 3: BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE |
10 | |||||
3.1 |
Payment of Rental |
10 | ||||
3.2 |
Base Rent |
10 | ||||
3.3 |
Lease Security Provisions |
10 | ||||
3.4 |
Additional Rent |
12 | ||||
3.5 |
Intentionally Omitted |
14 | ||||
3.6 |
Late Charge |
14 | ||||
3.7 |
Default Rate |
14 | ||||
SECTION 4: SERVICES AND REPAIR |
15 | |||||
4.1 |
Utilities and Services |
15 | ||||
4.2 |
Maintenance and Repair by Landlord |
16 | ||||
4.3 |
Maintenance and Repair by Tenant |
17 | ||||
4.4 |
Common Areas/Security |
17 | ||||
SECTION 5: OCCUPANCY PROVISIONS |
18 | |||||
5.1 |
Tenant Alterations |
18 | ||||
5.2 |
Signage |
19 | ||||
5.3 |
Surrender of Possession |
19 | ||||
5.4 |
Removal of Property |
19 | ||||
5.5 |
Reasonable Access |
19 | ||||
5.6 |
Damage or Destruction |
20 | ||||
5.7 |
Condemnation |
21 | ||||
5.8 |
Estoppel Certificates and Financial Statements |
21 | ||||
5.9 |
Utility Bills |
21 | ||||
5.10 |
Intentionally Omitted |
21 | ||||
5.11 |
Hazardous Substances |
22 | ||||
5.12 |
Access Laws |
22 | ||||
5.13 |
Quiet Enjoyment |
23 | ||||
5.14 |
Subordination |
23 | ||||
5.15 |
Liens and Tenants Personal Property Taxes |
24 | ||||
5.16 |
Work Performance and Responsible Contracting |
24 | ||||
SECTION 6: INSURANCE AND INDEMNIFICATION |
24 | |||||
6.1 |
Indemnification |
24 | ||||
6.2 |
Tenant Insurance |
25 | ||||
6.3 |
Landlords Insurance |
26 | ||||
6.4 |
Waiver of Subrogation |
26 | ||||
SECTION 7: ASSIGNMENT AND SUBLETTING |
26 | |||||
7.1 |
Assignment and Subletting by Tenant |
26 | ||||
7.2 |
Assignment by Landlord |
28 |
ii
SECTION 8: DEFAULT AND REMEDIES |
28 | |||||
8.1 |
Events of Default |
28 | ||||
8.2 |
Remedies |
29 | ||||
8.3 |
Right to Perform |
31 | ||||
8.4 |
Landlords Default |
31 | ||||
8.5 |
Limitation on Recourse |
31 | ||||
SECTION 9: MISCELLANEOUS PROVISIONS |
31 | |||||
9.1 |
Notices |
31 | ||||
9.2 |
Attorneys Fees and Expenses |
32 | ||||
9.3 |
No Accord and Satisfaction |
32 | ||||
9.4 |
Successors; Joint and Several Liability |
32 | ||||
9.5 |
Choice of Law |
32 | ||||
9.6 |
No Waiver of Remedies |
32 | ||||
9.7 |
Offer to Lease |
32 | ||||
9.8 |
Force Majeure |
32 | ||||
9.9 |
Severability; Captions |
33 | ||||
9.10 |
Interpretation |
33 | ||||
9.11 |
Incorporation of Prior Agreement; Amendments |
33 | ||||
9.12 |
Authority |
33 | ||||
9.13 |
Time of Essence |
33 | ||||
9.14 |
Survival of Obligations |
33 | ||||
9.15 |
Consent to Service |
33 | ||||
9.16 |
Landlords Authorized Agents |
33 | ||||
9.17 |
Waiver of Jury Trial |
33 | ||||
9.18 |
Tenant Certification |
33 | ||||
9.19 |
Broker |
33 |
LISTING OF EXHIBITS | ||
Exhibit A | Legal Description of the Land | |
Exhibit B | Drawing Showing Location and Configuration of the Premises | |
Exhibit C | Determination of Fair Market Value in Extension Period | |
Exhibit D | Form of Lease Memorandum | |
Exhibit E | Rules and Regulations | |
Exhibit F | Schedule of Cleaning Services | |
RIDERS | ||
Rider 1 | Letter of Credit Criteria | |
Rider 2 | Description of Landlords Work | |
Rider 3 | HVAC Specifications | |
Rider 4 | Asbestos Notification |
iii
SECTION 1: DEFINITIONS
Access Laws : The Americans With Disabilities Act of 1990 (including the Americans with Disabilities Act Accessibility Guidelines for Building and Facilities) and all other Governmental Requirements relating to the foregoing.
Base Rent : The monthly amount of Base Rent and the portion of the Initial Lease Term during which such monthly amount of Base Rent is payable shall be determined from the following table. For convenience and ease of reference, the annual rental rate for the computation of Base Rent and the annual Base Rent are also set forth in tabular form with the annual Base Rent equaling the monthly Base Rent installment multiplied by twelve. In the case of any conflict or inconsistency between the Monthly Base Rent installment and the other illustrative figures set forth in tabular form or in any computations utilizing such figures, the monthly Base Rent installment so specified shall be controlling and conclusive.
Applicable Portion of Lease Term |
Total Rent
Sq. Ft./ Annum |
Annual Base Rent |
Monthly Base
Rent Installment (Annual ÷ 12) |
|||||||||
2/18/16 - 2/17/17* |
$ | 72.09 | $ | 1,556,832.81 | $ | 129,736.07 | ||||||
2/18/17 - 2/17/18 |
$ | 74.19 | $ | 1,602,184.41 | $ | 133,515.37 | ||||||
2/18/18 - 2/17/19 |
$ | 76.35 | $ | 1,648,896.57 | $ | 137,408.05 | ||||||
2/18/19 - 2/17/20 |
$ | 78.58 | $ | 1,697,010.09 | $ | 141,417.51 | ||||||
2/18/20 - 2/17/21 |
$ | 80.87 | $ | 1,746,566.97 | $ | 145,547.25 | ||||||
2/18/21 - 2/17/22 |
$ | 83.24 | $ | 1,797,610.53 | $ | 149,800.88 | ||||||
2/18/22 - 6/7/22 |
$ | 85.67 | $ | 1,850,185.53 | $ | 154,182.13 |
* | The Base Rent for the first three (3) months of the Initial Lease Term following the Commencement Date (February 18, 2016 through May 17, 2016) shall be abated but shall become immediately due and payable if at any time during the Initial Lease Term, there is an Event of Default by Tenant as described below. |
Broker : Collectively, Evolution Real Estate Inc., dba Faller Real Estate, as Tenants broker, and Jones Lang LaSalle Brokerage, Inc., a Texas corporation, as Landlords broker.
Building : The building located at 600 California Street, San Francisco, California, and located on the real estate legally described on Exhibit A (the Land ).
Business Day : Calendar days, except for Saturdays and Sundays and holidays when banks are closed in Washington, D.C.
Building Standard Hours : Except for the holidays specified in this definition, the following specified hours: Monday through Friday from 8:00 a.m. to 6:00 p.m. and Saturdays from 9:00 a.m. to 12:00 p.m. The holidays excepted from the foregoing are New Years Day, Presidents Day, Memorial Day, July 4, Labor Day, Thanksgiving Day, Christmas Day and any other regionally or city-wide recognized holidays.
Claims : An individual and collective reference to any and all claims, demands, damages, injuries, losses, liens, liabilities, penalties, fines, lawsuits, actions, other proceedings and expenses (including attorneys fees and expenses incurred in connection with the proceeding whether at trial or on appeal).
Commencement Date : February 18, 2016.
Construction Management Fee : An amount equal to three percent (3%) of the total actual, third party hard costs paid by Tenant for the Tenant Improvements.
Delivery Date : The date set forth on the first page of this Lease.
Extension Period : One (1) option for a period of five (5) years.
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Green Agency Ratings : Any one or more of the following ratings, as same may be in effect or amended or supplemented from time to time: The U.S. EPAs Energy Star® rating and/or Design to Earn Energy Star, the Green Building Initiatives Green Globes for Continual Improvement of Existing Buildings (Green Globes-CIEB), the U.S. Green Building Councils Leadership in Energy and Environmental Design (LEED) rating system, LEED EBOM (existing buildings operations and maintenance) and any applicable substitute third party or government mandated rating systems.
Hazardous Substance(s) : Asbestos, PCBs, petroleum or petroleum-based chemicals or substances, urea formaldehyde or any chemical, material, element, compound, solution, mixture, sub-stance or other matter of any kind whatsoever which is now or later defined, classified, listed, designated or regulated as hazardous, toxic or radioactive by any Governmental Agency.
Insurance Base Amount : The actual insurance costs applicable to the Building for calendar year 2016 (the Insurance Base Amount Year ).
Initial Lease Term : Commencing on the Commencement Date and ending on June 7, 2022.
Landlords Agents : The manager, members, investment advisors, agents of and consultants to Landlord and employees of the foregoing.
Landlords Work : The work to be performed by Landlord, including the improvements to the 16 th floor common area corridor of the Building, as more fully described on Rider 2 , attached hereto.
Lease Security Deposit : The sum of One Million Nine Hundred Thirty Thousand and No/100 Dollars ($1,930,000.00) in the form of a standby Letter of Credit and subject to the reduction under Section 3.3 below.
Lease Term : The Initial Lease Term, together with the Extension Period, if any, provided that Tenant properly exercises its Extension Period in accordance with this Lease.
Lease Year : A period of twelve (12) full and consecutive calendar months. The initial Lease Year shall begin on the Commencement Date and end on the last day of the month preceding the first anniversary of the Commencement Date; provided, however, if the Commencement Date does not occur on the first day of a calendar month, then the initial Lease Year shall begin on the Commencement Date and end on the last day of the month which contains the first anniversary thereof. Each succeeding Lease Year shall begin upon the termination of the preceding Lease Year.
Manager : Jones Lang LaSalle Americas, Inc., or its replacement as specified by written notice from Landlord to Tenant.
Operating Costs : Defined in paragraph captioned Additional Rent .
Operating Costs Allocable to the Premises : The product of Tenants Pro Rata Share times Operating Cost less the Operating Costs Base Amount.
Operating Costs Base Amount . The actual Operating Costs applicable to the Building for calendar year 2016 (the Operating Costs Base Amount Year ), based on One Hundred Percent (100%) occupancy at the Building.
Qualified Expenses : shall mean costs and expenses paid by Tenant (without duplication) for the design, permitting and construction of the Tenant Improvements, including (a) Soft Costs, (b) plan check, permit and license fees relating to construction; (c) the cost of construction, including, without limitation, testing and inspection costs, freight elevator usage, hoisting and trash removal costs, and contractors fees and general conditions; (d) the cost of any changes in the base, shell and core of the Premises, when such changes are required by the construction drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith; and (e) the cost of any changes to the construction drawings required by applicable laws and building codes.
Permitted Use : General business office uses.
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Plans and Specifications : Those certain plans for the Tenant Improvements, and any modifications to them, approved in writing by Landlord and Tenant, and the specifications to be approved in writing by Landlord and Tenant following the Delivery Date as provided herein.
Premises : 14,642 rentable square feet consisting of the entire seventeenth (17 th ) floor of the Building and 6,954 rentable square feet on a portion of the sixteenth (16 th ) floor of the Building, for a total of 21,596 rentable square feet, as depicted on the plan attached as Exhibit B .
Prepaid Rent : One Hundred Twenty-Nine Thousand Seven Hundred Thirty-Six and 07/100 Dollars ($129,736.07), to be applied toward Base Rent for the first full calendar month which commences on the three (3) month anniversary of the Commencement Date.
Property Tax Base Amount : The actual Property Taxes applicable to the Building for calendar year 2016 (the Property Taxes Base Amount Year ).
Property Taxes : (a) Any form of ad valorem real or personal property tax or assessment imposed by any Governmental Agency on the Land, Building, related improvements or any personal property owned by Landlord associated with such Land, Building or Improvements; (b) any other form of tax or assessment, license fee, license tax, tax or excise on rent or any other levy, charge, expense or imposition made or required by any Governmental Agency on any interest of Landlord in such Land, Building, related improvements or personal property; (c) any fee for services charged by any Governmental Agency for any services such as fire protection, street, sidewalk and road maintenance, refuse collection, school systems or other services provided or formerly provided to property owners and residents within the general area of the Land; (d) any governmental impositions allocable to or measured by the area of any or all of such Land, Building, related improvements or personal property or the amount of any base rent, additional rent or other sums payable under any lease for any or all of such Land, Building, related improvements or personal property; (e) any gross receipts or other excise tax allocable to, measured by or a function of any one or more of the matters referred to in clause (d); (f) any impositions by any Governmental Agency on any transaction evidenced by a lease of any or all of such Land, Building, related improvements or personal property; and (g) any increase in any of the foregoing based upon construction of improvements or change of ownership of any or all of such Land, Building, related improvements or personal property. Property Taxes shall not include taxes on Landlords net income, inheritance taxes, estate taxes or franchise taxes.
Punch List Work : Minor items of repair, correction, adjustment or completion as such phrase is commonly understood in the construction industry in the metropolitan area in which the Land is located.
Rentable Area of Building : 346,127 rentable square feet of office space and 12,463 rentable square feet of retail space for a total of 358,590 rentable square feet.
Rentable Area of Premises : 21,596 rentable square feet as measured and computed by Landlord or its agents in general accordance with the American National Standard Method of Measuring Area in Office Buildings of the Building Owners Association Internationals Standard Method of Measuring Floor Area in Office Buildings (ANSI/BOMA Z65.1-1996).
Restrictions : Any covenants, conditions and restrictions applicable to the Land.
Space Planning Allowance : A maximum amount, if any, to be expended by Landlord for space planning which shall not exceed $0.15 per rentable square foot for a total of Three Thousand Two Hundred Thirty-Nine and 40/100 Dollars ($3,239.40).
Substantial Completion : The date that the Tenant Improvements have been completed substantially in accordance with the Plans and Specifications, subject to Punch List Work.
Telecommunication Facilities : Equipment, facilities, apparatus and other materials utilized for the purpose of electronic telecommunication, including cable, switches, wires, conduit and sleeves.
Telecommunication Services : Services associated with electronic telecommunications, whether in a wired or wireless mode. Basic voice telephone services are included within this definition.
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Tenant Alterations : Defined in paragraph captioned Tenant Alterations .
Tenant Improvement Allowance : The maximum amount, if any, to be expended by Landlord for the cost of Tenant Improvements (including amounts payable towards the Space Planning Allowance and the Construction Management Fee), which maximum shall not exceed $75.00 per rentable square foot for a total of One Million Six Hundred Nineteen Thousand Seven Hundred and 00/100 Dollars ($1,619,700.00).
Tenant Improvements : Those alterations or improvements to the Premises which will be performed by Tenant and which will appear and be depicted in the Plans and Specifications.
Tenants Agents : Any and all officers, partners, contractors, subcontractors, consultants, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, Invitees or visitors of Tenant.
Tenants Pro Rata Share : 6.24%, which is the Rentable Area of Premises divided by 346,127 rentable square feet.
SECTION 2: PREMISES AND TERM
2.1 Lease of Premises . Landlord leases the Premises to Tenant, and Tenant leases the Premises from Landlord, upon the terms and conditions set forth in this Lease.
2.2 Rentable Areas . The Rentable Areas of the Premises and the Building as specified in Section 1 are final, conclusive and controlling for all purposes. A portion of the Building common areas is included in the Rentable Area of the Premises.
2.3 Lease Term . The Initial Lease Term shall be for the period stated in the definition of that term, unless earlier terminated as provided in this Lease. Tenant shall have the option to renew the Lease for the entire Premises for the Extension Period. The option to extend the term for the Extension Period shall be exercised by written notice from Tenant to Landlord no earlier than fifteen (15) months prior to the expiration of the Initial Lease Term, but no later than twelve (12) months prior to the expiration of the Initial Lease Term; provided that, (a) as of the date of such notice and as of such commencement date for the Extension Period Tenant is not in default under the Lease beyond the expiration of any applicable notice and cure periods; and (b) Tenant is leasing and occupying all of the Premises as of the date of such notice and as of such commencement date for the Extension Term. The Base Rent for the Extension Period shall be the amount specified in Exhibit C , attached hereto. All other terms and conditions of this Lease shall remain in full force and effect during the Extension Period. Failure of the Tenant to provide such written notice to Landlord by the date that is twelve (12) months prior to the expiration of the Initial Lease Term shall constitute a waiver of Tenants option to renew the Lease for the Extension Period. In the event that the Tenant exercises its option to extend the Lease Term for the Extension Period, the term Lease Term as used in this Lease shall include the Extension Period, except as expressly stated otherwise in this Lease.
2.4 Physical Condition of Premises . Subject to the completion of the Landlords Work and the delivery by Landlord of the Premises demolished, vacant and In broom-clean condition, and otherwise in compliance with this Lease and except as otherwise set forth herein, Tenant (a) accepts the Premises, the Building and all Building systems in their current AS IS condition, and (b) acknowledges that Tenant is not relying on any representations or warranties by any person regarding the Premises or the Building. Landlord shall, at Landlords sole cost and expense, perform the Landlords Work in a good and workman-like manner and in compliance with any applicable Governmental Requirements, which Landlords Work shall be performed by Landlord concurrently with Tenants construction of the Tenant Improvements.
2.5 Tenant Improvements .
2.5.1 Tenant Improvements . Tenant shall be responsible for the design, permitting and construction of the Tenant Improvements.
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(a) Plans and Specifications . Tenants Plans and Specifications shall be in compliance with all applicable Governmental Requirements. At the conclusion of construction pursuant to Section 2.5.1(b) below, Tenant shall cause its architect to provide to Landlords designated construction representative a record set of as-built electronic CAD files within thirty (30) days following completion of the Tenant Improvements. Tenant shall rely solely on the advice and experience of Tenants architect in assuring the accuracy and sufficiency of the Plans and Specifications for Tenants purposes.
(b) Construction of the Tenant Improvements . Promptly following the Delivery Date, Tenant shall commence permitting and construction of the Tenant Improvements and diligently prosecute the same to completion in a good and workmanlike manner. The Tenant Improvements shall be constructed in accordance with the Plans and Specifications. Tenant shall complete the construction of the Tenant Improvements in accordance with all Governmental Requirements and Tenant shall promptly notify Landlord if it discovers aspects of the Plans and Specifications that, if constructed, would result in violation of any applicable Governmental Requirements. The Tenant Improvements shall be subject to, and in compliance with the Union Requirement (defined below), and pursuant to all other terms and conditions of the Lease. Landlord shall cooperate with Tenant (including, without limitation, signing applications for Building Department permits and path of travel drawings, if and to the extent available) in Tenants efforts to obtain any permits and certificates of occupancy necessary in connection with the construction of the Tenant Improvements; provided that, Tenant shall reimburse Landlord on demand for any reasonable out-of-pocket costs incurred by Landlord, including reasonable attorneys fees, in connection therewith. Tenant shall be permitted to use the freight elevators on a non-exclusive, first-come, first-served basis during Building Standard Hours at no charge to Tenant during the construction of the Tenant Improvements. The Union Requirement shall mean the obligation that the contractors and each subcontractor of every tier used by Tenant shall for the duration of its contract (a) be a party to or bound by a collective bargaining agreement applicable to the geographic area in which the Building is located, applicable to the trade or trades in which the work under the contract is to be performed, and entered into with one or more labor organizations affiliated with the Building and Construction Trades Department of the AFL-CIO or with an independent, nationally recognized labor organization or one of its affiliated locals, and (b) solely employ members of such labor organizations to perform work within their respective traditional jurisdictions.
(c) Early Access .
(i) Notwithstanding anything contained in this Lease to the contrary, Landlord shall allow Tenant access to the Premises prior to the Commencement Date for the purpose of performing the Tenant Improvements. Tenants entry to the Premises for any purpose prior to the Commencement Date shall be scheduled in advance with Landlord. Such access shall be governed by the terms and conditions of this Lease; however, in no event shall any Base Rent or Additional Rent be payable during such early access period. Any Tenant Improvements performed by Tenant during such early access period shall be completed in compliance with the provisions of this Lease. Tenant shall coordinate its work reasonably with Landlord to ensure that Tenants access does not interfere with Landlords Work.
(ii) Prior to any early occupancy by Tenant, Tenant shall have delivered to Landlord certificates of Insurance confirming that Tenant has in force the insurance required by this Lease. Prior to commencement of any Tenant Improvements by Tenant, Tenant shall have delivered to Landlord evidence of insurance as required by Section 5.1.1 and identifying Landlord, Manager, Bentall Kennedy (U.S.) Limited Partnership, NewTower Trust Company, and each of their agents, affiliates, members, directors, officers and employees as additional named insureds. Tenants entry into the Premises prior to the Commencement Date shall be at Tenants risk and Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of the Tenant Improvements in the Premises or to properties placed therein, except for the gross negligence or willful misconduct of Landlord, and subject to all of the terms of this Lease (other than the obligation to pay Base Rent and Additional Rent).
(iii) Upon substantial completion of all of the Tenant Improvements, Tenant shall be entitled to occupy the Premises for business prior to the Commencement Date subject to all of the terms of this Lease (other than the obligation to pay Base Rent and Additional Rent).
2.6 Tenant Improvement Allowance . Tenant shall be entitled to the Tenant Improvement Allowance, which amount shall include Space Planning Allowance and Construction Management Fee for
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the design, permitting and construction of the Tenant Improvements to be constructed at the Premises; provided, however, that Landlord shall have no obligation to disburse all or any portion of the Tenant Improvement Allowance to Tenant unless Tenant makes a request for disbursement pursuant to the terms and conditions set forth below. Landlord shall have no obligation to disburse all or any portion of the Tenant Improvement Allowance if Tenant makes a request for a disbursement of the Tenant Improvement Allowance on or after December 31, 2016. Without limiting the foregoing, the portion of the Tenant Improvement Allowance to be expended by Landlord for space planning, shall not exceed the Space Planning Allowance. Subject to the provisions of the Lease, the Tenant Improvement Allowance shall be used to pay for any actual, out-of-pocket costs and expenses incurred in connection with the design and engineering work performed by Tenant under Section 2.5.1(a) above and for the permitting and construction of the Tenant Improvements pursuant to the Plans and Specifications performed by Tenant pursuant to Section 2.5.1(b) above, provided that such costs and expenses are deemed Qualified Expenses. For the avoidance of doubt, no portion of the Tenant Improvement Allowance shall be used to pay for the costs and expenses of any work at the Premises not included in the Plans and Specifications, and Tenant shall be responsible, at its sole cost and expense, for all costs and expenses incurred in connection with such work. Landlord shall reimburse Tenant for any actual, out-of-pocket costs and expenses which constitute Qualified Expenses paid by Tenant for the Tenant Improvements up to the amount of the Tenant Improvement Allowance. Landlords payment of such amount shall not be deemed Landlords approval or acceptance of the work furnished or materials supplied in connection with the Tenant Improvements as set forth in Tenants payment request. Tenant shall pay the applicable excess out of its own funds if, when and to the extent that (a) the cost of the Tenant Improvements exceeds the Tenant Improvement Allowance, or (b) the cost of space planning exceeds the Space Planning Allowance. Tenant shall not be entitled to a credit for any unused portion of the Tenant Improvement Allowance. Landlord shall be entitled to receive the Construction Management Fee from the Tenant Improvement Allowance and the Supplement Tenant Improvement Allowance, if applicable, in connection with its management of the construction of the Tenant Improvements.
2.6.1 Disbursement of Tenant Improvement Allowance . During the construction of the Tenant Improvements, Landlord shall make monthly disbursements of the Tenant Improvement Allowance, and shall authorize the release of monies for the benefit of Tenant as follows:
(a) On or before the fifth (5 th ) day of each calendar month during the construction of the Tenant Improvements (or such other date as Landlord may designate), Tenant shall deliver to Landlord: (i) a request for payment of the contractor, approved by Tenant, in a reasonable form to be provided by Landlord, showing the schedule, by trade, of percentage of completion of the Tenant Improvements in the Premises, detailing the portion of the work completed and the portion not completed, and demonstrating that the relationship between the cost of the work completed and the cost of the work to be completed; (ii) invoices for labor rendered and materials delivered to the Premises; (iii) executed mechanics lien releases from all of third parties to receive payment pursuant to the request for payment which shall comply with the appropriate provisions, as reasonably determined by Landlord, of applicable California law; and (iv) all other information reasonably requested by Landlord. Tenants request for payment shall be deemed Tenants acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenants payment request. On or before the last day of the following calendar month, Landlord shall deliver a check to Tenant made jointly payable to Tenant and Tenants contractor in payment of the lesser of: (A) the amounts so requested by Tenant, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the Final Retention ), and (B) the balance of any remaining available portion of the Tenant Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the Plans and Specifications or due to any substandard work, or for any other reason. Landlords payment of such amounts shall not be deemed Landlords approval or acceptance of the work furnished or materials supplied as set forth in Tenants payment request. Notwithstanding the foregoing, if Landlord reasonably determines at any time that (a) the cost of the Tenant Improvements will exceed the Tenant Improvement Allowance, or (b) the cost of space planning will exceed the Space Planning Allowance, then Tenant shall be required to begin funding a share of future monthly disbursements in an amount equal to the proportion of the expected excess costs over the expected total cost amount, and Landlords monthly disbursement shall be reduced by such amount.
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(b) Subject to the provisions hereof, a check for the Final Retention payable jointly to Tenant and Tenants contractor shall be delivered by Landlord to Tenant following the Substantial Completion of construction of the Premises, provided that (i) Tenant delivers to Landlord properly executed mechanics lien releases in compliance with applicable California law; and (ii) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenants use of such other tenants leased premises in the Building.
2.7 Removal of Specialty Improvements and Telecommunication Facilities . All Tenant Improvements, regardless of which party constructed or paid for them, shall become the property of Landlord and shall remain upon and be surrendered with the Premises on the expiration or earlier termination of this Lease; provided that , on the expiration or earlier termination of this Lease, Tenant shall be required to remove any non-standard improvements built, constructed or installed by the Tenant as part of the Tenant Improvements or any Tenant Alterations, including, but not limited to, raised flooring, racking systems, classrooms, interconnecting stairwells, backup battery systems and multi-tenant corridors (the Specialty Improvements ), and any Telecommunication Facilities. At the time Landlord approves any structural alteration, improvement, addition, equipment or fixture installed or brought on the Premises by or for Tenant (the Structural Improvements ), Landlord shall advise Tenant if such Structural Improvements must be removed at the end of the Lease Term. Tenant shall repair any damage resulting from any required removal of the Structural Improvements, the Specialty Improvements and Telecommunication Facilities and return the Premises to the same condition as existed prior to such Structural Improvements, Specialty Improvements and Telecommunication Facilities, normal wear and tear excluded. Notwithstanding anything to the contrary contained herein, in lieu of requiring Tenant to remove any Structural Improvements, Specialty Improvements or Telecommunication Facilities and repair of the Premises as set forth above, Landlord may, in Landlords sole discretion, require Tenant to pay to Landlord, as additional rent hereunder, the cost of such removal and repair in an amount reasonably estimated by Landlord which amount shall be supported by competitive bids from Landlord-approved contractors that satisfy the Union Requirement.
2.8 Lease Memorandum . Contemporaneously with Substantial Completion, Landlord shall prepare and submit to the Tenant a Lease Memorandum in the form of Exhibit D , completed in good faith by Landlord, and executed by Landlord. If Tenant does object in good faith to any information set forth in the Lease Memorandum, it shall execute the Lease Memorandum subject to its specifically-stated, written objections. Pending resolution of any dispute by agreement or a final determination by a court of competent jurisdiction in accordance with this Lease, Landlords information as inserted in the Lease Memorandum shall be utilized subject to any later adjustment agreed or found to be appropriate. Tenants refusal or failure to execute a Lease Memorandum shall neither prevent nor delay the occurrence of the Commencement Date. In no event shall the Lease Memorandum be recorded.
2.9 Use and Conduct of Business .
2.9.1 The Premises are to be used only for the Permitted Use, and for no other business or purpose without the prior written consent of Landlord. Landlord makes no representation or warranty as to the suitability of the Premises for Tenants intended use. Tenant shall, at its own cost and expense, obtain and maintain any and all licenses, permits, and approvals necessary or appropriate for its use, occupation and operation of the Premises for the Permitted Use. Tenants inability to obtain or maintain any such license, permit or approval necessary or appropriate for its use, occupation or operation of the Premises shall not relieve it of its obligations under this Lease, including the obligation to pay Base Rent and Additional Rent.
2.9.2 No act shall be done in or about the Premises that is unlawful or that will increase the existing rate of insurance on any or all of the Land or Building. Tenant shall not commit or allow to be committed or exist: (a) any waste upon the Premises, (b) any public or private nuisance, or (c) any act or condition which disturbs the quiet enjoyment of any other tenant in the Building, violates any of Landlords contracts affecting any or all of the Land or Building, creates or contributes to any work stoppage, strike, picketing, labor disruption or dispute, interferes in any way with the business of Landlord or any other
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tenant in the Building or with the rights or privileges of any contractors, subcontractors, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, invitees or visitors or any other persons lawfully in and upon the Land or Building.
2.9.3 Tenant shall not, without the prior written consent of Landlord, use any apparatus, machinery, device or equipment in or about the Premises which will cause any substantial noise or vibration or any increase in the normal consumption level of electric power. If any of Tenants apparatus, machinery, devices or equipment should disturb the quiet enjoyment of any other tenant in the Building, then Tenant shall provide, at its sole cost and expense, adequate insulation or take other such action, including removing such apparatus, machinery, devices or equipment, as may be necessary to eliminate the disturbance. No food or beverage dispensing machines shall be installed by Tenant in the Premises without the prior written consent of Landlord.
2.9.4 Tenant shall not use or operate the Premises in any manner that will cause the Building or any part thereof not to conform with Landlords sustainability practices or the certification of the Building issued pursuant to any Green Agency Rating; provided that, other than as set forth in this Lease, Landlord has provided Tenant with any written rules or policies with respect to its sustainability practices, if and to the extent Landlord has created or published any rules or policies.
2.10 Compliance with Governmental Requirements and Rules and Regulations . Tenant shall comply with all Governmental Requirements and Restrictions relating to its use, occupancy and operation of the Premises and shall observe such reasonable, nondiscriminatory rules and regulations as may be adopted and published by Landlord from time to time for the safety, care and cleanliness of the Premises and the Building, and for the preservation of good order in the Building and for the administration and management of the Building. Current Rules and Regulations are attached to this Lease as Exhibit E . Governmental Requirements are any and all statutes, ordinances, codes, laws, rules, regulations, orders and directives of any Governmental Agency as now or later amended, promulgated or Issued and all current or future final orders, judgments or decrees of any court with jurisdiction interpreting or enforcing any of the foregoing. A Governmental Agency is the United States of America, the state in which the Land is located, any county, city, district, municipality or other governmental subdivision, court or agency or quasi-governmental agency having jurisdiction over the Land and any board, agency or authority associated with any such governmental entity.
2.11 Sustainable Building Operations .
2.11.1 This Building is or may become in the future certified under certain Green Agency Ratings or operated pursuant to Landlords sustainable building practices, as same may be in effect or modified from time to time. Landlords sustainability practices address, without limitation, whole-building operations and maintenance issues including chemical use; indoor air quality; energy efficiency; water efficiency; recycling programs; exterior maintenance programs; and systems upgrades to meet green building energy, water, Indoor Air Quality, and lighting performance standards. All of Tenants construction and maintenance methods and procedures, material purchases, and disposal of waste must be in compliance with minimum standards and specifications as outlined by the Green Agency Ratings, in addition to all Governmental Requirements. Landlord shall provide a copy of such standards and specifications of the Green Agency Ratings to Tenant, if and to the extent such standards and specifications are available.
2.11.2 Tenant shall use proven energy and carbon reduction measures, including energy efficient bulbs in task lighting; use of lighting controls; daylighting measures to avoid overlighting interior spaces; closing shades on the south side of the building to avoid over heating the space; turning off lights and equipment at the end of the work day; and purchasing ENERGY STAR® qualified equipment, including but not limited to lighting, office equipment, commercial and residential quality kitchen equipment, vending and ice machines; and purchasing products certified by the U.S. EPAs Water Sense® program.
2.12 Recycling and Waste Management : Tenant covenants and agrees, at its sole cost and expense: (a) to comply with all present and future Governmental Requirements regarding the collection, sorting, separation, and recycling of garbage, trash, rubbish and other refuse (collectively, trash); (b) to comply with Landlords recycling policy, as stated in the Rules and Regulations (as such policy may be
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amended or supplemented from time to time), as part of Landlords sustainability practices where it may be more stringent than applicable Governmental Requirements, including without limitation, recycling such categories of items designated by Landlord and transporting such items to any recycling areas designated by Landlord; (c) to sort and separate its trash and recycling into such categories as are provided by Governmental Requirements or Landlords then-current sustainability practices; (d) that each separately sorted category of trash and recycling shall be placed in separate receptacles as directed by Landlord; (e) that Landlord reserves the right to refuse to collect or accept from Tenant any waste that is not separated and sorted as required by Governmental Requirements, and to require Tenant to arrange for such collection at Tenants sole cost and expense, utilizing a contractor satisfactory to Landlord; and (f) that Tenant shall pay all costs, expenses, fines, penalties or damages that may be imposed on Landlord or Tenant by reason of Tenants failure to comply with the provisions of this paragraph 2.11.
2.13 Right of First Offer . If the remainder of the 16 th Floor of the Building (the Offer Space ) becomes vacant after a new-to-be-determined tenant first leases and then vacates the Offer Space, and if Landlord intends to lease the Offer Space, then Landlord shall notify the Tenant of the particulars of the Offer Space (a ROFO Trigger Notice ). The ROFO Trigger Notice shall include Landlords determination of Fair Market Value for the Offer Space, the base year for Operating Costs, Taxes and Insurance for the Offer Space, a new calculation of Tenants Pro Rata Share, a floor plan of the Offer Space and the date the Offer Space is available for possession by Tenant, and all material economic terms applicable to the leasing of the Offer Space. The right of first offer provided to Tenant as described in this Section 2.13 (the ROFO ) shall be a one-time right, subject to any Prior Rights, and may be exercised by Tenant, if and only if: (A) no default has occurred under the Lease (which remains uncured beyond the expiration of any applicable notice and cure periods) as of the date Landlord is to send the ROFO Trigger Notice for the Offer Space; (B) Tenant is not in default of the Lease (which remains uncured beyond the expiration of any applicable notice and cure periods) as of the commencement date of the lease of the Offer Space; and (C) Tenant is then-leasing and occupying seventy percent (70%) or more of the Premises. Tenant shall have ten (10) calendar days after receipt of such ROFO Trigger Notice to notify the Landlord in writing (a ROFO Acceptance Notice ) that it wishes to exercise the ROFO to lease the Offer Space by incorporation thereof into the Premises under this Lease, for the remainder of the Lease Term. If Tenant declines to accept the Offer Space or fails to deliver a ROFO Acceptance Notice within the required time period, then the Landlord shall be free to complete a lease transaction by execution of a binding lease with a bona fide, third-party for all or any portion of the Offer Space. If the Tenant delivers a ROFO Acceptance Notice to Landlord in accordance with the foregoing, then the terms and conditions for the Offer Space shall be the same terms and conditions as for the Premises, including the expiration date of this Lease, except as set out in the ROFO Trigger Notice (including Tenants requirement to accept possession of the Offer Space on the date the ROFO Trigger Notice states that the Offer Space is available for possession, and except that, in the event the Landlord and Tenant are unable to agree on Fair Market Value for the Offer Space within thirty (30) days after Landlords receipt of the ROFO Acceptance Notice, the Base Rent for the Offer Space shall be the amount determined in accordance with Exhibit C , attached hereto, and the rentable square footage of the Offer Space shall be determined upon the completion of a mutually agreed upon space plan for the Offer Space). The Base Tax Year for the Offer Space shall be reset to the fiscal year in which the commencement date of lease for the Offer Space occurs and the Base Operating Year for the Offer Space shall be reset to the calendar year in which the commencement date of the lease for the Offer Space occurs. In such event, Landlord shall prepare an addendum to the Lease in respect of the Offer Space mutually-acceptable to Tenant and Landlord for signature by the Tenant and the Landlord. For the avoidance of doubt, in the event that the ROFO has been made by Landlord to Tenant, and Tenant (i) declines to accept such Offer Space; (ii) fails to deliver the ROFO Acceptance Notice in the time period specified above, or (iii) is unable to accept the Offer Space because of a failure of Tenant to meet any of the conditions to exercise such ROFO in this Section 2.13, the ROFO shall be deemed forfeited and Tenant shall no longer have any rights pursuant to this Section 2.13. Prior Rights shall mean the explicit rights under leases with the existing tenants in the Building to lease the Offer Space which rights exist as of the Delivery Date of this Lease.
2.14 Holdover . Tenant is not authorized to hold over beyond the expiration or earlier termination of the Lease Term. If Landlord consents to a holdover and no other agreement is reached between Tenant and Landlord concerning the duration and terms of the Holdover, Tenants holdover shall be a month-to-month tenancy. During such tenancy, Tenant shall pay to Landlord (a) for the first sixty (60) days of such
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holdover tenancy, One Hundred Twenty-Five Percent (125%) of Base Rent in effect on the expiration or termination of the Lease Term plus all Additional Rent and other sums payable under this Lease; and (b) for the balance of such holdover tenancy, Two Hundred Percent (200%) of Base Rent in effect on the expiration or termination of the Lease Term plus all Additional Rent and other sums payable under this Lease, and shall be bound by all of the other covenants and conditions specified in this Lease, so far as applicable. If Landlord does not consent to the Tenants remaining in possession, Landlord shall have all the rights and remedies provided for by law and this Lease, including the right to recover consequential damages suffered by Landlord in the event of Tenants wrongful refusal to relinquish possession of the Premises.
2.15 Parking . Landlord has entered into a parking garage lease with Ace Parking ( Operator ) to operate the parking garage located in the Building (the Garage ). Landlord shall cause the Operator to lease to Tenant and Tenant shall have the right to lease from Operator up to twelve (12) parking spaces in the Garage at the current rate of $415.00 per parking space or, as such rate may be adjusted from time to time. Tenants parking privileges shall be subject to the reasonable, nondiscriminatory rules and regulations for the Building relating to parking adopted by Landlord from time to time of which Tenant has been given written notice thereof. Landlord shall have the right to grant designated, reserved parking stalls at the Garage to other tenants in the Building; provided that Tenants right to its twelve (12) parking spaces is not affected. In no event shall the number of parking stalls used by Tenant exceed the number of stalls allocated to Tenant in the definition of Parking unless Tenant has made arrangements with Landlord or the manager or the Garage to rent additional parking spaces. Landlord shall have no obligation whatsoever to monitor, secure or police the use of the Garage or other common areas.
SECTION 3: BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE
3.1 Payment of Rental . Tenant agrees to pay Base Rent, Additional Rent and any other sum due under this Lease to Landlord without demand, deduction, credit, adjustment or offset of any kind or nature, in lawful money of the United States when due under this Lease, at the offices of Manager, or to such other party or at such other place as Landlord may from time to time designate in writing or Tenant may pay such sums to Landlord by ACH transfer.
3.2 Base Rent . On the Commencement Date, Tenant shall pay to Landlord the amount specified in the definition of Prepaid Rent for the month specified in the definition of that term. Tenant agrees to pay the monthly installments of Base Rent to Landlord, without demand and in advance, on or before the first day of each calendar month of the Lease Term. The monthly Base Rent installment for any partial month at the beginning or end of the Lease Term shall be prorated.
3.3 Lease Security Provisions .
3.3.1 On execution of this Lease, Tenant shall deliver in favor of Landlord a letter of credit in the sum specified in the definition of the term Lease Security Deposit (the Letter of Credit ), as security for the full and faithful payment of all sums due under this Lease and the full and faithful performance of every covenant and condition of this Lease to be performed by Tenant; provided, however, commencing on the third (3 rd ) anniversary of the Commencement Date and on each anniversary of the Commencement Date thereafter, the amount of the Letter of Credit shall be reduced by Three Hundred Fifteen Thousand and No/100 Dollars ($315,000.00); provided that if Tenant is in default under this Lease as of any such anniversary of the Commencement Date (beyond the expiration of any applicable notice and cure periods), the amount of the Letter of Credit shall not be reduced unless and until such default is cured, and provided further that, if Tenant is entitled to the reduction of the Letter of Credit pursuant to the terms set forth herein, Landlord shall promptly deliver to the issuing bank a statement signed by an authorized party of Landlord authorizing the reduction of the Letter of Credit as permitted hereunder. Notwithstanding anything to the contrary in this Lease, the amount of the Letter of Credit shall not be reduced below One Million One Hundred Seventy Four Thousand One Hundred Sixty-Four and 78/100 Dollars ($1,174,164.78), and after the reduction of the Letter of Credit on the fifth (5 th ) anniversary of the Commencement Date, the Letter of Credit shall not be reduced further and shall remain at such amount for the remainder of the Lease Term. The Letter of Credit initially delivered pursuant to this paragraph and all substitutions, replacements and renewals of the Letter of Credit, must be consistent with and shall satisfy all the requirements in the letter of credit criteria in Rider 1 , attached hereto.
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3.3.2 If the Letter of Credit is not delivered to and in a form reasonably acceptable to Landlord within ten (10) Business Days after the execution of this Lease, Landlord may, at its election, exercised in its absolute discretion, (a) void the Lease for failure of a condition subsequent or (b) proceed with its rights and remedies for an Event(s) of Default (as defined below).
3.3.3 Landlord may draw on the Letter of Credit, in whole or in part at Landlords election, without advance notice to Tenant, at any time or from time to time, but only on or after (a) the occurrence of any Event of Default, (b) if Tenant, or anyone in possession of the Premises through Tenant, wrongfully holds over after the expiration or earlier termination of this Lease, (c) if Landlord is given notice by the issuing bank of the Letter of Credit that it is terminating the Letter of Credit, (d) if the issuing bank gives notice to Landlord that it will cease to act in that capacity, (e) if the Letter of Credit expires on a specified date by its terms and is not renewed or replaced at least thirty (30) days in advance of its expiration date, (f) to the extent permitted by law, in the event any bankruptcy, insolvency, reorganization or any other debtor creditor proceeding is instituted by or against Tenant or (g) as otherwise specified in or in connections with the letter of credit. Notwithstanding, any draw(s) on the Letter of Credit shall not exceed those amounts reasonably necessary to cure any such Event of Default.
3.3.4 Landlord may apply any sum drawn on the Letter of Credit to amounts owing to Landlord under this Lease in such order and priority as Landlord elects in its absolute discretion. If any of the proceeds drawn on the Letter of Credit are not applied immediately to sums owing to Landlord under this Lease, Landlord shall credit any such excess proceeds to future sums next due and owing to Landlord under this Lease. Tenant shall, within fifteen (15) Business Days after Landlords written demand, restore the amount of the Letter of Credit drawn to its then-current amount (taking into account any reduction(s) pursuant to Section 3.3.1, above). If Tenant does not restore the Letter of Credit to its original amount within the required time period, such non-restoration shall be considered an Event of Default.
3.3.5 Additionally, Landlords draw and application of all or any portion of the proceeds of the Letter of Credit shall not impair any other rights or remedies provided under this Lease or under applicable law and shall not be construed as a payment of liquidated damages. If Tenant shall have fully complied with all of the covenants and conditions of this Lease, the remaining balance of the Letter of Credit shall be returned to Tenant or, if Landlord has drawn on the Letter of Credit, the remaining proceeds of the Letter of Credit which are in excess of sums due the Landlord shall be repaid to Tenant, if not previously applied in accordance with Section 3.3.4, without interest, within thirty (30) Business Days after the expiration or termination of the Lease Term and delivery of possession of the Premises to Landlord in accordance with this Lease.
3.3.6 On any request by Landlord made during the Lease Term, Tenant shall cooperate in accomplishing any reasonable modification of the Letter of Credit requested by Landlord. If the Letter of Credit should be lost, mutilated, stolen or destroyed, Tenant shall cooperate in obtaining the issuance of a replacement.
3.3.7 Tenant shall not assign or grant any security interest in the Letter of Credit and any attempt to do so shall be void and of no effect.
3.3.8 In the event of a sale or transfer of Landlords estate or interest in the Land and Building, Landlord shall have the right to transfer the Letter of Credit to the vendee or the transferee, Tenant shall pay any transfer fees charged by the issuing bank and Landlord shall thereafter be considered released by Tenant from all liability for the return of the Letter of Credit, subject to applicable law. Tenant shall reasonably cooperate in effecting such transfer.
3.3.9 No mortgagee or purchaser of any or all of the Building at any foreclosure proceeding brought under the provisions of any mortgage shall (regardless of whether the Lease is at the time in question subordinated to the lien of any mortgage) be liable to Tenant or any other person for any or all amounts drawn against the Letter of Credit or any other or additional Lease Security Deposit or other payment made by Tenant under the provisions of this Lease), unless Landlord has actually delivered it in cash to such mortgagee or purchaser, as the case may be.
3.3.10 The parties hereto (1) recite that the Letter of Credit is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context ( Security Deposit Laws ) shall have no applicability or relevancy thereto and (2) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.
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3.4 Additional Rent . Commencing on January 1, 2017, Tenant shall pay to Landlord Additional Rent as computed in this paragraph. Additional Rent is composed of Operating Costs, Property Taxes, and Insurance Costs.
3.4.1 Operating Costs . Operating Costs means all expenses paid or incurred by Landlord for maintaining, operating, owning and repairing any or all of the Land, Building, Premises, related improvements, and the personal property used in conjunction with such Land, Building, Premises and related improvements. Included are all expenses paid or incurred by Landlord for: (a) utilities, including electricity, water, gas, sewers, fire sprinkler charges, refuse collection, Telecommunication Services, cable television, steam, heat, cooling or any other similar service and which are not payable directly by tenants in the Building; (b) supplies; (c) cleaning, painting and janitorial services (including window washing), landscaping and landscaping maintenance (including irrigating, trimming, mowing, fertilizing, seeding and replacing plants) and other services as typical and customary for other Class A buildings in downtown San Francisco; (d) security services, if any; (e) management fees not to exceed three percent (3%) of gross revenue derived from the Building and rent associated with the management office; (f) tax consultant fees and expenses, and costs of appeals of any Property Taxes (provided that the tenants of the Building get the benefit of refunds); (g) compensation (including employment taxes and fringe benefits) of all persons and business organizations who perform duties in connection with any service, repair, maintenance, replacement or improvement or other work included in this subparagraph up to the level of General Manager, Project Director or Senior Property Manager; (h) license, permit and inspection fees; (i) assessments and special assessments due to deed restrictions, declarations or owners associations or other means of allocating costs of a larger tract of which the Land is a part; (j) rental of any machinery or equipment; (k) audit fees and accounting services related to the Building, and charges for the computation of the rents and charges payable by tenants in the Building (but only to the extent the cost of such fees and services are in addition to the cost of the management fee); (l) the cost of any repairs or the cost of any replacements for Permitted Capital Improvements; (m) charges under maintenance and service contracts; (n) legal fees and other expenses of legal or other dispute resolution proceedings that affect the Land or the Building; (o) maintenance and repair of the roof and roof membranes, (p) costs incurred by Landlord for compliance with any and all Governmental Requirements, including Access Laws, and to increase the efficiency of any electrical, mechanical or other system servicing the Building or the Land; (q) elevator service and repair, if any; (r) business taxes and license fees; (s) any other expense or charge which in accordance with generally accepted accounting and management principles would be considered an expense of maintaining, operating, owning or repairing the Building; and (t) the amortization of costs of Permitted Capital Improvements in accordance with the next sentence. For the avoidance of doubt Permitted Capital Improvements are the cost of capital improvements or other costs incurred in connection with the Building (A) which are intended to effect economies in the operation or maintenance of the Building, or any portion thereof, or to reduce current or future Operating Costs, or to enhance the safety or security of the Building or its occupants, (B) that are required to comply with present or anticipated conservation programs, (C) which are replacements, modifications or additions of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any Governmental Requirement first enacted or enforced after the Commencement Date; provided, however, that any capital expenditure shall be amortized in accordance with sound real estate management and accounting practices consistently applied.
Operating Costs shall not include any of the following: (1) repair, replacements and general maintenance paid by proceeds of insurance or by Tenant or other third parties; (2) interest, amortization or other payments on loans to Landlord; (3) depreciation on the Building, the Project or any Common Area; (4) cost of space planning, tenant improvements, marketing expenses and real estate broker commissions; (5) legal expenses and costs incurred in connection with negotiations or disputes with any other occupant of the Building and costs arising from the violation by Landlord or any other occupant of the Building of the terms and conditions of any lease or other agreement; (6) the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds or by another tenant or other entity; (7) construction costs related to the remodel of the lobby of the Building; (8) costs in connection with preparing for lease any space in the Building, including legal fees, space planners fees, advertising and promotional expenses, brokerage commissions and lease concessions, including rental abatements and construction allowances, granted to specific tenants or costs incurred in renovating or otherwise
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improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Building; (9) costs incurred in connection with the sale, financing or refinancing of the Building; (10) any penalties or damages that Landlord pays to Tenant under this Lease or to other tenants in the Building under their respective leases; (11) any bad debt loss, rent loss, or reserves for bad debts or rent loos or fines; (12) any costs incurred due to Landlords violation of Law unless directly related to Tenants use of the Building; (13) all items and services for which Tenant or any other tenant in the Building reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement; (14) costs arising from the gross negligence or willful misconduct of Landlord or its agents, employees or contractors; (15) repairs or replacements covered by warranties or guaranties; (16) costs incurred to comply with Governmental Requirements relating to the removal of Hazardous Substances which were located in the Building prior to the Delivery Date; (17) costs incurred to remove, remedy, contain or treat Hazardous Substances, which Hazardous Substances were brought into the Building after the Delivery Date by Landlord or any other tenant of the Building; provided that Operating Costs may include the incidental costs attributable to removing Hazardous Substances in the ordinary course of cleaning and maintaining the Building; (18) costs associated with the operation of the business of the limited liability company which constitutes Landlord, as the same may be distinguished from the costs of operation of the Building (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Building) and costs associated with defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlords interest in the Building, any costs incurred in connection with any disputes or negotiations between Landlord and its employees, between Landlord and Building management, or between Landlord and other tenants or occupants; (19) Taxes and Insurance which are paid separately pursuant to Sections 3.4.2 and 3.4.3 below; and (20) federal income taxes imposed on or measured by the income of Landlord from the operation of the Building.
3.4.2 Property Taxes . Property Taxes are defined in Section 1 above. If any portion of such Property Taxes is charged on an accrual basis, for purposes of this Lease the Property Taxes payable during the calendar year shall be included in such years Operating Costs.
3.4.3 Insurance Costs . Insurance costs shall include premiums and applicable insurance deductible payments by Landlord.
3.4.4 Additional Rent Estimate Payments . Landlord shall prepare and furnish to Tenant an estimate of the Additional Rent computed in accordance with this paragraph ( Additional Rent Estimate ) (a) on January 1, 2017, (b) in advance of the beginning of each calendar year during the Lease Term and (c) from time to time during the Lease Term. Tenant shall pay one-twelfth (1/12 th ) of the current Additional Rent Estimate in advance on or before the first day of each calendar month of the Lease Term. If such written statement is furnished after the commencement of any calendar year, Tenant shall also make a retroactive lump-sum payment to Landlord equal to the monthly payment amount multiplied by the number of months during the calendar year for which no payment was paid. Notwithstanding the foregoing, Landlord reserves the right, from time to time during each calendar year, but not more than twice per calendar year, to revise the Estimated Operating Costs Allocable to the Premises and upon notice to Tenant of such revision, Tenant shall adjust its payment to Landlord under this subparagraph accordingly.
3.4.5 Computation of Additional Rent . The determination and computation of the Additional Rent shall be made by Landlord. The Additional Rent shall equal the product of (a) Tenants Pro Rata Share of Operating Costs multiplied by the difference between Operating Costs minus the Operating Cost Base Amount; (b) Tenants Pro Rata Share of Property Taxes multiplied by the difference between Property Taxes minus the Property Tax Base Amount; and (c) Tenants Pro Rata Share of Insurance Costs multiplied by the difference between Insurance Costs minus the Insurance Base Amount. After the close of each calendar year, Landlord shall deliver to Tenant a written statement setting forth the Additional Rent payable for the preceding calendar year. If the Additional Rent exceeds the Additional Rent Estimate paid by Tenant, Tenant shall pay the amount of such excess to Landlord within thirty (30) days after delivery of such statement to Tenant. If such statement shows the Additional Rent to be less than the Additional Rent Estimate paid by Tenant, then the amount of such overpayment shall be paid by Landlord to Tenant within thirty (30) days following the date of such statement or, (unless the Lease has ended) at Landlords option, shall be credited toward future installment(s) of Additional Rent Estimate.
3.4.6 End of Term . If this Lease shall terminate on a day other than the last day of a calendar year, (a) Landlord shall estimate the Operating Costs Allocable to the Premises for such calendar year
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predicated on the most recent reliable information available to Landlord; (b) the amount determined under clause (a) of this sentence shall be prorated by multiplying such amount by a fraction, the numerator of which is the number of days within the Initial Lease Term, as may be extended, in such calendar year and the denominator of which is 360; (c) if the clause (b) amount exceeds the Estimated Operating Costs Allocable to the Premises paid by Tenant for the last calendar year in the Initial Lease Term, as may be extended, then Tenant shall pay the excess to Landlord within thirty (30) days after Landlords delivery to Tenant of a statement for such excess; and (d) if the Estimated Operating Costs Allocable to the Premises paid by Tenant for the last calendar year in the Initial Lease Term, as may be extended, exceeds the clause (b) amount, then Landlord shall refund to Tenant the excess within such thirty (30) day period if Tenant is not then in default of any of its obligations under this Lease. Landlords and Tenants obligations under this paragraph shall survive the expiration or other termination of this Lease.
3.4.7 Operating Cost Audit . Landlord shall maintain records concerning estimated and actual Operating Costs, Property Taxes and Insurance Costs Allocable to the Premises for no less than twenty-four (24) months following the period covered by the statement or statements furnished Tenant, after which time Landlord may dispose of such records. Provided that Tenant is not then in default of its obligation to pay Base Rent, Additional Rent or other payments required to be made by it under this Lease (beyond the expiration of any applicable notice and cure periods) and provided that Tenant is not otherwise in default under this Lease (beyond the expiration of any applicable notice and cure periods), Tenant may, at Tenants sole cost and expense, cause a Qualified Person (defined below) to inspect Landlords records for the previous year of the Lease Term. Such inspection, if any, shall be conducted no more than once each calendar year, during Landlords normal business hours within one hundred twenty (120) calendar days after receipt of Landlords written statement of Operating Costs Allocable to the Premises for the previous year (and for the first year of the Initial Lease Term, this right shall include the right to inspect the records for the Operating Costs Base Amount Year and the Property Taxes Base Amount Year), upon first furnishing Landlord at least twenty (20) calendar days prior written notice. Any errors disclosed by the review shall be promptly corrected by Landlord; provided, however, that if Landlord disagrees with any such claimed errors, Landlord shall have the right, (at Landlords sole cost and expense; provided that, if the actual Operating Costs Allocable to the Premises are overstated by less than 3%, Tenant shall reimburse Landlord for the cost of its audit), to cause another review to be made by an auditor of Landlords choice. In the event the results of the review of records (taking into account, if applicable, the results of any additional review caused by Landlord) reveal that Tenant has overpaid obligations for a preceding period, the amount of such overpayment shall be credited against Tenants subsequent installment of Base Rent, Additional Rent or other payments due to Landlord under the Lease unless provided after the expiration of the Lease Term, in which case, Landlord shall make the payment directly to Tenant. In the event that such results show that Tenant has underpaid its obligations for a preceding period, the amount of such underpayment shall be paid by Tenant to Landlord within thirty (30) calendar days thereafter. If the actual Operating Costs Allocable to the Premises for any given calendar year were improperly computed and if the actual Operating Costs Allocable to the Premises are overstated by more than 5%, Landlord shall reimburse Tenant for the cost of its audit. For purposes of this subparagraph, the term Qualified Person means an certificated public accountant who is engaged solely by Tenant on terms which do not entail any compensation based or measured in any way upon any savings in Additional Rent or reduction in Operating Costs Allocable to the Premises achieved through the inspection process described in this subparagraph.
3.5 ( Intentionally Omitted ) .
3.6 Late Charge . If Tenant fails to make any payment of Base Rent, Additional Rent or other amount when due under this Lease, a late charge is due and payable by Tenant equal to the greater of Fifty Dollars ($50.00) or five percent (5%) of the amount of any such payment. Landlord and Tenant agree that this charge compensates Landlord for the administrative costs caused by the delinquency. The parties agree that Landlords damage would be difficult to compute and the amount stated in this paragraph represents a reasonable estimate of such damage. Assessment or payment of the late charge contemplated in this paragraph shall not excuse or cure any Event of Default or breach by Tenant under this Lease or impair any other right or remedy provided under this Lease or under law. Notwithstanding the foregoing, the late charge referenced above shall not be charged with respect to the first occurrence (but may be charged with respect to any subsequence occurrence) per calendar year of the Lease Term.
3.7 Default Rate . Any Base Rent, Additional Rent or other sum payable under this Lease which is not paid when due shall bear interest at a rate equal to the lesser of: (a) the published prime or reference
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rate then in effect at a national banking institution designated by Landlord (the Prime Rate ), plus two (2) percentage points, or (b) the maximum rate of interest per annum permitted by applicable law (the Default Rate ), but the payment of such interest shall not excuse or cure any Event of Default or breach by Tenant under this Lease or Impair any other right or remedy provided under this Lease or under law.
SECTION 4: SERVICES AND REPAIR
4.1 Utilities and Services .
4.1.1 Landlord shall furnish to Tenant, the following utilities or services: (a) electricity as specified in subparagraph 4.1.2; (b) heating, ventilation and air-conditioning services ( HVAC ) as specified in subparagraph 4.1.4; (c) hot and cold domestic water in the common area restrooms, wastewater and sewage service at the points now existing in the Premises or as specified for Initial Tenant Improvements (where applicable); (d) cold domestic water in kitchen areas unless supplemental hot water is requested by Tenant; (e) Telecommunication services to the extent specified in subparagraph 4.1.5; (f) cleaning and janitorial service as specified on Exhibit F ; and (g) elevator service specified in subparagraph 4.1.6. Landlord shall select the company or companies providing such utility and other services described in this subparagraph.
4.1.2 Landlord shall have the right from time to time to select the company or companies providing electricity, gas, fuel, one or more categories of Telecommunication Services and any other utility services to the Building. Landlord reserves the right to change electricity providers for the Building at anytime and to purchase green or renewable energy. Landlord will provide only a suitable connection for usual and customary voice telephone service at the designated locations in or near the Premises, with all other costs related to installation of Telecommunication Facilities being the responsibility of Tenant. All connection, installation, usage charges, maintenance and repair charges for such telephone service shall be Tenants responsibility. Landlord reserves the right to install and activate separate metering of electricity, water or other utilities to the Premises, and Tenant agrees to reimburse or pay Landlord within thirty (30) calendar days after invoice from Landlord for all costs of such separate metering, in which case the Operating Costs shall be adjusted accordingly. Electrical services will be supplied to a panel box designated for each floor of the Building. Landlord shall provide 3 watts per rentable square footage of receptacle capacity and 1.25 watts per rentable square footage of lighting capacity as required by the applicable Governmental Requirements ( Electrical Allowance ). Tenant shall pay for any such excess electrical consumption above the Electrical Allowance or outside of Building Standard Hours, calculated using the same energy rates paid by Landlord during the interval of such usage, with a reasonable markup over cost to Landlord.
4.1.3 Common area hallways and emergency lighting operate 24 hours a day, 7 days a week.
4.1.4 Landlord shall provide a base building mechanical system to provide HVAC in season during the following days and hours: Mondays through Fridays from 8:00 a.m. to 6:00 p.m., and Saturdays from 9:00 a.m. to 12:00 p.m., except for Holidays; provided that Tenant shall provide Landlord with no less than two (2) Business Days prior notice for activation of HVAC services on Saturday morning. See Rider 3 attached for more specifics regarding HVAC. If Tenant desires HVAC services other than during such hours ( After-Hours HVAC ), Tenant shall give Landlord a minimum of 24 hours notice prior to the time such After-Hours HVAC is required with respect to service on Business Days and Tenant shall pay for its use of the After-Hours HVAC as additional rent, at a rate of One Hundred Dollars ($100.00) per floor per hour, subject to reasonable increases. Any HVAC service on Holidays shall be considered After-Hours HVAC.
4.1.5 Landlord will provide only a suitable connection for usual and customary voice telephone service at the designated locations in or near the Premises. All connection, installation, usage charges, maintenance and repair charges for such telephone service shall be Tenants responsibility. Installation of Telecommunication Facilities beyond those specified as Landlords responsibility under the first sentence shall be the responsibility of Tenant.
4.1.6 Elevator service will be provided during the time periods and with a frequency reasonably necessary to Tenants authorized purposes, but in no event beyond the rated capacity of the elevators.
4.1.7 Tenant acknowledges that space on the Building rooftop and in Building risers, equipment rooms and equipment closets is limited. Unless otherwise required by law, neither Tenant nor a provider of Telecommunication Services to Tenant shall be entitled to locate or install
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Telecommunication Facilities in, on or about the Building without (a) first obtaining Landlords advance, written consent, which consent shall not be unreasonably withheld, conditioned or delayed, and (b) the advance execution by Landlord and Tenant of a satisfactory agreement granting a license to Tenant for such purposes. The agreement referred to in clause (b) of the previous sentence shall be incorporated in and become part of this Lease. Notwithstanding anything to the contrary herein, Tenant shall have the right to lease in the Building risers located between the sixteenth (16 th ) and seventeenth (17 th ) floors of the Building at no additional charge to Tenant and Tenant shall be required to use Landlords riser management company associated therewith; provided that Tenant shall pay for any costs incurred for the coring and installation of the conduit and any fees payable to Landlords riser management company in connection therewith; and provided further that Tenant shall not be permitted install any equipment, other than the conduit, in such space.
4.1.8 Landlord shall in no case be liable or in any way be responsible for damages (including consequential damages) or the loss to Tenant of utilities or other services arising from the failure of, diminution of or interruption of any kind to the Premises, unless such interruption in, deprivation of or reduction of any such service was caused by the gross negligence or willful misconduct of Landlord, its employees, agents or contractors. To the extent that Landlord bears any responsibility for the foregoing, Landlords responsibility and Tenants remedy shall be limited to an abatement in Base Rent for the period beginning with (a) the day which is two (2) consecutive days after the date on which Tenant delivers notice to Landlord of such interruption, deprivation or reduction and of the fact that Tenant is unable to conduct its business in the Premises and ending on (b) the date such interruption, deprivation or reduction which is Landlords responsibility is no longer causing Tenant to be deprived of its ability to conduct its business, in the Premises.
4.1.9 Landlord shall in no case be liable or in any way be responsible for damages or loss to Tenant arising from the failure of, diminution of or interruption in electrical power, natural gas, HVAC, fuel, Telecommunication Services, sewer, water, or garbage collection services, other utility service or building service of any kind to the Premises.
4.1.10 Tenant shall not install any supplemental HVAC, space heaters or other utilities or energy-intensive equipment ( Supplemental Utilities Equipment ) in the Premises without Landlords prior written consent. In the event that Landlord consents in writing to such installation, Tenant shall be responsible, all at its sole cost and expense, for the installation, maintenance, and repair of any of Supplemental Utilities Equipment, and Landlord will advise Tenant, at the time it gives its consent, as to whether Tenant must remove same from the Premises upon the expiration or termination of the Lease Term. Such removal will be at Tenants sole cost and expense. Tenant agrees that it will maintain and repair any Supplemental Utilities Equipment, and major components thereof, in good working order, and any such equipment will be operated on sensors or timers that limit the operation of such Supplemental Utilities Equipment to hours of occupancy in the areas immediately adjacent to the occupying personnel. Tenant shall, at its sole cost and expense, enter into a regularly scheduled preventative maintenance/service contract with a maintenance contractor or the seller of any such Supplemental Utilities Equipment, and upon Landlords reasonable request, Tenant will provide Landlord with reasonable evidence of such maintenance and repair. Upon Landlords request, on not less than one (1) Business Days prior written notice and during Tenants normal business hours (except in the event of an emergency, where no notice is required) Landlord shall have the right to inspect, on not less than a monthly basis, the aforementioned Supplemental Utilities Equipment and major components provided Landlord shall use commercially reasonable efforts to minimize Landlords interference with Tenants business. Tenant shall not permit any Supplemental Utilities Equipment to disturb or interfere with any of the Buildings systems or any other tenant in the Building, and Tenant will remove or modify, at Tenants sole cost and expense, any such Supplemental Utilities Equipment in the event of such disturbance or interference. Landlord reserves the right to separately submeter (or cause Tenant to separately submeter) any Supplemental Utilities Equipment, all at Tenants sole cost and expense. Tenant shall be responsible to Landlord for any damage caused to the Premises or Building in connection with the removal of the Supplemental Utilities Equipment.
4.1.11 Tenant shall be required to submit to Landlord any electricity consumption data and costs in a format deemed reasonably acceptable by Landlord.
4.2 Maintenance and Repair by Landlord . Subject to the paragraphs captioned Damage or Destruction and Condemnation , Landlord shall maintain the public and common areas of the Building in first class condition subject to reasonable wear and tear. Landlord shall make such repairs thereto as
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become necessary after obtaining actual knowledge of the need for such repairs. In addition, within the Premises, Landlord shall replace light bulbs and ballasts in fixtures; Tenant shall be billed separately for the replacement of any non-Building-standard bulbs purchased for use in the Premises (which lighting purchases must comply with Landlords sustainability practices and shall be reported to Landlord in a format suitable to Landlord). All repair costs shall be included in Operating Costs, except for damage occasioned by the act or omission of Tenant or Tenants Agents which shall be paid for entirely by Tenant within thirty (30) days after written demand by Landlord, which must be accompanied by reasonably appropriate back-up. In the event any or all of the Building becomes in need of maintenance or repair which Landlord is required to make under this Lease, Tenant shall promptly give written notice to Landlord, and Landlord shall be obligated to commence such maintenance or repairs within a reasonable time after Landlords receipt of such notice. Tenant hereby waives the benefit of Sections 1941 and 1942 of the California Civil Code and any other statute providing a right to make repairs and deduct the cost thereof from the Rent. Tenant waives any right to terminate this Lease or offset or abate Rent by reason of any failure of Landlord to make repairs to the Premises pursuant to this Section 4.2.
4.3 Maintenance and Repair by Tenant . Except as is expressly set forth as Landlords responsibility pursuant to the paragraph captioned Maintenance and Repair by Landlord , Tenant shall at Tenants sole cost and expense keep, clean and maintain the Premises in good condition and repair, including interior painting, plumbing and utility fixtures and installations within the Premises, carpets and floor coverings, all interior wall surfaces and coverings (including tile and paneling), window replacement (only if Tenant or Tenants Agent caused the window to crack or shatter), exterior and interior doors, roof penetrations and membranes in connection with any Tenant installations on the roof, and interior preventative maintenance. All maintenance and repairs made by Tenant must comply with the requirements set forth in the subparagraph captioned Work Performance and with Landlords sustainability practices and any applicable Green Agency Rating, as the same may change from time to time. If Tenant fails to maintain or repair the Premises in accordance with this paragraph, then Landlord may, but shall not be required to, enter the Premises upon two (2) Business Days prior written notice to Tenant (or immediately without any notice in the case of an emergency) to perform such maintenance or repair at Tenants sole cost and expense. Tenant shall pay to Landlord the cost of such maintenance or repair plus a ten percent (10%) administration fee within thirty (30) days after written demand from Landlord, accompanied by reasonably appropriate back-up. Notwithstanding the foregoing, if at any time during the Lease Term, Landlord determines, in Landlords reasonable discretion, that repairs or maintenance need to be performed by Tenant as required hereunder, Landlord shall provide Tenant with written notice thereof.
4.4 Common Areas/Security .
4.4.1 The common areas of the Building shall be subject to Landlords sole management and control; provided that, Landlord shall not interfere with Tenants access to the Premises (except to the extent necessary in an emergency situation). Without limiting the generality of the immediately preceding sentence, Landlord reserves the exclusive right as it deems necessary or desirable to install, construct, remove, maintain and operate lighting systems, facilities, improvements, equipment, Telecommunication Facilities and signs on, in or to all parts of the common areas; change the number, size, height, layout, or locations of walks, driveways and truckways or parking areas now or later forming a part of the Land or Building; make alterations or additions to the Building or common area; close temporarily all or any portion of the common areas to make repairs, changes or to avoid public dedication; grant easements to which the Land will be subject; replat, subdivide, or make other changes to the Land; place or relocate or cause to be placed or located utility lines and Telecommunication Facilities through, over or under the Land and Building; and use or permit the use of all or any portion of the roof of the Building; provided however, in performing any of these functions, Landlord shall not unreasonably interfere with Tenants conduct of business within the Premises. Landlord reserves the right to relocate parking areas and driveways and to build additional improvements in the common areas.
4.4.2 The lobby desk of the Building is staffed twenty-four (24) hours a day, seven (7) days a week and 365 days per year. Landlord has no duty or obligation to provide any security services in, on or around the Premises, Land or Building. Tenant recognizes that any security services at the Building provided by Landlord will be for the sole benefit of Landlord and the protection of Landlords property and under no circumstances shall Landlord be responsible for, and Tenant waives any rights with respect to, Landlord providing security or other protection for Tenant or Tenants Agents or property in, on or about the Premises, Land or Building. Subject to Landlords prior approval, Tenant may, at its sole cost and
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expense, install, establish and maintain security services within the Premises; provided that , such security services (including any apparatus, facilities, equipment or people utilized in connection with the provision of such security services) comply with the Governmental Requirements and shall not cause the Building to be out of compliance with the Governmental Requirements. Notwithstanding the foregoing, any such security services installed, established or maintained by Tenant must not affect or impact any portion of the Building or the Land other than the Premises and shall not in any way limit or interfere with Landlords ability to exercise its rights as provided in the paragraph captioned Access . Tenants rights under this subparagraph are subject to all the obligations, limitations and requirements as set forth in the paragraphs captioned Tenant Alterations and Work Performance .
SECTION 5: OCCUPANCY PROVISIONS
5.1 Tenant Alterations .
5.1.1 Tenant shall not make any alterations, additions or improvements in or to the Premises, or make changes to locks on doors, or add, disturb or in any way change any floor covering, wall covering, fixtures, plumbing, wiring or Telecommunication Facilities (individually and collectively Tenant Alterations ), without first obtaining the consent of Landlord which shall not be unreasonably withheld, conditioned or delayed. Notwithstanding anything to the contrary herein, Tenant shall not be required to obtain Landlords prior written consent to any cosmetic, non-structural alterations of the Premises (a Cosmetic Alteration ), so long as (i) the total costs of such Cosmetic Alteration do not exceed Fifty Thousand and No/100 Dollars ($50,000.00) per floor of the Premises, (ii) such Cosmetic Alteration does not affect the structure of the Building or any operating systems of the Building, (iii) Tenant is not required by applicable Governmental Requirements to obtain a permit to perform such Cosmetic Alteration, and (iv) such Cosmetic Alteration does not violate or render invalid the certificate of occupancy for the Building or the Premises; provided, however, Tenant shall be required to provide Landlord with prior written notice thereof, and Landlord shall have the right to reasonably request additional information and documentation to reasonably determine whether such Cosmetic Alteration shall require Landlords prior review and approval under this Section. Tenant shall deliver to Landlord full and complete plans and specifications for any proposed Tenant Alterations and, if consent by Landlord is either required or given, as applicable, all such work shall be performed by Tenant at Tenants sole cost and expense. Tenant shall pay to Landlord all reasonable costs incurred by Landlord for any architecture, engineering, supervisory and/or legal services in connection with any Tenant Alterations, including, without limitation, Landlords review of the Plans and Specifications. Without limiting the generality of the foregoing, Landlord may require Tenant, at Tenants sole cost and expense, to obtain and provide Landlord with proof of insurance coverage and a payment and performance bond for Tenant Alterations where the cost thereof is equal to or greater than One Hundred Thousand and No/100 Dollars ($100,000.00), in forms, amounts and by companies acceptable to Landlord. Upon completion of any Tenant Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Francisco in accordance with Section 8182 of the Civil Code of the State of California or any successor statute.
5.1.2 If Tenant makes any alterations without Landlords prior written consent, if consent is required hereunder, or without satisfaction of any conditions established by Landlord, Landlord shall have the right, in addition to and without limitation of any right or remedy Landlord may have under this Lease, at law or in equity, to require Tenant to remove some or all of Tenant Alterations, or at Landlords election, Landlord may remove such Tenant Alterations and restore the Premises at Tenants expense. Nothing contained in this paragraph or the paragraph captioned Work Performance shall be deemed a waiver of the provisions of the paragraph captioned Mechanics Liens .
5.1.3 Tenant shall be solely responsible for all costs and expenses relating to or incurred in connection with: (a) failure of the Premises to comply with the Governmental Requirements; and (b) bringing the Building and the common areas of the Building into compliance with Governmental Requirements, including without limitations, requirements for seismic tests, if and to the extent such non-compliance arises out of or relates to any Tenant Alterations which are not normal and customary business office improvements, or triggered by Tenants use of the Premises for non-general office use. Notwithstanding the foregoing, Tenant obligations under this Section 5.1.3 (and the limitations on Tenants responsibility for any non-compliance hereunder) shall not limit Tenants obligations with respect to compliance with Access Laws specifically set forth in Section 5.12.5 of this Lease.
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5.2 Signage . At Landlords expense, Landlord shall provide Building-standard signage on the Building director in the ground floor lobby on a pro-rata basis.
5.3 Surrender of Possession . Tenant shall, at the expiration or earlier termination of this Lease, surrender and deliver the Premises to Landlord in as good condition as when received by Tenant from Landlord or as later improved, reasonable use, wear and tear and damage by fire or other casualty excepted (except to the extent Tenants insurance, as required to be maintained pursuant to this Lease, covers any damage to the Premises resulting from fire or other casualty), and free from all tenancies or occupancies by any person.
5.4 Removal of Property . Unless otherwise agreed to in writing by Landlord, Tenant agrees that there are and shall be no trade fixtures in the Premises owned by Tenant. Upon expiration or earlier termination of this Lease, Tenant may remove its personal property, office supplies and office furniture and equipment if (a) such items are readily moveable and are not attached to the Premises; (b) such removal is completed prior to the expiration or earlier termination of this Lease; (c) Tenant is not in default of any covenant or condition of this Lease (beyond the expiration of any applicable notice and cure periods) at the time of such removal; and (d) Tenant promptly repairs all damage caused by or resulting from such removal. All other property in the Premises and any Tenant Alterations (including, wall-to-wall carpeting, paneling, wall covering, lighting fixtures and apparatus or Telecommunication Facilities or any other article affixed to the floor, walls, ceiling or any other part of the Premises or Building) shall become the property of Landlord and shall remain upon and be surrendered with the Premises; provided, however, at Landlords sole election, upon written notice by Landlord to Tenant at the time of approval of the plans and specifications for the Tenant Alterations, Tenant shall be obligated, at its sole cost and expense, to remove all (or such portion as Landlord shall have designated at the time of giving consent to such Tenant Alterations) of the Tenant Alterations (including Telecommunication Facilities), repair any damages resulting from such removal and return the Premises to substantially the same condition as existed prior to such Tenant Alterations. Tenant waives all rights to any payment or compensation for such Tenant Alterations (including Telecommunication Facilities). If Tenant shall fail to remove any of its property from the Premises, Building or Land at the expiration or earlier termination of this Lease or when Landlord has the right of re-entry, Landlord may, at its option, remove and store such property at Tenants expense without liability for loss of or damage to such property, such storage to be for the account and at the expense of Tenant. Tenant shall pay all costs incurred by Landlord within five (5) Business Days after written demand for such payment. If Tenant fails to pay the cost of storing any such property, Landlord may, at its option, after it has been stored for a period of twenty (20) Business Days or more, sell or permit to be sold, any or all such property at public or private sale (and Landlord may become a purchaser at such sale), in such manner and at such times and places as Landlord in its sole discretion may deem proper, without notice to Tenant, and Landlord shall apply the proceeds of such safe: first , to the cost and expense of such sale, including reasonable attorneys fees actually incurred; second , to the payment of the costs or charges for storing any such property; third , to the payment of any other sums of money which may then be or later become due Landlord from Tenant under this Lease; and, fourth , the balance, if any, to Tenant.
5.5 Reasonable Access . Tenant shall permit Landlord and Landlords Agents to enter into the Premises during Tenants normal business hours on at least one (1) Business Days prior written notice (except in case of emergency in which case no notice shall be required), for the purpose of inspecting the same or for the purpose of repairing, altering or improving the Premises or the Building. Nothing contained in this paragraph shall be deemed to impose any obligation upon Landlord not expressly stated elsewhere in this Lease. When reasonably necessary, Landlord may temporarily close Building or Land entrances, Building doors or other facilities, without liability to Tenant by reason of such closure and without such action by Landlord being construed as an eviction of Tenant or as relieving Tenant from the duty of observing or performing any of the provisions of this Lease; provided that Landlord shall use good faith efforts to minimize disruption to Tenants business and shall provide continued access to the Premises. Landlord shall have the right to enter the Premises during Tenants normal business hours upon one (1) Business Days notice during the Lease Term (but no advance notice shall be required during the last twelve (12) months of the Lease Term) for the purpose of showing the Premises to prospective tenants. Tenant shall give written notice to Landlord at least twenty (20) Business Days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating. In the event of Tenants failure to give such notice or arrange such joint inspection, Landlords inspection at or after Tenants vacating the Premises shall be conclusively deemed correct for
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purposes of determining Tenants responsibility for repairs and restoration. Landlord shall not be liable for the consequences of admitting by passkey, or refusing to admit to the Premises, Tenant or any of Tenants Agents, or other persons claiming the right of admittance.
5.6 Damage or Destruction .
5.6.1 If the Premises are damaged by fire, earthquake or other casualty (the Casualty ), Tenant shall give prompt written notice thereof to Landlord. If Landlord estimates (such estimate to be provided within sixty (60) calendar days of Landlords receipt of written notice of the damage) that the damage can be repaired to meet Tenants business needs within one hundred-twenty (120) Business Days after Landlord is notified by Tenant of such damage and if there are sufficient insurance proceeds available to repair such damage, then Landlord shall proceed to restore the Premises to substantially the condition which existed prior to the damage and this Lease shall not terminate. If, in Landlords estimation, the damage cannot be repaired within such 120 Business Day period or if there are insufficient insurance proceeds available to repair such damage, Landlord may elect in its absolute discretion to either: (a) terminate this Lease or (b) restore the Premises to substantially the condition which existed prior to the damage and this Lease will continue.
5.6.2 If Landlord elects to restore the Premises under subparagraph 5.6.1 above, then Landlord shall, at its sole cost and expense, restore the Premises with reasonable diligence to substantially the condition existing prior to the Casualty; provided that Landlord shall not be obligated to restore Tenant Improvements and Tenant Alterations installed by Tenant or Tenants furniture, fixtures or equipment. Landlord shall provide Tenant with notice of its election to restore the Premises, which notice shall also specify the expected duration of such restoration. Failure to so elect shall be deemed Landlords decision not to restore. During the restoration period, the Base Rent and Additional Rent shall abate for the period during which the Premises are not suitable for Tenants business needs. If only a portion of the Premises is rendered not suitable for Tenants business needs, the Base Rent and Additional Rent shall abate proportionately. When performing such restoration, Landlord will not be obligated to spend more than the net insurance proceeds received by Landlord as a result of such Casualty plus an amount equal to the applicable deductible under Landlords insurance policy. If Landlord fails to complete such restoration within one hundred eighty (180) Business Days, as such time period may be extended by Force Majeure events described in Section 9.8 of this Lease, then Tenant shall have the right to terminate this Lease upon fifteen (15) Business Days written notice to Landlord. If Tenant does not terminate the Lease, then (1) the Lease Term shall be extended for the time required to complete such restoration, (2) Tenant shall pay to Landlord, upon demand, Tenants Pro Rata Share of any applicable deductible amount specified under Landlords insurance and (3) Landlord shall not be required to repair or restore any Tenant Alterations installed by Tenant or Tenants furniture, fixtures, or equipment or other property of Tenant. Except for the abatement of Base Rent and Additional Rent during reconstruction as provided in this subparagraph, Tenant agrees to look to the provider of Tenants insurance for coverage for the loss of Tenants use of the Premises and any other related losses or damages incurred by Tenant during any reconstruction period.
5.6.3 If the Building is damaged by fire, earthquake or other casualty and more than fifty percent (50%) of the Building is rendered untenantable, without regard to whether the Premises are affected by such damage, Landlord may in its absolute discretion and without limiting any other options available to Landlord under this Lease or otherwise, elect to terminate this Lease by notice in writing to Tenant within sixty (60) days after the occurrence of such damage if Landlord is also terminating the leases of other tenants in the Building. Such notice shall be effective twenty (20) Business Days after receipt by Tenant unless a later date is set forth in Landlords notice.
5.6.4 Notwithstanding anything contained in this Lease to the contrary, if there is damage to the Premises or Building and the holder of any indebtedness secured by a mortgage or deed of trust covering any such property requires that the insurance proceeds be applied to such indebtedness or if the insurance proceeds are otherwise inadequate to complete the repair of the damages to the Premises, the Building or both, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) Business Days after Landlord is notified of such requirement.
5.6.5 Notwithstanding the foregoing, if the Premises or the Building are wholly or partially damaged or destroyed within the final six (6) months of the Lease Term, either Landlord or Tenant may, at its option, elect to terminate this Lease upon written notice to the other party within thirty (30) days following such damage or destruction.
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5.6.6 Tenant waives the provisions of any statutes presently existing or hereafter enacted (including, without limitation, California Civil Code sections 1932 and 1933) which relate to termination of leases when the thing leased is destroyed and agrees that such event will be governed by the terms of this Lease.
5.7 Condemnation . If more than fifty percent (50%) of the Premises, or such portions of the Building as may be required for the Tenants reasonable use of the Premises, are taken by eminent domain or by conveyance in lieu thereof, this Lease shall automatically terminate as of the date the physical taking occurs, and all Base Rent, Additional Rent and other sums payable under this Lease shall be paid to that date. In case of taking of a part of the Premises or a portion of the Building not required for the Tenants reasonable use of the Premises, then this Lease shall continue in full force and effect and the Base Rent shall be equitably reduced based on the proportion by which the floor area of the Premises is reduced, such reduction in Base Rent to be effective as of the date the physical taking occurs. Additional Rent and all other sums payable under this Lease shall not be abated but Tenants Pro Rata Share may be redetermined as equitable under the circumstances. Landlord reserves all rights to damages or awards for any taking by eminent domain relating to the Premises, Building, Land and the unexpired term of this Lease. Tenant assigns to Landlord any right Tenant may have to such damages or award and Tenant shall make no claim against Landlord for damages for termination of its leasehold interest or interference with Tenants business. Tenant shall have the right, however, to claim and recover from the condemning authority compensation for any loss to which Tenant may be entitled for Tenants moving expenses or other relocation costs; provided that , such expenses or costs may be claimed only if they are awarded separately in the eminent domain proceedings and not as a part of the damages recoverable by Landlord. Tenant waives all rights it may have under California Code of Civil Procedure section 1265.130, or otherwise, to terminate this Lease based on a partial condemnation.
5.8 Estoppel Certificates and Financial Statements . Tenant shall, not more than twice in any twelve (12) month period, upon the written request of Landlord, execute, acknowledge and deliver to Landlord or its designee a written statement stating: (a) the date this Lease was executed and the date it expires; (b) the date Tenant entered into occupancy of the Premises; (c) the amount of monthly Base Rent and Additional Rent and the date to which such Base Rent and Additional Rent have been paid; and (d) certifying that (1) this Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way (or specifying the date of the agreement so affecting this Lease); (2) to the best of Tenants knowledge, Landlord is not in breach of this Lease (or, if so, a description of each such breach) and that no event, omission or condition has occurred which would result, with the giving of notice or the passage of time, in a breach of this Lease by Landlord; (3) this Lease represents the entire agreement between the parties with respect to the Premises; (4) all required contributions by Landlord to Tenant on account of Tenant Improvements have been received or stating the amount of contributions outstanding; (5) on the date of execution, to the best of Tenants knowledge, there exist no defenses or offsets which the Tenant has against the enforcement of this Lease by the Landlord; (6) no Base Rent, Additional Rent or other sums payable under this Lease have been paid in advance except for Base Rent and Additional Rent for the then current month; (7) no security has been deposited with Landlord (or, if so, the amount of such security); (8) it is intended that any Tenants statement may be relied upon by a prospective purchaser or mortgagee of Landlords interest or an assignee of any such mortgagee; and (9) such other information as may be reasonably requested by Landlord. If Tenant fails to respond within ten (10) Business Days of its receipt of a written request by Landlord as provided in this paragraph, such shall be a breach of this Lease and Tenant shall be deemed to have admitted the accuracy of any information supplied by Landlord to a prospective purchaser, mortgagee or assignee. In addition, as long as Tenant is not a publicly traded corporation or company, Tenant shall, from time to time, upon the written request of Landlord, deliver to or cause to be delivered to Landlord or its designee then current financial statements (including a statement of operations and balance sheet and statement of cash flows) certified as accurate by a certified public accountant and prepared in conformance with generally accepted accounting principles for (i) Tenant, (ii) any entity which owns a controlling interest in Tenant, (iii) any entity the controlling interest of which is owned by Tenant, and (iv) any successor entity to Tenant by merger or operation of law.
5.9 Utility Bills . In order to assist Landlord in monitoring the energy efficiency of the Building, on Landlords request, Tenant shall timely deliver to Landlord a copy of Tenants utility bills for the Premises and such other information related to Tenants use of utilities as may reasonably be requested.
5.10 Intentionally Omitted .
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5.11 Hazardous Substances .
5.11.1 Landlord shall make such disclosures to Tenant of Hazardous Substances located on, in, under or around the Land or the Building as are required by applicable Governmental Requirements. A notice letter to Tenant regarding the presence of any known asbestos-containing construction materials is attached as Rider 4 .
5.11.2 Neither Tenant, any of Tenants Agents nor any other person shall store, place, generate, manufacture, refine, handle, or locate on, in, under or around the Land or Building any Hazardous Substance, except for storage, handling and use of reasonable quantities and types of cleaning fluids and office supplies in the Premises in the ordinary course and the prudent conduct of Tenants business in the Premises. Tenant agrees that (a) the storage, handling and use of such permitted Hazardous Substances must at all times conform to all Governmental Requirements and to applicable fire, safety and insurance requirements; (b) the types and quantities of permitted Hazardous Substances which are stored in the Premises must be reasonable and appropriate to the nature and size of Tenants operation in the Premises and reasonable and appropriate for a first-class building of the same or similar use and in the same market area as the Building; and (c) no Hazardous Substance shall be spilled or disposed of on, in, under or around the Land or Building or otherwise discharged from the Premises or any area adjacent to the Land or Building. In no event will Tenant be permitted to store, handle or use on, in, under or around the Premises any Hazardous Substance which will increase the rate of fire or extended coverage insurance on the Land or Building, unless: (1) such Hazardous Substance and the expected rate increase have been specifically disclosed in writing to Landlord; (2) Tenant has agreed in writing to pay any rate increase related to each such Hazardous Substance; and (3) Landlord has approved in writing each such Hazardous Substance, which approval shall be subject to Landlords discretion.
5.11.3 Tenant shall indemnify, defend and hold harmless Landlord and Landlords Agents from and against any and all Claims arising out of any breach of any provision of this paragraph, which expenses shall also include laboratory testing fees, personal injury claims, clean-up costs and environmental consultants fees. Tenant agrees that Landlord may be irreparably harmed by Tenants breach of this paragraph and that a specific performance action may appropriately be brought by Landlord; provided that , Landlords election to bring or not bring any such specific performance action shall in no way limit, waive, impair or hinder Landlords other remedies against Tenant.
5.11.4 As of the execution date of this Lease, Tenant represents and warrants to Landlord that, except as otherwise disclosed by Tenant to Landlord, Tenant has no intent to bring any Hazardous Substances on, in or under the Premises except for the type and quantities authorized in subsection 5.11.2 above. In addition, as of the Delivery Date, Landlord represents and warrants to Tenant that, except as otherwise disclosed by Landlord to Tenant, to Landlords actual knowledge, there are not Hazardous Substances in the Premises or the Building which are in violation of any applicable Governmental Requirements.
5.12 Access Laws .
5.12.1 Pursuant to California Civil Code Section 1938, Landlord hereby certifies to Tenant that, as of the Lease Date, access to the Premises from within the Project has undergone inspection by a Certified Access Specialist (Clasp) and has been determined pursuant to such inspection to meet all applicable construction-related accessibility standards under California Civil Code Section 55.53.
5.12.2 Landlord represents and warrants to Tenant that, as of the Commencement Date, to Landlords actual knowledge, the Building (including the common areas of the Building) and the path of travel to the Premises are in material compliance with Access Laws.
5.12.3 Tenant agrees to notify Landlord promptly if Tenant receives notification or otherwise becomes aware of: (a) any condition or situation on, in, under or around the Land or Building which may constitute a violation of any Access Laws or (b) any threatened or actual lien, action or notice that the Land or Building is not in compliance with any Access Laws. If Tenant is responsible for such condition, situation, lien, action or notice under this paragraph, Tenants notice to Landlord shall include a statement as to the actions Tenant proposes to take in response to such condition, situation, lien, action or notice.
5.12.4 Tenant shall not alter or permit any assignee or subtenant or any other person to alter the Premises in any manner which would violate any Access Laws or increase Landlords responsibilities for compliance with Access Laws, without the prior approval of the Landlord. In connection with any such approval, Landlord may require a certificate of compliance with Access Laws from an architect, engineer or other person acceptable to Landlord. Tenant agrees to pay the reasonable fees incurred by such architect, engineer or other third party in connection with the issuance of such certificate of compliance.
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Landlords consent to any proposed Tenant Alteration shall (a) not relieve Tenant of its obligations or indemnities contained in this paragraph or this Lease or (b) be construed as a warranty that such proposed alteration complies with any Access Law.
5.12.5 Tenant shall be solely responsible for all costs and expenses relating to or incurred in connection with: (a) failure of the Premises to comply with the Access Laws; and (b) bringing the Building and the common areas of the Building into compliance with Access Laws, if and to the extent such noncompliance arises out of or relates to: (1) Tenants specific use of the Premises for non-general office use; (2) the hiring of employees; (3) any Tenant Alterations to the Premises which are not normal and customary business office uses; or (4) any Tenant Improvements constructed in the Premises at the request of Tenant which are not consistent with normal and customary business office uses, regardless of whether such improvements are constructed prior to or after the Commencement Date. For the avoidance of doubt, other than as expressly set forth in the preceding sentence, Tenant shall not be responsible for any other costs or expenses associated with (a) the failure of the Building to comply with the Governmental Requirements; and (b) bringing the Building and the common areas of the Building outside of the Premises (including the restrooms on the 16 th floor of the Building) into compliance with Governmental Requirements. Tenant shall be responsible, at Tenants sole cost and expense, for ensuring that the restrooms located on the 17 th floor of the Premises are in compliance with all applicable Access Laws.
5.12.6 Landlord shall be responsible, at Landlords sole cost and expense, for correcting any violations of any Access Laws with respect to the common areas of the Building which are required to be corrected in order for Tenant to obtain a permit for the construction of the Tenant Improvements prior to the Commencement Date; provided that any such corrections to the common areas of the Building are not necessitated by Tenants specific use and occupancy of the Premises, or unless such costs and expenses are Tenants responsibility as provided in the preceding subparagraph. Any cost or expense paid or incurred by Landlord to bring the Premises or common areas of the Building into compliance with Access Laws which is not Tenants responsibility under the preceding subparagraphs shall be amortized over the useful economic life of the improvements (not to exceed ten (10) years) with interest as provided in Section 3.4 of this Lease.
5.12.7 Tenant agrees to indemnify, defend and hold harmless Landlord and Landlords Agents from and against any and all Claims arising out of or relating to any failure of Tenant or Tenants Agents to comply with Tenants obligations under this paragraph.
5.12.8 Tenant hereby agrees to use reasonable efforts to notify Landlord if Tenant makes any alterations, additions and/or improvements to the Premises that might impact accessibility to the Premises and/or the Building under any Access Laws. Landlord hereby agrees to use reasonable efforts to notify Tenant if Landlord makes any alterations, additions and/or improvements to the Premises that might impact accessibility to the Premises and/or the Building under any Access Laws.
5.12.9 The provisions of this paragraph shall supersede any other provisions in this Lease regarding Access Laws, to the extent inconsistent with the provisions of any other paragraphs.
5.13 Quiet Enjoyment . Landlord covenants that Tenant, upon paying Base Rent, Additional Rent and all other sums payable under this Lease and performing all covenants and conditions required of Tenant under this Lease shall and may peacefully have, hold and enjoy the Premises without hindrance or molestation by Landlord subject to the provisions of this Lease.
5.14 Subordination . Landlord represents and warrants to Tenant that as of the Commencement Date, the Property is not encumbered by a mortgage or deed of trust. Notwithstanding the foregoing, the holder or beneficiary of such mortgage, deed of trust, ground lease, vendors lien or similar instrument shall have the right to subordinate or cause to be subordinated any such mortgage, deed of trust, ground lease, vendors lien or similar instrument to this Lease. Tenant shall have the right to request that any holder or beneficiary of such mortgage, deed of trust, ground lease, vendors lien or similar instrument execute a non-disturbance agreement in favor of Tenant on the commercially reasonable standard form utilized by such lender or ground lessor, and Landlord shall use commercially reasonable efforts to obtain such executed non-disturbance agreement if so requested by Tenant. At the request of Landlord, the holder of such mortgage or deed of trust or any ground lessor, Tenant shall execute, acknowledge and deliver promptly in recordable form any commercially reasonable instrument or subordination agreement that Landlord or such holder may request; provided that such agreement provides that Tenants occupancy will not be disturbed so long as Tenant is not in default under the Lease beyond the expiration of any applicable notice and cure periods. Tenant further covenants and agrees that if the lender or
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ground lessor acquires the Premises as a purchaser at any foreclosure sale or otherwise, Tenant shall recognize and attorn to such party as landlord under this Lease, and shall make all payments required hereunder to such new landlord without deduction or set-off and, upon the request of such purchaser or other successor, execute, deliver and acknowledge commercially reasonable documents confirming such attornment. Tenant waives the provisions of any law or regulation, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease or the obligations of Tenant hereunder in the event that any such foreclosure or termination or other proceeding is prosecuted or completed.
5.15 Liens and Tenants Personal Property Taxes .
5.15.1 Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord or Tenant in the Premises or to charge the rentals payable under this Lease for any Claims in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant shall promptly pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises and Tenant shall indemnify, defend and hold harmless Landlord from any and all Claims arising out of any such asserted Claims. Tenant agrees to give Landlord prompt written notice of any such Claim.
5.15.2 Tenant shall be liable for all taxes levied or assessed against personal property, furniture or fixtures placed by Tenant in the Premises. If any such taxes for which Tenant is liable are levied or assessed against Landlord or Landlords property and Landlord elects to pay them or if the assessed value of Landlords property is increased by inclusion of such personal property, furniture or fixtures and Landlord elects to pay the taxes based on such increase, Tenant shall reimburse Landlord for the sums so paid by Landlord, within thirty (30) days after written demand by Landlord, which is accompanied by reasonably appropriate back-up.
5.16 Work Performance and Responsible Contracting .
5.16.1 Tenant acknowledges and agrees that all alterations, additions, improvements, repair and installations made to or on the Premises (including any Tenant Improvements and any future Tenant Alterations) shall be performed subject to the Union Requirement.
5.16.2 In addition to the requirement the previous subparagraph, Tenant shall use commercially reasonable efforts to contract for services to be performed in or about the Premises with companies which are a Responsible Contractor. A Responsible Contractor is defined as a contractor or subcontractor who pays workers a fair wage and Fair Benefits as evidenced by payroll and employee records and who complies with the service-disabled veteran business policy. Fair Benefits are defined as including employer-paid family health care coverage, pension benefits, and apprenticeship programs.
SECTION 6: INSURANCE AND INDEMNIFICATION
6.1 Indemnification .
6.1.1 Tenant shall indemnify, defend and hold harmless Landlord and Landlords Agents from and against any and all Claims, arising in whole or in part out of (a) the possession, use or occupancy of the Premises or the business conducted in the Premises, (b) any act, omission or negligence of Tenant or Tenants Agents, or (c) any breach or default under this Lease by Tenant.
6.1.2 Landlord shall indemnify, defend and hold harmless Tenant and Tenants Agents from and against any and all Claims, arising in whole or in part out of (a) any act, omission or negligence of Landlord or Landlords Agents, or (b) any breach or default under this Lease by Landlord.
6.1.3 Except as specified in subparagraph 6.1.2 above or in the next sentence or as otherwise provided in this Lease, neither Landlord nor Landlords Agents shall, to the extent permitted by law, have any liability to Tenant, or to Tenants Agents, for (1) any Claims arising out of any cause whatsoever, including repair to any portion of the Premises; (2) interruption in or interference with the use of the Premises or any equipment therein; (3) any accident or damage resulting from any use or operation by Landlord, Tenant or any person or entity of heating, cooling, electrical, sewerage or plumbing equipment or apparatus or Telecommunication Facilities; (4) termination of this Lease by reason of damage to the Premises or Building; (5) fire, robbery, theft, vandalism, mysterious disappearance or a casualty of any kind or nature; (6) actions of any other tenant of the Building or of any other person or entity; (7) inability
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to furnish any service required of Landlord as specified in this Lease; or (8) leakage in any part of the Premises or the Building from rain, ice or snow, or from drains, pipes or plumbing fixtures in the Premises or the Building. Landlord shall only be responsible for Claims arising from the items listed in the previous sentence if such items were within Landlords reasonable control and Landlord was negligent or acted with willful misconduct in failing to repair or maintain the Building as required by this Lease; but in no event shall Landlords responsibility extend to any interruption to Tenants business or any indirect or consequential losses suffered by Tenant or Tenants Agents or extend beyond Landlords responsibility as set forth in the paragraph entitled Utilities when that paragraph is applicable. The obligations of this paragraph shall be subject to the paragraph captioned Waiver of Subrogation .
6.1.4 Each party to this Lease shall indemnify, defend and hold harmless the other party from and against any and all Claims asserted against such other party by any real estate broker, finder or intermediary relating to any act of the indemnifying party in connection with this Lease.
6.2 Tenant Insurance .
6.2.1 Tenant shall, throughout the Lease Term, at its own expense, keep and maintain in full force and effect the following policies, each of which shall be endorsed as needed to provide that the insurance afforded by these policies is primary and that all insurance carried by Landlord is strictly excess and secondary and shall not contribute with Tenants liability insurance:
(a) A policy of commercial general liability insurance, including a contractual liability endorsement covering Tenants obligations under the paragraph captioned Indemnification, insuring against claims of bodily injury and death or property damage or loss with a combined single limit at the Commencement Date of this Lease of not less than Two Million Dollars ($2,000,000.00), which limit shall be reasonably increased during the Lease Term, at Landlords request, to reflect both increases in liability exposure arising from inflation as well as from changing use of the Premises or changing legal liability standards, which policy shall be payable on an occurrence rather than a claims made basis, and which policy names Landlord, Manager, Bentall Kennedy (U.S.) Limited Partnership, NewTower Trust Company, and each of their agents, affiliates, members, directors, officers and employees, and, at Landlords request, Landlords mortgage lender(s) or investment advisors, as additional insureds. The commercial general liability coverage shall include host liquor liability and, as applicable, an endorsement covering Tenants dram shop/liquor liability if Tenant sells or distributes alcoholic beverages. Dram shop/liquor liability coverage may also be purchased under a separate policy.
(b) Special Form property insurance (which is commonly called all risk) covering Tenant Improvements, Tenant Alterations (including Telecommunication Facilities), and any and all furniture, fixtures, equipment, inventory, improvements and other property in or about the Premises which is not owned by Landlord, for one hundred percent (100%) of the then current replacement cost of such property;
(c) Business interruption insurance in an amount sufficient to cover costs, damages, lost income, expenses, Base Rent, Additional Rent and all other sums payable under this Lease, should any or all of the Premises not be usable for a period of up to twelve (12) months;
(d) A policy of workers compensation insurance as required by applicable law and employers liability insurance with limits of no less than One Million and No/100 Dollars ($1,000,000.00); and
(e) A policy of comprehensive automobile liability insurance, including loading and unloading, and covering owned, non-owned and hired vehicles, with limits of no less than One Million Dollars ($1,000,000.00) per occurrence.
(f) Excess/Umbrella Liability insurance on a form at least as broad as the primary coverages required above with limits of not less than Five Million Dollars ($5,000,000) per occurrence and per location or project aggregate.
6.2.2 All insurance policies required under this Section 6.2 shall be with companies with an A.M. Best Rating of A-/VII (or higher) and that are authorized to provide insurance in California. Tenant shall be required to provide Landlord with not less than thirty (30) days prior written notice if any policy required to be carried by Tenant hereunder is subject to cancellation, lapse or reduction in coverage. Tenant shall deliver to Landlord and, at Landlords request Landlords mortgage lender(s), prior to the Delivery Date and from time to time thereafter, certificates evidencing the existence and amounts of all such policies. Deductibles above $25,000 and self-insured retentions must be declared to Landlord prior to the Delivery Date.
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6.2.3 If Tenant fails to acquire or maintain any insurance or provide any certificate required by this paragraph, which failure is not cured within ten (10) Business Days after receipt of written notice thereof (unless such insurance coverage would lapse within such ten (10) Business Day period, in which case, Landlord shall not be required to observe the cure period hereunder), Landlord may, but shall not be required to, obtain such insurance or certificates and the costs associated with obtaining such Insurance or certificates shall be payable by Tenant to Landlord on demand.
6.3 Landlords Insurance . Landlord shall, throughout the Lease Term, keep and maintain in full force and effect:
(a) Commercial general liability insurance, insuring against claims of bodily injury and death or property damage or loss with a combined single limit at the Commencement Date of not less than Three Million Dollars ($3,000,000.00) per occurrence and Five Million Dollars ($5,000,000.00) in the aggregate, which policy shall be payable on an occurrence rather than a claims made basis;
(b) Special Form property Insurance (which is commonly called all risk) covering the Building and Landlords personal property, if any, located on the Land in the amount of one hundred percent (100%) of the then current replacement value of such property; and
(c) Landlord may, but shall not be required to, maintain other types of insurance as Landlord deems appropriate, including but not limited to, property insurance coverage for earthquakes and floods in such amounts as Landlord deems appropriate. Such policies may be blanket policies which cover other properties owned by Landlord. Landlord shall deliver to Tenant and, at Tenants request Tenants mortgage lender(s), prior to the Commencement Date and from time to time thereafter, certificates evidencing the existence and amounts of all such policies.
6.4 Waiver of Subrogation . Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby each waive and release the other from any and all Claims or any loss or damage that may occur to the Land, Building, Premises, or personal property located therein, by reason of fire or other casualty regardless of cause or origin, including the negligence or misconduct of Landlord, Tenant, Landlords Agents or Tenants Agents, but only to the extent of the insurance proceeds paid to such releasor under its policies of insurance or, if it fails to maintain the required policies, the insurance proceeds that would have been paid to such releasor if it had maintained such policies. Each party to this Lease shall promptly give to its insurance company written notice of the mutual waivers contained in this subparagraph, and shall cause its insurance policies to be properly endorsed, if necessary, to prevent the invalidation of any insurance coverages by reason of the mutual waivers contained in this subparagraph.
SECTION 7: ASSIGNMENT AND SUBLETTING
7.1 Assignment and Subletting by Tenant .
7.1.1 Tenant shall not have the right to assign, transfer, mortgage or encumber this Lease in whole or in part, nor sublet the whole or any part of the Premises, nor allow the occupancy of all or any part of the Premises by another, without first obtaining Landlords consent, which consent may be granted or denied in accordance with this paragraph. In no event shall the determination of the amount of rent be expressed in whole or in part as a percentage of the income or profits derived by the subtenant from the space leased (other than an amount based on a fixed percentage or percentages of gross receipts or gross sales). Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of all sums payable under this Lease and for compliance with all of its other obligations as tenant under this Lease. Landlords acceptance of Base Rent, Additional Rent or any other sum from any assignee, sublessee, transferee, mortgagee or encumbrance holder shall not be deemed to be Landlords approval of any such conveyance. Upon the occurrence of an Event of Default, if the Premises or any part of the Premises are then subject to an assignment or subletting, Landlord may, at its option, collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rents against any sums due to Landlord from Tenant under this Lease. No such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenants obligations under this Lease. Landlords right of direct collection shall be in addition to and not in limitation of any other rights and remedies provided for in this Lease or at law. Tenant makes an absolute assignment to Landlord of such assignments and subleases and any rent, Lease Security Deposits and other sums payable under such assignments and subleases as collateral to secure the performance of the obligations of Tenant under this Lease.
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7.1.2 In the event Tenant desires to assign this Lease or to sublet all or any portion of the Premises, Tenant shall give written notice of such desire to Landlord prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed subtenant or assignee, the proposed term, the nature of the proposed subtenants or assignees business to be conducted on the Premises, the rental rate, and any other particulars of the proposed subletting or assignment that Landlord may reasonably request. Without limiting the preceding sentence, Tenant shall also provide Landlord with: (a) such financial information as Landlord may reasonably request concerning the proposed subtenant or assignee, including recent financial statements certified as accurate and complete by a certified public accountant, if available, or by the president, managing partner or other appropriate officer of the proposed subtenant or assignee; (b) proof satisfactory to Landlord that the proposed subtenant or assignee will immediately occupy and thereafter use the entire Premises (or any sublet portion of the Premises) for the remainder of the Lease Term (or for the entire term of the sublease, if shorter) in compliance with the terms of this Lease; and (c) a copy of the proposed sublease or assignment or letter of intent. Tenant shall pay to Landlord, upon Landlords demand therefor, Landlords actual attorneys fees incurred in the review of such documentation and in documenting Landlords consent, plus an administrative fee of $2,000.00 as Landlords fee for processing such proposed assignment or sublease. Receipt of such fee shall not obligate Landlord to approve the proposed assignment or sublease.
7.1.3 Without limiting what may be construed as a factor considered by Landlord, Tenant agrees that any one or more of the following will be proper grounds for Landlords disapproval of a proposed assignment or sublease:
(a) The proposed assignee or subtenant does not, in Landlords good faith judgment, have sufficient financial worth to insure full and timely performance under this Lease; or Landlord has received insufficient evidence of the financial worth or creditworthiness of the proposed assignee or subtenant to make the determination set forth in this clause;
(b) Landlord has had prior negative leasing experience with the proposed assignee or subtenant or an affiliate; or, in Landlords reasonable judgment, the proposed assignee or subtenant is engaged in a business, or the Premises or any part of the Premises will be used in a manner, that is not in keeping with the then standards of the Building, or that is not compatible with the businesses of other tenants in the Building, or that is inappropriate for the Building, or that will violate any negative covenant as to use contained in any other lease of space in the Building;
(c) The use of the Premises by the proposed assignee or subtenant will not be permitted under the Permitted Uses;
(d) Tenant is in default of any obligation of Tenant under this Lease, or Tenant has defaulted under this Lease on three (3) or more occasions during the twenty-four (24) months preceding the date that Tenant shall request such consent;
(e) Landlord has had written negotiations with the proposed assignee or subtenant, in the three (3) months preceding Tenants request, regarding the leasing of space by such proposed assignee or subtenant in the Building or any other buildings owned by Landlord in the metropolitan area in which the Land is located, and in each case, Landlord has comparable space available.
7.1.4 Within fifteen (15) Business Days after Tenant provides Landlord with the items set forth in Section 7.1.2, Landlord shall notify Tenant of Landlords approval, disapproval or conditional approval of any proposed assignment or subletting or of Landlords election to recapture as described below. Landlord shall have no obligation to respond unless and until all required information has been submitted. Notwithstanding the foregoing, if any items set forth in Section 7.1.2 have not been provided by Tenant to Landlord, in Landlords reasonable discretion, Landlord shall provide Tenant with notice thereof, and such fifteen (15) Business Day period for Landlords approval, disapproval or conditional approval of any proposed assignment or subletting shall not commence until all such items requested by Landlord pursuant to Landlords written notice to Tenant have been provided to Landlord for review. In the event Landlord approves of any proposed assignment or subletting, Tenant and the proposed assignee or sublessee shall execute and deliver to Landlord an assignment (or subletting) and assumption agreement in form and content reasonably satisfactory to Landlord. Notwithstanding any contrary provision of this Lease, if Tenant or any proposed assignee or sublessee claims that Landlord has unreasonably withheld or delayed its consent to a proposed assignment or sublease or otherwise has breached its obligations under this Section 7, Tenants and such assignees or sublessees sole remedy shall be to seek a declaratory judgment and/or injunctive relief, and Tenant, on behalf of itself and, to the extent permitted
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by law, such proposed assignee or sublessee, waives all other remedies against Landlord, including without limitation, the right to seek monetary damages or to terminate this Lease (including, without limitation, pursuant to Section 1995.310 of the California Civil Code or any successor statutes thereto).
7.1.5 Any transfer, assignment or hypothecation of any of the stock or interest in Tenant, or the assets of Tenant, or any other transaction, merger, reorganization or event, however constituted which (a) results in fifty percent (50%), or more of such stock, interest or assets going into different ownership, or (b) is a subterfuge denying Landlord the benefits of this paragraph, shall be deemed to be an assignment within the meaning and provisions of this paragraph and shall be subject to the provisions of this paragraph.
7.1.6 If Landlord consents to any assignment or sublease and Tenant receives rent or any other consideration, either initially or over the term of the assignment or sublease, in excess of the Base Rent and Additional Rent (or, in the case of a sublease of a portion of the Premises, in excess of the Base Rent paid by Tenant on a square footage basis under this Lease), Tenant shall pay to Landlord fifty percent (50%) of such excess, less the amount of any actual, out-of-pocket and verifiable costs paid in connection with brokerage commissions, tenant improvement allowances and alteration costs, commercially reasonable marketing expenses and reasonable attorneys fees, if any ( Transaction Expenses ); provided that Tenant furnishes Landlord with invoices and statements in connection with any and all Transaction Expenses in incurred by Tenant in connection therewith.
7.1.7 If Tenant Intends to assign all or any portion of its interest in this Lease or sublease all or any portion of the Premises, Landlord shall have the right to recapture the Premises or the applicable portion thereof (a Recapture ) by giving written notice of such Recapture to Tenant within fifteen (15) Business Days after receipt of Tenants written request for Landlords consent to such proposed assignment or subletting. Tenant shall have no right to retract its request for Landlords consent to assign or sublease once such request has been made. Such Recapture shall terminate this Lease as to the applicable space effective on the prospective effective date of assignment or subletting, which shall be the last day of a calendar month and shall not be earlier than forty-five (45) Business Days after receipt of Tenants request hereunder. If less than the entire Premises are recaptured, this Lease shall remain in full force and effect with respect to that remaining area not recaptured by Landlord. Tenant shall surrender that portion of the Premises recaptured by Landlord in accordance with the terms and conditions of this Lease.
7.2 Assignment by Landlord . Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations under this Lease and in any and all of the Land or Building. If Landlord sells or transfers any or all of the Building, including the Premises, Landlord and Landlords Agents shall, upon consummation of such sale or transfer, be released automatically from any liability relating to obligations or covenants under this Lease to be performed or observed after the date of such transfer, and in such event, Tenant agrees to look solely to Landlords successor-in-interest with respect to such liability; provided that , as to the Lease Security Deposit and Prepaid Rent, Landlord shall not be released from liability therefor unless Landlord has delivered (by direct transfer or credit against the purchase price) the Lease Security Deposit or Prepaid Rent to its successor-in-interest.
SECTION 8: DEFAULT AND REMEDIES
8.1 Events of Default .
8.1.1 The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Tenant ( Event of Default ):
(a) abandonment of all or any portion of the Premises without continued payment of Base Rent and Additional Rent;
(b) failure by Tenant to make any payment of Base Rent or Additional Rent within five (5) Business Days after its due date;
(c) failure by Tenant to pay any other sum required to be paid by Tenant under this Lease within five (5) Business Days after written notice of such failure;
(d) failure by Tenant to observe or perform any covenant or condition of this Lease, other than the making of payments, where such failure shall continue for a period of twenty (20) Business Days after written notice from Landlord or such additional time as is reasonably needed to cure the default provided that Tenant shall diligently and continuously pursue the cure and complete the cure within sixty (60) Business Days;
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(e) the failure of Tenant to surrender possession of the Premises at the expiration or earlier termination of this Lease in the condition required by this Lease;
(f) (1) the making by Tenant of any general assignment or general arrangement for the benefit of creditors; (2) the filing by or against Tenant of a petition in bankruptcy, including reorganization or arrangement, unless, in the case of a petition filed against Tenant, unless the same is dismissed within twenty (20) Business Days; (3) the appointment of a trustee or receiver to take possession of substantially all Tenants assets located in the Premises or of Tenants interest in this Lease; (4) any execution, levy, attachment or other process of law against any property of Tenant or Tenants interest in this Lease, unless the same is dismissed within twenty (20) Business Days; (5) adjudication that Tenant is bankrupt; (6) the making by Tenant of a transfer in fraud of creditors; or (7) the failure of Tenant to generally pay its debts as they become due; or
(g) any information furnished by or on behalf of Tenant to Landlord in connection with the entry of this Lease is determined to have been materially false, misleading or incomplete when made.
(h) a failure of the Tenant to deliver the Letter of Credit within the time period specified in the paragraph captioned Lease Security Provisions .
8.1.2 Notwithstanding any cure periods specified in the previous subparagraph, after the occurrence during the Lease Term of any two events which after the giving of notice or the lapse of time would become an Event of Default, Tenant shall neither be entitled to notice nor an opportunity to cure and Landlord, at its option, may immediately declare an Event of Default.
8.1.3 When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by Code of Civil Procedure section 1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Lease) in the manner required by paragraph 6.1 shall replace and satisfy the statutory service-of-notice procedures, including those required by Code of Civil Procedure section 1162 or any similar or successor statute.
8.1.4 If a petition in bankruptcy is filed by or against Tenant, and if this Lease is treated as an unexpired lease under applicable bankruptcy law, then Tenant shall neither attempt nor cause any trustee to attempt to extend the time period specified by the Bankruptcy Act for the assumption or rejection of this Lease.
8.2 Remedies . If any Event of Default occurs, Landlord may at any time after such occurrence, with or without notice or demand except as stated in this paragraph, and without limiting Landlord in the exercise of any right or remedy at law which Landlord may have by reason of such Event of Default, exercise the rights and remedies, either singularly or in combination, as are specified or described in the subparagraphs of this paragraph.
8.2.1 Landlord may terminate this Lease and all rights of Tenant under this Lease either immediately or at some later date by giving Tenant written notice that this Lease is terminated. If Landlord so terminates this Lease, then Landlord may recover from Tenant the sum of:
(a) the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which have been earned at the time of termination;
(b) interest at the Default Rate on the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which have been earned at the time of termination; plus
(c) the amount by which the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which would have been earned after termination until the time of award exceeds the amount of such rental loss, if any, as Tenant affirmatively proves could have been reasonably avoided and interest on such excess at the Default Rate; plus
(d) the amount by which the aggregate of the unpaid Base Rent, Additional Rent and all other sums payable under this Lease for the balance of the Lease Term after the time of award exceeds the amount of such rental loss, if any, as Tenant affirmatively proves could be reasonably avoided, with such difference being discounted to present value at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%); plus
(e) any other amount necessary to compensate Landlord for the detriment proximately caused by Tenants failure to perform Tenants obligations under this Lease or which, in the ordinary course of things, would be likely to result from such failure, including, leasing commissions, tenant improvement costs, renovation costs and advertising costs; plus
(f) all such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.
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8.2.2 Landlord shall also have the right, with or without terminating this Lease, but in accordance with applicable law, to re-enter the Premises and remove all persons and property from the Premises. Landlord may cause property so removed from the Premises to be stored in a public warehouse or elsewhere at the expense and for the account of Tenant.
8.2.3 Landlord shall also have the right, without terminating this Lease, to accelerate and recover from Tenant the sum of all unpaid Base Rent, Additional Rent and all other sums payable under the then remaining term of the Lease, discounting such amount to present value at the Prime Rate.
8.2.4 If Tenant abandons or surrenders the Premises without Landlords consent, or if Landlord re-enters the Premises as provided in subparagraph 8.2.2 or takes possession of the Premises pursuant to legal proceedings or through any notice procedure provided by law, then, if Landlord does not elect to terminate this Lease, Landlord may, from time to time, without terminating this Lease, either (a) recover all Base Rent, Additional Rent and all other sums payable under this Lease as they become due or (b) relet the Premises or any part of the Premises on behalf of Tenant for such term or terms, at such rent or rents and pursuant to such other provisions as Landlord, in its sole discretion, may deem advisable, all with the right, at Tenants cost, to make alterations and repairs to the Premises and recover any deficiency from Tenant as set forth in subparagraph 8.2.6.
8.2.5 Landlord may elect, in its absolute discretion, to maintain Tenants right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have abandoned the Premises. In such event, Landlord may enforce all of Landlords rights and remedies under this Lease, including the right to recover rent as it becomes due hereunder, and, at Landlords election, to re-enter and relet the Premises on such terms and conditions as Landlord deems appropriate. Without limiting the generality of the foregoing, Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessees breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations). Landlord may execute any lease made pursuant hereto in its own name, and Tenant shall have no right to collect any such rent or other proceeds. Landlords re-entry and/or reletting of the Premises, or any other acts, shall not be deemed an acceptance of surrender of the Premises or Tenants interest therein, a termination of this Lease or a waiver or release of Tenants obligations hereunder. Landlord shall have the same rights with respect to Tenants improvements and personal property as under Section 8.2.2 above, even though such re-entry and/or reletting do not constitute acceptance of surrender of the Premises or termination of this Lease.
8.2.6 None of the following remedial actions, singly or in combination, shall be construed as an election by Landlord to terminate this Lease unless Landlord has in fact given Tenant written notice that this Lease is terminated: (a) an act by Landlord to maintain or preserve the Premises; (b) any efforts by Landlord to relet the Premises; (c) any repairs or alterations made by Landlord to the Premises; (d) re-entry, repossession or reletting of the Premises by Landlord pursuant to this paragraph; or (e) the appointment of a receiver, upon the initiative of Landlord, to protect Landlords interest under this Lease. If Landlord takes any of the foregoing remedial action without terminating this Lease, Landlord may nevertheless at any time after taking any such remedial action terminate this Lease by written notice to Tenant.
8.2.7 If Landlord relets the Premises, Landlord shall apply the revenue from such reletting as follows: first , to the payment of any indebtedness of Tenant to Landlord other than Base Rent, Additional Rent or any other sums payable by Tenant under this Lease; second , to the payment of any cost of reletting (including finders fees and leasing commissions); third , to the payment of the cost of any alterations, improvements, maintenance and repairs to the Premises; and fourth , to the payment of Base Rent, Additional Rent and other sums due and payable and unpaid under this Lease. Landlord shall hold and apply the residue, if any, to payment of future Base Rent, Additional Rent and other sums payable under this Lease as the same become due, and shall deliver the eventual balance, if any, to Tenant. Should revenue from letting during any month, after application pursuant to the foregoing provisions, be less than the sum of the Base Rent, Additional Rent and other sums payable under this Lease and Landlords expenditures for the Premises during such month, Tenant shall be obligated to pay such deficiency to Landlord as and when such deficiency arises.
8.2.8 Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this Lease or by law (all such remedies being cumulative), nor shall pursuit of any
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remedy provided in this Lease constitute a forfeiture or waiver of any Base Rent, Additional Rent or other sum payable under this Lease or of any damages accruing to Landlord by reason of the violation of any of the covenants or conditions contained in this Lease. Tenant waives, for Tenant and for all those claiming by, through or under Tenant, Section 3275 of the California Civil Code and Sections 1174(c) and 1179 of the California Code of Civil Procedure and any existing or future rights to redeem or reinstate, by order or judgment of any court or by any legal process or writ, this Lease or Tenants right of occupancy of the Premises after any termination hereof.
8.3 Right to Perform . If Tenant shall fail to pay any sum of money, other than Base Rent or Additional Rent, required to be paid by it under this Lease or shall fail to perform any other act on its part to be performed under this Lease, and such failure shall continue for ten (10) Business Days after written notice of such failure by Landlord, or such shorter time if reasonable under the circumstances, Landlord may, but shall not be obligated to, and without waiving or releasing Tenant from any obligations of Tenant, make such payment or perform such other act on Tenants part to be made or performed as provided in this Lease. Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment of sums due under this paragraph as in the case of default by Tenant in the payment of Base Rent.
8.4 Landlords Default . Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within twenty (20) Business Days after written notice is delivered by Tenant to Landlord and to the holder of any mortgages or deeds of trust (collectively, Lender ) covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying the obligation which Landlord has failed to perform; provided, however, that if the nature of Landlords obligation is such that more than twenty (20) Business Days are required for performance, then Landlord shall not be in default if Landlord or Lender commences performance within such twenty (20) Business Day period and thereafter diligently prosecutes the same to completion. All obligations of Landlord hereunder shall be construed as covenants, not conditions. In the event of any default, breach or violation of Tenants rights under this Lease by Landlord, Tenants exclusive remedy shall be either an action for specific performance or an action for actual damages. Tenant hereby waives the benefit of any laws granting it the right to perform Landlords obligation, a lien upon the property of Landlord and/or upon Rent due Landlord, or the right to terminate this Lease or withhold Rent on account of any Landlord default.
8.5 Limitation on Recourse . Liability with respect to the entry and performance of this Lease by or on behalf of Landlord, however it may arise, shall be asserted and enforced only against Landlords estate and equity interest in the Building. Neither Landlord nor any of Landlords Agents shall have any personal liability in the event of any Claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenants use of the Premises. Any and all personal liability, if any, beyond that which may be asserted under this paragraph, is expressly waived and released by Tenant and by all persons claiming by, through or under Tenant.
SECTION 9: MISCELLANEOUS PROVISIONS
9.1 Notices . All notices, demands, consents, approvals, statements and communications required or permitted under this Lease shall be in writing and, if intended for Landlord, shall be addressed to Landlord at the addresses set forth opposite Landlords signature; and if intended for Tenant, shall be addressed to Tenant at the address set forth opposite Tenants signature, or to such other address as either party may by written notice, given in accordance with this paragraph, advise the other party. All such communications shall be transmitted by personal delivery, reputable express or courier service, or United States Postal Service, postage prepaid. All such communications shall be deemed delivered and effective on the earlier of (a) the date received or refused for delivery, or (b) five (5) calendar days after having been deposited in the United States Postal Service, postage prepaid. Notwithstanding the means of transmission authorized earlier in this paragraph, those communications which contain a notice of breach or default, a notice of an event or occurrence that with the passage of time or the giving of notice, or both, would cause a breach or default to arise, or a demand for performance shall be transmitted by one or more of the following methods: (i) United States Postal Service, certified mail, return receipt requested; or (ii) personal delivery, accompanied by a receipt and signed by a representative of the addressee acknowledging delivery on a specified date, with delivery not effective unless the receipt is given, or (iii) reputable express or courier service.
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9.2 Attorneys Fees and Expenses . In the event that (a) either party requires the services of an attorney in connection with enforcing the terms of this Lease, (b) suit is brought for the enforcement of this Lease or the exercise of rights and remedies afforded by this Lease or under law, or (c) proceedings are held in bankruptcy then the substantially prevailing party shall be entitled to a reasonable sum for attorneys and paralegals fees, expenses and court costs, including those relating to any appeal. The prevailing party shall be determined under Civil Code section 1717(b)(1) or any successor statute.
9.3 No Accord and Satisfaction . No payment by Tenant or receipt by Landlord of an amount less than the Base Rent or Additional Rent or any other sum due and payable under this Lease shall be deemed to be other than a payment on account of the Base Rent, Additional Rent or other such sum, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, nor preclude Landlords right to recover the balance of any amount payable or Landlords right to pursue any other remedy provided in this Lease or at law.
9.4 Successors; Joint and Several Liability . Except as provided in the paragraph captioned Limitation on Recourse and subject to the paragraph captioned Assignment and Subletting by Landlord , all of the covenants and conditions contained in this Lease shall apply to and be binding upon Landlord and Tenant and their respective heirs, executors, administrators, successors and assigns. In the event that more than one person, partnership, company, corporation or other entity is included in the term Tenant , then each such person, partnership, company, corporation or other entity shall be jointly and severally liable for all obligations of Tenant under this Lease.
9.5 Choice of Law . This Lease shall be construed and governed by the laws of the state in which the Land is located. Venue for any actions brought by Landlord or Tenant pursuant to this Lease will be in San Francisco, California.
9.6 No Waiver of Remedies . The waiver by Landlord of any covenant or condition contained in this Lease shall not be deemed to be a waiver of any subsequent breach of such covenant or condition nor shall any custom or practice which may develop between the parties in the administration of this Lease be construed to waive or lessen the rights of Landlord to insist on the strict performance by Tenant of all of the covenants and conditions of this Lease. No act or thing done by Landlord or Landlords Agents during the Lease Term shall be deemed an acceptance or a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless made in writing and signed by Landlord. The mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy it might have, either under this Lease or at law, nor shall the waiver of or redress for any violation of any covenant or condition in this Lease or in any of the rules or regulations attached to this Lease or later adopted by Landlord, prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of Base Rent, Additional Rent or any other sum payable under this Lease with knowledge of a breach of any covenant or condition in this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the rules and regulations attached to this Lease or later adopted, against Tenant or any other tenant in the Building, shall not be deemed a waiver. Any waiver by Landlord must be in writing and signed by Landlord to be effective.
9.7 Offer to Lease . The submission of this Lease in a draft form to Tenant or its broker or other agent does not constitute an offer to Tenant to lease the Premises. This Lease shall have no force or effect until it is executed by both Tenant and Landlord.
9.8 Force Majeure . In the event that either party shall be delayed, hindered in or prevented from the performance of any act or obligation required under this Lease by reason of acts of God, strikes, lockouts, labor troubles or disputes, inability to procure or shortage of materials or labor, failure of power or utilities, delay in transportation, fire, vandalism, accident, flood, severe weather, other casualty, Governmental Requirements (including mandated changes in the Plans and Specifications or the Tenant Improvements resulting from changes in pertinent Governmental Requirements or interpretations thereof), riot, insurrection, civil commotion, sabotage, explosion, war, natural or local emergency, acts or omissions of others, including the other party, or other reasons of a similar or dissimilar nature not solely the fault of, or under the exclusive control of, Landlord, then performance of such act or obligation (other than Tenants rental obligations under this Lease) shall be excused for the period of the delay and the period for the performance of any such act or obligation shall be extended for the period equivalent to the period of such delay.
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9.9 Severability; Captions . If any clause or provision of this Lease is determined to be illegal, invalid, or unenforceable under present or future laws, the remainder of this Lease shall not be affected by such determination, and in lieu of each clause or provision that is determined to be illegal, invalid or unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. Headings or captions in this Lease are added as a matter of convenience only and in no way define, limit or otherwise affect the construction or interpretation of this Lease.
9.10 Interpretation . Whenever a provision of this Lease uses the term (a) include or including, that term shall not be limiting but shall be construed as illustrative, (b) covenant, that term shall include any covenant, agreement, term or provision, (c) at law, that term shall mean as specified in any applicable statute, ordinance or regulation having the force of law or as determined at law or in equity, or both, and (d) day, that uncapitalized word shall mean a calendar day. This Lease shall be given a fair and reasonable interpretation of the words contained in it without any weight being given to whether a provision was drafted by one party or its counsel.
9.11 Incorporation of Prior Agreement; Amendments . This Lease contains all of the agreements of the parties to this Lease with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties to this Lease or their respective successors in interest.
9.12 Authority . Each of Landlord and Tenant, as applicable, represents and warrants to the other that it has been and is qualified to do business in the state in which the Premises are located, that such entity has full right and authority to enter into this Lease, and that all persons signing on behalf of the entity were authorized to do so by appropriate actions.
9.13 Time of Essence . Time is of the essence with respect to the performance of this Lease.
9.14 Survival of Obligations . Notwithstanding anything contained in this Lease to the contrary or the expiration or earlier termination of this Lease, any and all obligations of either party accruing prior to the expiration or termination of this Lease shall survive the expiration or earlier termination of this Lease, and either party shall promptly perform all such obligations whether or not this Lease has expired or terminated. Such obligations shall include any and all indemnity obligations set forth in this Lease.
9.15 Consent to Service . Tenant irrevocably consents to the service of process of any action or proceeding at the address of the Premises. Nothing in this paragraph shall affect the right to serve process in any other manner permitted by law.
9.16 Landlords Authorized Agents . Notwithstanding anything contained in the Lease to the contrary, including the definition of Landlords Agents, the Manager of Landlord and Bentall Kennedy (U.S.) Limited Partnership (the authorized signatory of Landlord) are the only entitles authorized to amend, renew or terminate this Lease, to compromise any of Landlords claims under this Lease, or to bind Landlord in any manner with respect to this Lease. Neither the Manager nor any leasing agent or broker shall be considered an authorized agent of Landlord for such purposes.
9.17 Waiver of Jury Trial . Landlord and Tenant irrevocably waive the respective rights to trial by jury in any action, proceeding or counterclaim brought by either against the other (whether in contract or tort) on any matter arising out of or relating in any way to this Lease, the relationship of Landlord and Tenant or Tenants use or occupancy of the Premises.
9.18 Tenant Certification . Tenant certifies that it is not acting, directly or indirectly, for or on behalf of any person, group, entity, or nation named as a terrorist, Specially Designated National and Blocked Person, or other banned or blocked person, group, entity, nation, or transaction pursuant to any law, order, rule or regulation that is enforced or administered by the Office of Foreign Assets Control. Tenant is not entering this Lease, directly or indirectly on behalf of, or instigating or facilitating this Lease, directly or indirectly on behalf of, any such person, group, entity or nation.
9.19 Broker . Landlord and Tenant each represents to the other that it has had no dealings, negotiations, or consultations with any broker, representative, employee, agent or other intermediary in connection with this Lease except Broker. Landlord and Tenant agree that each will indemnify, defend and hold the other free and harmless from the claims of any broker(s), representative(s), employee(s), agent(s) or other intermediary(ies) claiming to have represented Landlord or Tenant, respectively, or otherwise to be entitled to compensation in connection with this Lease other than Broker.
[Signatures follow on next page.]
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IN WITNESS WHEREOF, this Lease has been executed the day and year first above set forth.
Designated Address for Tenant : | TENANT : | |||||||
Audentes Therapeutics, Inc. | Audentes Therapeutics, Inc., a Delaware corporation | |||||||
600 California St. |
||||||||
San Francisco, CA 94104 |
By: |
/s/ Matthew Patterson |
||||||
|
Name: |
Matthew Patterson |
||||||
Facsimile: |
415-704-3095 |
Its: |
President & CEO |
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EXHIBIT A to Lease
LEGAL DESCRIPTION OF LAND
THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF SAN FRANCISCO, COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA AND IS DESCRIBED AS FOLLOWS:
BEGINNING AT THE POINT OF INTERSECTION OF THE SOUTHERLY LINE OF SACRAMENTO STREET WITH THE WESTERLY LINE OF KEARNY STREET; RUNNING THENCE WESTERLY ALONG SAID LINE OF SACRAMENTO STREET 130.917 FEET; THENCE AT A RIGHT ANGLE SOUTHERLY 137.500 FEET; THENCE AT A RIGHT ANGLE EASTERLY 30.500 FEET; THENCE AT A RIGHT ANGLE SOUTHERLY 137.500 FEET, MORE OR LESS, TO THE NORTHERLY LINE OF CALIFORNIA STREET; THENCE AT A RIGHT ANGLE EASTERLY ALONG SAID LINE OF CALIFORNIA STREET 100.417 FEET TO THE WESTERLY LINE OF KEARNY STREET; THENCE AT A RIGHT ANGLE NORTHERLY ALONG SAID LINE OF KEARNY STREET 275.000 FEET, MORE OR LESS, TO THE POINT OF BEGINNING.
BEING A PORTION OF 50 VARA BLOCK NO. 92
APN: LOT 27, BLOCK 241
COMMONLY KNOWN AS: | 600 CALIFORNIA STREET | |
SAN FRANCISCO, CALIFORNIA 94109 |
Ex. A
EXHIBIT B to Lease
DRAWING SHOWING LOCATION OF THE PREMISES
17th Floor
Ex. B
EXHIBIT B to Lease
DRAWING SHOWING LOCATION OF THE PREMISES
16th Floor
Ex. B
EXHIBIT C to Lease
RENT DETERMINATION IN EXTENSION PERIOD
1. Tenant shall have the option to extend the Lease Term for the Extension Term. Base Rent for the Extension Term shall be one hundred percent (100%) of the then-prevailing market rate for comparable space in the area ( Fair Market Value ).
2. In the event Landlord and Tenant are unable to agree upon a mutually acceptable Fair Market Value by the date that is four (4) months prior to the expiration of the Initial Lease Term (the Fair Market Deadline ), Landlord shall, within fifteen (15) days following the Fair Market Deadline, appoint an appraiser to complete an appraisal of the Fair Market Value within fifteen (15) days after the appointment of Landlords appraiser and Landlord shall deliver a copy thereof to Tenant promptly upon receipt by Landlord ( Landlord Appraisal ). For purposes of this Lease, an appraiser shall be an independent MAI appraiser with at least ten (10) years of experience in appraising office buildings in the San Francisco area.
3. If Tenant delivers notice to Landlord of Tenants disapproval of the Landlord Appraisal within five (5) Business Days of Tenants receipt of the Landlord Appraisal, then Tenant shall have fifteen (15) days to select an appraiser to deliver an additional appraisal of the Fair Market Value (the Tenant Appraisal ). The Tenant Appraisal shall be delivered within fifteen (15) days after the appointment of Tenants appraiser and Tenant shall deliver a copy thereof to Landlord promptly upon receipt by Tenant.
4. If Landlord delivers notice to Tenant of Landlords disapproval of the Tenant Appraisal within five (5) Business Days of Landlords receipt of the Tenant Appraisal, then Landlord and Tenant shall each cause their respective appraisers to jointly select a third appraiser (the Joint Appraiser ). If the two appraisers fail to select a Joint Appraiser within thirty (30) days following the date that Tenant received Landlords notice of disapproval of the Tenant Appraisal, either Landlord or Tenant may petition a court of competent jurisdiction to appoint a third appraiser. The Joint Appraiser shall, within fifteen (15) days of appointment, select either the Landlord Appraisal or the Tenant Appraisal as the Final Appraisal.
5. Notwithstanding anything to the contrary herein, the Fair Market Value for the Extension Term shall be either (i) the Fair Market Value as expressed in either the Landlord Appraisal or the Tenant Appraisal, if both Landlord and Tenant agree that one of such appraisals properly reflects the Fair Market Value; or (ii) the Fair Market Value reflected in the Final Appraisal, as selected by the Joint Appraiser.
6. All appraisers appointed hereunder shall be, at the time of their appointment, members of good standing of the Appraisal Institute. The party whose appraisal the Joint Appraiser did not select shall be responsible for the cost of the Joint Appraisers services, otherwise, the cost of the Landlord Appraisal shall be borne by Landlord and the cost of the Tenant Appraisal shall be borne by the Tenant.
Ex. C
EXHIBIT D to Lease
FORM OF LEASE MEMORANDUM
MEPT 600 California Street LLC, a Delaware limited liability company, as Landlord, and Audentes Therapeutics, Inc., a Delaware corporation, as Tenant, executed that Lease dated as of , 201 (the Lease).
The Lease contemplates that this document shall be delivered and executed as set forth in the paragraph entitled Lease Memorandum. This Lease Memorandum shall become part of the Lease.
Landlord and Tenant agree as follows:
1. The Commencement Date of the Lease is .
2. The Delivery Date of the Lease is .
3. The end of the Initial Lease Term and the date on which this Lease will expire is .
4. The Lease is in full force and effect as of the date of this Lease Memorandum. By execution of this Lease Memorandum, Tenant confirms that as of the date of the Lease Memorandum (a) Tenant has no claims against Landlord and (b) Landlord has fulfilled all of its obligations under the Lease required to be fulfilled by Landlord.
5. Tenants Pro Rata Share is percent ( %).
Dated: |
|
Dated: |
|
Ex. D
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EXHIBIT E to Lease
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building or Land without the prior written consent of the Landlord. Landlord shall have the right to remove, at Tenants expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person chosen by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, Tenant shall promptly discontinue such use. No awning shall be permitted on any part of the Premises. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalk, halls, passages, exits, entrances, elevators, escalators, or stairways of the Building. The halls, passages, exits, entrances, elevators, escalators and stairways are not open to the general public. Landlord shall in all cases retain the right to control and prevent access to such areas of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Land, Building and the Buildings tenants; provided that, nothing in this Lease contained shall be construed to prevent such access to persons with whom any Tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. Tenant shall not go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. Cleaning and janitorial services shall be provided five (5) days per week. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage to any Tenants property by the janitor, any of Landlords Agents or any other person.
6. Landlord will furnish Tenant, free of charge, two (2) keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises (except for any secure areas of the Premises; provided however, in such case, Tenant shall provide Manager with any keys or access codes to such secure areas). Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires Telecommunication Services, computer circuits, burglar alarm or similar services or other utility services, it shall first obtain Landlords approval of the construction or installation of such services. Application for such services shall be made in accordance with the procedure prescribed by Landlord in subsection 3.5.2 of the Lease.
8. No equipment, materials, furniture, packages, bulk supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. The persons employed to move such equipment or materials in or out of the Building must be reasonably acceptable to Landlord.
9. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by Governmental Requirements. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Building or to any space in the Building or to any other tenant in the Building, shall be placed and maintained by Tenant, at Tenants expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move
Ex. E
1
such equipment in or out of the Building must be reasonably acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities permitted by the Lease. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations nor shall Tenant bring into or keep in or about the Premises any birds or animals other than service animals.
11. Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord or installed pursuant to the terms of this Lease.
12. Tenant shall not waste any utility provided by Landlord and agrees to cooperate fully with Landlord to assure the most effective operation of the Buildings heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice.
13. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building.
14. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action.
15. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before Tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.
16. Intentionally Omitted.
17. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be deposited in them. The expenses of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant if it or its employees or invitees shall have caused it.
18. Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Building. Tenant shall not use the Premises for any business or activity other than that specifically provided for in the Lease.
19. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. Other than the usual and customary cellular telephones, Tenant shall not install or utilize any wireless Telecommunication Facilities, including antenna and satellite receiver dishes within the Premises or on, in, or about the Building without first obtaining Landlords prior written consent and Landlord at its option may require the entry of a supplemental agreement with respect to such construction or installation. Tenant shall comply with all instructions for installation and shall pay or shall cause to be paid the entire cost of such installations. Application for such facilities shall be made in the same manner and shall be subject to the same requirements as specified for Telecommunication Services and Telecommunication Facilities in the paragraph of the Lease entitled Utilities. Supplemental rules and regulations may be promulgated by Landlord specifying the form of and information to be included with the application and establishing procedures, regulations and controls with respect to the installation and use of such wireless Telecommunication Facilities.
20. Except for normal picture hanging and similar decorations, Tenant shall not mark, drive nails, screws or drill into the partitions, woodwork or plaster or in any way deface the Premises. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be
Ex. E
introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule.
21. Tenant shall not install, maintain or operate upon the Premises any vending machine without the written consent of Landlord.
22. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Building or Land are prohibited, and Tenant shall cooperate to prevent the same.
23. Landlord reserves the right to exclude or expel from the Building and Land any person who, in Landlords judgment, is intoxicated, under the influence of liquor or drugs or in violation of any of these Rules and Regulations.
24. Tenant shall store all of its trash and garbage within the Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord.
25. The Premises shall not be used for lodging or any improper or immoral or objectionable purpose. No cooking shall be done or permitted by Tenant, except that use by Tenant of Underwriters Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted; provided that, such equipment and its use is in accordance with all Governmental Requirements.
26. Tenant shall not use in the Premises or in the public halls of the Building any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building.
27. Tenant may transport bicycles only through the Parking Facility of the Building to the Premises using only the freight elevator. In no event shall Tenant use the passenger elevators of the Building to transport any bicycles or take any bicycles through the main lobby of the Building. If the freight elevator of the Building is unavailable, Landlord will designate a passenger elevator to be used for such transportation. Tenant may regulate its employees use and storage of bicycles within the Premises but, in all events, Tenant shall maintain the Building and Premises in good condition and repair and in compliance with all applicable Regulations, pursuant to the terms of the Lease. At its sole cost and expense, Tenant shall promptly repair any damage caused to the Building as a result of bicycle transportation to and from the Premises and shall be responsible for any janitorial expenses incurred by Landlord as a result of such usage. Landlord shall have no liability for any damage to any bicycles or contents thereof and the transportation and storage of any bicycles throughout the Building shall be at the sole risk of Tenant. Tenants indemnity obligations under the Lease shall fully apply with respect to any bicycles brought onto the property or into the Building by Tenant and/or any Tenant Entities.
28. Without the prior written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenants address.
29. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.
30. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.
31. Tenant requests for services must be submitted to the Building office by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instruction from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord.
32. Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building or Land. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the Building parking areas other than automobiles, motorcycles, motor driven or nonmotor driven bicycles or four-wheeled trucks.
33. Tenant shall not permit any animals other than service animals, e.g., seeing-eye dogs, to be brought or kept in or about the Premises or any common area of the Building.
34. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other person, nor prevent Landlord from thereafter revoking such waiver and enforcing any such Rules and Regulations against any or all of the tenants of the Building.
Ex. E
35. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the covenants and conditions of any lease of premises in the Building. If any provision of these Rules and Regulations conflicts with any provision of the Lease, the terms of the Lease shall prevail.
36. Landlord reserves the right to make such other and reasonable, nondiscriminatory Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, the care and cleanliness of the Building and Land, the preservation of good order in the Building and the maintenance or enhancement of the value of the Building as a rental property. Tenant agrees to abide by all the Rules and Regulations stated in this exhibit and any additional reasonable, nondiscriminatory rules and regulations which are so made by Landlord and provided to Tenant.
37. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant and Tenants Agents.
Ex. E
EXHIBIT F to Lease
SCHEDULE OF CLEANING SERVICES
Introductory Note: All services set forth in this Exhibit shall only be performed if and to the extent the applicable surface to be vacuumed, buffed, polished, swept, moped, dusted, wiped, washed or otherwise cleaned is exposed and readily accessible.
Daily Cleaning Services
1. | Empty waste baskets and remove refuse to designated area. Reline and wipe clean receptacles as needed. |
2. | Break down all boxes or any items marked trash and remove to designated areas. |
3. | Vacuum upholstered chairs and sofas where necessary. |
4. | Sweep all hard floors (tile, wood, etc.). |
5. | Sweep and damp mop all vinyl, marble and quarry tile floors. Spot buff as needed. |
6. | Spot clean all tenant and common area carpets as needed. Shampoo all common area high traffic lanes as needed. |
7. | Dust and/or wipe clean the following surfaces: |
| desks |
| chairs |
| file cabinets |
| tables |
| telephones |
| pictures and frames |
| doors |
| lamps |
| ledges and shelves |
| desk/furniture partitions |
| any other horizontal surface of a fixture or furniture subject to collecting dust |
8. | Wipe clean the following surfaces: |
| window sills and ledges |
| counter tops and kitchen cabinets |
| switch plates |
| private entrance doors |
| glass, mirrored and wood doors, panels, windows and walls |
| walls in kitchen and disposal area |
| conference tables |
9. | Wash, clean and disinfect water fountains and/or coolers. Give special attention to adjacent floor areas. |
10. | Establish regular cleaning maintenance program for floor in public lobby area in conjunction with Property Manager; standard necessary to maintain is high quality shine with no water marks, stains, scuffing or other signs of wear. |
Ex. F
11. | Wipe and polish all glass, chrome and metal surfaces such as windows (interior and up to standard ceiling height), partitions, banisters, door knobs, light switch plates, kick plates, directional signs and door saddles. |
12. | Polish directory. |
13. | Vacuum and spot shampoo all carpet entrance mats. |
14. | Spot clean all wall surfaces. |
15. | Clean all entrance doors. |
Daily Elevators
1. | Wash and polish wood and stainless walls, doors and hall plate. Keep tracks clean of dust, dirt and debris. Vacuum carpet. Spot clean carpet as needed. |
Daily Lavatories
1. | Sweep and wet mop all tile floors using disinfectant. |
2. | Thoroughly clean all mirrors, top to bottom. |
3. | Scour, wash and disinfect all sink basins, counter tops, bowls, urinals, including undersides. |
4. | Wash toilet seats, both sides. |
5. | Wipe clean all partitions. |
6. | Wipe clean all wall tile as needed. |
7. | Remove all trash and sanitary waste, wash receptacles as necessary. Remove rubbish to designated area. |
8. | Restock hand soap and paper products. |
9. | Polish all stainless dispensers. |
Weekly Cleaning Services
1. | Wash and sanitize metal partitions. Dust horizontal surfaces exceeding 70 height. Damp clean ceiling and exhaust fans. |
2. | Wash all interior glass, including hallways, widows (excluding second story atrium windows), lobby doors, partitions and glass door panels. |
3. | Dust all blinds in common areas. |
4. | Sweep fire tower stairwells. Wet mop as needed. Wipe hand rails and dust metalwork. |
5. | Wipe clean all desk tops and credenzas. |
6. | Remove all finger prints and dirt from door frames, kick and push plates, handles and railings. |
Ex. F
7. | Wet wipe all horizontal surfaces to 70 including moldings, shelves, etc. |
8. | Polish all fine wood furniture including desks, chairs and cabinets. |
9. | Spray buff all vinyl tiles floors as necessary. |
10. | Buff other hard surfaces, floors to include ceramic, quarry and marble title as necessary. |
11. | Wipe clean all plant containers in common areas. |
12. | Thorough vacuuming of all carpeted area, including corner and crevice vacuuming in all tenant spaces and common areas. |
Monthly / Quarterly Cleaning Services
1. | Thoroughly wipe clean all ceiling vents and exhaust fans and area immediately adjacent: monthly to quarterly, as needed. |
2. | Strip and refinish all tile floors including restroom floors on a quarterly basis. |
3. | Wipe clean and remove all fingerprints from full height doors. |
4. | Thoroughly clean all pipes, ventilating and air conditioning louvers, ducts and high molding: monthly to quarterly, as needed. |
5. | Wipe clean as needed all vinyl base. Vacuum as needed all carpet cove base: monthly to quarterly, as needed. |
6. | Thoroughly wash all trash receptacles, inside and outside. |
7. | Spot clean all vertical surfaces. |
8. | Spray buff all vinyl floors (both tenant and common areas) quarterly. |
Ex. F
Rider 1
LETTER OF CREDIT CRITERIA
1. The letter of credit shall be clean, irrevocable and unconditional.
2. The letter of credit shall be in the amount specified in the Lease paragraph captioned Lease Security Provisions .
3. The letter of credit shall be issued in favor of:
MEPT 600 California Street LLC
c/o NewTower Trust Company
Attn: President
3 Bethesda Metro Center, Suite 1600
Bethesda, MD 20814
The letter of credit shall be effective immediately on its issuance.
4. The letter of credit will be issued by Silicon Valley Bank or any other bank proposed by Tenant and reasonably acceptable to Landlord.
5. The letter of credit shall have an expiration date no earlier than the first anniversary of the date of its issuance and shall provide for its automatic renewal from year to year unless terminated by the issuing bank by notice to Landlord given not less than thirty (30) days prior to its expiration date. Notice to Landlord shall be in writing, made by (i) United States Postal Service, certified mail, return receipt requested; or (ii) reputable express or courier service. Notice to Landlord shall be addressed to Landlord at its address in paragraph 2 above and to the following parties:
Bentall Kennedy (U.S.) Limited Partnership
Attn: Dir. of Asset Management
1215 Fourth Avenue, Suite 2400
Seattle, WA 98161
and to:
Jones Lang LaSalle Americas, Inc.
Attn: Reina L. Hugh, General Manager
600 California Street, Suite 510
San Francisco, CA 94108
Facsimile: 415-391-2955
The final expiration date of the letter of credit and all renewals of it shall be no earlier than thirty (30) days following the end of the Lease Term.
6. The letter of credit may be drawn at the designated banking office of either the issuer of the letter of credit described in clause (a) of paragraph 4 or, if clause (b) of paragraph 4 is applicable, the confirming bank described in clause (b) of such paragraph 4. The letter of credit shall allow for draws to be made at sight on a draft drawn by NewTower Trust Company. The draft shall be approved as to form by Landlord. The letter of credit must allow for one draw in the whole amount or multiple partial draws. Landlord shall not be required to deliver any certificate, affidavit or other writing to the issuer expressing the basis for the draw as a condition to any draw.
7. The letter of credit shall be transferable and any applicable transfer fees shall by paid for by Tenant.
Rider 1
8. The letter of credit shall be governed by the International Standby Practices (ISP 98 published by the International Chamber of Commerce. Alternatively, if approved by the lender and if required by either the issuing bank or the confirming bank, the Uniform Customs and Practices for Documentary Credits published by the International Chamber of Commerce may be substituted for the International Standby Practices to the extent such Customs and Practices are not inconsistent with the criteria in this Rider 1 .
9. Issuer shall waive all waiting periods whether under Uniform Commercial Code Section 5.112 or otherwise.
10. The letter of credit shall otherwise be in such form and shall be subject to such requirements as Landlord may reasonably require.
Rider 1
Rider 2
Description of Landlords Work
Landlord work will include:
| Construction of the Multi-Tenant Common Area Corridor |
| ADA upgrades in the 16 th Floor Common Area Restrooms |
| Construction of a Full Height Demising Wall |
| Tenant is responsible for all MEP costs associated with their improvement work |
Rider 2
Rider 4
Asbestos Notification
Month , Year
Tenant
Re: |
Asbestos Notification - California Health & Safety Code Sec. 25914 et seq. for 600 California Street, San Francisco, CA 94109 |
Dear:
California Health and Safety Code Sections 25915 et seq. requires commercial landlords to notify their tenants at the start of their leases and annually thereafter regarding known asbestos-containing construction materials (ACM) present in buildings constructed prior to 1979, and CalOSHA regulations require building owners to determine and inform tenants and others regarding hazards associated with disturbing presumed ACMs (PACM) in buildings constructed prior to 1981. PACM consists of thermal system insulation and surfacing material, both of which prior to that date commonly contained asbestos. This notice provides you with the required ACM and PACM notifications under California law with respect to your tenancy in the above-referenced building (the Building).
In addition, you should be aware that there are certain potential health risks that may result from exposure to asbestos. Because we are not physicians, scientists or industrial hygienists, we have no special knowledge of the health impact of exposure to asbestos. However, we retained an environmental consulting firm to survey and sample the Building. The consulting firm identified ACM and suspect ACM in constructions materials and other components located in portions of the Building identified on the attached list.
The survey only involved testing and sampling of selected building materials, and the Building may contain additional areas of ACM other than those specifically identified.
In addition, we have had an Asbestos Management Program (O&M Plan) prepared to identify and address asbestos matters at the Building. The O&M Plan is designed to minimize the potential for a release of asbestos fibers and outlines a schedule of actions to be undertaken with respect to asbestos. The asbestos survey and the O&M Plan are available for your review at our Building Management Office during regular business hours, and a copy of the O&M Plan will be provided to you upon request.
In general, the written O&M Plan describes the risks associated with asbestos exposure and how to prevent such exposure. The O&M Plan is also designed to manage the ACM and PACM in the Building and to avoid the inadvertent disturbance of these materials. To that end, the O&M Plan provides for the training of building housekeeping and maintenance personnel so that they can conduct their work without causing a release of asbestos fibers. As part of the O&M Plan, we maintain records of all asbestos-related activities and the results of any asbestos survey, sampling or monitoring conducted in the Building.
Rider 4
Tenant
Month , Year
Page 2
The written O&M Plan describes a number of activities which should be avoided in order to prevent a release of asbestos fibers in the Building. In particular, you should be aware that activities which may present a health risk by causing an airborne release of asbestos fibers include moving, drilling, boring or otherwise disturbing ACM or PACM. Consequently, such activities should not be attempted by any person not qualified to handle ACM or PACM. In other words, you must obtain the approval of Building Management prior to engaging in or having others engage in any such activities on your behalf.
You must contact the Property Manager prior to any activity conducted by you or any contractor or service personnel which might disturb ACM. Specifically, this means any construction activity or activity requiring opening up the drop-ceiling such as running telephone or electrical cables or working on air ducts or piping above the drop-ceiling. Moving, drilling, boring or otherwise disturbing ACM may present a health risk and should not be attempted by any employee who has not been trained and qualified to handle ACM. Should you observe any of the materials described in this letter in a damaged condition or notice individuals working above the suspended ceiling, please contact the building management office immediately.
Finally, please be aware that you may have certain obligations under California and federal laws with regard to the ACM and PACM in the Building, including obligations to notify your own employees, contractors, subtenants, agents and others of the presence of ACM and PACM particularly if their work will involve disturbing ACM or PACM. You are solely responsible for complying with all such applicable laws.
Please contact the Building Management if you have any questions regarding the contents of this Notice.
Sincerely,
Building Owner/Property Manager
Rider 4
List
of
600 California Street
ACM, Assumed ACM and PACM Locations
| Mirror mastic in the floors of the Building |
Rider 4
EXHIBIT 10.12
* Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
COLLABORATIVE DEVELOPMENT AGREEMENT
No. 013135-1MTUB-00
This COLLABORATIVE DEVELOPMENT AGREEMENT (the Agreement ), effective as of January 24, 2014 (the Effective Date ), is made by and between Audentes Therapeutics, Inc., a Delaware corporation, having a place of business at 101 Montgomery Street, Suite 2650, San Francisco, CA 94104, USA ( Audentes ) and Genethon, a French not-for-profit organization organised under the French law of July 1, 1901, having a principal place of business at 1bis rue de lInternationale, 91002 EVRY Cedex, France ( Genethon ).
BACKGROUND
A. Audentes is a biotechnology company focused on the research, development and commercialization of treatments for rare diseases.
B. Genethon is a French not-for-profit organization focused on the research, development and commercialization of treatments for rare diseases, and has notably developed an expertise in (i) the preclinical and clinical development of gene therapy products, especially gene therapy vectors based on AAV vectors, (ii) the development of bioprocesses, (iii) the manufacture and supply of gene therapy products for preclinical studies and clinical trials, and (iv) regulatory affairs related to such activities.
C. Audentes and Genethon share a mutual interest in researching, developing, and commercializing pharmaceutical products for the treatment of XLMTM and desire to enter a collaboration wherein Genethon will perform certain pre-clinical and clinical manufacturing and development activities, on the terms set forth below.
NOW THEREFORE, for and in consideration of the covenants, conditions and undertakings hereinafter set forth, it is agreed by and between the Parties as follows:
1. DEFINITIONS
As used herein, the following terms will have the meanings set forth below:
*Confidential Treatment Requested.
1.1 Affiliate shall mean any corporation or other entity, which is directly or indirectly controlling, controlled by or under common control of a Party hereto for so long as such control exists, where control shall mean the direct or indirect ownership of at least fifty percent (50%) of the outstanding shares or other voting rights of the subject entity having the power to vote on or direct the affairs of the entity, or if not meeting the preceding, the maximum voting right that may be held by the particular Party under the laws of the country where such entity exists.
1.2 Background Intellectual Property shall mean, collectively, any and all Background Know-How and Background Patent Rights.
1.3 Background Know-How shall mean any and all Know-How Controlled by a Party on the Effective Date that is used by the Party to conduct the Research Program and/or provided to the other Party for such purpose.
1.4 Background Patent Rights shall mean any and all Patent Rights Controlled by a Party on the Effective Date that relate to the Product or to the materials or methods used to conduct the Research Program. The Genethon Background Patent Rights include notably the Patent Rights listed in Exhibit D.
1.5 Confidential Information shall have the meaning set forth in Section 9.1.
1.6 Control or Controlled shall mean ownership or possession of the ability to grant the licenses or sublicenses as provided herein without violating the terms of any agreement or other arrangements with any Third Party.
1.7 Development Plan shall mean the reasonably detailed description of the specific activities to he conducted by the Parties with respect to the research, development and manufacturing of Product (including the Genethon Research Program Activities), and corresponding timeline estimates and budget of Genethons costs, as further described in Section 2.2 and as such may from time to time be updated, completed or otherwise modified in accordance with Section 3.6.
1.8 Genethon Additional Internal IP shall have the meaning set forth in Section 4.3.
1.9 Genethon Additional In-Licensed IP and Genethon Additional IP shall have the meanings set forth in Section 4.4.
1.10 Genethon Research Program Activities are the activities to be conducted by Genethon as part of the. Research Program, as generally described in Exhibit A hereto (as such may be modified from time to time by amendment to this Agreement) and as set forth in more detail in the Development Plan.
1.11 JDC or Joint Development Committee shall have the meaning set forth in Section 3.1.
2
1.12 Know-How means any and all ideas, inventions (whether or not patentable), data, instructions, processes, formulas, expert opinions and information, including without limitation biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, clinical, safety, manufacturing and quality control data and information, and biological and chemical materials, including without limitation viruses and plasmids.
1.13 Patent Rights means any and all (i) patent applications, (ii) divisions, continuations, and continuations-in-part, including U.S. and foreign thereof, (iii) patents that issue as a result of any of the foregoing, and (iv) reissues, reexaminations, extensions or other governmental actions which extend any of the subject matter of the patents in (iii) above, and any substitutions, confirmations, registrations or revalidations of any of the foregoing.
1.14 Party or Parties shall mean, respectively, Genethon or Audentes individually, or Genethon and Audentes collectively.
1.15 Product shall mean any pharmaceutical product for the treatment of X-linked myotubular myopathy (XLMTM) which is based on MTM1 gene replacement.
1.16 Program Intellectual Property shall mean, collectively, Program Know-How and Program Patent Rights.
1.17 Program Know-How shall mean any and all Know-How developed solely or jointly by or on behalf of Genethon and/or Audentes in the course of performing the Research Program.
1.18 Program Patent Rights shall mean all Patent Rights covering inventions conceived, reduced to practice or otherwise made solely or jointly by or on behalf of Genethon and/or Audentes in the course of performing the Research Program.
1.19 Research Program shall mean the research, development and manufacturing program to be undertaken by the Parties under the Development Plan.
1.20 Term is defined in Section 14.1.
1.21 Third Party shall mean any person or entity other than Genethon and Audentes, and their respective Affiliates.
2. RESEARCH COLLABORATION
2.1 Conduct of the Research Program .
(a) Subject to the terms and conditions set forth herein, the Parties agree to conduct research in accordance with the Research Program, which shall be funded as set forth in Section 5.2. Genethon and Audentes shall collaborate and conduct the Research Program in accordance with the Development Plan within the time schedules contemplated therein and shall keep each other informed as to the progress and results of the Research Program hereunder.
(b) Given the experimental nature of the activities to be conducted under the Research Program, it is expected that the Parties shall conduct the activities for which they are responsible in conformance with that level of care and skill ordinarily exercised by other
3
professionals in similar circumstances and in compliance with applicable laws and regulations but it is acknowledged that neither Party represents and warrants that the activities for which they are responsible will be successful. The Parties shall use commercially reasonable efforts to achieve the objectives set out in the timelines attached to the Development Plan, but neither Party represents or warrants that it will successfully achieve these objectives. Each Party shall notify the other promptly in the event it becomes aware of any fact or circumstance which is likely to delay the performance of the Development Plan activities.
2.2 Development Plan . The initial Development Plan for the Genethon Research Program Activities, including a reasonably detailed description of the activities to be conducted during at least the first [*] of the Research Program and the corresponding timelines and budget for Genethons costs, shall be agreed upon in good faith by the Parties within [*] of the Effective Date. The Development Plan shall thereafter be updated and completed on at least a yearly basis to include a reasonably detailed description, and the corresponding timelines and budget for Genethons costs, of additional Development Program activities the JDC agrees to include in the Development Plan, subject to Section 3.6. Either Party may prepare any such updates and submit them to the JDC for approval in accordance with Section 3.6. The Parties acknowledge and agree that including additional Genethon activities in the Development Plan may require agreeing on additional legal or regulatory terms and conditions applicable thereto, as required by applicable laws or otherwise reasonably necessary. For example, any addition of GMP manufacturing activities to the Development Plan will require the Parties to enter into a Quality Agreement relating thereto.
2.3 Records; Inspection .
(a) Records . Genethon shall maintain records of the Genethon Research Program Activities in sufficient detail and in good scientific manner as will properly reflect all work done and results achieved in the performance of the Genethon Research Program Activities (including all data in the form required under any applicable governmental regulations and as directed by the JDC). Genethon shall maintain such records for a period of [*] following termination or expiration of the Agreement, and shall provide Audentes access to such records, at Genethons place of business upon reasonable advance notice of Audentes.
(b) Reports and Information Exchange . Each of Genethon and Audentes shall use commercially reasonable efforts to report to the other Party through the JDC all material information relating to the Research Program, including any material item of Program Know-How, promptly after it is learned or its materiality is appreciated. Each Party shall also keep the other Party, through the JDC, informed as to its progress under the Development Plan.
2.4 Genethon Manufacture of Product and Technology Transfer .
(a) Genethon shall, subject to Genethons capability to supply required quantities of Product in a timely manner in accordance with the timelines set forth in the applicable Development Plan, have the exclusive right to manufacture and supply, and shall manufacture and supply in accordance with the Development Plan and the terms and conditions of this Agreement, the Product required by Audentes and/or its Affiliates or sublicensees for preclinical and clinical purposes pursuant to this Agreement.
4 | *Confidential Treatment Requested. |
(b) The manufacture and supply by Genethon of batches of Product for commercial purposes shall be the subject of further discussions in good faith between the Parties and shall in any case depend on Genethon demonstrating its capability to conduct such manufacturing, it being understood that in no event shall either Party be liable to the other in case of failure to agree on the terms of such manufacturing. In the event the Parties are unable to agree on such terms, at Audentess request, Genethon shall promptly perform the activities set forth in Section 2.4(d).
(c) At any time during the Term, should Genethon be unable to manufacture Product required by Audentes for the performance of clinical development in a timely manner consistent with the agreed timelines, the JDC shall meet promptly to discuss the situation and possible actions to remedy the situation, including if appropriate the related work plan timelines and budget. Should the JDC be unable to agree on remedial actions for a period of [*] after their first meeting, the matter will be submitted to, the Parties respective CEOs for resolution. Should the CEOs be unable to agree on remedial actions to implement for a period of [*] after the matter has been submitted to them, then, if the transfer of such manufacturing to Audentes or a Third Party subcontractor or CMG would [*] as compared with [*] or would [*], Genethon will [*] in accordance with Section 2.4(d) below, subject to the principles set out in Sections 2.4(e) and 5.3 below.
(d) In any case of technology transfer under Sections 2.4(b) and/or 2.4(c), Genethon shall provide to Audentes or its designee, such assistance and materials, including but, not limited to drawings, procedures and other documents and materials (including any relevant item of Background Know-How and/or Program Know-How) as Audentes may request, to enable Audentes or its designee (including a manufacturer) to manufacture the Products and, if requested by Audentes, Genethon shall reasonably assist Audentes in locating other Third Parties to continue the manufacture of the Products.
(e) In any case of technology transfer under Sections 2.4(b) and/or 2.4(c), Audentes shall provide to Genethon in advance the identity and address of any proposed Third Party manufacturer. The transfer shall also be subject to the Third Party manufacturer entering into a customary agreement to protect the confidentiality of Background Intellectual Property and Program Intellectual Property provided by Genethon and undertaking to use such Intellectual Property only for the purpose of manufacturing Product for the benefit of Audentes, its Affiliates and/or licensees or sublicensees. Genethon may object to the proposed Third Party manufacturer but only on the basis of reasonable concerns (based on documentation reasonably acceptable to Audentes) as to the security of any confidential Know-How of Genethon to be provided to the Third Party manufacturer as part of such technology transfer.
3. GOVERNANCE
3.1 Joint Development Committee . Within ninety (90) days following the Effective Date, Audentes and Genethon will establish a Joint Development Committee (the JDC ). The responsibilities of the JDC shall include, among other things: (i) ensuring open and frequent exchange between the Parties regarding Research Program activities and (ii) overseeing and reviewing the status and findings of the Research Program activities.
5 | *Confidential Treatment Requested. |
3.2 Membership . The JDC shall include [*] representatives of each of Audentes and Genethon, each Partys members selected by that Party. The JDC shall initially include [*]. Genethon and Audentes may each replace its JDC representatives at any time, upon written notice to the other Party. From time to time, the JDC may establish subcommittees, to oversee particular projects or activities, and such subcommittees will be constituted as the JDC agrees.
3.3 Meetings . During the Research Program, the JDC shall meet at least quarterly, or as agreed by the Parties, at such locations as the Parties agree, and will otherwise communicate regularly by telephone, electronic mail, facsimile and/or video conference. With the consent of the Parties, other representatives of Genethon or Audentes may attend JDC meetings as nonvoting observers, including relevant outside experts subject to their first entering into a confidentiality agreement. To the extent Audentes requires the JDC to meet at a location other than Paris, [*] shall be responsible for the [*] associated with attendance of such meetings.
3.4 Minutes . The JDC shall keep accurate minutes of its deliberations which shall record all proposed decisions and all actions recommended or taken. The Secretary of the JDC (as appointed by the members of the JDC) shall be responsible for the preparation of draft minutes. Draft minutes shall be sent to all members of the JDC within [*] after each meeting and shall be approved, if appropriate, at the next meeting. All records of the JDC, shall at all times be available to both Genethon and Audentes.
3.5 Decision Making . All decisions of the JDC shall be made by consensus. In the event that the votes required to approve a decision cannot be reached within the JDC, then such matter shall first be referred to Audentess CEO and Genethons CEO, who shall attempt in good faith to resolve such disagreement within [*] of such matter being referred to them. If such matter is not resolved within such [*] period, then Audentes may exercise its deciding vote with respect to such matter, subject to Section 3.6. In any case, the JDC may not modify the Parties rights and obligations set out in the body of this Agreement or make any decision that is identified in this Agreement as requiring an amendment to the Agreement.
3.6 Modifications of the Development Plan . The JDC may from time to time as required modify the Development Plan. In the event the JDC is unable to agree on a modification of the Development Plan, subject to the escalation process set forth in Section 3.5, Audentes may exercise the casting vote; provided, however, that Audentes may not do so with respect to modifications involving (a) modifying the nature of the activities to be conducted by Genethon as set forth in Exhibit A, or (b) adding additional Genethon activities that Genethon does not typically conduct or that Genethon does not reasonably have the available capacity to perform (taking into account committed current obligations and anticipated future obligations for both internal and Third Party programs) or that would, in Genethons reasonable opinion, give rise to material safety or regulatory issues. Any modification of the Development Plan decided by the JDC must be formally recorded in the JDC minutes.
6 | *Confidential Treatment Requested. |
4. LICENSES
4.1 Background Intellectual Property .
(a) Genethon hereby grants to Audentes a royalty-free, fully paid-up, worldwide, sublicenseable (through multiple tiers), exclusive (including as to Genethon) license under its Background Intellectual Property, for the sole purpose of making, using, importing, selling, offering for sale and otherwise discovering, researching, developing or commercializing Products. Notwithstanding the above, the license granted in this Section 4.1(a) shall be subject to the following:
(i) With respect to [*], the licenses granted to Audentes under this Section 4.1(a) shall be limited to Genethons co-ownership share and subject to the rights of the co-owners identified in Exhibit D-1. The Parties agree that (a) Genethon shall [*], and (b) any co-ownership agreement Genethon may enter into with such co-owners shall [*] and (c) subject to the foregoing sub-clause (h), Audentes shall [*].
(ii) With respect to [*], the licenses granted to Audentes under this Section 4.1(a) shall be subject to the rights of the co-owner identified in Exhibit D-2, provided that Genethon shall use [*] efforts to [*].
(iii) With respect to [*], Genethon hereby grants to Audentes an option to obtain a sublicense under the terms set forth in Exhibit E under that certain Patent License Agreement entered into by Genethon with the United States Department of Health and Human Services (the HHS ) on June 22, 2012 (such agreement, a copy of which has been provided to Audentes subject to confidentiality obligations, the HHS Patent License Agreement ) for the sole purpose of making, using, importing, selling, offering for sale and otherwise discovering, researching, developing or commercializing Products following a technology transfer under Section 2.4(b) or 2.4(c); it being understood that such option to obtain a sublicense is subject to HHSs reasonable prior written approval in, accordance with Section 4.1 of the HHS Patent License Agreement. Audentes may exercise such option at any time following the Effective Date upon delivery of written notice to Genethon, subject to the following conditions: (a) Audentes shall make a sublicense payment to Genethon of [*]; and (b) Audentes hereby agrees that, following the exercise of such option, Audentes shall pay directly to HHS (unless HHS does not accept the direct payment thereof, in which case Audentes shall make such payments to Genethon) all earned and benchmark royalty payments due to HHS pursuant to Appendix C HI and IV of the HHS Patent License Agreement in consideration for such sublicense in connection with Audentess or its sublicensees manufacture, development and commercialization of Product.
(iv) Genethon agrees, not to, without Audentess prior written consent, terminate any agreement (including any co-ownership agreement) under which Genethon has in-licensed Genethon Background Intellectual Property rights granted to Audentes under this Section 4.1(a), or amend any such agreement such that it would adversely affect such rights or impose any payment or other obligations on Audentes or its sublicensees (or in the case of the HHS Patent License Agreement, that would increase or accelerate the payment obligations provided for in such agreement as of the Effective Date).
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(b) Audentes hereby grants to Genethon a non-exclusive, royalty-free, fully-paid up, non-sublicenseable license under its Background Intellectual Property to the extent necessary or useful to conduct the Genethon Research Program Activities under the Agreement, including without limitation the manufacturing activities contemplated as part of the Research Program.
4.2 Program Intellectual Property . Genethon hereby grants to Audentes an exclusive (including as to Genethon), royalty-free, fully paid-up, worldwide, sublicenseable license under Genethons interest in any Program Intellectual Property for the purpose of making, using, importing, selling, offering for sale and otherwise discovering, researching, developing or commercializing Products.
4.3 Genethon Additional Internal Intellectual Property .
(a) Genethon shall propose to Audentes additional Patent Rights or material Know-How that may be necessary or useful to conduct the activities to be conducted by Genethon pursuant to the Research Program, including without limitation the manufacture of Product, that are developed by or on behalf of Genethon independently from the Research Program (i.e. excluding in-licensed Patent Rights or Know-How) and in respect of which Genethon has the right to grant the licenses as provided herein without violating the terms of any agreement or other arrangements with any Third Party (any of such being Genethon Additional Internal IP ). In such a case, Genethon shall describe such Patent Rights and/or Know-How to Audentes and discuss with Audentes in the context of the JDC whether to include one or more elements of such Genethon Additional Internal IP in the performance of the Research Program and the licenses to be granted to Audentes pursuant to this Agreement, it being understood that no royalties or other consideration shall be payable to Genethon for the exploitation of such Genethon Additional Internal IP in connection with the activities contemplated under this Agreement where Genethon is manufacturing Products (whether clinical or commercial) hereunder.
(b) Notwithstanding the above, Genethon hereby grants to Audentes a royalty-free, fully paid-up, worldwide, sublicenseable (through multiple tiers, but in any case only if sublicensed along with the Product), non-exclusive license to access and use for regulatory purposes in connection with the development and commercialization of Products the data generated pursuant to a [*] that it is expected will be conducted pursuant to that certain Collaborative Research Agreement [*] among Genethon, the [*], which have been agreed by the parties but not signed on the Effective Date, and which follows a first [*] signed by the same parties on [*].
4.4 Genethon Additional In-Licensed Intellectual Property .
(a) Genethon shall propose to Audentes additional Patent Rights or Know-How in-licensed by Genethon from Third Parties during the term of the Agreement that may be useful to conduct the Genethon Research Program Activities, including without limitation the manufacture of Product (any of such, together with any rights to Third Party Patent Rights or Know-How in-licensed by Genethon pursuant to Section 4.4(b) below, being Genethon Additional In-Licensed IP and together with the Genethon Additional Internal IP,
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Genethon Additional IP ). In such a case, Genethon shall describe such Patent Rights and/or Know-How to Audentes and discuss with Audentes in the context of the JDC whether to include one or more elements of such Genethon Additional In-Licensed IP in the performance of the Research Program and the licenses to be granted to Audentes pursuant to this Agreement. Notwithstanding the above, it is agreed that Genethon shall not in-license any Third Party Know-How and/or Patent Rights that may be necessary or useful to conduct the Genethon Research Program Activities, including without limitation the manufacture of Product, and that are specific to Product (i.e. cannot reasonably be used by Genethon in the context of other current or planned programs at the time of the negotiation of the applicable in-license) and that are not in-licensed as of the Effective Date, without the prior written consent of Audentes; the Parties agree that in any such case Audentes shall be the lead Party with respect to the negotiation of the terms of the license with the applicable Third Party.
(b) Genethon shall inform Audentes of any additional Third Party Patent Rights or Know-How of which it becomes aware (including those of which Genethon has informed Audentes prior to the Effective Date) that may be necessary to conduct the Genethon Research Program Activities under the terms of the Agreement. In such a case, Genethon shall describe such Patent Rights and/or Know-How to Audentes. Genethon shall have the lead for negotiating any such Third Party licenses with respect to Patent Rights or Know-How that are not specific to Product (i.e. that can be used by Genethon in the context of other programs), provided that Genethon shall (i) keep Audentes reasonably informed about the status of such negotiations and (ii) reasonably consider any comments provided by Audentes on the terms and conditions of the applicable license. If Audentes is not in agreement with the terms and conditions negotiated by Genethon, Genethon shall, upon Audentes s written notification of its disagreement, exclude Product from the scope of the license negotiated by Genethon and Audentes shall negotiate with the Third Party independently for required license rights in respect of Product Audentes shall have the lead for negotiating any such Third Party licenses with respect to Patent Rights or Know-How that are specific to Product (i.e. that cannot reasonably be used by Genethon in the context of other current or planned programs at the time of the negotiation of the applicable in-license).
(c) In all cases where Genethon Additional In-Licensed IP may be included pursuant to either paragraphs (a) or (b) above, Audentes shall be responsible for either, as the case may be, reimbursing to Genethon or paying directly to the Third Party licensor all amounts due to the Third Party licensor for the applicable Genethon Additional In-Licensed IP, without any mark-up, and subject to a reasonable pro rata allocation if such Genethon Additional In-Licensed Know-How and/or Patent Rights are in-licensed by Genethon for multiple products or programs.
(d) Genethon shall not knowingly, without Audentes prior written consent, include any Know-How or Patent Rights in the performance of the Genethon Research Program Activities in respect of which a license is required from a Third Party for the purposes of conducting the Research Program and/or making, using, importing, selling, offering for sale and otherwise discovering, researching, developing or commercializing Products.
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4.5 Right of First Negotiation . Genethon shall from time to time in the context of the JDC inform Audentes of any internal research programs (i.e. excluding programs conducted in collaboration with and/or funded by Third Parties) conducted by Genethon to research, develop, manufacture or commercialize product(s) for the treatment of XLMTM other than Products. Before commencing discussions with respect to any such program with a Third Party, or before transitioning early research to a proof-of-concept study in animal models of the disease ( POC Study ), Genethon shall provide written notice thereof to Audentes. Audentes will have [*] following receipt of such notice to inform Genethon as to whether Audentes is interested in collaborating with Genethon with respect to such product(s). If Audentes elects to provide such notice, Audentes and Genethon shall negotiate in good faith the terms of such collaboration for not less than [*] from the date of Genethons receipt of Audentess notice (the Term Sheet Negotiation Period ). If (a) Audentes does not provide its notice within such [*] period, or (b) the Parties fail to agree a final reasonably detailed non-binding term sheet within the Term Sheet Negotiation Period, or (c) having agreed such a term sheet prior to the end of the Term Sheet Negotiation Period, the Parties fail to enter into a definitive agreement within [*] following the end of the Term Sheet Negotiation Period, Genethon will be free to collaborate with Third Parties on such a program or to transition to the POC Study on its own, in each case without any further obligations to Audentes.
4.6 No Implied Licenses . Only the licenses granted pursuant to the express terms of this Agreement shall be of any legal force or effect. No other license or rights shall be created by implication, estoppel or otherwise.
5. FINANCIAL TERMS
5.1 Equity . Immediately upon the effectiveness of this Agreement, Audentes shall issue to Genethon shares of Audentes Common Stock (the Common Shares ), which Common Shares (i) represent [*]% of the Companys issued and outstanding common stock on a fully-diluted basis (including the [*]% issued to Genethon) after completion of Audentess Series A financing, and (ii) shall be issued pursuant to the terms of the Common Stock Purchase Agreement (SPA), attached hereto as Exhibit C.
5.2 Research Program Funding . Audentes shall fund Genethons activities in performance of the Research Program based on the agreed-upon budget included in the Development Plan, it being understood that Genethons activities shall be performed [*] .
(a) internal research and development activities will be invoiced on an FTE basis for Genethon personnel at an agreed average full-time equivalent annual rate of [*] for scientists and [*] for technicians (value added taxes excluded), with such FTE rates to be adjusted, on an annual basis beginning January 1, 2014 based on the Indices du cout horaire du travail reviseTous salariés (ICHTrev-TS)Indices mensuelsSalaires et chargesActivités spécialisées, scientifiques et techniques index available on the INSEE (French national statistic agency) website: http ://www. indices.insee.fr/),
(b) manufacturing (preclinical and clinical) and process development activities will be invoiced [*] determined in accordance with a cost accounting method consistent with industry practice and French GAAP, and external costs incurred by Genethon for the purposes of the Research Program shall be invoiced at cost without any mark-up.
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5.3 Terms Applicable to Transfer of Genethon Intellectual Property . Without prejudice to the foregoing Sections 5.1 and 5.2, in the event Genethon shall pursuant to Section 2.4 not be responsible for manufacturing commercial Product (following written notice thereof provided by Audentes) or otherwise transfers manufacturing of Product to a Third Party, the Parties agree to negotiate in good faith, and under terms consistent with market practice, the compensation to be paid to Genethon in consideration for the technology transfer activities to be conducted to transfer the manufacturing process to Audentes or its designee for that purpose, such compensation to be based on the principles set out above in this Article 5. The Parties also acknowledge that such transfer of manufacturing to Audentes or its designee shall be subject to the payment by Audentes of certain amounts due to Third Party licensors: (a) to the extent applicable in accordance with Section 4.1(a), Audentes shall pay costs for which Audentes is responsible under the applicable sublicense from Genethon to the Genethon Background Intellectual Property in-licensed from Third Parties, and (b) to the extent applicable in accordance with Section 4.3, Audentes shall pay the amounts due under the applicable license to the Genethon Additional Internal IP, and (c) to the extent applicable in accordance with Section 4.4, Audentes shall pay the amounts due under the applicable sublicense to the Genethon Additional In-Licensed IP.
6. PAYMENTS; RECORDS
6.1 Payment Method . All payments due under this Agreement shall be made by bank wire transfer [*] following the receipt of an invoice to a bank account designated by Genethon.
6.2 Taxes . Payments sent to Genethon shall be net of any taxes required to be withheld by Audentes from payment made to Genethon and exclusive of any applicable sales, use or value-added taxes. Audentes shall bear all such taxes, and especially US sales, use or withholding taxes, related to the payment made to Genethon in accordance with this Agreement. In event that any taxes are required to be withheld from a payment made to Genethon, Audentes will: increase the amounts payable to Genethon so that it receives the same net payment it would have received absent such taxes, timely pay the taxes to the proper taxing authority, and notify Genethon and promptly furnish Genethon with copies of any documentation evidencing such withholding. Genethon will provide Audentes with all documentation and assistance reasonably requested by Audentes in connection with the collection of any taxes covered by this Section 6.2, including but not limited to providing Audentes with any applicable certificates or forms necessary to obtain a reduction in such taxes.
6.3 Books and Records; Accounting and Audits . Genethon shall maintain complete and accurate books and records with respect to all costs or expenses to be reimbursed by Audentes under this Agreement during the term of the Agreement, which books and records shall be sufficient in detail to verify all reimbursed amounts hereunder and shall be maintained for a period of [*] following the year to which they pertain. Audentes shall have the right, at its own expense and not more than once in any calendar year during, the Term of this Agreement, to have an independent, certified public accountant under an obligation of confidence, audit the books and records of Genethon at the location(s) where such books and records are maintained upon reasonable notice (which shall be no less than [*] prior written notice) and during regular business hours, and for the sole purpose of verifying the basis and accuracy of the payments
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required and made under this Agreement and amounts to be reimbursed, as applicable. The report and communication of such accountant with respect to such an audit shall be limited to a certificate stating whether any, as applicable, report made or reimbursement or other payment submitted during such period is accurate or inaccurate and, if a discrepancy is identified, shall also indicate the amount and if applicable, with respect to any report, the nature, of any discrepancy, and the correct information (with respect to the applicable period). Such accountant shall provide Audentes with a copy of each such report simultaneously. In the event that the audit reveals an overpayment by Audentes, Genethon shall promptly reimburse such difference to Audentes. In addition, if such overpayment is greater than [*] of the amount due for such audited period, then Genethon shall promptly pay or reimburse the reasonable cost charged by such accountant for such audit.
7. PRIX JUSTE
Audentes shall use reasonable efforts so as to make available the Product in Europe at a price (Prix Juste) such that it does not constitute a material obstacle to the ability of patients to have access to the Product, taking into account the global pricing strategy of Audentes, any existing and applicable regulatory and reimbursement systems and any other applicable legal and regulatory regimes on a relevant national, international, or regional level at the date of such price decisions.
8. INTELLECTUAL PROPERTY
8.1 Ownership; Disclosure .
(a) Background Intellectual Property . Each Party will retain all right, title and interest to its respective Background Intellectual Property. As between the Parties, Genethon shall retain all right, title and interest to the Genethon Additional IP.
(b) Program Intellectual Property . Any and all Program Intellectual Property shall be owned jointly by the Parties, and, subject to the license granted to Audentes under Section 4.2, each Party shall be free to exploit any such Program Intellectual Property. Subject to the license granted to Audentes under Section 4.2, neither Party shall have any obligation to account to the other for profits, or to obtain any approval of the other Party to license out or exploit patented jointly-owned subject matter, by reason of joint ownership thereof, and each Party hereby waives any right it may have under the laws of any jurisdiction to require any such consent or accounting, and further agrees to execute any documents and instruments as may be required under such laws in order to permit the other Party to exploit its rights in any Program Intellectual Property in accordance with this Section 8.1(b).
(c) Disclosure of Inventions . Each Party shall promptly disclose to the other any inventions made by or on behalf of such Party in performance of the Research Program.
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8.2 Patent Prosecution .
8.2.1 Program Patent Rights . Unless the Parties otherwise agree, Audentes shall be responsible (the Patent Prosecutor ) for managing Program Patent Rights that are specific to the Product, and Genethon shall be the Patent Prosecutor for Program Patent Rights that are not specific to the Product, including for example Program Patent Rights related to manufacturing methods or materials that may be used for products other than the Product. The Patent Prosecutor shall be solely responsible, at its expense, for (i) preparing, filing, prosecuting and maintaining Program Patent Rights, and (ii) for conducting any interferences, re-examinations, reissues and oppositions relating thereto. The Patent Prosecutor may elect, at its sole discretion, to discontinue prosecution of any such patent applications and/or not to file or conduct any further activities with respect to such patent applications or patents; provided, in each case, that it provide timely notice of such decision to the other Party such that such other Party has the opportunity to replace the discontinuing Party as Patent Prosecutor and pursue at its cost and in the name of both Parties the prosecution and maintenance of the relevant patent applications or patents. The Patent Prosecutor shall keep the other Party reasonably informed with respect to the prosecution status and issuance of patents filed by the Patent Prosecutor pursuant to this Section 8.2.1, and shall provide the other Party with all material filings and correspondences with the patent authorities prior to the submission and shall reasonably consider any comments provided by the other Party on such filings and correspondences.
8.2.2 Cooperation . The non-prosecuting Party shall reasonably cooperate with and assist the Patent Prosecutor in connection with the activities of the Patent Prosecutor under Section 8.2.1 upon the reasonable request of the Patent Prosecutor, including without limitation by making scientists and scientific records reasonably available to the Patent Prosecutor and the execution of all such documents and instruments and the performance of such acts as may be reasonably necessary in order to permit the Patent Prosecutor to continue any filing, prosecution, maintenance or extension of such patents and patent applications. The Patent Prosecutor shall reimburse the non-prosecuting Party for any out-of-pocket expenses incurred in connection with cooperation provided pursuant to this Section 8.2.2.
8.3 Enforcement and Defense .
8.3.1 Notice . Each Party shall promptly notify the other of any knowledge it acquires of any potential infringement of the Program Intellectual Property.
8.3.2 Enforcement .
(a) If either (a) any Program Patent Right or (b) any Genethon Background Patent Right that is specific to Product (i.e. that does not apply to any products other than Product) is infringed by a Third Party in any country in connection with the manufacture, use, sale, offer for sale or importation of a Product in such country, Audentes shall have the first right, but not the obligation, to institute, prosecute, and control any action or proceeding with respect to such infringement, by counsel of its own choice, and Genethon shall have the right, at its own expense, to be represented in that action by counsel of its own choice. If Audentes fails to bring an action or proceeding within a period of [*] after a request by Genethon to do so, Genethon shall have the right to bring and control any such action by counsel of its own choice, at its own expense, and Audentes shall have the right to be represented in any such action by counsel of its own choice at its own expense.
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(b) If any Genethon Background Patent Right that is not specific to the Product is infringed by a Third Party in any country in connection with the manufacture, use, sale, offer for sale or importation of a Product in such country, Genethon shall have the first right, but not the obligation, to institute, prosecute, and control any action or proceeding with respect to such infringement, by counsel of its own choice, and Audentes shall have the right, at its own expense, to be represented in that action by counsel of its own choice. If Genethon fails to bring an action or proceeding within a period of [*] after a request by Audentes to do so, Audentes shall have the right to bring and control any such action by counsel of its own choice, at its own expense, and Genethon shall have the right to be represented in any such action by counsel of its own choice at its own expense.
8.3.3 Assistance . If one Party brings an action or proceeding in accordance with Section 8.3.2, the second Party agrees to be joined as a party plaintiff if necessary and to give the first Party reasonable assistance and authority to file and prosecute the suit. The costs and expenses of the Party bringing suit under this Section 8.3.3 shall be borne by such Party, and any damages or other monetary awards recovered shall be retained by such Party. A settlement or consent judgment or other voluntary final disposition of a suit under this Section 8.3.3 may be entered into without the consent of the Party not bringing the suit. Neither Party shall, however, have the right to enter into any settlement or consent to any claim to the effect that the patent protection offered under the applicable patent(s) would be materially negatively affected, without the consent of the other Party, such consent not to be unreasonably withheld.
8.3.4 Other Instances . Any infringement or declaratory judgment actions relating to Program Patent Rights falling outside of the application of Section 8.3.2 shall be discussed and coordinated in good faith by the Parties. For the avoidance of doubt, Audentes shall have no right to bring any actions in connection with any infringement of Genethon Background Patent Rights other than in connection with the manufacture, use, sale, offer for sale or importation of a Product.
8.3.5 In-Licensed Patents . Notwithstanding anything in this Section 8.3 to the contrary, the Parties acknowledge that certain Genethon Background Patent Rights are in-licensed from Third Parties and consequently that the rights and obligations of the Parties set out in this Section 8.3 remain in any case subject to the terms of the license agreement with such Third Parties and to the legal rights of such Third Parties. As a consequence, neither Party shall be in breach of any of its obligations under this Section 8.3 to the extent it is unable to comply with such obligation as a consequence of the legal rights of the Third Party licensor under the applicable license agreement.
9. CONFIDENTIALITY
9.1 Confidential Information . Except as otherwise expressly provided herein, the Parties agree that, for the term of this Agreement and for [*] thereafter, the receiving Party shall not, except as expressly provided in this Article 9, disclose to any Third Party any Confidential Information furnished to it by the disclosing Party hereto pursuant to this Agreement. For purposes of this Article 9, Confidential Information shall mean any information, samples or other materials, which if disclosed in tangible form is marked
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confidential or with other similar designation to indicate its confidential or proprietary nature, or, if disclosed orally, is indicated orally to be confidential or proprietary at the time of such disclosure and is confirmed in writing as confidential or proprietary within [*] after such disclosure. Notwithstanding the foregoing, Confidential Information shall not include any information that can be established by the receiving Party by competent proof that such information:
(a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement;
(d) was independently developed by the receiving Party as demonstrated by documented evidence prepared contemporaneously with such independent development; or
(e) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others.
Notwithstanding anything to the contrary in this Section 9.1, and for the purposes of clarity, the results of the Research Program ( Results ) shall be deemed Confidential Information of both Parties in respect of which both Parties have confidentiality and restricted use obligations under this Section 9.1, subject to Sections 9.2 and 9.5. All Genethon Background Know-How and any information concerning as yet unpublished Genethon Background Patent Rights and all information concerning and Genethon Additional IP, in each case that may have been or be disclosed to Audentes, shall be deemed to be Confidential Information of Genethon. All Audentes Background Know-How and any information concerning as yet unpublished Audentes Background Patent Rights that may have been or be disclosed by Audentes to Genethon in connection with this Agreement shall be deemed to be Audentes Confidential Information.
9.2 Permitted Use and Disclosures . Each Party hereto may use or disclose Confidential Information of the other Party to the extent such use or disclosure is reasonably necessary and permitted in the exercise of the rights granted hereunder (including, in the case of Audentes, for the purpose of developing and commercializing Products) and in filing or prosecuting patent applications, prosecuting or defending litigation (in each case in accordance with the Agreement), complying with applicable governmental laws, regulations or court order or otherwise submitting information to tax or other governmental authorities, conducting clinical trials, or otherwise exercising license rights expressly granted by the other Party to it pursuant to the terms of this Agreement, provided that if a Party is required by governmental authority to make any such disclosure, other than pursuant to a confidentiality agreement, it will give
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reasonable advance notice to the other Party of such disclosure and, save to the extent inappropriate in the case of patent applications, will use its reasonable efforts to secure confidential treatment of such information in consultation with the other Party prior to its disclosure (whether through protective orders or otherwise) and disclose only the minimum necessary to comply with such requirements. In addition, each Party may communicate Results to such Partys attorneys, advisors, investors and potential investors and acquirers, in each case to the extent such are subject either to a prior written confidentiality agreement or to a statutory or ethical obligation of confidentiality.
9.3 Termination of Prior Agreement . This Agreement supersedes the Mutual Non-Disclosure Agreement No. 013002-1MTUB-00 entered into between the Parties, dated January 13, 2013 (the Prior NDA ). Information exchanged between the Parties under the Prior NDA shall be deemed Confidential Information under this Agreement and shall as of the Effective Date be subject to the Willis of this Article 9 and not those of the Prior NDA.
9.4 Nondisclosure of Terms . Subject to Article 10, each of the Parties hereto agrees not to disclose the terms of this Agreement to any Third Party without the prior written consent of the other Party hereto, which consent shall not be unreasonably withheld, except to such Partys attorneys, advisors, investors and potential investors and acquirers, in each case to the extent such are subject either to a prior written confidentiality agreement or to a statutory or ethical obligation of confidentiality, or to the extent required to comply with applicable laws (including securities laws, regulations and guidances) or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded, in any such case subject to Section 10.3.6. In addition, in the context of pursuing the development and commercialization of the Product Audentes may disclose terms of this Agreement to actual or prospective collaborators or licensees, in each case on a need to know basis and subject to a prior written confidentiality obligation. Either Party may also disclose terms of this Agreement to the extent required by applicable laws subject to the applicable conditions set out in Section 9.2 above.
9.5 Publications . Except as set forth in Section 10.3, prior to publishing or making any other public disclosure of any Results, the Party (the Publishing Party ) wishing to make such publication will provide the other Party (the Reviewing Party ) with a draft of such publication or other disclosure, so that the Reviewing Party may review, the same, over a period of at least [*], and if it wishes, provide comments and require reasonable changes to ensure that no Confidential Information regarding the Reviewing Partys business or technology will be disclosed, and that no public disclosures are made that could jeopardize or impair any right of the Reviewing Party to obtain patents with respect to any inventions disclosed in such draft. If during such [*] period, the Reviewing Party determines that one or more patent filings should be made prior to such public disclosures, and if it so notifies the Publishing Party, then the Reviewing Party will be afforded a further period of [*] more [*] in which to prepare and file such application(s). In either case, any publication of the Results shall, unless a Party does not so wish, describe the contribution of each Party to the generation of the Results in accordance with standard practices in the industry.
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10. COMMUNICATIONS
10.1 Support by Audentes . Audentes will provide reasonable support to Genethons communication needs, and will collaborate with Genethon on mutually beneficial activities and publications as follows:
10.1.1 Unless it is prohibited by law or if Genethon requests the contrary, Audentes shall include the logo of Genethon and the words discovered, and developed with Genethon in any press release, public presentation, investor or potential investor presentation or scientific publication related to Research Program, Research Program results and Products. The obligation to include Genethons logo shall not apply in cases where such would be inconsistent with customary practice in such circumstances, for example in scientific publications.
10.1.2 Following approval of Product, Genethon and/or the AFM-Telethon may make paid advertising relative to Product which highlights the contribution of Genethon and/or the AFM-Telethon in the discovery and development of Product. Such advertising shall be at the sole expense of Genethon and/or AFM-Telethon and shall conform to all applicable laws and regulations. Such advertising further shall be consistent with the marketing, sales and promotion strategy of Audentes and/or Audentess sublicensee and shall require advance approval by, and coordination with, Audentes and/or Audentess sublicensee.
10.1.3 Audentes shall ensure that all its agreements with sublicensees of Product shall contain provisions consistent with those set out in this Section 10.1 and Section 10.2, requiring such sublicensees to comply with Audentess obligations set forth in Sections 10.1.1 and in Section 10.1.2.
10.2 Disclosure for Purposes of the Telethon . The Parties acknowledge that AFM-Telethon, in view of accomplishment of its recognized role of working in the public interest (that is, by curing rare diseases and reducing the disabilities to which they give rise), has an obligation to provide the general public with information on the research programs and work to which it provides, or has provided, a financial contribution, directly or indirectly, in order to facilitate an understanding of these diseases, the development of treatments, and the prevention of disabilities. The Parties expressly authorize AFM-Telethon to make use of their name and to report on the Research Program and its progress, orally and/or in writing, to the general public, notably during fundraising campaigns, during the Telethon and Annual General Meeting of AFM-Telethon, without releasing: (a) any details of the Research Program which may be detrimental to intellectual property rights or their protection, or (b) any of Audentess Confidential Information (other than, subject to (a), information about the Research Program and its progress), and subject in all cases to any guidelines the Parties may agree upon to comply with regulatory, disclosure, and intellectual property requirements and all other applicable laws.
10.3 Press Releases .
10.3.1 Audentes may issue any press release or other public communication concerning this Agreement or the Research Program or the Results (each a Press Release ), provided that Audentes shall (a) provide a copy of any proposed Press Release to Genethon in advance of publication, and (b) use good faith efforts to consider any reasonable comment timely provided by Genethon.
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10.3.2 Genethon may issue a Press Release upon the prior written consent of Audentes (except to the extent permitted under Section 10.2 above), such consent not to be unreasonably withheld or delayed.
10.3.3 Notwithstanding Sections 10.3.1 and 10.3.2, the Parties shall collaborate on a mutually agreeable first Press Release, to be issued on or after February 1, 2014 (timing to be mutually agreed upon).
10.3.4 Notwithstanding the above, once certain information has been disclosed in a Press Release in accordance with Sections 10.3.1, 10.3.2 and/or 10.3.3, either Party may thereafter refer to such information publicly so long as it remains relevant and accurate.
10.3.5 Audentes shall use good faith efforts to coordinate with Genethon any Press Release to be issued during the annual three- month periods between November 1 and January 31 to avoid any such Press Release having a negative impact on the Telethon fundraising.
10.3.6 Nothing in this Section 10.3 or otherwise in this Agreement shall be construed to restrict a Partys ability to issue Press Releases to the extent required to comply with applicable laws (including securities laws, regulations and guidances) or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded. In the event either Party is required to make a press release or filing pursuant to any such laws or requirements, such Party shall (a) except to the extent such Party in consultation with legal counsel determines that a more rapid disclosure is legally required, notify the other Party of such intention and shall provide such other Party with a copy of relevant portions of the proposed filing not less than five (5) days prior to such filing, and no less than [*] prior to any filing of a copy of this Agreement, including any exhibits thereto relating to the Agreement, and (b) use reasonable efforts to obtain confidential treatment of any information concerning the Agreement that such other Party reasonably requests be kept confidential, and shall only disclose Confidential Information which it is advised by counsel is legally required to be disclosed.
11. ABANDONMENT
In the event of Abandonment of the Product, Genethon shall have the right to continue the development of the Product itself, in which case Audentes shall grant to Genethon a license to any Background Intellectual Property Controlled by Audentes to the extent necessary for Genethon to continue such development and commercialize the Product, subject to terms to be negotiated by the Parties in a separate agreement. Audentes shall assure that all its agreements with sublicensees of Product shall contain provisions consistent with this Article 11. For purposes of this Article 11, Abandonment means either (1) a resolution adopted by the Board of Audentes or its successor or assignee to abandon the development of the Product everywhere in the world or (2) the absence of any material development activities with respect to the Product
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anywhere in the world (e.g., clinical trials, certification attempts), whether by Audentes or any of its successors or sublicensees in any tier for a full, uninterrupted [*], unless Audentes provides Genethon reasonable justification for the situation. For the purposes hereof, the absence of any material development activities shall mean that less than [*] has been expended in external costs on development activities with respect to the Product during the [*] period. For the sake of clarity, it is understood by the Parties that such external costs on development activities include amounts paid by Audentes to Genethon in respect of Genethons activities under the Development Plan.
12. REPRESENTATIONS AND WARRANTIES
12.1 Audentes . Audentes represents and warrants as of the Effective Date that: (i) it has the legal power, authority and right to enter into this Agreement and to fully perform all of its obligations hereunder; (ii) this Agreement is a legal and valid obligation binding upon it and enforceable in accordance with its terms; (iii) the performance of its obligations hereunder do not conflict with, violate or breach or constitute a default or require any consent under, any contractual obligations, of Audentes; and (iv) to the knowledge of Audentes, the use by Genethon of the Audentes Background Intellectual Property provided by or for Audentes for the purposes of conducting the Genethon Research Program Activities will not infringe or misappropriate any Third Party intellectual property rights.
12.2 Genethon . Genethon represents and warrants as of the Effective Date that: (i) it has the legal power, authority and right to enter into this Agreement and to fully perform all of its obligations hereunder; (ii) this Agreement is a legal and valid obligation binding upon it and enforceable in accordance with its terms; (in) the performance of its obligations and the grant of rights hereunder do not conflict with, violate or breach or constitute a default or require any consent under, any contractual obligations of Genethon, (iv) to the [*], except as communicated to Audentes prior to the Effective Date including the intellectual property rights listed in Exhibit B hereto, [*].
12.3 Disclaimer . EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, GENETHON AND AUDENTES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCT, ANY BACKGROUND OR PROGRAM INTELLECTUAL PROPERTY OR OTHER INFORMATION DISCLOSED HEREUNDER OR PRODUCTS INCLUDING, BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF ANY PROGRAM INTELLECTUAL PROPERTY PATENTED OR UNPATENTED, OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
12.4 EXCEPT IN THE EVENT OF A PARTYS BREACH OF ARTICLE 9, NEITHER PARTY NOR ANY OF ITS AFFILIATES SHALL BE LIABLE IN CONTRACT, TORT, NEGLIGENCE, BREACH OF STATUTORY DUTY OR OTHERWISE FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES OR FOR LOSS OF PROFITS SUFFERED BY THE OTHER PARTY, EXCEPT TO THE EXTENT ANY SUCH DAMAGES ARE REQUIRED TO BE PAID TO A THIRD PARTY AS PART OF A CLAIM FOR WHICH A PARTY IS REQUIRED TO PROVIDE INDEMNIFICATION UNDER ARTICLE 13.
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13. INDEMNIFICATION
13.1 Audentes . Audentes agrees to indemnify, defend and hold Genethon and its Affiliates and their respective directors, officers, employees, agents and their respective successors, heirs and assigns (the Genethon Indemnitees ) harmless from and against any losses, costs, claims, damages, liabilities or expense (including reasonable attorneys and professional fees and other expenses of litigation) (collectively, Liabilities ) arising out of Third Party claims, suits, actions, demands or judgments, relating to (i) the conduct of the Research Program by Audentes and/or Genethon, including, without limitation, any claim for personal injury or death resulting from the administration of any Products, or any claim for infringement of Third Party intellectual property, (ii) the use or sale of any Products or Results by Audentes, its Affiliates and/or sublicensees, including without limitation, any product liability claims by or on behalf of persons to whom Product is administered, or any claim for infringement of Third Party intellectual property, and (iii) any breach by Audentes of its obligations under this Agreement, including its representations and warranties made in this Agreement; except, in each case, to the extent such Liabilities result from the gross negligence or intentional misconduct or breach of contract of Genethon.
13.2 Genethon . Genethon agrees to indemnify, defend and hold Audentes and its Affiliates and their respective directors, officers, employees, agents and their respective successors, heirs and assigns (the Audentes Indemnitees ) harmless from and against any Liabilities arising out of Third Party claims, suits, actions, demands or judgments, relating to any breach by Genethon of its obligations under this Agreement, including its representations and warranties made in this Agreement, except to the extent such Liabilities result from the gross negligence or intentional misconduct or breach of contract of Audentes.
13.3 Indemnification Procedure . A Party that intends to claim indemnification (the Indemnitee ) under this Article 13 shall promptly notify the other Party (the Indemnitor ) in writing of any claim, complaint, suit, proceeding or cause of action with respect to which the Indemnitee intends to claim such indemnification (for purposes of this Section 13.3, each a Claim), and the Indemnitor shall have sole control of the defense and/or settlement thereof; provided that the Indemnitee shall have the right to participate, at its own expense, with counsel of its own choosing in the defense and/or settlement of such Claim; provided that, if the Indemnitor is also involved in defending against such Claim in its own name and if defense of the Indemnitor and Indemnitee by the same counsel would place such counsel in a position of conflict of interest, the Indemnitor shall pay the reasonable cost of the Indemnitees separate counsel. The indemnification obligations of the Parties under this Article 13 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the consent of the Indemnitor, which consent shall, not be withheld or delayed unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such Claim, if prejudicial to its ability to defend such action, shall to the extent it is prejudicial relieve such Indemnitor of any liability to the Indemnitee under this Article 13, but the omission so to deliver written notice to the Indemnitor shall not relieve the Indemnitor of any liability to any Indemnitee otherwise than under this Article 13. The Indemnitee under this Article 13, and its employees, at the Indemnitors request and expense, shall provide full information and reasonable assistance to Indemnitor and its legal representatives with respect to such Claims covered by this indemnification.
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14. TERM AND TERMINATION
14.1 Term . The Agreement will be effective on the Effective Date and will continue in full force and effect until completion of the Research Program unless and until terminated early as set forth in the remainder of this Article 14 (the Term).
14.2 Termination Rights for either Party .
(a) For Breach . Either Party may terminate this Agreement in the event the other Party has materially breached or defaulted in the performance of any of its material obligations hereunder, and such default shall have continued for [*] following receipt of written notice thereof; provided, however, that where the Party alleged to be in breach disputes in good faith that the claimed breach exists, such cure period will not start to run until such dispute either can no longer be maintained in good faith or has been resolved by agreement of the Parties or pursuant to Section 15.2; and (ii) if a breach is not reasonably capable of being cured within the [*] cure period described above and the breaching Party is making continuing good faith efforts to cure such breach, the cure period applicable to such breach shall be extended to [*].
(b) For Bankruptcy . Either Party may terminate this Agreement at any time upon the other Partys filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other Party; provided, however, that in the case of any involuntary bankruptcy proceeding such right to terminate shall only become effective if the Party consents to the involuntary bankruptcy or such proceeding is not dismissed within sixty (60) days after the filing thereof
14.3 Specific Termination Rights .
(a) Termination By Audentes for Convenience . Audentes may terminate the Agreement for convenience upon [*] prior written notice to Genethon.
(b) Termination by Genethon for Disagreement as to Continuation of the Program . Genethon may terminate the Agreement upon [*] notice in the event (a) Genethon raises an objection with respect to the continued development of the Product on the grounds of a safety or efficacy issue, and (b) Audentes disagrees and wishes to pursue with the development of the Product as planned. In such a case, if the JDC is unable to agree pursuant to Section 3.5 then. Audentes shall not have a deciding vote at the JDC level as contemplated by Section 3.5 but the disagreement shall be submitted for resolution to the CEOs. If the Parties are still unable to agree within [*] after the matter is submitted to the CEOs, Audentes shall have the final say and the Research Program shall proceed until the next meeting that is held with any regulatory authority to discuss the Product. Following such meeting, and regardless of the outcome of such meeting, if the Parties are still in disagreement, Genethon shall be free to terminate the Agreement pursuant to the Section 14.3(b) upon written notice to Audentes. For the avoidance of doubt, during any such period of disagreement, Audentes shall indemnify Genethon against Third Party claims in accordance with Section 13.1.
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14.4 Consequences of Termination .
(a) Accrued Rights and Obligations . Termination of this Agreement for any reason shall not release either Party hereto from any liability which, at the time of such termination, has already accrued to the other Party or which is attributable to a period prior to such termination nor preclude either Party from pursuing any rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement.
(b) General Consequences . Upon any termination of this Agreement:
(i) Each Party shall promptly return to the other all Confidential Information received from such other Party, except one copy of which may be retained for archival purposes.
(ii) The license granted to Genethon under Section 4.1(b) shall automatically terminate.
(iii) Genethon will use commercially reasonable efforts to promptly cancel all cancellable obligations incurred under the Development Plan. Subject to the preceding sentence, Audentes shall remain responsible in accordance with Article 5 for paying all costs related to Genethon Research Program Activities conducted by Genethon until the effective termination date and reimbursing Genethon for all noncancellable costs and expenses reasonably incurred by Genethon for the purposes of the Genethon Research Program Activities prior to delivery of the termination notice, whether such costs and expenses are actually payable by Genethon before or after the effective termination date, provided that Genethon shall use commercially reasonable efforts to cancel all cancellable obligations promptly upon receipt of Audentess termination notice or delivery of Genethons termination notice, as applicable.
(c) Effect of Termination by Audentes for Convenience or by Genethon for Cause . Upon termination of this Agreement by Audentes pursuant to Section 14.3(a) or by Genethon for cause pursuant to Section 14.2(a) or (b), the licenses granted to Audentes under Sections 4.1(a), 4.2, 4.3 and 4.4 shall automatically terminate. For the avoidance of doubt, terminations contemplated under this Section 14.4(c) shall not affect Genethons rights under Article 11 should there be an Abandonment by Audentes prior to, contemporaneously with or during the [*] following the termination.
(d) Effect of Termination by Genethon for Disagreement as to Continuation of the Program . Upon termination of this Agreement by Genethon pursuant to Section 14.3(b), the licenses granted to Audentes under Sections 4.1(a) and 4.2 shall convert to non-exclusive, and the licenses granted to Audentes under Sections 4.3 and 4.4 shall automatically terminate.
14.5 Survival Clause . In the case of expiry of this Agreement as a result of the completion of the Research Program or termination by Audentes pursuant to Section 14.2(a) or (b) (but not in any case of any other termination pursuant to Sections 14.3 or 14.4 which shall be
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governed by Section 14.4 above), the licenses granted to Audentes pursuant to Sections 4.1(a), 4,2, 4.3 and 4.4 shall survive and remain in effect in accordance with the relevant terms and conditions set out therein and elsewhere in this Agreement, including if applicable Section 5.3. In addition, Sections 2.3(a), 2.4(b), (d) and (e), 4.6, 6.2, 6.3, Articles 7, 8 9, 10, 12 and 13, Sections 14.4 and 14.5 and Article 15 shall survive the expiry or any early termination of this Agreement for any reason.
15. MISCELLANEOUS
15.1 Governing Laws . This Agreement and any dispute arising from the construction, performance or breach hereof shall be governed by and construed, and enforced in accordance with, the laws of England and Wales, without reference to conflicts of laws principles.
15.2 Arbitration .
(a) The Parties shall negotiate in good faith and use reasonable efforts to settle any dispute, controversy or claim arising from or related to this Agreement or the breach thereof If the Parties do, not fully settle, and a Party wishes to pursue the matter, each such dispute, controversy or claim that is not an Excluded Claim (as defined below) shall be finally resolved by binding arbitration conducted under the commercial arbitration rules of the International Chamber of Commerce (the ICC Rules ), and judgment on the arbitration award may be entered in any court having jurisdiction thereof Evidentiary questions shall be governed by the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration then in effect.
(b) The arbitration shall be conducted by a panel of three persons experienced in the pharmaceutical business: within thirty (30) days after initiation of arbitration, each Party shall select one person to act as arbitrator and the two Party-selected arbitrators shall select a third arbitrator within thirty (30) days of their appointment. If the arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator, the third arbitrator shall be appointed in accordance with the ICC Rules. The place of arbitration shall be London, England, and all proceedings and communications shall be in English.
(c) Either Party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Either Party also may,. without waiving any remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that Party pending the arbitration award. The arbitrators shall have no authority to award punitive or any other type of damages not measured by a Partys compensatory damages. Unless the arbitral tribunal decides otherwise based on the merits of the case, each Party shall bear its own costs and expenses and attorneys fees and an equal share of the arbitrators fees and any administrative fees of arbitration.
(d) Except to the extent necessary to confirm an award or as may be required by law, neither a Party nor an arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent of both Parties.
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(e) The Parties agree that any payments made pursuant to this Agreement pending resolution of the dispute shall be refunded if the arbitral tribunal determines that such payments are not due.
(f) As used in this Section, the term Excluded Claim means a dispute, controversy or claim that concerns (i) the scope, validity, enforceability, inventorship or infringement of a patent, patent application, trademark or copyright; or (ii) any antitrust, anti-monopoly or competition law or regulation, whether or not statutory.
15.3 Waiver . It is agreed that no waiver by either Party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default.
15.4 Assignment . This Agreement shall not be assignable by either Party to any Third Party hereto without the written consent of the other Party hereto, and any attempted assignment shall be null and void. Notwithstanding the foregoing, each Party may assign this Agreement without consent in the event of an assignment to an entity that acquires all or substantially all of the business or assets of such Party to which this Agreement pertains, whether by merger, reorganization, acquisition, sale, or otherwise. This Agreement shall be binding upon and accrue to the benefit of any permitted assignee, and any such assignee shall agree to perform the obligations of the assignor.
15.5 Independent Contractors . The relationship of the Parties hereto is that of independent contractors. The Parties hereto are not deemed to be agents, partners or joint venturers of the other for any purpose as a result of this Agreement or the transactions contemplated thereby.
15.6 Compliance with Laws . In exercising their rights under this Agreement, the Parties shall fully comply in all material respects with the requirements of any and all applicable laws, regulations applicable to each Partys performance of this Agreement.
15.7 Notices . All notices, requests and other communications hereunder shall he in writing and shall be delivered personally or by registered or certified mail, return receipt requested, postage prepaid, or by internationally recognized express courier service, in each case to the respective address specified below, or such other address as may be specified in writing to the other Party hereto and shall be deemed to have been given upon receipt:
If to Audentes: |
AUDENTES 101 Montgomery Street Suite 2650 San Francisco CA 94104 USA Attn: CEO |
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If to Genethon: |
GENETHON 1bis rue de lInternationale 91002 Evry France Attn: Directeur Général |
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15.8 Severability . Each Party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the Parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such valid provisions. In case such valid provisions cannot be agreed upon, the invalidity of one or several provisions of its Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid provisions.
15.9 Advice of Counsel . Genethon and Audentes have each consulted counsel of their choice regarding this Agreement, and each acknowledges and agrees that this Agreement shall not be deemed to have been drafted by one Party or another and will be construed accordingly.
15.10 Complete Agreement . This Agreement, together with its Exhibits (including the Common Stock Purchase Agreement (SPA) attached hereto as Exhibit C) and the Development Plan as such is to be finalized and updated in accordance with Section 2.2, constitutes the entire agreement, both written and oral, between the Parties with respect to the subject matter hereof, and all prior agreements respecting the subject matter hereof, either written or oral, express or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on either of the Parties hereto unless reduced to writing and executed by the respective duly authorized representatives of Genethon and Audentes.
15.11 Headings . The captions to the several Sections hereof are not a part of this Agreement, but are included merely for convenience of reference and shall not affect its meaning or interpretation.
15.12 Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their authorized representatives and delivered in duplicate originals as of the Effective Date.
AUDENTES THERAPEUTICS, INC. | GENETHON | |||||||
By: | /s/ Matthew Patterson | By: | /s/ Frederic Revah | |||||
Name: | Matthew Patterson | Name: | FREDERIC REVAH | |||||
Title: | Chief Executive Officer | Title: | CEO |
EXHIBIT A
Genethon Research Program Activities
1. Scientific collaboration related to pre-clinical and clinical development of the Product (Principal Investigator: [*], Ph.D.). This may include laboratory work according to the Development Plan and agreed to by the JDC.
2. Manufacturing of the Product. This is anticipated to be performed with Genethons existing manufacturing process producing AAV8/MTM1 and will be performed according to the Development Plan and agreed to by the JDC:
3. Management of interactions with and submissions to regulatory authorities in France with the goal of establishing clinical investigational site in France. This work will be performed according to the Development Plan and agreed to by the JDC.
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EXHIBIT B
[*]
*Confidential Treatment Requested. |
EXHIBIT C
Common Stock Purchase Agreement
AUDENTES THERAPEUTICS, INC.
COMMON STOCK PURCHASE AGREEMENT
This Agreement is made and entered into as of January 24, 2014 (the Effective Date ) by and between Audentes Therapeutics, Inc. (the Company ), a Delaware corporation, and Genethon, a French non-profit organization organized under the French law of July 1, 1901 (the Purchaser ).
1. PURCHASE OF SHARES . On the Effective Date and subject to the terms and conditions of this Agreement and that certain Collaborative Development Agreement, dated as of January 24, 2014 by and between the Company and Purchaser (the Development Agreement), Purchaser hereby purchases from the Company, and Company hereby sells to Purchaser, an aggregate of 585,084 shares of the Companys Common Stock, $0.00001 par value per share (the Shares ). Purchaser and the Company each hereby acknowledge and agree that the Shares are being sold and issued to Purchaser pursuant to the terms of Section 5.1 of the Development Agreement in exchange for Purchasers agreements and obligations set forth in the Development Agreement. As used in this Agreement, the term Shares refers to the Shares purchased under this Agreement and includes all securities received (a) in substitution of the Shares, (b) as a result of stock dividends or stock splits with respect to the Shares, or as a result of the issuance of additional Common Stock to Purchaser pursuant to Section 3.3 below, and (c) in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.
2. CLOSING . Purchaser hereby delivers to the Company a duly executed copy of this Agreement. Upon its receipt of a duly executed copy of this Agreement and the Development Agreement from Purchaser, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, registered in Purchasers name.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF COMPANY .
3.1 Capitalization . The Company represents and warrants that the capitalization table attached at Exhibit A is true, accurate and fairly summarizes the current capitalization of the Company, as of the Effective Date and after giving effect to the purchase of the Shares by Purchaser. The Second Closing, as defined in Section 1.2.3 of certain Series A Preferred Stock Purchase Agreement dated July 16, 2013 (the Series A Agreement ), was consummated on December 20, 2013. Apart from the foregoing, there have not been any other. material changes to the Companys capitalization as set forth in Section 2.3 of the Series A Agreement.
3.2 No Material Adverse Change . The Company represents and warrants to Purchaser that there has not been any material adverse change in the Companys business, assets (tangible and intangible), liabilities or financial condition, in comparison to the representations, warranties and disclosures made by the Company to certain investors on July 16, 2013 pursuant to the Series A Agreement.
3.3 Delivery of Financial Statements; Registration Rights .
(a) The Company shall deliver to Purchaser such financial information as the Company delivers to Major Investors pursuant to Section 2.1.1 of that certain Amended and Restated Investors Rights Agreement dated as of July 16, 2013, by and among the Company and certain stockholders, as may be amended (the Rights Agreement ), subject to compliance by Purchaser with the provisions of Section 2.3 of the Rights Agreement.
(b) In addition, the Company agrees that Shares shall be considered Registrable Securities under the Rights Agreement for purposes of the registration rights described in Section 3 of the Rights Agreement, and the Company shall, as the next practicable interval, cause the Rights Agreement to be amended to the extent necessary to reflect the agreement described in this sentence.
3.4 Anti-Dilution Right . If prior to the earlier of (a) the date the Company has sold additional shares of Preferred Stock (other than the Series A Preferred Stock that may be issued at additional closings under the Series A Agreement) with an aggregate purchase price of at least [*] and (b) [*] after the Effective Date, the Company issues Additional Shares of Common Stock (as such term is defined in the Companys currently-effective Amended and Restated Certificate of Incorporation, as may be amended (the Restated Charter )) and such issuance results in an adjustment to the Conversion Price (as defined in the Restated Charter) of the Companys Series A Preferred Stock pursuant to Section 5.1.3 of the Restated Charter, then promptly following such issuance, the Company shall issue to the Purchaser, without additional consideration, a number of additional shares of Common Stock of the Company equal to the number of shares of Common Stock by which the Purchasers holdings would have increased, on an as-converted basis, pursuant to Section 5.1.3 of the Restated Charter if, in lieu of the Shares, the Purchaser held an 585,084 shares of Series A Preferred Stock of the Company (as adjusted for any stock dividends or stock splits following the Effective Date).
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER . Purchaser hereby represents and warrants to the Company as follows.
4.1 Purchase for Own Account for Investment. Purchaser is purchasing the Shares for Purchasers own account for investment purposes only and not with a view to or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the 1933 Act ). Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares.
4.2 Access to Information . Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Companys representatives concerning such matters and this investment.
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4.3 Understanding of Risks . Purchaser is fully aware of: (a) the highly speculative nature of the investment in the Shares; (b) the financial hazards involved; (c) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (d) the qualifications and backgrounds of the management of the Company; and (e) the tax consequences of investment in the Shares.
4.4 Purchasers Qualifications . Purchaser has a preexisting personal or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchasers business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchasers own interests in this transaction and is financially capable of bearing a total loss of this investment.
4.5 No General Solicitation . At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares.
4.6 Compliance with Securities Laws . Purchaser understands and acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Shares are not being registered with the Securities and Exchange Commission ( SEC ) under the 1933 Act. but instead are being issued under an exemption or exemptions from the registration and qualification requirements of the 1933 Act and applicable state securities laws which impose certain restrictions on Purchasers ability to transfer the Shares.
4.7 Restrictions on Transfer . Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the 1933 Act and registered or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC or applicable state securities commissioners and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser.
4.8 Regulation S .
(a) Purchaser is not a U.S. Person as defined in Rule 902(k) of Regulation S under the 1933 Act. The offer and sale of the Shares to such Purchaser was made in an offshore transaction (as defined in Rule 902(h) of Regulation S), no directed selling efforts (as defined in Rule 902(c) of Regulation S) were made in the United States, and the Purchaser is not acquiring the Shares for the account or benefit of any U.S. Person.
(b) Purchaser will not, during the Restricted Period applicable to the Shares set forth in the legend set forth in Section 9.1 below (the Restricted Period ) and to any certificate representing the Shares, offer or sell any of the foregoing securities (or create or maintain any derivative position equivalent thereto) in the United States, to or for the account or benefit of a U.S. Person or other than in accordance with Regulation S.
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(c) Purchaser will after the expiration of the applicable Restricted Period, offer, sell, pledge or otherwise transfer the Shares (or create or maintain any derivative position equivalent thereto) only pursuant to registration under the 1933 Act or any available exemption therefrom and, in any case, in accordance with applicable state securities laws.
(d) Purchaser acknowledges and agrees that the Company shall not register the transfer of the Shares in violation of these restrictions. Purchaser acknowledges and agrees that the certificates evidencing the Shares will bear the legend concerning these restrictions set forth in Section 9.1 below (in addition to any other legend required by applicable federal, state or foreign securities laws or provided in any other agreement with the Company).
5. MARKET STANDOFF AGREEMENT . Purchaser agrees in connection with any registration of the Companys securities under the 1933 Act that, upon the request of the Company or the underwriters managing any registered public offering of the Companys securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-shareholders generally. Purchaser further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing and that such underwriters are express third party beneficiaries of this Section 4.
6. RIGHT OF FIRST REFUSAL . Before any Shares held by Purchaser or any transferee of such Shares (either sometimes referred to herein as the Holder) may be sold or otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Shares to be sold or transferred (the Offered Shares ) on the terms and conditions set forth in this Section (the Right of First Refusal ).
6.1 Notice of Proposed Transfer . The Holder of the Offered Shares will deliver to the Company a written notice (the Notice ) stating: (a) the Holders bona fide intention to sell or otherwise transfer the Offered Shares; (b) the name and address of each proposed purchaser or other transferee (the Proposed Transferee ); (c) the number of Offered Shares to be transferred to each Proposed Transferee; (d) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the Offered Price ); and (e) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Companys Right of First Refusal at the Offered Price as provided for in this Agreement.
6.2 Exercise of Right of First Refusal . At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined in accordance with Section 5.3 below.
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6.3 Purchase Price . The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift), the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Companys Board of Directors. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined, in good faith by the Companys Board of Directors, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
6.4 Payment . Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof The purchase price will be paid without interest within sixty (60) days after the Companys receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
6.5 Holders Right to Transfer . If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (a) such sale or other transfer is consummated within [*] after the date of the Notice, (b) any such, sale or other transfer is effected in compliance with all applicable securities laws, and (c) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such [*] period, then a new Notice must be given to the Company, pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
6.6 Exempt Transfers . Notwithstanding anything to the contrary in this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (a) in the case of a Holder that is an entity, the transfer of any or all of the Shares to its stockholders, members, partners or other equity holders; (b) in the case of a Holder who is a natural person, the transfer of any or all of the Shares during Holders lifetime by gift or on Holders death by will or intestacy to Holders Immediate Family (as defined below) or to a trust for the benefit of Holder or Holders Immediate Family, provided, that in the case of clauses (a) and (b), each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient); (c) except as provided in Section 6.7 clause (b) below, any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations; or (d) any transfer of Shares pursuant to the winding up and dissolution of the Company. As used herein, the term Immediate Family will mean Holders spouse or Spousal Equivalent, the lineal descendant or antecedent, brother or sister, of Holder or Holders spouse or Spousal Equivalent, or the spouse or Spousal Equivalent, of any lineal descendant or antecedent, brother or sister of Holder, or Holders spouse or Spousal Equivalent, whether or not any of the above are adopted. As used herein, a person is deemed to be a Spousal Equivalent if the relevant person and the related party are registered as domestic partners under any law having such effect or provided the following circumstances are true: (a) irrespective of whether or not the relevant person and the
5 | *Confidential Treatment Requested. |
Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (b) they intend to remain so indefinitely, (c) neither are married to anyone else, (d) both arc at least eighteen (18) years of age and mentally competent to consent to contract, (e) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (f) they are jointly responsible for each others common welfare and financial obligations, and (g) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
6.7 Termination of Right of First Refusal . The Right of First Refusal will terminate as to all Shares (a) on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan) or (b) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Securities Exchange Act of 1934, as amended.
7. COMPANYS REPURCHASE OPTION .
7.1 Repurchase Option; Termination Date . The Company or its assignees shall have the option to repurchase all or a portion of the Unvested Shares (defined in Section 6.2 below) on the terms and conditions set forth in this Section (the Repurchase Option ) if (i) the Development Agreement is no longer in effect in accordance with its terms or (ii) if Genethon ceases to perform its obligations thereunder ((i) or (ii), the Termination Date ).
7.2 Unvested and Vested Shares .
7.2.1 Vesting Schedule . Shares that are vested pursuant to the schedule set forth herein are Vested Shares . Shares that are not vested pursuant to the schedule set forth herein are Unvested Shares . Unvested Shares may not be sold or otherwise transferred by Purchaser without the Companys prior written consent. On the Effective Date one-third (1/3rd) of the Shares will be Vested Shares and the remaining two-third (2/3rds) of the Shares will be Unvested Shares. If the Development Agreement remains in effect in accordance with its terms and Genethon continues to perform its obligations thereunder, at all times since the Effective Date, then on each of the first and second annual anniversary dates of the effective date of the Development Agreement, an additional one-third (1/3rd) of the Shares will become Vested Shares. No Unvested Shares will become Vested Shares after the Termination Date.
7.2.2 Acceleration of Vesting . In addition to any Shares that have become Vested Shares pursuant to Section 6.2.1 hereof, if there is a Change of Control or an IPO then, effective as of such Change of Control or IPO, 100% of the Shares will become Vested Shares at such time.
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As used in this Section 7.2.2:
Change of Control means (a) any transaction or series of related transactions resulting in a liquidation, dissolution or winding up of the Company, (b) a sale of all or substantially all of the assets of the Company, (c) any sale or exchange of the capital stock of the Company by the stockholders of the Company in one transaction or a series of related transactions where more than fifty percent (50%) of the outstanding voting power of the Company is acquired by a person or entity or group of related persons or entities (other than pursuant to a recapitalization of the Company solely with its equity holders) or (d) any merger or consolidation (each, a combination transaction ), in which the Company is a constituent entity or is a party with another entity if, as a result of such combination transaction, in one transaction or series of related transactions, the voting securities of the Company that are outstanding immediately prior to the consummation of such combination transaction (other than any such securities that are held by an Acquiring Stockholder, as defined below) do not represent, or are not converted into, securities of the surviving entity in such combination transaction (or such surviving entitys parent entity if the surviving entity is owned by the parent) that, immediately after the consummation of such combination transaction, together possess at least a majority of the total voting power of all voting securities of such surviving entity (or its parent, if applicable) that are outstanding immediately after the consummation of such combination transaction, including securities of such surviving entity (or its parent, if applicable) that are held by the Acquiring Stockholder. For purposes of this paragraph, an Acquiring Stockholder means a stockholder or stockholders of the Company that (i) merges or combines with the Company in such combination transaction or (ii) directly or indirectly owns or controls a majority of the voting power of another entity that merges or combines with the Company in such combination transaction.
IPO means the sale of shares of Common Stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act.
7.3 Adjustments . The number of Shares that are Vested Shares or Unvested Shares will be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the common stock of the Company occurring after the Effective Date.
7.4 Exercise of Repurchase Option . At any time within [*] after the Termination Date, the Company may elect to repurchase any or all of the Unvested Shares by giving Purchaser written notice of exercise of the Repurchase Option. The Company and/or its assignee(s) will then have the option to repurchase from Purchaser (or from Purchasers personal representative as the case may be) any or all of the Unvested Shares at a purchase price of $0.00001 per share, as adjusted to reflect any stock dividend, stock split, reverse stock split or recapitalization of the common stock of the Company occurring after the Effective Date (the Repurchase Price).
7.5 Payment of Repurchase Price . The Repurchase Price will be payable, at the option of the Company or its assignee(s), by check or by cancellation of all or a portion of any outstanding indebtedness owed by Purchaser to the Company (or to such assignee) or by any combination thereof, The Repurchase Price will be paid without interest within [*] after the Company gives the Purchaser written notice of the exercise of its Repurchase Option.
7.6 Right of Termination Unaffected . Nothing in this Agreement will be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company to terminate the Development Agreement in accordance with its terms.
7 | *Confidential Treatment Requested. |
8. RIGHTS AS OWNER OF SHARES .
8.1 Encumbrances on Shares . Purchaser may grant a lien or security interest in, or pledge, hypothecate or encumber Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that (a) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Shares after they are acquired by the Company and/or its assignees under this Section; and (b) the provisions of this Section will continue to apply to such Shares in the hands of such party and any transferee of such party.
8.2 Encumbrance on Shares . Subject to the terms and conditions of this Agreement, Purchaser will have all of the rights to the Shares from and after the date that Purchaser delivers payment of the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal or Repurchase Option. Upon an exercise of the Right of First Refusal or Repurchase Option, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
9. TAX CONSEQUENCES . PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASERS PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS` (a) THAT PURCHASER HAS CONSULTED WITH A TAX ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (b) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. Purchaser hereby acknowledges that Purchaser has been informed that in addition to receiving taxable income upon the receipt of any Shares paid for by the cancellation of compensation for services rendered, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities) within 30 days after the purchase of the Shares to be effective, electing pursuant to Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the purchase price of the Shares and their fair market value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the fair market value of the Shares, at the time they cease to be Unvested Shares, over the purchase price for such Shares. Purchaser represents that Purchaser has consulted any tax advisors Purchaser deems advisable in connection with Purchasers purchase of the Shares and the filing of the election under Section 83(b) and similar tax provisions. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FROM FAILURE 70 PILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.
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10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS .
10.1 Legends . Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Companys Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any third party:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER 7HE SECURITIES ACT OF 1933, AS AMENDED (THE ACT) WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, AND THE COMPANY DOES NOT INTEND TO REGISTER THEM. PRIOR TO JANUARY 31, 2015, THE SHARES MAY NOT BE OFFERED OR SOLD (INCLUDING OPENING A SHORT POSITION IN SUCH SECURITIES) IN THE UNITED STATES OR TO U.S. PERSONS AS DEFINED BY RULE 902(k) ADOPTED UNDER THE ACT, OTHER THAN TO DISTRIBUTORS UNLESS THE SHARES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM TILE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE. PURCHASERS OF SHARES PRIOR TO JANUARY 31, 2015, MAY RESELL SUCH SECURITIES ONLY PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT OR OTHERWISE IN ACCORDANCE WITH THE PROVISIONS OF REGULATIONS OF THE ACT OR IN TRANSACTIONS EFFECTED OUTSIDE OF THE UNITED STATES PROVIDED THEY DO NOT SOLICIT (AND NO ONE ACTING ON THEIR BEHALF SOLICITS) PURCHASERS IN THE UNITED STATES OR OTHERWISE ENGAGE(S) IN SELLING EFFORTS IN THE UNITED STATES AND PROVIDED THAT HEDGING TRANSACTIONS IN 7HESE SECURITIES ,WAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT. A HOLDER OF THE SECURITIES WHO IS A DISTRIBUTOR, DEALER, SUB-UNDERWRITER OR OTHER SECURITIES PROFESSIONAL IN ADDITION CANNOT PRIOR TO JANUARY 31, 2015 RESELL THE SECURITIES TO A US PERSON AS DEFINED BY RULE 902(k) OF REGULATION S UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, INCLUDING THE RIGHTS OF REPURCHASE AND FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S), AND A MARKET STANDOFF RESTRICTION, AS SET FORTH IN A COMMON STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF 77IE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS INCLUDING THE RIGHTS OF REPURCHASE AND FIRST REFUS.4L AND THE MARKET STANDOFF RESTRICTION, ARE BINDING ON TRANSFEREES OF THESE SHARES.
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10.2 Stop-Transfer Instructions . Purchaser agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. The Company will not be required (a) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (b) to treat as owner of such Shares, or to accord the right to vote or pay dividends, to any purchaser or other transferee to whom such Shares have been so transferred.
11. COMPLIANCE WITH LAWS AND REGULATIONS . The issuance and transfer of the Shares will be subject to and conditioned upon, compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Companys Common Stock may be listed or quoted at the time of such issuance or transfer.
12. GENERAL PROVISIONS .
12.1 Notices . Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States; or (c) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by express courier. All notices not delivered personally will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Agreement or at such other address as such other party may designate by one of the indicated -means of notice herein to the other party hereto. A business day shall be a day, other than Saturday or Sunday, when the banks in the city of San Francisco are open for business.
12.2 Further Assurances . The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
12.3 Titles and Headings . The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement.
12.4 Governing Law . This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of, laws.
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12.5 Assignments; Successors and Assigns . The Company may assign any of its rights and obligations under this Agreement, including but not limited to its rights to repurchase Shares under the Right of First Refusal and the Repurchase Option. Any assignment of rights and obligations by any other party to this Agreement requires the Companys prior written consent. This Agreement, and the rights and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives.
12.6 Entire Agreement . This Agreement and the documents referred to herein constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.
12.7 Amendment and Waivers . This Agreement may be amended only by a written agreement executed by each of the parties hereto. No amendment of or waiver of, or modification of any obligation under this Agreement will be enforceable unless set forth in a writing signed by the party against which enforcement is sought. Any amendment effected in accordance with this section will be binding upon all parties hereto and each of their respective successors and assigns. No delay or failure to require performance of any provision of this Agreement shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Agreement as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived.
12.8 Severability . If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement Notwithstanding the forgoing, if the value of this Agreement, based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
12.9 Counterparts; Facsimile Signatures . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase Agreement to be executed by its duly authorized representative and Purchaser has executed this Agreement, each as of the Effective Date.
Exhibit A
Capitalization
AUDENTES THERAPEUTICS, INC.PRO FORMA CAPITALIZATION
Name |
Common | Series Seed |
Series A
(Current). |
Series A
(Final Milestone) |
Total |
$ Total
Post- Genethon |
||||||||
Investor Group |
[*] | [*] | [*] | [*] | [*] | [ | *]% | |||||||
Management Team and Other Common Holders |
[*] | | | [*] | [ | *]% | ||||||||
Genethon |
[*] | | | [*] | [ | *]% | ||||||||
Subtotals |
[*] | [*] | [*] | [*] | [*] | |||||||||
2012 Plan Options Outstanding |
[*] | | . | | [*] | [ | *]% | |||||||
2012 Plan Options Available |
[*] | | | [*] | [ | *]% | ||||||||
Totals |
[*] | [*] | [*] | [*] | [*] | [ | *]% |
*Confidential Treatment Requested. |
EXHIBIT D
Genethon Background Patent Rights
As of the Effective date of this Agreement the Genethon Background Patent Rights comprise:
1. | Background Patent 1 : [*] |
2. | Background Patent 2 : [*] |
3. | Background Patent 3 : [*] |
*Confidential Treatment Requested. |
EXHIBIT E
HHS Form of Sublicense Agreement
SUBLICENSE AGREEMENT
This SUBLICENSE AGREEMENT (this Agreement ), effective as of [], 201[] (the Sublicense Effective Date ), is made by and between Audentes Therapeutics, Inc., a Delaware corporation, having a place of business at 101 Montgomery Street, Suite 2650, San Francisco, CA 94104 ( Audentes ) and Genethon, a French non-profit organization organised under the French law of July 1, 1901, having a principal place of business at 1bis rue de lInternationale, 91002 EVRY Cedex, France ( Genethon ).
Audentes and Genethon are each individually referred to herein as a Party and collectively as the Parties .
BACKGROUND
A. Genethon and the United States Department of Health and Human Services ( HHS or PHS ) entered into that certain Patent License Agreement dated effective June 22, 2012 (the HHS Patent License Agreement ), a copy of which has been provided to Audentes subject to confidentiality obligations.
B. The Parties entered into that certain Collaborative Development Agreement dated January 24, 2014 (the Collaborative Development Agreement ), whereby, among other things, Genethon granted to Audentes licenses under its Background Intellectual Property, including an option (set out in section 4.1(a)(iii) thereof) to obtain, subject to certain conditions including the approval by PHS of the sublicense agreement, a sublicense under the HHS Patent License Agreement to make, develop and commercialize a certain Product (as defined in the Collaborative Development Agreement).
C. Audentes has exercised its option to obtain said sublicense, and Genethon is willing to grant the sublicense on the terms and conditions hereof
D. PHS has approved this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, the Parties covenant and agree as follows:
1. DEFINITIONS
As used herein, the following terms will have the meanings set forth below:
Affiliate shall have the meaning attributed thereto in the HHS Patent License Agreement, for this purpose treating Audentes as if it were the Licensee referred to in such definition in the HHS Patent License Agreement.
Licensed Patent Rights shall have the meaning attributed thereto in the HHS Patent License Agreement.
Licensed Processes shall mean processes, which in the course of being practiced, would be within the scope of one or more claims of the Licensed Patent Rights that have not been held unpatentable, invalid or unenforceable by an unappealed or unappealable judgment of a court of competent jurisdiction
Licensed Products shall mean any Product which in the course of manufacture, use sale; or importation, would be within the scope of one or more claims of the Licensed Patent Rights that have not been held unpatentable, invalid or unenforceable by an unappealed or unappealable judgment of a court of competent jurisdiction. For the avoidance of doubt, a Product whose manufacture involves the practice of a Licensed Process shall be a Licensed Product.
Licensed Territory shall mean worldwide.
Net Sales shall mean the total gross receipts for sales of Licensed Products or practice of Licensed Processes by or on behalf of Audentes or its sublicensees, and from leasing, renting, or otherwise making Licensed Products available to others without sale or other dispositions, whether invoiced or not, less returns or allowances, packing costs, insurance costs, freight out, taxes or excise duties imposed on the transaction (if separately invoiced), and wholesaler and cash discounts in amounts customary in the trade to the extent actually granted. For avoidance of doubt, transfers of Licensed Products by Audentes to an academic institution only in the context of a collaborative research or development agreement solely between Audentes and the academic institution will be excluded from the calculation of Net Sales. No deductions shall be made for commissions paid to individuals, whether they are with independent sales agencies or regularly employed by Audentes, or sublicensees and on its payroll, or for the cost of collections.
Party or Parties has the meaning set forth on the first page hereof.
Product has the meaning attributed thereto in section 1.15 of the Collaborative Development Agreement.
Sublicense Effective Date shall mean the date first above written as the effective date of this Agreement.
All other capitalized terms not otherwise defined in this Article I or herein shall have the meanings assigned to them in the Collaborative Development Agreement.
2. GRANT
2.1 Sublicense Grant . Genethon hereby grants to Audentes a non-exclusive sublicense under the this Patent License Agreement to the Licensed Patent Rights in the Licensed Territory, for the sole purpose of making, having made, using, importing, selling, offering for sale and otherwise discovering, researching, developing or commercializing Licensed Products following a technology transfer under Section 2.4(b) or 2.4(c) of the Collaborative Development Agreement.
2.2 Sublicense Conditions . Audentes acknowledges and agrees that Audentess rights in this Agreement are subject to the terms and conditions of the HHS Patent License Agreement.
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In particular, and without limitation, in accordance with paragraph 4.2 thereof, Genethons obligations to PHS set out in paragraphs 5.1, 7.1, 9.1, 9.2, 11, 12.4 and 13.6-13.7 of the HHS Patent License Agreement shall be binding upon Audentes as if Audentes were a party thereto (i.e., for the purposes hereof, Audentes shall be deemed to be the Licensee referred to in these paragraphs). Copies of such paragraphs are set out in Exhibit A hereto.
2.3 Further Sublicenses . Audentes shall have the right to further sublicense the rights granted to Audentes hereunder subject to all the relevant terms and conditions of the HHS Patent License Agreement applicable to sublicensing, including without limitation article 4 thereof.
2.4 No Implied Licenses . Only the license granted pursuant to the express terms of this Agreement shall be of any legal force or effect. No other license or rights shall be created by implication, estoppel or otherwise. No license is granted to Audentes hereunder to manufacture, develop or commercialize any products other than Product.
3. DEVELOPMENT
3.1 Development Responsibility . As of the Sublicense Effective Date, Audentes shall assume responsibility for the development and reporting obligations set out in paragraphs 9.1 through 9.3 and article 10 of the HHS Patent License Agreement, as such apply to the development and commercialization of Licensed Product. Audentes shall provide to Genethon a copy of all documents provided to PHS pursuant to its obligations under paragraphs 9.1 through 9.3 of the HHS Patent License Agreement, and the same shall be Confidential Information to be protected as provided in article 9 of the Collaborative Development Agreement and as described in paragraph 9.9 of the HHS Patent License Agreement. Genethons rights of termination under Section 5.3 hereof shall be the sole remedy for any breach by Audentes of the obligations set out in article 10 of the HHS Patent License Agreement.
3.2 Audentes Compliance . Audentes represents and warrants that it shall comply with all applicable laws, rules and regulations regarding the research, development, commercialization, marketing, manufacture, import, export and sale of Licensed Products in the Licensed Territory. Audentes shall not take any action or make any omission that it knows will result in Genethon being in breach of its obligations under the HITS Patent License Agreement.
3.3 Affiliates, Subcontractors and Sublicensees . To the extent Audentes performs certain of its obligations or exercises certain of its rights under this Agreement through Affiliates, subcontractors and/or sublicensees, Audentes shall remain directly responsible to Genethon and if applicable HHS for the performance and compliance by all such Affiliates, subcontractors and/or sublicensees in accordance with the terms and conditions hereof, as is such obligations were performed or rights exercised by Audentes. In the event of any dispute arising from the act or omission of an Affiliate, subcontractor and/or sublicensee under this Agreement, Genethon may proceed directly against Audentes, without any obligation to first proceed against the Affiliate, subcontractor and/or sublicensee.
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4. FINANCIAL TERMS
In consideration for the sublicense rights granted under Section 2.1 hereof, Audentes shall make the following payments:
4.1 Sublicense Fee . Audentes shall pay to Genethon a sublicense fee of [*] within [*] of the Sublicense Effective Date.
4.2 Royalty Payments . Audentes shall pay directly to PHS all earned and benchmark royalty payments due to PHS pursuant to Appendix CIII and IV that relate to or result from Audentess exercise of its sublicense rights hereunder and/or its or its sublicensees manufacture, development and/or commercialization of Licensed Product. In addition, in the case of any further sublicense being granted by Audentes in accordance with Section 2.3 hereof, Audentes shall pay directly to NISI any sublicensing royalties due to PHS any sublicensing royalties due to PHS pursuant to Appendix C V of the HHS Patent License Agreement and that relate to or result from such further sublicensing by Audentes.
4.3 Accounting; Payments .
4.3.1 Audentes shall in accordance with paragraph 8.1 of the HHS Patent License Agreement keep and maintain complete hooks and records containing an accurate accounting of all data in sufficient detail to enable verification of earned royalties and other payments due hereunder.
4.3.2 Audentes shall provide to PHS the royalty reports required pursuant to paragraph 9.4 of the HHS Patent License Agreement in respect of the manufacture, development and commercialization of Licensed Product and concurrently provide copies thereof to Genethon, and the same shall be Confidential Information to be protected as provided in Article 9 of the Collaborative Development Agreement and as described in paragraph 9.9 of the HHS Patent License Agreement. Audentes acknowledges that Genethon may provide such reports to, or, as necessary, receive them from, PHS.
4.3.3 Audentes acknowledges and agrees that the inspection rights provided in paragraph 8.1 of the HHS Patent License Agreement may be exercised by PITS or Genethon; provided, however, that in no event will Audentes be liable (whether to PHS or to Genethon, or in the aggregate to both) for the costs of. more than one inspection of records covering any period, even if more than one inspection shows an underreporting or an underpayment in excess of five percent for such period.
4.3.4 All payments due by Audentes hereunder shall, for the avoidance of doubt, be subject to paragraphs 9.6, 9.7 and 9.8 of the HHS Patent License Agreement, it being agreed, however, that no late fees imposed under such paragraph 9.8 or under this Section 4.3.4 shall (whether to PHS or to Genethon, or in the aggregate to both) exceed the rate of one percent per month.
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5. TERM AND TERMINATION
5.1 Term . The term of this Agreement shall begin on the Sublicense Effective Date and continue until the earlier of (a) payment of the last royalty due hereunder after the expiration of the last to expire Licensed Patent Right or (b) early termination of this Agreement as provided in this Article 5.
5.2 Termination by Audentes for Convenience . Audentes may terminate the Agreement for convenience in any country of the Licensed Territory upon [*] prior written notice to Genethon.
5.3 Termination for Default . In the event that Audentes is in default in the performance of any material obligations under this Agreement or of the obligations applicable to it under the HHS Patent License Agreement, and if Audentes fails to remedy any such default within [*] after written notice thereof by Genethon, Genethon may at its option, terminate this Agreement by giving written notice of termination to Audentes; provided, however, that (i) where Audentes disputes in good faith that the claimed breach exists, such cure period will not start to run until such dispute either can no longer be maintained in good faith or has been resolved by agreement of the Parties or pursuant to Section 15.2 of the Collaborative Development Agreement as incorporated herein; and (ii) if a breach is not reasonably capable of being cured within the [*] cure period described above and Audentes is making continuing good faith efforts to cure such breach, the cure period applicable to such breach shall be extended to [*]. Notwithstanding the above, should a default by Audentes under this Agreement give rise to a termination of the IBIS Patent License Agreement by HHS under paragraph 13.2 thereof, this Agreement shall terminate immediately upon termination of the HHS Patent License Agreement, and in such case PHS may pursue outstanding royalties owed by Audentes through procedures provided by the Federal Debt Collection Act .
5.4 Bankruptcy . Either Party may terminate this Agreement at any time upon the other Party s filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other Party; provided, however, that in the case of any involuntary bankruptcy proceeding such right to terminate shall only become effective if the Party consents to the involuntary bankruptcy or such proceeding is not dismissed within [*] after the filing thereof.
5.5 Termination of the Collaborative Development Agreement . This Agreement shall automatically terminate upon any termination of the Collaborative Development Agreement contemplated in section 14.4(c) thereof.
5.6 Termination of the HHS Patent License Agreement . Subject to Section 5.5 hereof, in the event that the HHS Patent License Agreement is terminated for any reason in accordance with its terms and through no fault of Audentes, this Agreement shall either terminate or, at the option of Audentes, be converted to a license directly between Audentes and PUS in accordance with paragraph 4.3 of the HHS Patent License Agreement. Audentes acknowledges and agrees that the conversion of this Agreement shall be subject to PHS approval and contingent upon acceptance by Audentes of all provisions of the HHS Patent License Agreement.
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5.7 Consequences of Termination . Upon termination of this Agreement for any reason, Audentes shall remain obligated to provide an accounting for and to pay royalties earned up to the effective date of the termination.
5.8 Survival . The terms of Articles 1 and 6 through 9 inclusive and of Sections 2.2, 3.3, 5.6, 5.7 and 5.8 shall survive the termination or expiration of this Agreement.
6. CONFIDENTIALITY
6.1 Confidentiality Obligation . As between the Parties, the confidentiality obligations set out in sections 9.1 to 9.3 (inclusive) of the Collaborative Development Agreement shall apply; provided, however, that Genethon shall be permitted to provide PHS with a complete fully executed copy of this Agreement and of any information provided by Audentes in connection with this Agreement without Audentess prior consent.
7. INTELLECTUAL PROPERTY RIGHTS
7.1 Notice . Each Party shall promptly notify the other of any knowledge it acquires of any potential infringement of the Licensed Patent Rights, as well as any facts which may affect the validity, scope or enforceability of the Licensed Patent Rights, of which such Party becomes aware. Notwithstanding any provision to the contrary herein contained, Audentes acknowledges that Genethon may communicate any information provided to it by Audentes in accordance with this Section 7.1 to PHS.
7.2 Filing, Prosecution and Maintenance . Audentes acknowledges and agrees that all preparation, filing, prosecution and maintenance of the Licensed Patent Rights shall be the responsibility of PBS.
7.3 Negation of Representations and Warranties . Genethon makes no representations or warranties regarding the validity, scope or merchantability or fitness for a particular purpose of the Licensed Patent Rights.
8. INDEMNIFICATION INSURANCE
8.1 Indemnification . As between the Parties, the indemnification provisions set out in sections 13.1 through 13.3 inclusive of the Collaborative Development Agreement shall apply and are hereby incorporated herein by reference. In particular, each Party shall in accordance with such sections defend and indemnify the other in respect of any claims and all resulting Liabilities (as defined in the Collaborative Development Agreement ) brought by PHS against the other Party arising out of such Partys breach of its obligations hereunder.
In addition, Audentes shall be directly liable to PHS and its employees, students, fellows, agents and consultants for the indemnification obligations set out in paragraph 12.5 of the BIBS Patent License Agreement as they related to Audentess or its sublicensees exercise of its rights under this Agreement and/or the manufacture, development or commercialization of Licensed Product by or for Audentes or its sublicensees.
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8.2 Insurance . Beginning on the Effective Date, Audentes shall, at its sole cost and expense, procure and maintain product and general liability insurance (contractual liability included) consistent with sound business practice.
9. MISCELLANEOUS
9.1 EXCEPT IN THE EVENT OF A PARTYS BREACH OF ARTICLE 6 HEREOF, NEITHER PARTY NOR ANY OF ITS AFFILIATES SHALL BE LIABLE IN CONTRACT, TORT, NEGLIGENCE, BREACH OF STATUTORY DUTY OR OTHERWISE FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES OR FOR LOSS OF PROFITS SUFFERED BY THE OTHER PARTY, EXCEPT TO THE EXTENT ANY SUCH DAMAGES ARE REQUIRED TO BE PAID TO A THIRD PARTY AS PART OF A CLAIM FOR WHICH A PARTY IS REQUIRED TO PROVIDE INDEMNIFICATION UNDER SECTION 8.1 HEREOF. For the avoidance of doubt, the above shall not limit any amounts due to HHS in connection with Licensed Product.
9.2 As between the Parties, the miscellaneous provisions set forth in sections 15.1 through 15.3 and 15.5 through 15.7 inclusive of the Collaborative Development Agreement shall apply and are hereby incorporated by reference herein.
9.3 Without prejudice to Section 9.2 above, all notices by Audentes to PHS hereunder shall be given in accordance with paragraph 14.6 of the HHS Patent License Agreement and sent to:
Office of Technology Transfer
National Institute of Health
6011 Executive Boulevard, Suite 325
Rockville, Maryland 20852-3804 U.S.A.
Attn: Chief, Monitoring & Enforcement Branch
E-mail: LicensesNotices_Report@mail.nih.gov
9.4 In exercising its rights under this Agreement, and in particular in connection with the manufacture, development, use and commercialization of Licensed Product, Audentes shall be subject to and abide by the obligations applicable to the Licensee set out in paragraphs 14.8 through 14.11 of the HHS Patent License Agreement.
9.5 The assignment by Audentes of this Agreement shall be subject to section 15.4 of the Collaborative Development Agreement and not paragraph 14.7 of the HHS Patent License Agreement.
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IN WITNESS WHEREOF , the Parties have duly executed this Agreement as of the Sublicense Effective Date.
GENETHON | AUDENTES THERAPEUTICS, INC. | |||||||
By: | By: | |||||||
Title: | Title: |
EXHIBIT A
PROVISIONS OF THE HHS PATENT LICENSE AGREEMENT
| Paragraph 5.1: |
Licensee agrees that product used or sold in the United States embodying Licensed Products or produced through use of Licensed Processes shall be manufactured substantially in the United States, unless a written waiver is obtained in advance from PHS.
| Paragraph 7.1: |
PHS agrees to take responsibility for the preparation, filing, prosecution, and maintenance of any and all patent applications or patents included in the Licensed Patent Rights.
| Paragraph 9.1: |
Prior to signing this Agreement, Licensee has provided PHS with the Commercial Development Plan in Appendix E, under which Licensee intends to bring the subject matter of the Licensed Patent Rights to the point of Practical Application. This Commercial Development Plan is hereby incorporated by reference into this Agreement. Based on this plan, performance Benchmarks are determined as specified In Appendix D.
| Paragraph 9.2: |
Licensee shall provide written annual reports on its product development progress or efforts to commercialize under the Commercial Development Plan for each of the Licensed Fields of Use within sixty (60) days alter December 31 of each calendar year. These progress reports shall include, but not he limited to: progress on research and development status of applications for regulatory approvals, manufacturing, marketing, importing, and sales during the preceding calendar year, as well as, plans for the present calendar year. PHS also encourages these reports to include information on any Licensees public service activities that relate to the licensed Patent Rights. If reported progress differs from that projected in the Commercial Development Plan and Benchmarks, Licensee shall explain the reasons for such differences. In any annual report, Licensee may propose amendments to the Commercial Development Plan, acceptance of which by PHS may not be denied unreasonably. Licensee agrees to provide any additional information reasonably required by PHS to evaluate Licensees performance under this Agreement. Licensee may amend the Benchmarks at any time upon written approval by PHS. PHS shall not unreasonably withhold approval of any request of Licensee to extend the time periods of this schedule if the request is supported by a reasonable showing by Licensee of diligence in its performance under the Commercial Development Plan and toward bringing the Licensed Products to the point of Practical Application.
| Article 11: |
INFRINGEMENT AND PATENT ENFORCEMENT
11.1 | PHS and Licensee agree to notify each other promptly of each infringement or possible infringement of the Licensed Patent Rights, as well as any facts which may affect the validity, .scope, or enforceability of the Licensed Patent Rights of which either Party may become aware. |
11.2 | In the event that a declaratory judgment action alleging invalidity of any of the Licensed Patent Rights shall he brought against PI IS, PHS agrees to notify Licensee that an action alleging invalidity has been brought. PHS does not represent that it shall commence legal action to defend a declaratory action alleging invalidity. Licensee shall take no action to compel the Government either to initiate or to join in any declaratory judgment action of Licensee, Licensee shall reimburse the Government for any costs, expenses, or fees, which the Government incurs as a result of the motion or other action. Upon Licensees payment of all costs incurred by the Government as a result of Licensees joinder motion or other action, these actions by Licensee shall not be considered a default in the performance of any material obligation under this Agreement. |
| Paragraph 12.4: |
PUS does not represent that it shall commence legal actions against third parties infringing the Licensed Patent Rights. Should PHS not commence any legal actions against said third parties after notification sent by Licensee, Licensee will have the choice to commence legal action(s) against such third parties at its own costs.
| Paragraph 13.6: |
In making the determination referenced in Paragraph 13.5, PHS shall take into account the normal course of such commercial development programs conducted with sound and reasonable business practices and judgment and the annual reports submitted by Licensee under Paragraph 9.2. Prior to invoking termination or modification of this Agreement under Paragraph 13.5, PHS shall give written notice to Licensee providing Licensee specific notice of and ninety (90) day opportunity to respond to 111S. concerns as to the items referenced in 135(a) 135(g) If Licensee fails to alleviate PHS concerns as to the items referenced in 13.5(a)-13.5(g) or fails to initiate corrective actions to PHS satisfaction, PHS may terminate this Agreement.
| Paragraph 13.7: |
PHS reserves the right according to 35 U.S.C. §209(d)(3) to terminate or modify this Agreement if it is determined that the action is necessary to meet the requirements for public use specified by federal regulations issued after the date of the license and these requirements are not reasonably satisfied by Licensee.
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EXHIBIT 10.13
* Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
LICENSE AGREEMENT
This License Agreement ( Agreement ) is made as of September 26, 2014 (the Effective Date ) by and between the Fondazione Salvatore Maugeri, an organization established under the laws of Italy ( FSM ), and Cardiogen Sciences, Inc., a Delaware corporation ( Cardiogen ). Each of FSM and Cardiogen are referred to herein as Party and together as the Parties .
RECITALS
WHEREAS, Dr. Silvia Priori and other researchers employed by FSM have identified certain nucleic acid sequences associated with single mutation arrhythmias that may be useful for the treatment of certain cardiovascular conditions by means of gene therapy;
WHEREAS, FSM has filed patent applications claiming certain methods of treating such conditions by inserting such sequences into cells; and
WHEREAS, Cardiogen desires to obtain a license from FSM to develop and commercialize products based on such methods and related compositions , and certain other sequences related to single mutation arrhythmias that have been or may be identified by or on behalf of FSM in the future; and
WHEREAS, FSM is willing to grant such license to Cardiogen based on the assumption that Cardiogen has adequate and necessary skills and resources to utilize such methods and related compositions, as well as to develop and commercialize products based thereon, itself or working with or through sublicensees, on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of these premises and the mutual covenants and agreements set forth herein, the sufficiency of which is hereby acknowledged, the Parties agree as follows:
AGREEMENT
Definitions
Affiliate means any company or entity controlled by, controlling or under common control with a Party. As used in this Section 1.1, control means (a) that an entity or company owns, directly or indirectly, fifty percent (50%) or more of the voting stock of another entity, or (b) that an entity, person or group has the actual ability to control and direct the management of the entity, whether by contract or otherwise.
*Confidential Treatment Requested.
Calendar Quarter means a period of three (3) consecutive months ending on the last day of March, June, September, or December, respectively.
Calendar Year means a twelve (12) month period ending on the last day of December.
Combination Product means a Product that includes an Other Component.
Common Stock means Cardiogens common stock, par value $0.0001 per share.
Confidential Information has the meaning given to such term in Section 0.
CPVT means catecholaminergic polymorphic ventricular tachycardia.
Field means treatment, prevention or amelioration of diseases or conditions in humans or other animals.
FSM Existing IP means (i) those patents and patent applications covering methods of treating recessive CPVT that are set forth on Exhibit A, (ii) all patent applications filed claiming priority from such patent applications, including divisionals, continuations, continuations-in-part, provisionals, converted provisionals, and continued prosecution applications, (iii) any and all patents that have issued or in the future issue from the foregoing patent applications, (iv) any and all reissues, re-examinations and extensions (including any supplementary protection certificates and the like) of the foregoing patents or patent applications, and (v) all international counterparts of any of the foregoing.
Fully-Diluted Capitalization means the number of shares of Common Stock then outstanding, assuming (a) the exercise and conversion of all outstanding options, warrants and other rights to acquire Cardiogens capital stock; (b) the conversion of all shares of outstanding preferred stock of Cardiogen, if any; and (c) the issuance of all shares of Common Stock reserved but unissued under Cardiogens equity incentive plan.
Improvement IP means all intellectual property rights in, or claiming or covering, Improvements that are owned or controlled by FSM, including without limitation (i) all patent applications filed claiming Improvements, including divisionals, continuations, continuations-in-part, provisionals, converted provisionals, and continued prosecution applications, (ii) any and all patents that have issued or in the future issue from the foregoing patent applications, (iii) any and all reissues, re-examinations and extensions (including any supplementary protection certificates and the like) of the foregoing patents or patent applications, and (iv) all international counterparts of any of the foregoing.
Improvements means inventions, information and technology comprising nucleic acid sequences associated with single mutation arrhythmias that are discovered or identified by or on behalf of FSM as of or after the Effective Date, as well as methods of making or using such sequences, methods of administering such sequences to cells or tissues, and compositions and methods necessary or useful to practice the foregoing. Improvements will include without
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limitation inventions, information and technology relating to arrhythmogenic syndromes, including without limitation recessive CPVT, dominant CPVT, short QT, dominant LQTS, recessive LQTS, Brugada, right ventricular cardiomyopathy, lamin A/C cardiomyopathy and dilated cardiomyopathy. For clarity, FSM shall have no obligation to fund research to identify Improvements, and may seek grants from non-profit entities in connection with FSMs efforts to discover or identify Improvements.
Information means any and all information, data, know-how, processes, manufacturing processes, trade secrets, inventions, discoveries (whether or not patentable), inventions (whether or not patentable), developments, results, techniques (including without limitation manufacturing techniques) and chemical, physical or biological materials.
Licensed IP means the FSM Existing IP and the Improvement IP.
LQTS means long QT syndromes [*].
Net Sales means, collectively, the gross invoiced sales price of all Products sold by Cardiogen, or its Affiliates or Sublicensees, of the Product (each, a Seller ) to Third Party purchasers after deduction of the following items whether currently in effect or which become effective during the Term as they pertain to the Products, if and to the extent they are included in the gross invoiced sales price of the Product or otherwise directly incurred by the Seller with respect to the sale of the Product, and not otherwise deducted in computing other amounts hereunder:
any and all normal and customary trade, prompt payment, cash and quantity discounts, customary allowances actually granted to purchasers of a Product for returns and recalled Product (including in connection with Product withdrawals, expired Product and Product recalls), chargeback and reporting fees paid to wholesalers and other distributors, allowances to end users participating in incentive programs, rebates and other credit adjustments based upon shipping discrepancies and order errors;
administrative fees to managed health care organizations;
freight expenses for shipping Product in finished package form (including insurance) to such purchasers, including without limitation the costs of export licenses, shipping, postage and handling charges;
any taxes and tariffs or duties paid, absorbed or allowed that are paid on sales of Product in finished package form, (excluding income taxes);
amounts invoiced for Products that are not paid, to the extent calculated in accordance with generally accepted accounting principles.
Sales to a Third Party distributor of such Product in any given country shall be considered a sale to a Third Party purchaser. Sale or transfer to an Affiliate or Sublicensee for re-sale by such Affiliate or Sublicensee shall not be considered a sale for the purpose of this provision, but the resale by such Affiliate or Sublicensee to a Third Party shall be a sale for such purposes.
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Notwithstanding the foregoing, in the event a Product is sold in a country in the Territory as a Combination Product, Net Sales of the Combination Product will be calculated as follows:
(i) If the Product (without such Other Component) and the Other Component(s) contained in the Combination Product each are sold separately in such country, Net Sales will be calculated by multiplying the total Net Sales (as described above) of the Combination Product by the fraction A/(A+B), where A is the average gross selling price in such country of the Product (without such Other Component) sold separately in the same formulation and dosage, and B is the sum of the average gross selling prices in such country of such Other Component(s) sold separately in the same formulation and dosage, during the applicable Calendar Year.
(ii) If the Product (without such Other Component) is sold independently of the Other Component(s) contained in the Combination Product in such country, but the average gross selling price of such Other Component(s) in such country cannot be determined, Net Sales will be calculated by multiplying the total Net Sales (as described above) of the Combination Product by the fraction NC where A is the average gross selling price in such country of such Product (without such Other Component) sold independently and C is the average gross selling price in such country of the entire Combination Product, during the applicable Calendar Year.
(iii) If the Other Component(s) contained in the Combination Product are sold independently of the Product (without such Other Component) in such country, but the average gross selling price of such Product (without such Other Component) in such country cannot be determined, Net Sales will be calculated by multiplying the total Net Sales (as described above) of the Combination Product by the fraction (1-(B/C)), where B is the average gross selling price in such country of such Other Component(s) and C is the average gross selling price in such country of the entire Combination Product, during the applicable Calendar Year.
(iv) If the Product (without such Other Component) contained in the Combination Product and Other Component(s) contained in the Combination Product are not sold separately in such country, or if they are sold separately but the average gross selling price of neither such Product (without such Other Component) nor such Other Component(s) can be determined in such country, Net Sales of the Combination Product in such country will be calculated by mutual agreement of the Parties.
Other Component means any therapeutically active pharmaceutical ingredient that is not covered or claimed by, or is not included in, the Licensed IP or Improvements, or any proprietary delivery device or other proprietary delivery means (including without limitation a viral vector).
Patent means any and all patents, inventor certificates, patent applications (including provisionals, divisionals, continuations and continuations in part), patents issuing from any applications, reissues, reexaminations, extensions and supplemental protection certificates, and all foreign cognates of the foregoing.
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Product means any product, the manufacture, use or sale of which (i) would infringe, but for a license thereunder, a Valid Claim of a patent application (determined as if such application were then issued) and/or a patent included in the FSM Existing IP or the Improvement IP, or (ii) would use or incorporate, or is based on, Improvements or the inventions claimed in the FSM Existing IP or the Improvement IP.
Regulatory Authority means any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, with jurisdiction over the manufacture, distribution, use or sale of Product in the applicable jurisdiction in the Territory.
Seller has the meaning given to such term in Section 1.16.
Sublicensee means any Third Party to whom Cardiogen has granted (a) a sublicense under the FSM Existing IP and Improvement IP, (b) the right to distribute or sell any Product, if such Third Party is obligated to make payments to Cardiogen in exchange for the grant of such rights (and is not an individual person who is a sales representative of Cardiogen), (c) a covenant not to sue or other legal right having an effect similar to either of (a) or (b), or (d) an option for either of (a) or (b).
Sublicense shall be interpreted accordingly. For the avoidance of doubt, a distributor shall not be considered a Sublicensee.
Term has the meaning given to such term in Section 8.1.
Territory means worldwide.
Third Party means any Party other than FSM or Cardiogen or their respective Affiliates.
Valid Claim means a claim of an issued and unexpired Patent that (a) has not been revoked, declared unenforceable or unpatentable, or held invalid by a court or governmental agency of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal, (b) has not been admitted to be or rendered invalid or unenforceable through reissues, disclaimer or otherwise, and (c) has not been finally cancelled, withdrawn, abandoned or rejected by any governmental agency of competent jurisdiction.
Development and Commercialization
Development . Cardiogen shall conduct and be solely responsible for all development of the Products in the Field in the Territory, at Cardiogens expense. Cardiogen shall be solely responsible for all correspondence with Regulatory Authorities regarding the Products in the Field in the Territory, and all activities associated therewith, at Cardiogens sole responsibility and expense. Within [*] after the end of each Calendar Year, Cardiogen shall provide FSM with an annual written report summarizing Cardiogens development activities under this Agreement and the development activities of its Affiliates and Sublicensees.
Manufacturing; Commercialization . Cardiogen shall be solely responsible for, and shall have sole responsibility and decision-making authority over all aspects of all manufacturing and commercial activities for the Product in the Field in the Territory, including the
5 | *Confidential Treatment Requested. |
manufacturing, supply, marketing, promotion, sales and distribution of the Products in the Field in the Territory, at Cardiogens expense. Within [*] after the end of each Calendar Year following the first commercial sale of Products in the Territory, Cardiogen shall provide FSM with an annual written report summarizing the commercial activities of Cardiogen, its Affiliates and Sublicensees under this Agreement. Further, within [*] following the end of each Calendar Year following the first commercial sale of a Product in the Territory hereunder, Cardiogen shall provide FSM with a separate written report of Net Sales of all Products during such Calendar Year.
Disclosure of Improvements . From time to time, as long as this Agreement is in full force and effect and Cardiogen is fully performing its obligations thereunder, FSM would transfer to Cardiogen Information regarding the Improvements as necessary to enable Cardiogen to practice the license set forth above, including with respect to the manufacture and commercialization of the Products, under the terms and conditions embodied in the Agreement.
Diligence by Cardiogen . Cardiogen shall use commercially reasonable efforts to develop, and after receiving regulatory approval for Products in a given country, commercialize such Products in such country, using efforts that are in no event less than those Cardiogen uses to develop its other products of similar nature and market potential. Without limiting the foregoing, Cardiogen would obtain a license or right to use one or more viral vectors useful to deliver Products on or prior to the first anniversary of the Effective Date. If FSM in good faith believes that Cardiogen is in material breach of its obligations under this Section 2.4, FSM shall promptly notify Cardiogen of such breach in writing. Cardiogen shall have [*] thereafter to cure any such material breach (or, if such breach is not curable within [*], Cardiogen shall commence promptly good faith efforts to cure such breach, develop in consultation with FSM a reasonable plan and timeline for curing such material breach, and shall continue to use diligent efforts to cure such material breach in a timely manner (and in any event will cure such material breach within [*]). If Cardiogen fails to timely cure its material breach within such [*] period, or to comply with the foregoing parenthetical if applicable (including without limitation to timely cure within [*] its material breach that is not curable within [*]), then FSM may terminate this Agreement immediately by written notice as set forth in Section 8.3(a) (without regard to any other cure periods contained in such Section 8.3(a)).
License Grant
License Grant to Cardiogen . Subject to and conditioned upon the terms and conditions of this Agreement, FSM hereby grants to Cardiogen: (a) an exclusive license (with the right to sublicense, through one or multiple tiers) under FSMs rights in the FSM Existing IP, Improvements and the Improvement IP, to develop, use, sell, offer for sale, market, export and import Products in the Field in the Territory.
Sublicenses by Cardiogen . Any sublicense shall be consistent with and subject to the terms and conditions of this Agreement, and shall incorporate terms and conditions sufficient to enable Cardiogen to fully comply with this Agreement. Cardiogen shall be and remain jointly responsible for the performance and actions of Sublicensees as if such performance or actions were performed by Cardiogen under this Agreement, including without limitation those actions which, if performed by Cardiogen, would be a breach of Cardiogens obligations under this Agreement.
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Compensation
Upfront Fee . As an upfront fee, Cardiogen shall issue to FSM 425,000 shares of Cardiogens Common Stock (the Shares ), which as of immediately prior to the Effective Date represents [*]% of the issued and outstanding shares of Common Stock and [*]% of the Fully-Diluted Capitalization. The Shares shall be fully vested as of the date of issuance. The issuance of the Shares shall be subject to the terms and conditions of a definitive stock purchase agreement to be entered into between Cardiogen and FSM.
Royalties.
Subject to Sections 4.2(b) and 4.3, Cardiogen shall pay FSM royalties equal to [*] percent ([*]%) of aggregate annual Net Sales of Products, on a country by country and Product by Product basis, in each country in which Product is covered by a Valid Claim of a patent included in the Licensed IP. The royalties due to FSM pursuant to this Section 4.2(a) shall be payable on a country-by-country and Product-by-Product basis until the expiration of the last Valid Claim covering such Product in such country.
If, in connection with the manufacture, use, or commercialization of a Product, Cardiogen is obligated to make payments to any Third Parties, then Cardiogen may offset against the royalty owed to FSM for that Product [*] percent ([*]%) of those amounts payable to such Third Parties, provided that in no event would any such offsets result in reducing royalties due to FSM pursuant to Section 4.2(a) to less than [*] percent ([*]%) of annual aggregate Net Sales of Products by Cardiogen, its Affiliates and Sublicensees.
Sales of Product Subject to Royalties . Sales of Product between Cardiogen, its Affiliates, and Sublicensees shall not be subject to royalties hereunder. Royalties shall be calculated on Cardiogens, its Affiliates and Sublicensees sales of the Products to a Third Party. Royalties shall be payable only once for any given sale of Product For purposes of determining Net Sales, the Product shall be deemed to be sold when invoiced. Net Sales shall not include, and no royalties shall be payable on, transfers of Products that are used as samples or in clinical trials or other transfers or dispositions for pre-clinical, clinical or regulatory purposes.
Royalty Payments . Royalties due pursuant to Section 4.2 shall be payable [*]. Cardiogen shall delivery a written report to FSM within [*] after the end of each Calendar Quarter that shows, with respect to each country and each Product, the sales volume, gross sales amount, Net Sales calculated pursuant to Section 1.16 and the exchange rate for each currency.
Records Retention, Audit.
Records Retention . Cardiogen shall, and shall cause its Affiliates and Sublicensees to, keep complete and accurate records or books of account in accordance with United States generally accepted accounting principles showing the information that is necessary for the accurate determination of the royalties due hereunder with respect to the sale of such Product. Such books and records shall be retained by Cardiogen, its Affiliates and Sublicensees for [*] after the end of the period to which such books and records pertain. Cardiogen shall require its Sublicensees to report to Cardiogen their calculations of Net Sales of Products to Cardiogen in a manner consistent with this Agreement.
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Audit . Upon the written request of FSM, Cardiogen shall, and shall cause its Affiliates to, permit a certified public accountant associated with an independent accounting firm designated by FSM and reasonably acceptable to Cardiogen to inspect, during regular business hours and no more than [*] and going back no more than [*] preceding the current year, all or any part of Cardiogens and/or of the Affiliate s and/or the Sublicensees records and books necessary to check the accuracy of the royalties paid. The accounting firm shall enter into appropriate obligations with Cardiogen to treat all information it receives during its inspection in confidence. The accounting firm shall disclose to FSM if applicable) and Cardiogen only whether the royalty reports are correct and details concerning any discrepancies, but no other information shall be disclosed to FSM. The cost of such review, including the charges of any accounting firm, shall be paid by FSM, except that if the royalties have been understated by more than [*] percent ([*]%), the costs shall be paid by Cardiogen.
Mode of Payment . All payments set forth in this Article shall be remitted by wire transfer to the following bank account of FSM or such other account as FSM may designate in writing to Cardiogen:
Bank name:
Bank address:
Account name:
Account number:
Currency . All amounts set forth in this Agreement are in U.S. Dollars and all payments required under this Agreement shall be made in U.S. Dollars. Net Sales in currencies other than U.S. Dollars shall be converted to U.S. Dollars using the actual quarter end exchange rate for such month for converting the applicable currency into U.S. Dollars, as such rate is reported in the Wall Street Journal. The currency conversion method used by Cardiogen shall be subject to audit by FSM as provided in Section 4.5.
Interest on Late Payment . Any amounts not paid by Cardiogen when due shall be subject to interest from and including the date payment is due, through and including the actual date of payment by Cardiogen, at a rate equal to [*].
Taxes . The royalties and other payments payable by Cardiogen to FSM pursuant to this Agreement ( Payments ) shall not be reduced on account of any taxes unless required by applicable law. Each Party shall be responsible for paying any and all taxes (other than withholding taxes required to be paid under this Agreement by Cardiogen) levied on account of, or measured in whole or in part by reference to, any income it receives. Each Party shall be responsible for any sales taxes or similar taxes imposed on any goods or services provided to it. If Cardiogen is required to withhold taxes for any Payment by virtue of the statutes, laws, codes or governmental regulations of a country in which the Product is sold, then Cardiogen will make such payment of withholding taxes. Any withholding tax so paid by Cardiogen shall be deducted from the gross amount due to FSM, so that the amount paid FSM is net of such withholding tax.
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Cardiogen shall provide FSM with a statement of such withholding tax and the original copy of the tax receipt or tax certificate for the withholding tax paid. Cardiogen shall fully cooperate with FSM, and provide any assistance and documentation necessary or helpful to secure a lower rate of withholding tax under any applicable tax treaties. Cardiogen also agrees to provide FSM with such assistance as may be reasonably requested by FSM to enable FSM to claim a refund and/or credit for such withholding tax. Cardiogen shall indemnify FSM for all claims and liability arising from Cardiogens, its Affiliates or Sublicensees failure to support or pay any such withholding taxes, including customs, duties, levies, tariffs or similar charges and not arising from any inaccurate or incomplete information provided by FSM with respect thereto.
Intellectual Property.
Ownership of Licensed IP and Improvements; Disclosure . Notwithstanding anything to the contrary in this Agreement, as between the Parties, FSM shall remain the sole owner of the Licensed IP and the Improvements. FSM shall notify Cardiogen in writing promptly after becoming aware of any patentable Improvement.
Patent Applications and Patents within the Licensed IP.
Prosecution and Maintenance . Cardiogen would have the first right to file, prosecute and maintain all patent applications and patents included in the FSM Existing IP and the Improvement IP, in consultation with and subject to the consent of FSM. Prior to the closing of Cardiogens Series A financing, FSM shall reimburse all costs of such activities, and after such closing occurs, such activities shall be conducted at Cardiogens expense. FSM would have a backup right to file, prosecute and maintain such patent applications and patents if Cardiogen decided not to do so. Cardiogen would have the right to decline to file, prosecute and maintain any and all patent applications and patents licensed to it pursuant to the Agreement, by written notice to FSM at least [*] before any applicable filing or response deadline. If FSM receives any such notice from Cardiogen, such patent application or patent would be licensed to Cardiogen only on a nonexclusive basis.
Infringement By Third Parties .
Notification; Process . Cardiogen and FSM shall each promptly notify the other in writing if it learns of any actual, alleged or threatened infringement or violation of patent applications and patents within the FSM Existing IP and Improvement IP by a Third Party in the Territory. Cardiogen would have the first right to enforce patents included in the FSM Existing IP and Improvement IP against infringement arising from the development, manufacture or commercialization of products competitive with a Product in the Field in the Territory, at Cardiogens sole expense, in consultation with FSM.
If Cardiogen does not initiate an infringement action or otherwise abate any such actual, alleged or threatened Third Party infringement of patent applications and patents within the FSM Existing IP and Improvement IP in the Field in the Territory within [*] (or shorter time if required by applicable law) of the later of (i) receiving notification from FSM under this Section 5.3 of such infringement, (ii) sending notice to FSM under this Section 5.3 of such infringement, or (iii) a written request from FSM to take action with respect to such infringement, or if such
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infringement is outside the scope of Cardiogens first right to take action as provided above, then FSM shall have the right, but not the obligation, at its own expense, to bring suit (or take other appropriate legal action) against any such actual, alleged or threatened infringement of patent applications and patents within the FSM Existing IP and Improvement IP by a Third Party in the Field in the Territory, including the defense and settlement thereof (subject to Section 5.4 below).
In the event either Party brings an infringement action related to patent applications and patents within the FSM Existing IP and Improvement IP, the other Party shall provide reasonable assistance (at the expense of the Party bringing such infringement action) and authority to file and bring the action, including, if required to bring such action, being joined as a party plaintiff; provided, however, that neither Party shall be required to transfer any right, title or interest in or to any of its property to the other Party or a Third Party to confer standing on a Party hereunder. In addition, if either Party brings an infringement action hereunder, the other Party shall have the right to be represented separately in such action by counsel of its own choice, at its own expense.
Recoveries . Any recovery realized as a result of such suit, claim or action or related settlement shall first be applied to reimburse the costs and expenses of the Party initiating the action in connection with such action, and then (to the extent not already reimbursed by the initiating Party) to reimburse such costs and expenses of the other Party, and then any remaining amounts shall be split as follows: (i) if any portion of any such remaining amounts represents recoveries in relation to infringement other than infringement in the Field in the Territory, such portion shall be allocated to FSM; (ii) if Cardiogen is the initiating party, then the rest of the remaining recovery shall be allocated to FSM in an amount equal to the royalty that would have been payable to FSM under Section 4.2 if Cardiogen had made Net Sales equivalent to the actual sales that underlie the remaining recovery, with the remaining portion of the remaining recovery being allocated to Cardiogen.
Settlements . Neither Party may enter into any settlement or consent judgment or other voluntary final disposition of a suit under this Article without the prior written consent of the other Party, such consent not to be unreasonably withheld, delayed or conditioned.
Confidentiality.
Treatment of Confidential Information . A Party receiving or gaining access to Confidential Information, as defined below, (the Receiving Party ) of the other Party (the Disclosing Party ) will (a) maintain in confidence such Confidential Information to the same extent the Receiving Party maintains its own proprietary information (but at a minimum each Party shall use commercially reasonable efforts), (b) not disclose such Confidential Information to any Third Party without prior written consent of the Disclosing Party, and (c) not use such Confidential Information for any purpose except those permitted by this Agreement. As used herein, Confidential Information shall mean all Information, and other information and materials, received by the Receiving Party from the Disclosing Party pursuant to this Agreement or designated Confidential Information hereunder. A Party shall have no non-disclosure or non-use obligations under this Article with respect to any portion of any Confidential Information which: (i) is generally known or available to the public through no act or failure to act on the part of the Receiving Party; or (ii) was known to the Receiving Party as shown by its written records,
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without obligation to keep it confidential, prior to when it was received from the Disclosing Party; or (iii) is subsequently disclosed to the Receiving Party by a Third Party lawfully in possession thereof without obligation to keep it confidential; or (iv) has been independently developed by the Receiving Party without the aid, application or use of Confidential Information or any other breach of this Article as shown by the Receiving Partys written records.
Permitted or Required Disclosures . A Party shall have no non-disclosure obligation under this Article with respect to any portion of Confidential Information which is required by law to be disclosed, but then only to the limited extent of such legally required disclosure; and provided that (a) the Disclosing Party is notified reasonably in advance of such disclosure by the Receiving Party and (b) the Receiving Party cooperates as reasonably requested with the Disclosing Party in attempting to obtain confidential or other protective treatment of such Confidential Information. In addition to the foregoing, either Party may disclose Confidential Information of the other Party under this Agreement to the extent such disclosure is reasonably necessary in filing, prosecuting or maintaining Patents, prosecuting or defending litigation, enforcing rights and/or obligations under this Agreement, or conducting pre-clinical or human clinical testing of Products, in each case consistent with the other terms and conditions of this Agreement. Additionally, each Party will have the right to disclose the Confidential Information of the other Party as required by applicable laws, rules or regulations or the rules of a securities exchange.
No Use of Names . Neither Party shall use the name of the other Party for publicity, advertising or any other commercial purposes without the prior written approval of the other Party, except and solely to the extent required by law, rule or regulation or rules of a securities exchange.
Terms of the Agreement . The Parties agree that the material terms of this Agreement will be considered Confidential Information of both Parties. Notwithstanding the foregoing, each Party shall have the right to disclose the material terms of this Agreement in confidence to any bona fide potential or actual counsel, consultant, tax or accounting advisor, investor, Sublicensee (as to Cardiogen), acquirer, banker or investment banker, provided that such Party shall receive an adequate binder of confidentiality consistent and substantially similar to the terms contained in this Agreement (including this Article). Additionally, each Party will have the right to disclose the terms of this Agreement as required by applicable laws, rules or regulations or the rules of a securities exchange.
Survival of Confidentiality . All obligations of confidentiality and non-use imposed upon the Parties under this Agreement shall continue indefinitely until such time as the information that is subject to such obligations no longer comprises Confidential Information under one of the exceptions set forth in Section 6.1.
Representations and Warranties.
Mutual Representations and Warranties . FSM and Cardiogen each represent, warrant and covenant to the other that:(a) it has the authority and right to enter into and perform this Agreement; (b) its execution, delivery and performance of this Agreement will not conflict in any material fashion with the terms of any other agreement to which it is or becomes a party or
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by which it is or becomes bound; (c) it shall comply in all material respects with all laws, rules, regulations and other governmental requirements applicable to its actions under this Agreement; and (d) no consent of any Third Party is required for either Party to grant the licenses and rights granted to the other Party under this Agreement and/or to perform its obligations hereunder.
FSM Representations and Warranties . FSM hereby represents and warrants to Cardiogen as of the Effective Date as follows:
FSM will not during the Term of this Agreement grant any right to any Third Party under the FSM Existing IP, Improvements and Improvement IP that would conflict with any of the rights granted to Cardiogen under this Agreement;
FSM has not received any notices or communications as of the Effective Date that the development, manufacture, use, sale, exportation or importation of the Licensed IP and/or Product would infringe any intellectual property rights of any Third Party in the Territory.
FSM has all rights necessary to grant to Cardiogen the rights FSM purports to grant to Cardiogen pursuant to this Agreement.
Disclaimer of Warranty . Each Party acknowledges that the other Party cannot assure the safety, usefulness or efficacy of any Product for any use. EXCEPT FOR THE REPRESENTATlONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES (AND HEREBY EXPRESSLY DISCLAIMS) ANY WARRANTY CONCERNING ITS PATENT RIGHTS OR INFORMATION LICENSED UNDER THIS AGREEMENT , INCLUDING WITHOUT LIMITATION THE VALIDITY OR SCOPE OF ITS PATENT RJGHTS OR THAT PRODUCTS WILL BE FREE FROM INFRINGEMENT OF THE PATENT RIGHTS OF THIRD PARTIES. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES (AND HEREBY EXPRESSLY DISCLAIMS) ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY TECHNOLOGY COMPOUND, API OR PRODUCT.
No Consequential Damages . IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES INCURRED BY EITHER PARTY UNDER THIS AGREEMENT OR OTHERWISE; HOWEVER, THE FOREGOING SHALL NOT APPLY TO EITHER PARTYS OBLIGATIONS UNDER SECTION 6 (CONFIDENTIALITY) AND SECTION 9 (INDEMNIFICATION).
Term and Termination.
Term . This Agreement shall become effective on the Effective Date and shall remain in effect unless earlier terminated as provided in Sections 8.2 or 8.3 below (the Term ).
Termination by Cardiogen . Cardiogen may terminate this Agreement in its entirety at any time upon [*] prior written notice to FSM, subject to Sections 0 and 0 below.
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Termination by Either Party.
Termination for Breach . Except as otherwise provided in Section 2.4 with respect to an alternative cure period, if either Party believes that the other Party is in material breach of this Agreement, then the non-breaching Party may deliver notice of such breach to the other Party. In such notice the non-breaching Party shall identify the actions or conduct that such Party would reasonably consider to be an acceptable cure of such material breach. The allegedly breaching Party shall have [*] from such notice to cure such material breach, or [*] from such notice if such breach consists of a failure to pay any monies due and payable to the other Party hereunder (in each case, the Cure Period ). If the Party receiving notice of material breach fails to cure such breach (including with respect to any breach of Cardiogens obligations under Section 2.4) within the applicable Cure Period, the Party originally delivering the notice may terminate this Agreement effective immediately on or after the end of the Cure Period by written notice to the other Party.
Termination for Insolvency. Either Party may terminate this Agreement by written notice to the other Party if such other Party files or institutes any bankruptcy, liquidation or receivership proceedings, or if such other Party makes an assignment of a substantial portion of the assets of such other Party for the benefit of its creditors; provided, however, that, in the case of any involuntary bankruptcy proceeding such right to terminate shall only become effective if such other Party consents to the involuntary bankruptcy or such proceeding is not dismissed within [*] after the filing thereof.
Effect of Termination . Except in the case where Cardiogen terminates this Agreement pursuant to Section 8.3(a) for FSMs uncured material breach, upon the effective date of any termination of this Agreement, all licenses granted by FSM to Cardiogen pursuant to Article 0 shall automatically terminate and Cardiogen as well as the Affiliate and/or the Sublicensee shall immediately cease conducting any and all activities under such licenses.
Inventory . After any termination of this Agreement, Cardiogen, its Affiliates and Sublicensees shall be entitled to sell all of their finished inventory of Products in existence on the date of any such termination, subject to payment to FSM of royalties pursuant to Section 4.2 above. Notwithstanding the foregoing, however, in no event shall Cardiogen, its Affiliates or Sublicensees be entitled to manufacture any new inventory of Products from and after the effective date of such termination.
Bankruptcy Rights . In the event that this Agreement is terminated or rejected by a Party or its receiver or trustee under applicable bankruptcy laws due to such Partys bankruptcy, then all rights and licenses granted under or pursuant to this Agreement by such Party to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code and any similar law or regulation in any other country, licenses of rights to intellectual property as defined under Section 101(52) of the Bankruptcy Code. The Parties agree that all intellectual property rights licensed hereunder, including without limitation any patents or patent applications of a Party in any country covered by the license grants under this Agreement, are part of the intellectual property as defined under Section 101(52) of the Bankruptcy Code subject to the protections afforded the non-terminating Party under Section 365(n) of the Bankruptcy Code, and any similar law or regulation in any other country.
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Survival . The following provisions shall survive any termination of this Agreement: Sections 1, 4.5, 4.9, 5, 6, 7, 8.4, 8.5, 8.6, 8.7, 9 and 11. Termination of this Agreement shall not relieve either Party of any liability which accrued hereunder prior to the effective date of such termination nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement nor prejudice either Partys right to obtain performance of any obligation. The remedies provided under this Article are cumulative, and are not exclusive of other remedies available to a Party in law or equity.
Indemnification.
By Cardiogen . Cardiogen hereby agrees to indemnify, defend and hold harmless FSM and its Affiliates, and their respective officers, directors, agents and employees ( FSM Indemnitees ) from and against any and all Third Party suits, claims, actions, demands, liabilities, expenses and/or loss, including reasonable legal expenses and attorneys fees (collectively, Losses ) resulting from (a) the development, marketing, use, manufacture, handling, storage, transport, distribution, sale or other disposition of the Products by Cardiogen, its Affiliates, agents or Sublicensees; (b) Cardiogens breach of any of its obligations, covenants, representations or warranties under this Agreement; and/or (c) the negligence or wrongdoing of Cardiogen and/or any of its Affiliates, Sublicensees, agents, representatives, consultants and/or employees under this Agreement, except to the extent FSM is obligated to indemnify Cardiogen for such Losses pursuant to Section 0.
By FSM . FSM hereby agrees to indemnify, defend and hold harmless Cardiogen, its Affiliates, and their respective officers, directors, agents and employees from and against any and all Losses resulting from: (a) FSMs breach of any of its obligations, covenants, representations or warranties under this Agreement ; and (b) the negligence or wrongdoing of FSM and/or any of the FSM Indemnitees under this Agreement ; except to the extent Cardiogen is obligated to indemnify FSM for such Losses pursuant to Section 9.1.
Notice and Procedures . In all cases where one Party seeks indemnification by the other under this Article, the Party seeking indemnification shall promptly notify the indemnifying Party of receipt of any claim or lawsuit covered by such indemnification obligation and shall cooperate fully with the indemnifying Party in connection with the investigation and defense of such claim or lawsuit. The indemnifying Party shall have the right to control the defense, with counsel of its choice, provided that the non-indemnifying Party shall have the right to be represented by advisory counsel at its own expense. The indemnifying Party shall not settle or dispose of the matter in any manner which could negatively and materially affect the rights or liability of the non-indemnifying Party without the non-indemnifying Partys prior written consent, which shall not be unreasonably withheld or delayed.
Insurance.
Coverages . Cardiogen shall obtain and maintain (or shall ensure that its Affiliates and Sublicensees obtain and maintain, as applicable), at its or their own expense, the following insurance coverages:
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Clinical Trials Liability . From the date of initiation of the first clinical trial in the Territory by Cardiogen, its Affiliates or Sublicensees and continuing for the remainder of the Term of this Agreement, coverage insuring against claims for bodily injury and property damage arising out of clinical trials, with coverage and limits that at a minimum comply with statutory/country requirements where the trials will be performed.
General Liability . Within [*] after the closing of Cardiogens Series A financing, and continuing for the remainder of the Term of this Agreement, general liability insurance (including excess liability insurance) insuring against claims arising anywhere in the world, with cumulative minimum limits of not less than $[*].
Products Liability . Prior to the first distribution of the Product by Cardiogen, its Affiliates or Sublicensees for any human use, whether clinical, commercial or noncommercial, and continuing for the remainder of the Term of this Agreement products liability insurance insuring against claims arising anywhere in the world, with initial minimum limits of not less than $[*], with such minimum limits increased to not less than $[*] at the first annual policy renewal subsequent to the first Calendar Year in which Net Sales of Product exceed in the aggregate $[*].
General.
Governing Law; Arbitration . This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of New York, U.S.A. without regard to its or any other jurisdiction s choice of law rules that would result in the application of the laws of any state other than the State of New York, U.S.A.
Exclusive Dispute Resolution Mechanism . The Parties agree that the procedures set forth in this Section 11.1 shall be the exclusive mechanism for resolving any dispute, controversy, or claim (collectively, Disputes ) between the Parties that may arise from time to time pursuant to this Agreement relating to any Partys rights and/or obligations hereunder, or relating to the interpretation or application of this Agreement, that are not resolved through good faith negotiation between the Parties.
Discussion of Officers . Any Disputes shall be submitted initially by either Party for resolution by the Chief Executive Officer (or equivalent) of Cardiogen and the (or equivalent) of FSM, who shall meet and discuss such matter within [*] after a Party proposes that such officers meet to discuss such matters. In the event such officers do not resolve such dispute within [*] after they first meet, then either Party may submit such issue for resolution by binding arbitration in accordance with Section 11.1(c).
Arbitration.
Any arbitration concerning a Dispute shall be conducted in New York, New York, United States of America unless otherwise agreed to by the Parties in writing. Each and any arbitration shall be administered by the American Arbitration Association (the AAA ), and shall be conducted in accordance with the Commercial Arbitration Rules of the AAA (the Rules ), as such Rules may be amended from time to time.
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Within [*] after receipt of an arbitration notice from a Party, the Parties shall attempt in good faith to agree on a single neutral arbitrator with relevant industry experience at a senior executive level to conduct the arbitration. If the Parties do not agree on a single neutral arbitrator within [*] after receipt of an arbitration notice, each Party shall select one (1) arbitrator and the two (2) Party-selected arbitrators shall select a third arbitrator with relevant industry experience at a senior executive level to constitute a panel of three (3) arbitrators to conduct the arbitration in accordance with the Rules. In the event that only one of the Parties selects an arbitrator, then such arbitrator shall be entitled to act as the sole arbitrator to resolve the Dispute or any all unresolved issues subject to the arbitration. Each and every arbitrator of the arbitration panel conducting the arbitration must and shall agree to render an opinion within [*] after the final hearing before the panel.
The arbitrators shall permit reasonable discovery and submission of evidence so as to allow the Parties to submit to the arbitrators all salient facts. The decision or award of the arbitrator(s) shall be final and binding, and may be used as a basis for judgment thereon in any jurisdiction. The arbitrator(s) shall, upon the request of any Party, issue a written opinion of the findings of fact and conclusions of law and shall deliver a copy to each of the Parties. Each Party shall bear its own costs and attorneys fees, and the Parties shall equally bear the fees, costs, and expenses of the arbitrator(s) and the arbitration proceedings; provided, however, that the arbitrator(s) may exercise discretion to award costs, including without limitation attorneys fees, to the prevailing Party. Without limiting any other remedies that may be available under applicable law, the arbitrator(s) shall have no authority to award punitive, special, consequential, or any other similar form of damages.
Notwithstanding anything in this Agreement to the contrary, a Party may seek a temporary restraining order or a preliminary injunction from any court of competent jurisdiction in order to prevent immediate and irreparable injury, loss, or damage on a provisional basis, pending the decision of the arbitrator(s) on the ultimate merits of any Dispute.
Notwithstanding anything in this Agreement to the contrary, any and all issues regarding the scope, construction, validity, inventorship and enforceability of one or more patent applications or patents shall be determined in a court of competent jurisdiction under the local patent laws of the jurisdictions having issued the patent application or patent in question.
All proceedings and decisions of the arbitrator(s) shall be deemed Confidential Information of each of the Parties, and shall be subject to Article 6.
Assignment. Except as otherwise provided herein, neither this Agreement nor any interest hereunder shall be assignable in part or in whole by any Party without the prior written consent of the other Party; provided, however, that, subject to the payment obligations of Section 4.2, either Party may assign or transfer its rights and obligations under this Agreement, without such consent, to an affiliate or a purchaser of all or substantially all of the assigning Partys stock or assets to which this Agreement relates. This Agreement shall be binding upon the successors and permitted assigns of the Parties. Any assignment not made in accordance with this Section 11.2 shall be null and void.
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Notice . All notices under this Agreement shall be in writing and shall be deemed given upon personal delivery, facsimile transmission with electronic confirmation of transmission, delivery by internationally- or nationally-recognized courier service, or seven (7) days after sending by certified or registered mail, postage prepaid and return receipt requested, to the following addresses or facsimile numbers of the respective Parties or such other address or facsimile number as given by proper notice under this Section 11.3:
FSM: |
Fondazione Salvatore Maugeri
Attention: Fax No.: |
|||||
Cardiogen: |
Cardiogen Sciences, Inc. Address: Attention: Fax No: |
Captions and Headings; Construction. The captions and headings used in this Agreement are inserted for convenience only, do not form a part of this Agreement, and shall not be used in any way to construe or interpret this Agreement. This Agreement has been negotiated by the Parties and shall be interpreted fairly in accordance with its terms and without any construction in favor of or against any Party. This Agreement shall be deemed to have been drafted by all Parties and, in the event of a dispute, no Party hereto shall be entitled to claim that any provision should be construed against the other Party by reason of the fact that it was drafted by one particular Party.
Entire Agreement; Waiver; Full Force and Effect. This Agreement (and its Exhibit) sets forth the complete, final and exclusive agreement between the Parties and supersedes and terminates all prior and contemporaneous agreements and understandings between the Parties related to the subject matter addressed herein. No amendment to, or waiver of right under, this Agreement shall be effective unless in writing signed by authorized representatives of the Parties. If any provision of this Agreement is judicially or administratively determined to be unenforceable, the provision shall be reformed to most nearly approximate the Parties original intent, but otherwise this Agreement shall continue in full force and effect.
Independent Contractor. Cardiogens relationship with FSM shall be that of an independent contractor, and nothing in this Agreement shall be construed to create a partnership, joint venture, or employer- employee relationship. Cardiogen is not the agent of FSM and is not authorized to make any representation, contract, or commitment on behalf of FSM.
Counterparts. This Agreement may be executed in counterparts (including by facsimile and PDF), each of which, when so executed and delivered, shall be deemed an original, and all of which counterparts, taken together, shall be deemed an original.
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Further Actions. Each Party agrees to execute, acknowledge and deliver such further documents and instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. Each Party hereby appoints the other Party as attorney-in-fact solely to execute and deliver the foregoing documents and instruments if such other Party, after making reasonable inquiry of the appointing Party, does not obtain them from such appointing Party.
(signature page follows)
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IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized representatives to execute this Agreement as of the Effective Date.
Fondazione Salvatore Maugeri | Cardiogen Sciences, Inc. | |||||||
By: |
/s/ Luigi Migliavacca |
By: |
/s/ Louis Lange |
|||||
Name: | LUIGI MIGLIAVACCA | Name: | Louis Lange | |||||
Title: | VICE PRESIDENT | Title: | CEO |
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Exhibit A
FSM Existing IP
[*]
*Confidential Treatment Requested. |
EXHIBIT 10.14
* Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
EXCLUSIVE LICENSE AGREEMENT WITH KNOW-HOW
Agreement No: A13169
TABLE OF CONTENTS
Appendix A Patent Rights and Know-How Appendix B - Development Plan Appendix C Development Report Appendix D - UFRF Royalty Report Appendix E - Milestones |
This Agreement is effective as of July 28, 2015 (the Effective Date) between the University of Florida Research Foundation, Incorporated (hereinafter called UFRF), a nonstock, nonprofit Florida corporation, and Audentes Therapeutics, Inc. (hereinafter called Licensee), a Delaware corporation having a principal address at 101 Montgomery Street, Suite 2650, San Francisco, CA 94104.
WHEREAS, Licensee is engaged in business relating to the development and commercialization of products that can use or incorporate UFRFs intellectual property rights and has the capability of developing commercial applications of the intellectual property; and
WHEREAS, UFRF owns inventions that are described below; UFRF is willing to grant a license to Licensee under the Patent Rights (defined in Section 1.12) and Know-How (as defined in Section 1.5); and Licensee desires a license under them.
THEREFORE, the parties agree as follows:
Section 1 Definitions
1.1 Affiliate means: (a) any entity which controls at least fifty percent (50%) of the equity or voting stock of the Licensee or (b) any entity fifty percent (50%) of whose equity or voting stock is owned or controlled by the Licensee or (c) any entity of which at least fifty percent (50%) of the equity or voting stock is owned or controlled by the same person or entity owning or controlling at least fifty percent (50%) of Licensee.
1.2 Development Plan means the written report summarizing the development activities that are to be undertaken by the Licensee to bring Licensed Products to the market that is attached as Appendix B.
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1.3 Development Report means a written account of Licensees progress under the Development Plan that includes at least the information specified on Appendix C.
1.4 Investigator means Dr. Barry Byrne, while employed by the University of Florida.
1.5 Know-How means unpatented technology/information/materials, described in Exhibit A, to the extent wholly owned and wholly controlled by UFRF.
1.6 Licensed Field means the treatment of Pompe disease.
1.7 Licensed Product means any product or part thereof, on a country-by-country basis, that (a) is covered in whole or in part by a Valid Claim of the Patent Rights, in any country in which such product is made, used, exported, imported or sold or (b) is manufactured by using a process which is covered in whole or in part by a Valid Claim of Patent Rights, in any country in which any such process is used or in which any such product is used, imported or sold, or (c) incorporates, utilizes, or was developed or manufactured utilizing Know-How or using a process developed using Know-How. For the avoidance of doubt, covered includes any product or part thereof, the making, using (including therapeutic use), selling, exporting, or importing of which, absent the license granted herein, would infringe a Valid Claim of the Patent Rights.
1.8 Licensed Territory means worldwide.
1.9 Net Sales means the total dollar amount invoiced on sales of Licensed Product by Licensee or by any Sublicensee, less promotional discounts allowed in amounts customary in the trade, sales taxes and the following deductions:
(i) trade and quantity discounts off the invoice price, to the extent actually incurred or allowed;
(ii) amounts actually credited or allowed for rejections or returns of Licensed Product;
(iii) all rebates, chargebacks, retroactive price reductions and other sales allowances that are actually allowed or granted, including rebates, reductions and allowances mandated by government;
(iv) early payment cash discounts, amounts written off by reason of uncollectible debt (not to exceed [*]% of Gross Sales, custom duties; and
(v) insurance, customs charges, freight, postage, shipping, handling, and other transportation costs to the extent actually incurred by Licensee or its Sublicensee, as applicable, in shipping Licensed Product to a third party.
In the case of any sale or other disposal of a Licensed Product between or among Licensee and its Affiliates or Sublicensees for resale, Net Sales shall be calculated as above only on the value charged or invoiced on the first arms-length sale thereafter to an unrelated third party. Any consideration received in exchange for the transfer of Licensed Products for use in clinical trials, sampling or promotional use, or compassionate use, in each case at or below cost, shall not be included in Net Sales.
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1.10 Orphan Designation means a special status granted, under the Orphan Drug Act, to a drug or biological product to treat a rare disease or condition,
1.11 Patent Challenge means a formal, written challenge, brought in any judicial or administrative governmental forum having jurisdiction over the subject matter, to the validity, patentability, and/or enforceability of any claim or claims of the Patent Rights.
1.12 Patent Rights means:
(a) the patent(s)/patent application(s) identified on Appendix A;
(b) all United States and foreign patent applications claiming priority to any of the patent(s) and patent application(s) identified in Appendix A; and
(c) all patents issuing from the patent applications identified in Subsections 1.12(a) and 1.12(b), including, letters patent, patents of addition, divisionals, continuations of any such patent application to the extent the claims are directed to subject matter specifically described and fully supported in the patent application(s) identified on Appendix A, and all reissues, re-examinations, extensions, restorations, and supplementary protection certificates.
1.13 Sublicense means the agreement to grant to, or the agreement not to assert against, a third party any of the rights granted to Licensee under Section 2.1. An agreement that is described in this definition is a Sublicense whether or not it is called a sublicense and whether or not it is included in a stand-alone document or is part of a broader collaboration, development, or joint venture agreement or arrangement, but shall not include any wholesaler or distributor agreement for the sale of Licensed Product (even if such wholesaler or distributor is granted a right or license to sell Licensed Product) or any contract manufacturing organization or other third party that manufactures Licensed Product on behalf of Licensee.
1.14 Sublicensee means any third party that is granted a Sublicense.
1.15 Valid Claim means (a) a claim of an issued patent included within the Patent Rights, in any country that (i) has not been disclaimed; (ii) has not been cancelled or superseded, or if cancelled or superseded, has been reinstated, or (iii) has not been revoked, held invalid, or otherwise declared unenforceable or not allowable by a tribunal or patent authority of competent jurisdiction over such claim in such country from which no further appeal has or may be taken; or (b) a pending claim in the Patent Rights until June 19, 2019.
1.16 Vector Plasmid means the physical materials described under the Vector Plasmid section in Appendix A, which describe a [*].
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Section 2 Grant
2.1 Patent Rights . In return for the royalties and other payments described in Section 4, UFRF hereby grants to Licensee a royalty-bearing, exclusive license:
(i) | to use the Vector Plasmid in the Licensed Field and Licensed Territory to make, have made, use, sell, have sold, import, and export Licensed Products; and |
(ii) | under the Patent Rights in the Licensed Field and Licensed Territory to make, have made, use, sell, have sold, import, and export Licensed Products. |
2.2 Know-How . In return for the royalties and other payments described in Section 4, UFRF hereby grants to Licensee a royalty-bearing, non-exclusive (except as pertains to the Vector Plasmid, where such license shall be exclusive) license under UFRFs rights to the Know-How in the Licensed Field and Licensed Territory to make, have made, use, sell, have sold, import, and export Licensed Products.
2.3 Sublicense Rights .
(a) Licensee may grant written Sublicenses to third parties through multiple tiers only if Licensee is in compliance with the diligence obligations in Section 3. However, Licensee shall notify UFRF of the initiation of license negotiations with all potential Sublicensees. Any agreement granting a Sublicense shall state that the Sublicense is subject to the terms of this Agreement. Licensee has the same responsibility for the activities of any Sublicensee under any Sublicense as if the activities were directly those of Licensee. Licensee shall also include provisions in all Sublicenses consistent with Section 2.4.
(b) UFRF has right to receive copies of Sublicenses subject to the ability to redact confidential information of the Sublicensee that is not reasonably necessary for UFRF to confirm the compliance of the Sublicense with this Agreement (hereinafter Redacted Sublicense). Licensee shall provide UFRF with a final copy of each Redacted Sublicense within [*] after execution and will include in each Development Report submitted to UFRF hereunder and each royalty report submitted to UFRF under Section 6.4(c), as applicable, information concerning reports received by Licensee from its Sublicensees regarding development of Licensed Products and payments under the Sublicense agreements. Failure of Licensee to provide UFRF with copies of each Redacted Sublicense agreement within [*] after execution of the Sublicense agreement is a material breach of this Agreement.
2.4 Patent Challenge . If Licensee or any of its Affiliates brings a Patent Challenge against UFRF, or Licensee or any of its Affiliates actively assists another party in bringing a Patent Challenge against UFRF (except as required under a court order or subpoena), and UFRF does not terminate this Agreement pursuant to Section 9.4, then: (i) if the Patent Challenge is successful, Licensee may not thereby be entitled to recoup any consideration, including royalties, paid to UFRF during the period of challenge; and (ii) if the Patent Challenge is unsuccessful, Licensee shall reimburse UFRF for all reasonable legal fees and expenses incurred in its defense against the Patent Challenge.
2.5 Retained Rights . UFRF reserves to itself and the University of Florida, and their not-for-profit academic collaborators, the right under the Patent Rights and Know-How to make, have made, develop, import and use Licensed Products solely for their internal not-for-profit research, clinical care (including, but not limited to patient care at Shands Teaching Hospital and
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University of Florida patient care facilities), and educational purposes and for all applicable governmental requirements and guidelines governing the transfer of materials, provided that the reservation of rights does not permit the use of the Vector Plasmid in human clinical trials.
2.6 Un-Addressed Markets or Territories . UFRF would like licensees to address unmet needs, such as those of neglected patient populations or geographic areas, giving particular attention to improved therapeutics, diagnostics and agricultural technologies for the developing worlds. If Licensee is unable or unwilling to serve or develop a potential market or market territory for which there is a company willing to be a Sublicensee, Licensee will, at UFRFs request, negotiate in good faith a Sublicense with any such Sublicensee.
Section 3 Diligence Obligations
3.1 Development . Licensee agrees and warrants that:
(a) it has or will obtain the expertise necessary to evaluate independently the inventions of the Patent Rights and Know-How;
(b) it will establish and actively and diligently pursue the Development Plan (Appendix B) to the end that inventions of the Patent Rights and Know-How will be utilized to provide Licensed Products for sale in the retail market within the Licensed Field;
(c) it will use commercially reasonable efforts to market and commercialize at least one Licensed Product for which regulatory approval has been obtained;
(d) until the date of first commercial sale of the first Licensed Product, it will supply UFRF with a written Development Report annually [*] after the end of each calendar year;
(e) Licensee and Sublicensee(s) shall apply patent markings that meet all requirements of United States law, 35 U.S.C. §287, with respect to all Licensed Products; and
(f) [*] before commencement of manufacturing of commercial production of the first Licensed Product, Licensee will include in the Development Report specifics of planned manufacturing or production.
3.2 First Commercial Sale; Milestones .
(a) Licensee agrees that the first commercial sale of Licensed Products to the retail customer shall occur on or before [*] or UFRF may terminate the Agreement pursuant to Section 9.3 unless such date is extended pursuant to Section 3.2(b). In addition, if Licensee fails to meet the milestones shown in Appendix E , UFRF may terminate the Agreement pursuant to Section 9.3 unless such date is extended pursuant to Section 3.2(b). Licensee shall notify UFRF in writing as each milestone is met.
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(b) If Licensee requests an extension of any milestones or due dates set forth in Section 3.2(a) (i.e., December 31, 2024) or in Appendix E , UFRF shall consider the requests in good faith. Licensee shall make extension requests in writing at least [*] prior to the required due dates, fully describing Licensees diligent efforts to achieve the milestone. Upon granting extension requests, UFRF and Licensee shall negotiate the terms of extensions in good faith. Without limiting the foregoing, in the event that Audentes, within [*] from the effective date reasonably believes that the dates referred to in Section 3.2(a) (i.e., [*] for first commercial sale and the dates set forth in Appendix E) shall be extended, Audentes shall provide to UFRF a reasonable justification for such extension, and UFRF shall not unreasonably reject any such request.
3.3 Clinical Trials . Licensee will notify UFRF prior to commencing any clinical trials at the University of Florida or its affiliated medical facilities. Licensee will provide funding to support [*], described in Exhibit A, which will be conducted at the University of Florida. Audentes will be the sponsor of the investigational new drug application (IND). Conduct of any clinical trial at the University will be subject to all University Policies then in effect.
Section 4 Payments
4.1 License Issue Fee . Licensee shall pay to UFRF a non-refundable license issue fee of [*] dollars ($[*]) within [*] of the Effective Date.
4.2 Annual License Maintenance Fee . Licensee shall pay an annual license maintenance fee of [*] dollars ($[*]) each year on the anniversary of the Effective Date of this Agreement. The annual license maintenance fee is payable until the first commercial sale of a Licensed Product, after which time minimum royalties instead of the annual license maintenance fee are due.
4.3 Left Intentionally Blank.
4.4 Royalty on Licensed Products . Licensee shall pay UFRF earned royalties calculated as a percentage of Net Sales during the Royalty Term. Earned royalties are earned as of the earlier of the date the Licensed Product is actually sold and paid for and the date an invoice is sent by Licensee or its Sublicensee(s). Licensee shall pay to UFRF royalties as follows during the Royalty Term:
(a) [*] percent ([*] %) for Net Sales of Licensed Products that are not included in Section 4.4(b).
(b) [*] percent ([*]%) for Net Sales of Licensed Products that are not covered by a Valid Claim, and respecting which there is no Orphan Designation exclusivity in the country of sale.
Within [*] after the end of each calendar quarter ending on March 31, June 30, September 30 or December 31, Licensee shall pay amounts owing to UFRF under this Section 4.4 in excess of the amount of minimum royalties paid pursuant to Section 4.5.
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For purposes of this Agreement, Royalty Term shall mean the period commencing on the Effective Date and ending, on a country-by-country basis, on the later of (a) the last to expire of the Valid Claims in the Patent Rights in each country and (b) [*] from the first commercial sale of a Licensed Product in each country in which the Licensed Product is sold.
4.5 Minimum Royalty .
(a) Beginning in the calendar year of first commercial sale of a Licensed Product, Licensee shall pay UFRF minimum royalty payments as follows.
Payment |
Year |
|
$[*] |
[*] | |
$[*] |
[*] | |
$[*] |
[*] |
(b) Notwithstanding the table in Section 4.5(a): (i) The first minimum royalty payment of $[*] is due on [*] or, if the target date for first commercial sale (i.e., [*]) is extended pursuant to Section 3.2(b) to a date later than [*], on [*] of the calendar year in which such extended date will occur; and (ii) the Licensee shall pay each subsequent minimum royalty payment in advance on an annual basis on or before [*] for each year after the first minimum royalty payment is due, during the term of this Agreement. Minimum royalties apply to earned royalties on a calendar year basis; Net Sales that are made during a prior or subsequent calendar year have no effect on the annual minimum royalty due to UFRF for other than the same calendar year in which the royalties were earned.
4.6 Milestone Payments .
Licensee shall pay UFRF milestone payments within [*] of the first achievement of each milestone for the first Two Indications as follows:
Milestone |
Payment |
|
[*] |
$[*] | |
[*] |
$[*] | |
[*] |
$[*] | |
[*] |
$[*] |
Two Indications means the following indications for a Licensed Product: [*].
4.7 Sublicense Fees .
(a) With respect to Sublicenses granted by Licensee or by a Sublicensee under Section 2.3(a), Licensee shall pay to UFRF an amount equal to what Licensee would have been required to pay under Section 4.4 had Licensee sold the Licensed Products that are sold by a Sublicensee.
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*Confidential Treatment Requested. |
(b) If Licensee receives any fees or payments in consideration for any rights granted under a Sublicense (e.g., upfront or milestone payments) that are not based directly on the amount or value of Licensed Products sold by the Sublicensee, then Licensee shall pay UFRF within [*] of receipt pursuant to Sublicenses entered into during the time periods indicated below:
[*]% |
[*] | |
[*]% |
[*] | |
[*]% |
[*] | |
[*]% |
[*] |
(c) Licensee may not receive from Sublicensees anything of value in lieu of cash payments in consideration for any Sublicense under this Agreement without the express prior written permission of UFRF, which permission UFRF may not unreasonably withheld.
Section 5 Warranties and Disclaimers of UFRF .
5.1 UFRF represents that its employees have assigned or are obligated to assign to UFRF their entire right, title, and interest in the Patent Rights and Know-How and that it has authority to grant the rights and licenses set forth in this Agreement. However, nothing in this Agreement is:
(a) a warranty or representation by UFRF of the validity or scope of any right included in the Patent Rights;
(b) a warranty or representation that anything made, used, sold or otherwise disposed of under the license granted in this Agreement does not infringe patents or other rights of third parties;
(c) an obligation to bring or prosecute actions or suits against third parties for infringement of Patent Rights;
(d) an obligation to furnish know-how or services other than those specified in this Agreement; or
(e) a warranty or representation by UFRF that it will not grant licenses to others to make, use or sell products not covered by the claims of the Patent Rights which may be similar or compete with products made or sold by Licensee.
5.2 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, UFRF MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING. UFRF ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH RESPECT TO USE, SALE, OR OTHER DISPOSITION BY LICENSEE, ITS SUBLICENSEE(S), OR THEIR VENDEES OR OTHER
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TRANSFEREES OF PRODUCTS INCORPORATING OR MADE BY USE OF INVENTIONS LICENSED UNDER THIS AGREEMENT. NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES ARISING OUT OF THIS AGREEMENT.
Section 6 Record Keeping; Accounting
6.1 Licensee and its Sublicensee(s) shall keep books and records sufficiently to verify the accuracy and completeness of Licensees and its Sublicensee(s)s accounting, including without limitation, inventory, purchase and invoice records, manufacturing records, sales analysis, general ledgers, financial statements, and tax returns relating to the Licensed Products. Licensee and its Sublicensee(s) shall preserve these books and records for at least [*] after they are created or as required by federal law, both during and after the term of this Agreement.
6.2 Licensee shall take all steps necessary so that UFRF may, within [*] of its written request, but no more than [*], audit, review and copy such of Licensees or Sublicensees books and records at a single United States location as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for any year ending not more than [*] prior to the date of such request and which have not previously been audited under this Section 6.2. The review may be performed by any attorneys or accountants designated by UFRF upon reasonable notice and during regular business hours. If a deficiency with regard to any payment is determined, Licensee and its Sublicensee(s) shall pay the deficiency along with applicable interest as described in Subsection 6.4(a) within [*] of receiving notice. If a payment deficiency for a calendar year exceeds [*] percent ([*]%) of amounts paid for that year, then Licensee or its Sublicensee(s) shall pay UFRFs out-of-pocket expenses incurred with respect to the review.
6.3 At any time during the term of this agreement but no more than [*], UFRF may request in writing that Licensee verify the calculation of any past payments owed to UFRF through the means of a self-audit for any year ending not more than [*] prior to the date of such request and which have not previously been audited under Section 6.2 or this Section 6.3. Within [*] of the request, Licensee shall complete a self-audit of its books and records to verify the accuracy and completeness of the payments owed. Within [*] of the completion of the self-audit, Licensee shall submit to UFRF a report detailing the findings of the self-audit and the manner in which it was conducted in order to verify the accuracy and completeness of the payments owed. If Licensee has determined through its self-audit that there is any payment deficiency, Licensee shall pay UFRF the deficiency along with applicable interest under Subsection 6.4(a) with the submission of the self-audit report to UFRF.
6.4 Accounting for Payments .
(a) Any amounts which remain unpaid after the date they are due to UFRF under this Section 6, Section 7 or any other provision of this Agreement accrue interest from the due date at the rate of [*] percent ([*]%) per month. This interest provision is not a grant of permission for any payment delays. Licensee is responsible for repayment to UFRF of any attorney, collection agency, and other out-of-pocket expenses to collect overdue payments.
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(b) Except as otherwise directed, Licensee shall pay all amounts owing to UFRF under this Agreement in United States dollars at the following address:
University of Florida Research Foundation, Incorporated
228 Grinter Hall, PO Box 115500
Gainesville, Florida 32611-5500
Attention: Business Manager
Licensee shall convert all monies owing in currencies other than United States dollars at the rate shown in the Federal Reserve Noon ValuationValue of Foreign Currencies on the day preceding the payment due date.
(c) On the date of each payment to UFRF, Licensee shall include on all accounting statements a written representation signed by an executive officer of Licensee that states that, to the best of such officers knowledge, the statements are true, accurate, and fairly represent all amounts payable to UFRF pursuant to this Agreement. Licensee shall provide accounting on a per-country and product line, model or trade name basis and shall summarize them on the form shown in Appendix DUFRF Royalty Report.
(d) If no payment is owed to UFRF, Licensee shall supply an accounting demonstrating that fact to UFRF.
(e) Licensee shall be entitled to deduct from the royalty payments otherwise due to UFRF hereunder the amount of any withholding taxes, value-added taxes or other taxes, levies or charges which may be imposed on UFRF by any government or political subdivision with respect to such royalty payments that are required to be withheld by Licensee. Licensee shall pay to the appropriate governmental authority on behalf of UFRF such taxes, levies or charges that are withheld. Licensee shall use reasonable efforts to take such action as may be reasonably requested by UFRF, and at UFRFs cost, to minimize any such taxes, levies or charges required to be withheld on behalf of UFRF by Licensee. Licensee promptly shall deliver to UFRF proof of payment of all such taxes, levies and other charges, together with copies of all communications from or with such governmental authority with respect directly related thereto. Licensee is responsible for all wire/bank fees associated with all payments due to UFRF pursuant to this Agreement.
Section 7 Patent Prosecution
7.1 UFRF shall file, prosecute, and maintain the Patent Rights using counsel of its choice, subject to customary consultation. UFRF shall provide Licensee with copies of all documents sent to and received from the United States Patent and Trademark Office and foreign patent offices relating to Patent Rights. Licensee shall keep those documents confidential subject to the terms of Section 17 .
7.2 Licensee shall pay UFRF [*] dollars ($[*]), within [*] of the Effective Date to reimburse expenses associated with preparation, filing, prosecution, issuance, maintenance, defense, and reporting of the Patent Rights prior to the Effective Date. (NOTE: the above referenced dollar amount in this Section 7.2 is subject to change, as UFRF may not have received all related patent prosecution expense invoices from the law firm at the time of license negotiation.)
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7.3 UFRF will solicit input from Licensee regarding (a) actions to be taken in connection with the Patent Rights, and (b) fees, annuities, costs and expenses to be incurred in connection therewith. UFRF will submit, or will cause to be submitted to Licensee all correspondence or other materials related to the preparation, filing, prosecution (including interferences and oppositions), issuance, maintenance and reporting of the Patent Rights for Licensees review and comment prior to any filing or other submission thereof, and UFRF will implement any reasonable comments provided by Licensee or Licensees counsel provided that such comments are not considered by UFRF to be detrimental to UFRFs interests. If Licensee fails to provide comments regarding actions to be taken, submissions or payment of fees, annuities, or other costs or expenses within [*] of the date of UFRFs submission thereof to Licensee then UFRF will assume Licensee has no comments. Licensee shall pay all costs and expenses incurred by UFRF related to the preparation, filing, prosecution (including interferences and oppositions), issuance, maintenance and reporting of the Patent Rights that were not reimbursed pursuant to Section 7.2 within [*] of receipt of an invoice from UFRF. Licensee shall keep UFRF fully apprised of the small entity status of Licensee and all Sublicensees with respect to United States and applicable foreign patent laws. Licensee shall inform UFRF of any changes in writing of the small entity status within [*] of any change.
7.4 Licensee may elect upon [*] prior written notice to decline to reimburse UFRF for patent expenses for any Patent Right in any particular country or jurisdiction. In that case, the license granted to Licensee by this Agreement with respect to that Patent Right terminates after the [*] in that country or jurisdiction. Notwithstanding anything to the contrary in this Agreement, Licensee shall file and maintain the Patent Rights in the following countries: United States, Europe, Canada, Australia, and Japan.
Section 8 Infringement and Invalidity
8.1 Licensee shall inform UFRF, and similarly UFRF shall inform Licensee, promptly in writing of any alleged infringement of the Patent Rights in the Licensed Field and Licensed Territory by a third party and of any available evidence of the alleged infringement.
8.2 Licensee may, but is not obligated to, prosecute at its own expense any alleged infringement of the Patent Rights in the Licensed Field and Licensed Territory, and during the term of this Agreement, it shall have the first right to do so. UFRF will not prosecute or take any other enforcement-related steps with respect to any such infringements of the Patent Rights except as is provided in Section 8.3. If Licensee prosecutes any infringement, UFRF agrees that Licensee may include UFRF as a party plaintiff in any infringement suit without expense to UFRF. Licensee shall apply any recovery of damages first in satisfaction of any unreimbursed expenses and legal fees of Licensee relating to the suit and enforcement-related steps related to or preparatory for such suit, and next toward reimbursement of UFRF for any legal fees and unreimbursed expenses born by UFRF pursuant to Section 8.5 or otherwise at Licensees request. If there is any remaining recovery of damages (the Balance), Licensee will pay UFRF a portion thereof, determined according to Table 4.7(b) as if the Balance were fees or payments in consideration for rights granted under a Sublicense entered into at the date the final, non-appealable judgment was entered (or appeals
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thereof were exhausted) in connection with such action. Licensee may not enter any settlement, consent judgment, or other voluntary final disposition of the suit without the prior, written consent of UFRF, which consent UFRF may not unreasonably withhold. Licensee shall indemnify UFRF against any order for costs that may be made against UFRF in the proceedings.
8.3 If within [*] after notice by either Party to the other of alleged infringement in the Licensed Field and Licensed Territory, or such earlier time as is necessary to preserve UFRFs rights, Licensee is unsuccessful in persuading the alleged infringer to desist, has not brought an infringement action against the alleged infringer (unless, and only so long as, Licensee has, as part of its enforcement strategy, reasonable grounds supporting a delay by Licensee in bringing such action against a particular alleged infringer or infringers, and Licensee so notifies UFRF and provided UFRFs rights against such infringer are preserved), or notifies UFRF of its intention not to bring suit against the alleged infringer, then, and in those events only, UFRF may but is not obligated to prosecute at its own expense such alleged infringement of the Patent Rights. UFRF may use the name of Licensee as party plaintiff in the infringement action without expense to Licensee. If UFRF undertakes the enforcement of the Patent Rights by litigation, UFRF shall apply any recovery of damages first in satisfaction of any unreimbursed expenses and legal fees of UFRF relating to the suit and next toward reimbursement of Licensee for any legal fees and unreimbursed expenses born by Licensee at UFRFs request. UFRF will keep any remaining balance.
8.4 If a declaratory judgment action is brought against UFRF or Licensee by a third party alleging invalidity, unpatentability, or unenforceability of any of the Patent Rights, and either
(i) such action is brought as part of or in connection with any prosecution of an alleged infringement or any other enforcement-related steps of Licensee pursuant to Section 8.2; or
(ii) Licensee is then the sole licensee of the Patent Rights,
then Licensee shall within [*] after commencement of the action take over the sole defense of the action at its own expense, subject to Sections 8.5 and 8.6.
8.5 If Licensee undertakes the enforcement or defense of the Patent Rights by litigation, UFRF may voluntarily join the litigation, represented by its own counsel at its own expense. Licensee shall apply any recovery of damages first in satisfaction of any unreimbursed expenses and legal fees of Licensee relating to the suit and next toward reimbursement of UFRF for any legal fees and unreimbursed expenses. Licensee and UFRF shall divide the balance remaining from any recovery as set forth in Section 8.2.
8.6 In any suit in which either party is involved to enforce or defend the Patent Rights pursuant to this Agreement, the other party shall, at the request and expense of the party initiating the suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like.
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8.7 If Licensee brings a Patent Challenge against UFRF, unless UFRF terminates this Agreement pursuant to Section 9.4, Licensee shall continue to pay royalties and make other payments pursuant to this Agreement with respect to such claim(s) as if the contest were not underway until the claim(s) are adjudicated invalid or unenforceable by a court of last resort.
Section 9 Term and Termination
9.1 The term of this Agreement begins on the Effective Date and continues until it expires by its terms or is terminated as set forth below.
9.2 Licensee may terminate this Agreement at any time by giving at least [*] prior written notice to UFRF. Licensee shall include a statement of the reasons for termination in the notice.
9.3 UFRF may terminate this Agreement by giving Licensee at least [*] written notice if Licensee:
(a) is delinquent on any report, payment or required documents as specified in any section of this Agreement;
(b) is in breach of Section 3.1(c);
(c) is in breach of any provision of this Agreement;
(d) provides any false report;
(e) goes into bankruptcy, liquidation or proposes having a receiver control any of its assets;
(f) violates any laws or regulations applicable to development or commercialization of Licensed Products;
(g) ceases to carry on its business pertaining to Patent Rights; or
(h) ceases for more than two (2) consecutive calendar quarters to make payments of earned royalties under Sections 4.4 or 4.7 once begun.
Termination under this Section 9.3 takes effect [*] after written notice by UFRF, unless Licensee remedies the problem in that [*] period, and provided, however, that if Licensee disputes in good faith that the claimed breach exists, such [*] period will not start to run until such dispute has been resolved in accordance with Section 11.
9.4 If Licensee or any of its Affiliates brings a Patent Challenge against UFRF or actively assists others in bringing or maintaining a Patent Challenge against UFRF (except as required under a court order or subpoena), then UFRF may immediately terminate this Agreement. If a Sublicensee brings a Patent Challenge or actively assists another party in bringing or
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maintaining a Patent Challenge (except as required under a court order or subpoena), then UFRF may send a written demand to Licensee to terminate the Sublicense. If Licensee fails to terminate the Sublicense within [*] after UFRF duly makes such a demand, UFRF may immediately terminate this Agreement.
9.5 Termination of this Agreement for any reason does not release either party from any obligation that matured prior to the effective date of termination. Licensee remains obligated to provide an accounting for and to pay royalties earned. Licensee may prorate any minimum royalties that are due as of the date of termination by the number of days elapsed in the applicable calendar year. Licensee and its Sublicensees may, however, during the [*] after the effective date of termination, sell all Licensed Products that are in inventory and complete and sell Licensed Products that are in the process of manufacture , provided that Licensee provides an accounting for and pays all earned royalties and other payments that are due under the terms of the Agreement.
9.6 Upon expiration or termination of the Agreement for any reason, the following sections of the License Agreement remain in force as non-cancelable obligations:
| Section 6 Record Keeping; Accounting |
| Section 9.5 Effect of Termination |
| Section 12 Indemnification; Insurance |
| Section 13 Use of Names |
| Section 14 Miscellaneous |
| Section 17 Confidentiality |
9.7 Licensee shall deliver to UFRF, within [*] after the date of termination of this Agreement, complete and un-redacted copies of all documentation prepared for or submitted for all regulatory approvals of Licensed Products.
Section 10 Assignability
10.1 This Agreement may not be transferred or assigned by Licensee except with the prior written consent of UFRF, not to be unreasonably withheld. Notwithstanding the foregoing, written notice shall be provided but no such consent shall be required in the event of any transfer or assignment by operation of law in connection with a merger or reorganization or consolidation of Licensee or a sale of all or substantially all of the assets of Licensee. Any attempted assignment in contravention of this Section 10.1 is void.
10.2 The new assignee shall assume all responsibilities under this Agreement and agree in writing to UFRF to be bound by this Agreement.
Section 11 Dispute Resolution
11.1 Mandatory Procedures . Before either party intends to file a lawsuit against the other with respect to any matter in connection with this Agreement, except with regard to any payments made or due under this Agreement, it shall first comply with the procedures set forth in this Section 11, other than for injunctive relief to enforce the provisions of this Section 11.
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(a) When a party intends to invoke the procedures set forth in this Section 11, it shall provide written notice to the other party. Within [*] after the date of that notice, senior representatives of the parties shall engage in good faith negotiations at a mutually convenient location to resolve the dispute. In the case of UFRF, that representative is the Director of Technology Licensing. In the case of Licensee, that representative is the VP of Corporate Development.
(b) If the parties fail to meet within the time period set forth in Section 11(a) or if either party subsequently determines that negotiations between the representatives of the parties are at an impasse, the party declaring that the negotiations are at an impasse shall give notice to the other party stating with particularity the issues that remain in dispute.
(c) Not more than [*] after the notice of issues under Section 11(b), the President of UFRF and the Chief Executive Officer of the Licensee shall meet and engage in good faith negotiations at a mutually convenient location to resolve the dispute.
11.2 Failure to Resolve Dispute . If (a) any issue is not resolved at the meeting of the President and Chief Executive Officer within [*] after they first meet or (b) there is a dispute regarding payments made or due under this Agreement, either party may file appropriate administrative or judicial proceedings with respect to the issue in dispute. The parties agree to consider in good faith any proposals to address issues through alternative dispute resolution.
Section 12 Indemnification; Insurance
12.1 Licensee and Sublicensee(s) shall, at all times during the term of this Agreement and thereafter, indemnify, defend and hold UFRF, the Florida Board of Governors, the University of Florida Board of Trustees, the University of Florida, and each of their directors, trustees, officers, employees, and agents, the Investigator, and the inventors of the Patent Rights, regardless of whether the inventors are employed by the University of Florida at the time of the claim, harmless against all claims and liabilities, including legal expenses and reasonable attorneys fees, arising from a third party claim, arising out of the death of or injury to any person or persons or out of any damage to property and against any other third party claim, proceeding, demand, expense and liability resulting from the development, production, manufacture, sale, use, lease, consumption, marketing, or advertisement of Licensed Products; except to the extent such claims result from the gross negligence, willful misconduct or breach of applicable law by any indemnitee. UFRF shall give Licensee prompt notice of any such claim. Notwithstanding the above, UFRF at all times reserves the right to retain counsel of its own to defend the interests of UFRF, the Florida Board of Governors, the University of Florida Board of Trustees, the University of Florida, and the inventor(s). UFRF shall give Licensee prompt notice of any such claim.
12.2 Licensee warrants that it now maintains and will continue to maintain liability insurance coverage appropriate to the risk involved in developing, producing, manufacturing, conducting clinical trials for, selling, marketing, using, leasing, consuming, or advertising the products and processes that are subject to this Agreement and that the insurance coverage lists UFRF, the Florida Board of Governors, the University of Florida Board of Trustees, the University
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of Florida, the Investigator, and the inventors of the Patent Rights as additional insureds. Within [*] after the execution of this Agreement and thereafter annually between January 1 and January 31 of each year, Licensee will present evidence to UFRF that the coverage is being maintained. In addition, Licensee shall provide UFRF with at least [*] prior written notice of any change in or cancellation of the insurance coverage.
Section 13 Use of Names
Licensee and its Sublicensee(s) may not use the names or logos of UFRF or the University of Florida, nor of any of either institutions employees, agents, or affiliates, nor the name of any inventor of Patent Rights or Know-How, nor any adaptation of those names, in any promotional, advertising or marketing materials or any other form of publicity, or to suggest any endorsement by these entities or individuals, without the prior written approval of UFRF in each case.
Section 14 Miscellaneous
14.1 Governing Law . This Agreement shall be governed and construed in accordance with the internal laws of the State of Florida without regard to its conflict of laws provisions, and venue for all claims or other causes of action arising out of this Agreement is Gainesville, Florida.
14.2 Independent Contractors . The parties are independent contractors and not joint venturers or partners.
14.3 Integration . This Agreement constitutes the full understanding between the parties with reference to its subject matter, and no statements or agreements by the parties, whether oral or in writing, may modify the terms of this Agreement. Neither party may claim any amendment, modification, or release from any provisions of this Agreement, unless the mutual agreement is in writing and signed by both parties.
14.4 No Security Interest . Licensee may not encumber or otherwise grant a security interest in any of the rights granted under this Agreement to any third party.
14.5 Laws and Regulations . Licensee shall comply with all local, state, federal, and international laws and regulations that are applicable to the development, manufacture, use, and sale of Licensed Products, including:
(a) Licensee acknowledges that it is subject to and agrees to abide by United States laws and regulations (including the Export Administration Act of 1979 and Arms Export Control Act) controlling the export of technical data, computer software, laboratory prototypes, biological material, and other commodities. The transfer of those items may require a license from the cognizant agency of the United States Government or written assurances by Licensee that it will not export items to certain foreign countries or persons without prior approval by that agency. UFRF neither represents that a license is or is not required nor that, if required, it will be issued.
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(b) Licensee shall obtain all necessary approvals from the United States Food & Drug Administration, Environmental Protection Agency, Department of Agriculture and any similar governmental authorities of foreign jurisdictions in which Licensee intends to make, use, or sell Licensed Products or perform licensed processes.
14.6 Force Majeure . Neither party is responsible for default, delay, or failure to perform, if such default, delay or failure to perform is due to causes beyond the partys reasonable control, including, but not limited to, strikes, lockouts, inactions of governmental authorities, war, fire, hurricane or other natural disaster, provided that the nonperforming party uses commercially reasonable efforts to avoid or remove those causes of nonperformance and continues performance under this Agreement with reasonable dispatch when the causes are removed. In the event of a default, delay or failure to perform described in this Section 14.6, any date or times by which either party is scheduled to perform is extended automatically for a time equal to the time lost by reason of the excused default, delay or failure to perform.
14.7 Severability . If any provision of this Agreement shall be held invalid, illegal or unenforceable, such provision shall be enforced to the maximum extent permitted by law and the parties fundamental intentions hereunder, and the remaining provisions shall not be affected or impaired.
Section 15 Notices
The parties shall provide any notice required to be given pursuant to this Agreement in writing to the addresses listed in this Section 15. Notice is effective on the day it is delivered personally with written receipt from an authorized signatory, on the second day after the day on which the notice has been delivered for next day delivery prepaid to a nationally recognized courier service, on the fifth business day following deposit in the United States mail if sent certified or registered mail, (return receipt acknowledgement is not required to certify delivery).
If to UFRF:
President University of Florida Research Foundation, Incorporated 223 Grinter Hall University of Florida P. O. Box 115500 Gainesville, FL 32611-5500
with a copy to:
Office of Technology Licensing University of Florida Attn: Director (Rm. 112) 747 SW 2nd Avenue Post Office Box 115575 Gainesville, Florida 32611-5575 |
If to Licensee:
Attn: CEO Audentes Therapeutics, Inc. 101 Montgomery St, Suite 2650 San Francisco, CA 94104
with a copy to: |
Page 17 of 25 |
Section 16 United States Government Interests
The United States Government has funded Grant Nos. [*] and [*] during the course of or under which certain of the inventions of the Patent Rights were conceived or reduced to practice. The United States Government is entitled under the provisions of 35 U.S.C. §202-212 and applicable regulations to a non-exclusive, nontransferable, irrevocable, paid-up license to practice or have practiced those inventions for or on behalf of the United States throughout the world. Any license granted to Licensee in this Agreement is subject to that license. If any invention claimed in the Patent Rights was funded by the United States Government, Licensee agrees that Licensed Products that are used or sold in the United States will be manufactured substantially in the United States.
Section 17 Confidentiality
(a) Unless required by Florida Law, the parties (a) may only use each others Confidential Information (as defined below) as necessary to perform the obligations or exercise the rights set forth in this Agreement (b) may not disclose the others Confidential Information to any third party, and (c) shall protect each others Confidential Information with the same degree of care that they exercise with their own Confidential Information but in no event less than a reasonable degree of care. For the purposes of this Agreement, Confidential Information means the terms of this Agreement and information disclosed by one party to the other that is marked confidential by the disclosing party or that is confirmed in writing within [*] after verbal disclosure. Confidential Information does not include information that (i) is publicly known ; (ii) is already known or independently developed without use of the Confidential Information as shown by written records; (iii) is disclosed by a third party having no known obligation of confidentiality with respect to the Confidential Information; or (iv) is required to be disclosed to comply with applicable laws or regulations or with a court or administrative order. These confidentiality obligations remain effective for [*] after disclosure of the Confidential Information. The parties acknowledge and agree that the Vector Plasmids sequence is publicly known and therefore not protected under this Section 17.
(b) Each recipient may use or disclose Confidential Information disclosed to it by the other Party or the terms of this Agreement to the extent such use or disclosure is reasonably necessary in: (i) prosecuting or defending, or complying with discovery requests in, legal or administrative actions, provided that recipient shall provide the other Party with prompt notice of such requirement, so that the other Party can file a motion for a protective order or otherwise seek whatever legal relief it deems desirable or appropriate to protect its interest in the Confidential Information, (ii) complying with any applicable law, order, rule or regulation of any court or governmental body or regulatory agency or otherwise submitting information to tax or other governmental authorities, and (iii) filings under applicable securities laws or regulations or per the rules of any securities exchange or similar organization.
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(c) Each recipient may use or disclose Confidential Information disclosed to it by the other Party or the terms of this Agreement (i) to potential and actual sublicensees, acquirers, investors, underwriters and lenders, subject to reasonable non-use and non-disclosure requirements and (ii) to its and its Affiliates respective employees, directors, contractors, legal advisors, accountants, and financial advisors, in each case provided such individuals are subject to reasonable non-use and non-disclosure requirements no less stringent than those the recipient takes to protect its own confidential and/or proprietary material of a similar nature.
Section 18 University Rules and Regulations
Licensee understands and agrees that University of Florida personnel who are engaged by Licensee, whether as consultants, employees, or otherwise or who possess a material financial interest in Licensee are subject to the University of Floridas rules regarding outside activities and financial interests set forth in University of Florida Regulation 1.011, the University of Floridas Intellectual Property Policy, and an associated monitoring plan which addresses conflicts of interests . Any term of an agreement between Licensee and University of Florida personnel which seeks to vary or override the personnels obligations to the University of Florida may not be enforced without the express written consent of an individual authorized to vary or waive such obligations on behalf of the University of Florida Board of Trustees and UFRF. Furthermore, should an interest of Licensee conflict with the interests of the University of Florida, University of Florida personnel are obligated to resolve those conflicts according to the rules, guidelines, and policies of the University of Florida.
Section 19 Contract Formation and Authority
19.1 The submission of this Agreement is not an offer, and this document is effective and binding only upon the execution by duly authorized representatives of both Licensee and UFRF. Copies of this Agreement that have not been executed and delivered by both UFRF and Licensee do not evidence an agreement between the parties. UFRF may terminate this Agreement without the requirement of any notice to Licensee, if UFRF does not receive the License Issue Fee, as applicable, within [*] of the Effective Date.
19.2 UFRF and Licensee hereby warrant and represent that the persons signing this Agreement have authority to execute this Agreement on behalf of the party for whom they have signed.
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The parties have duly executed this Agreement on the dates indicated below.
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INCORPORATED | Audentes Therapeutics, Inc. | |||||||
/s/ David L. Day | By: | /s/ Matthew R. Patterson | ||||||
David L. Day Director of Technology Licensing |
Matthew R. Patterson President and Chief Executive Officer |
|||||||
Date: 8/4, 2015 | Date: | 8/4, 2015 |
Page 20 of 25 |
Appendix A Patent Rights and Know-How
Patent Rights
[*]
[*]
[*]
Know-How
[*] | ||
Type of Know-How | ||
[*] | [*] | |
[*] | [*] |
Information related to development of AAV technology for Pompe disease. The below table includes published materials or already available study reports.
[*]
Further information related to development of AAV technology for Pompe disease.
[*]
Materials, records, and assay results required for manufacture of AAV for Pompe, as well as the vector construct itself, controlled by UFL, as follows:
[*]
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Appendix BDevelopment Plan
[*]
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Appendix C Development Report
[*]
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Appendix DUFRF Royalty Report
[*]
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Appendix E Milestones
Event |
Date | |
[*] |
[*] | |
[*] |
[*] | |
[*] |
[*] | |
[*] |
[*] |
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EXHIBIT 10.15
* Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
LICENSE AGREEMENT
This LICENSE AGREEMENT ( Agreement ) is entered into as of July 9th, 2013 ( Effective Date ) by and between ReGenX Biosciences, LLC (formerly known as ReGenX, LLC), a limited liability company organized under the laws of the State of Delaware, with offices at 750 17th Street, NW, Suite 1100, Washington, DC 20006 (Licensor), and Audentes Therapeutics, Inc., a corporation organized under the laws of the State of Delaware, with offices at [*] San Francisco, California, 94115 ( Licensee ). Licensor and Licensee are hereinafter referred to individually as a Party and collectively as the Parties .
WHEREAS, Licensor has rights under certain Licensed Patents (as defined herein) pertaining to adeno-associated virus serotype 8 and 9; and
WHEREAS, Licensee desires to obtain an exclusive license under the Licensed Patents under the terms set forth herein;
NOW, THEREFORE, in consideration of the promises and covenants contained m this Agreement, and intending to be legally bound, the Parties hereby agree as follows:
ARTICLE 1: DEFINITIONS
1.1 AAV8 means (a) the recombinant adeno-associated virus serotype 8 vector with the specified sequence set forth in GenBank [*] and (b) any recombinant adeno-associated virus derivatives of such serotype 8 vector that are covered by the claims of the Licensed AAV8 Patents.
1.2 AAV9 means (a) recombinant adeno-associated virus serotype 9 vector with the specified sequence set forth in GenBank [*] and (b) any recombinant adeno-associated virus derivatives of such serotype 9 vector that are covered by the claims of the Licensed AAV9 Patents.
1.3 Affiliate means any legal entity directly or indirectly controlling, controlled by, or under common control with another entity. For purposes of this Agreement, control means the direct or indirect ownership of more than 50% of the outstanding voting securities of a legal entity, or the right to receive more than 50% of the profits or earnings of a legal entity, or the right to control the policy decisions of a legal entity.
1.4 Calendar Quarter means each three-month period or any portion thereof, beginning on January 1, April 1, July 1, and October 1.
*Confidential Treatment Requested.
1.5 Confidential Information means and includes all technical information, inventions, developments, discoveries, software, know-how, methods, techniques, formulae, animate and inanimate materials, data, processes, finances, business operations or affairs, and other proprietary ideas, whether or not patentable or copyrightable, of either Party that are (a) marked or otherwise identified as confidential or proprietary at the time of disclosure in writing; or (b) if disclosed orally, visually, or in another non-written form, identified as confidential at the time of disclosure and summarized in reasonable detail in writing as to its general content within 30 days after original disclosure. The Parties acknowledge that (i) the terms and conditions of this Agreement will be deemed the Confidential Information of both Parties and (ii) the records and reports referred to Section 3.6 of this Agreement will be deemed the Confidential Information of Licensee, regardless of whether such information is marked or identified as confidential. In addition, information provided to Licensee pursuant to the provisions of Section 7.1 will be deemed the Confidential Information of Licensor, regardless of whether such information is marked or identified as confidential. Notwithstanding the foregoing, Confidential Information will not include the following, in each case, to the extent evidenced by competent written proof of the Receiving Party:
1.5.1 information that was already known to the Receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the Disclosing Party;
1.5.2 information that was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party;
1.5.3 information that became generally available to the public or otherwise part of the public domain after its disclosure, other than through any act or omission of the Receiving Party in breach of this Agreement;
1.5.4 information that is independently discovered or developed by the Receiving Party without the use of Confidential Information of the Disclosing Party; or
1.5.5 information that was disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the Disclosing Party not to disclose such information to others.
1.6 Disclosing Party has the meaning set forth in Section 5.1.
1.7 Domain Antibody [*]
1.8 FDA means the United States Food and Drug Administration, or a successor agency in the United States with responsibilities comparable to those of the United States Food and Drug Administration.
1.9 Field means, collectively, the XLMTM Field and the Pompe Field.
1.10 GSK Agreement means that certain License Agreement entered into between Licensor and SmithKline Beecham Corporation, effective on March 6, 2009, as amended by that certain Amendment to License Agreement dated April 15, 2009, and as amended from time to time.
2 | *Confidential Treatment Requested. |
1.11 Licensed AA V8 Patents means (a) all United States patents and patent applications listed in part 1 of Exhibit A and (b) any re-examination certificates thereof, and their foreign counterparts and extensions, continuations, divisionals, and re-issue applications.
1.12 Licensed AAV9 Pat ents means (a) all United States patents and patent applications listed in part 2 of Exhibit A and (b) any re-examination certificates thereof, and their foreign counterparts and extensions, continuations, divisionals, and re-issue applications.
1.13 Licensed Patents means, collectively, (a) the Licensed AAV8 Patents and the Licensed AAV9 Patents and (b) any additional claims of patents and patent applications as required pursuant to Section 8.1.5.
1.14 Licensed Product means (a) any AAV8 or AAV9 product that is made, made for, used, sold, offered for sale, or imported by Licensee, its Affiliates and any of its or their Sublicensees, the manufacture, use, sale, offer for sale, or import of which product, in the absence of the license granted pursuant to this Agreement, would infringe or is covered by at least one Valid Claim in the country of manufacture, use, sale, offer for sale, or import, including products manufactured by a process that would infringe at least one Valid Claim in the country of manufacture, use, sale, offer for sale, or import; or (b) any service with respect to the administration of AAV8 or AAV9 to patients that, in the absence of the licenses granted pursuant to this Agreement, would infringe at least one Valid Claim of the Licensed Patents in the country of sale.
1.15 NDA means a New Drug Application filed with the FDA as described in 21 C.F.R. § 314, a Biological License Application (BLA) pursuant to 21 C.F.R. § 601.2, or any equivalent or any corresponding application for regulatory approval in any country or regulatory jurisdiction other than the United States.
1.16 Net Sales means the gross receipts from sales or other disposition of a Licensed Product (including fees for services within the definition of Licensed Product) by Licensee and/or its Affiliates and/or any Sublicensees to Third Parties less the following deductions that are directly attributable to a sale, specifically and separately identified on an invoice or other documentation and actually borne by Licensee, its Affiliates, or any Sublicensees: [*] In the event consideration other than cash is paid to Licensee, its Affiliates, or any Sublicensees, for purposes of determining Net Sales, the Parties shall use the cash consideration that Licensee, its Affiliates, or any Sublicensees would realize from an unrelated buyer in an arms length sale of an identical item sold in the same quantity and at the time and place of the transaction, as determined jointly by Licensor and Licensee based on transactions of a similar type and standard industry practice, if any.
1.17 Penn Agreement means that certain License Agreement entered into between Licensor and The Trustees of the University of Pennsylvania, effective on February 24, 2009, as amended by that letter agreement dated March 6, 2009, and as amended from time to time.
1.18 Phase 3 Clinical Trial means a pivotal clinical trial in humans performed to gain evidence with statistical significance of the efficacy of a product in a target population, and to obtain expanded evidence of safety for such product that is needed to evaluate the overall benefit-risk relationship of such product, to form the basis for approval of an NDA and to provide an adequate basis for physician labeling, as described in 21 C.F.R. § 312.2l (c) or the corresponding regulation in jurisdictions other than the United States.
3 | *Confidential Treatment Requested. |
1.19 Pompe Field means the treatment of Pompe Disease (GAA deficiency) in humans by in vivo gene therapy in humans using AAV8 or AAV9.
1.20 Prosecute means preparation, filing, and prosecuting patent applications and maintaining patents.
1.21 Receiving Party has the meaning set forth in Section 5.1.
1.22 Retained Rights has the meaning set forth in Section 2.2.
1.23 Sublicensee means any Third Party or Affiliate to whom Licensee grants a sublicense of some or all of the rights granted to Licensee under this Agreement as permitted by this Agreement.
1.24 Third Party means any person or entity other than a Party to this Agreement or Affiliates of a Party to this Agreement.
1.25 Valid Claim means a claim of an issued and unexpired patent (including any patent claim the term of which is extended by any extension, supplementary protection certificate, patent term restoration, or the like) or a claim of a pending patent application included within the Licensed Patents, which has not lapsed, been abandoned, been held revoked, or been deemed unenforceable or invalid by a non-appealable decision or an appealable decision from which no appeal was taken within the time allowed for such appeal of a court or other governmental agency of competent jurisdiction.
1.26 XLMTM Field means the treatment of X-linked myotubular myopathy (XLMTM) in humans by in vivo gene therapy in humans using AAV8 or AAV9.
ARTICLE 2: LICENSE GRANT
2.1 License Grant . Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee an exclusive, sublicensable (as provided in Section 2.4 only), non-transferable (except as provided in Section 10.2), royalty-bearing, worldwide license, under the Licensed Patents to make, have made, use, import, sell, and offer for sale Licensed Products solely in the Field, including, for the avoidance of doubt, the right to conduct research and development (including by conducting clinical trials in humans and/or animal studies).
2.2 Retained Rights . Except for the rights and licenses specified in Section 2.1 or as provided in Section 8.1.5, no license or other rights are granted to Licensee under any intellectual property of Licensor, whether by implication, estoppel, or otherwise, whether any such intellectual property dominates or is dominated by the Licensed Patents. Notwithstanding anything to the contrary this Agreement, Licensor may use and permit others to use the Licensed Patents for any research, development, commercial, or other purposes outside of the Field. Without limiting the foregoing, Licensee acknowledges and agrees to the following rights retained by Licensor and its direct and indirect licensors (individually and collectively, the Retained Rights), whether inside or outside the Field:
4
2.2.1 Notwithstanding anything in this Agreement to the contrary, the rights and licenses granted in Section 2.1 shall not include any right (and Licensor and its direct and indirect licensors retain the exclusive (even as to Licensee), fully sublicensable right) under the Licensed Patents to make, have made, use, sell, offer to sell, and import Domain Antibodies that are expressed by an adeno-associated vector, including AAV8 and/or AAV9.
2.2.2 Notwithstanding anything in this Agreement to the contrary, Licensor and its direct and indirect licensors retain the following rights with respect to the Licensed Patents:
(a) A non-exclusive, sublicensable right under the Licensed Patents to make, have made, use, sell, offer to sell, and import products that deliver RNA interference and antisense drugs using an adeno-associated vector, including AAV8 and/or AAV9; and
(b) A non-exclusive right for Licensors direct and indirect licensors (which right is sublicensable by such licensors) to use the Licensed Patents for non-commercial research purposes and to use the Licensed Patents for such licensors discovery research efforts with non-profit organizations and collaborators.
2.2.3 Notwithstanding anything in this Agreement to the contrary, the rights and licenses granted in Section 2.1 shall not include any right (and Licensor retains the exclusive (even as to Licensee), fully sublicensable right) under the Licensed Patents:
(a) to conduct commercial reagent and services businesses, which includes the right to make, have made, use, sell, offer to sell, or import research reagents, including any viral vector construct (provided that, for clarity, such rights retained by Licensor shall not include the right to conduct clinical trials in humans in the Field); and
(b) to use the Licensed Patents to provide services to any Third Parties; provided that Licensees license under Section 2.1 does include the right to provide the service of the administration of Licensed Products to patients.
2.2.4 Notwithstanding anything in this Agreement to the contrary, Licensor retains the fully sublicensable right under the Licensed Patents to grant non-exclusive research and development licenses to Affiliates and Third Parties; provided that such development rights granted by Licensor shall not include the right to conduct clinical trials in humans in the Field or any rights to sell products in the Field.
2.2.5 Notwithstanding anything to the contrary in this Agreement, the University of Pennsylvania may use and permit other non-profit organizations or other non-commercial entities to use the Licensed Patents for educational, research, and other non-commercial purposes.
2.3 Government Rights . Licensee acknowledges that the United States government retains certain rights in intellectual property funded in whole or part under any contract, grant, or similar agreement with a federal agency. The license grant hereunder is expressly subject to all applicable United States government rights, including any applicable requirement that products resulting from such intellectual property sold in the United States must be substantially manufactured in the United States.
5
2.4 Sublicensing .
2.4.1 The license granted pursuant to Section 2.1 is sublicensable by Licensee to any Affiliates or Third Parties; provided that any such sublicense must comply with the provisions of this Section 2.4 (including Section 2.4.2).
2.4.2 The right to sublicense granted to Licensee under this Agreement is subject to the following conditions:
(a) Licensee may only grant sublicenses [*] pursuant to a written sublicense agreement with the Sublicensee. Licensor must receive written notice as soon as practicable following execution of any such sublicenses.
(b) In each sublicense agreement, the Sublicensee must be required to comply with the terms and conditions of this Agreement to the same extent as Licensee has agreed and must acknowledge that Licensor is an express third party beneficiary of such terms and conditions under such sublicense agreement.
(c) The official language of any sublicense agreement shall be English.
(d) Within [*] after entering into a sublicense, Licensor must receive a copy of the sublicense written in the English language for Licensors records and to share with Licensors direct and indirect licensors. The copy of the sublicense may be redacted to exclude confidential information of the applicable Sublicensee, but such copy shall not be redacted to the extent that it impairs Licensors (or any of its direct or indirect licensors) ability to ensure compliance with this Agreement; provided that, if any of Licensors direct or indirect licensors require a complete, unredacted copy of the sublicense, Licensee shall provide such complete, unredacted copy.
(e) Licensees execution of a sublicense agreement will not relieve Licensee of any of its obligations under this Agreement. Licensee is and shall remain [*] to Licensor for all of Licensees duties and obligations contained in this Agreement and for any act or omission of an Affiliate or Sublicensee that would be a breach of this Agreement if performed or omitted by Licensee, and Licensee will be deemed to be in breach of this Agreement as a result of such act or omission.
2.5 Improvements .
2.5.1 Licensee hereby grants to Licensor a non-exclusive, worldwide, royalty-free, transferable, sublicensable, irrevocable, perpetual license (a) to use any Licensed Back Improvements (and any intellectual property rights with respect thereto) consummate in scope to the Retained Rights and (b) to practice the Licensed Back Improvements (and any intellectual property rights with respect thereto) in connection with AAV8 and AAV9 outside the Field,
6 | *Confidential Treatment Requested. |
including the right to research, develop, make, have made, use, offer for sale, and sell products and services outside the Field. For purposes of this Agreement, Licensed Back Improvements means any [*] by Licensee, any Affiliates [*], or any Sublicensees to any vector that is the subject of a claim within the Licensed Patents.
2.5.2 Licensee agrees to provide prompt notice to Licensor upon the filing of any patent application covering any Licensed Back Improvement, together with a reasonably detailed description of or access to such Licensed Back Improvement to permit the practice of any such invention or improvement by Licensor or its direct or indirect licensors or licensees.
ARTICLE 3: CONSIDERATION
3.1 Initial Fee . In consideration of the license granted to Licensee under Section 2.1, Licensee shall pay Licensor an initial fee of $600,000 upon the Effective Date. One-half of the amount paid by Licensee to Licensor under this Section 3.1 may be paid by Licensee in the form of shares of Licensees common stock, which will be issued in accordance with Section 3.8.
3.2 Annual Maintenance Fee . In consideration of the license granted to Licensee under Section 2.1, Licensee shall pay Licensor on-going annual maintenance fees of [*] on each anniversary of the Effective Date.
3.3 Milestone Fees . In consideration of the license granted to Licensee under Section 2.1, Licensee shall pay Licensor the following milestone payments on a per-Licensed Product basis:
XLMTM Field Milestone |
Milestone Payment | |||
1. First treatment of human subject in a clinical trial ( i.e ., first patient, first dose) |
[*] | |||
2. First treatment in Phase 3 Clinical Trial ( i.e ., first patient, first dose) |
[*] | |||
3. NDA submission in the United States |
[*] | |||
4. NDA submission in the European Union |
[*] | |||
5. NDA approval in the United States |
[*] | |||
6. NDA approval in the European Union |
[*] | |||
Total: |
$ | 8.85 million | ||
Pompe Field Milestone |
Milestone Payment | |||
1. First treatment of human subject in a clinical trial ( i.e ., first patient, first dose) |
[*] | |||
2. First treatment in Phase 3 Clinical Trial ( i.e ., first patient, first dose) |
[*] | |||
3. NDA submission in the United States |
[*] | |||
4. NDA submission in the European Union |
[*] | |||
5. NDA approval in the United States |
[*] | |||
6. NDA approval in the European Union |
[*] | |||
Total: |
$ | 8.85 million |
7 | *Confidential Treatment Requested. |
3.3.1 At Licensees option, up to [*] of the amount paid by Licensee to Licensor under the first milestones (i.e., first treatment of human study) for each of the XLMTM Field and the Pompe Field may be paid by Licensee in the form of shares of Licensees common stock, which will be issued in accordance with Section 3.8.
3.3.2 For clarity, the milestone payments set forth in this Section 3.3 are payable [*] in the XLMTM Field and once in the Pompe Field with respect to each Licensed Product that achieves the milestone event, regardless of whether the milestone is achieved by Licensee or any Sublicensee. To the extent that either of the two development milestones in this Section 3.3 with respect to a particular field (i.e., first treatment of human subject in a clinical trial or first treatment in Phase 3 Clinical Trial) has not been paid at the time of achievement of either NDA submission milestone for that field, then, upon the achievement of either of such NDA submission milestones, the preceding unpaid development milestone payments with respect to that field shall be made in addition to the payment corresponding to the NDA submission milestone that has been achieved.
3.4 Royalties . In further consideration of the license granted to Licensee under Section 2.1, Licensee shall pay to Licensor the following royalties based upon Net Sales of Licensed Products in the XLMTM Field or the Pompe Field, as applicable, subject to the reductions in royalty rates set forth in Section 3.4.1:
Cumulative Annual Net Sales of all Licensed Products in the XLMTM Field Worldwide |
Royalty Percentage for
XLMTM Field |
|||
Portion of Net Sales less than $300 million |
[ | *] | ||
Portion of Net Sales between (and including) $300 million through (and including) $600 million |
[ | *] | ||
Portion of Net Sales greater than $600 million |
[ | *] |
Cumulative Annual Net Sales of all Licensed Products in the Pompe Field Worldwide |
Royalty Percentage for
Pompe Field |
|||
Portion of Net Sales less than $300 million |
[ | *] | ||
Portion of Net Sales between (and including) $300 million through (and including) $600 million |
[ | *] | ||
Portion of Net Sales greater than $600 million |
[ | *] |
3.4.1 Third Party Royalties Stacking Provision . If Licensee must obtain a license from a Third Party to avoid infringement of such Third Partys rights in order to manufacture, use, or commercialize a given Licensed Product and if the royalties required to be paid to such Third Party for such license, together with those royalties payable to Licensor, in the aggregate, exceed [*] of Net Sales for any Licensed Product, then the royalty owed to Licensor for that Licensed Product will be reduced by an amount calculated as follows:
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STACKING ROYAL TY CALCULATIONS
R = (C * (A I (A+B)))
Where
R = reduction of Licensor royalty, A = unreduced Licensor royalty,
B = sum of all Third Party royalties,
C = increment of projected total royalty above [*]
Example Calculation:
assume: | i) all Third Party royalties = [*] | |
ii) unreduced Licensor royalty = [*] | ||
iii) projected total royalty = [*] |
R = ([*] [*]) * ([*] / ([*] + [*])) |
R = ([*] * [*]) |
R = [*] |
Licensor Stacked Royalty = [*] [*] = [*]% |
Notwithstanding the foregoing, Licensee will pay to Licensor no less than [*]% of the royalties that Licensee would otherwise pay to Licensor if there were no royalties due to Third Parties.
3.4.2 Royalty Payment Period . Licensees obligation hereunder for payment of a royalty under this Section 3.4 on the Net Sales of Licensed Products in a given country will end on a country-by-country basis when all Valid Claims in that country claiming the Licensed Product have expired, lapsed, been abandoned, or been invalidated.
3.5 Sublicense Fees .
3.5.1 In further consideration of the license granted to Licensee under Section 2.1, Licensee will pay Licensor a percentage of any sublicense fees (including upfront payments and milestone payments) received by Licensee for the Licensed Patents from any Sublicensee or from any person or entity granted any option to obtain a sublicense. The applicable percentage due to Licensor for each sublicense (or option) shall be as follows:
Event |
Sublicense Fee Rate | |||
If sublicensed (or optioned) on or before the first anniversary of the Effective Date |
[ | *] | ||
If sublicensed (or optioned) on or before the third anniversary of the Effective Date but after the first anniversary of the Effective Date |
[ | *] | ||
If sublicensed (or optioned) on or before the fourth anniversary of the Effective Date but after the third anniversary of the Effective Date |
[ | *] | ||
If sublicensed (or optioned) after the fourth anniversary of the Effective Date |
[ | *] |
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3.5.2 With respect to the obligations under this Section 3.5, Licensee shall not be required to submit any amounts received from a Third Party for the following:
(a) Reimbursement for research, development, and/or manufacturing activities performed by Licensee corresponding directly to the development of Licensed Products pursuant to a specific agreement;
(b) Consideration received for the purchase of an equity interest in Licensee at fair market value or in the form of loans at commercially reasonable rates of interest; and
(c) Any and all amounts paid to Licensee by a Sublicensee as royalties on sales of Licensed Product sold by the Sublicensee under a sublicense agreement.
3.5.3 To the extent Licensee receives payment from a Third Party relating to one or more of the milestone events set forth in the table in Section 3.3, then the amount of the payment made to Licensor under such Section 3.3 with respect to such milestone event shall be not be deemed sublicense fees under this Section 3.5; instead, the amounts due under this Section 3.5 shall be calculated by applying the applicable sublicense fee rate set forth in Section 3.5.l above to the sublicense fees received by Licensee from such Third Party after deducting the amount of the payment under Section 3.3.
3.6 Reports and Records .
3.6.1 Licensee must deliver to Licensor within [*] after the end of each Calendar Quarter after the first commercial sale of a Licensed Product a report setting forth the calculation of the royalties due to Licensor for such Calendar Quarter, including:
3.6.1.1 Number of Licensed Products included within Net Sales, listed by country;
3.6.1.2 Gross consideration for Net Sales of Licensed Product, including all amounts invoiced, billed, or received;
3.6.1.3 Qualifying costs to be excluded from the gross consideration, as described in Section 1.16, listed by category of cost;
3.6.1.4 Net Sales of Licensed Products listed by country;
3.6.1.5 A detailed accounting of any royalty reductions applied pursuant to Section 3.4.1;
3.6.1.6 Royalties owed to Licensor, listed by category; and
3.6.1.7 The computations for any applicable currency conversions.
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3.6.2 Licensee shall pay the royalties due under Section 3.4 within [*] following the last day of the Calendar Quarter in which the royalties accrue. Licensee shall send the royalty payments along with the report described in Section 3.6.1.
3.6.3 Within [*] after the occurrence of a milestone event described in Section 3.3, Licensee must deliver to Licensor a report describing the milestone event that occurred, together with a payment of the applicable amount due to Licensor pursuant to Section 3.3. In addition, within [*] after the receipt of sublicense fees from any Sublicensee as described in Section 3.5, Licensee must deliver to Licensor a report describing the fees received, together with a payment of the applicable amount due to Licensor pursuant to Section 3.5.
3.6.4 All financial reports under this Section 3.6 will be certified by the chief financial officer of Licensee.
3.6.5 Licensee shall maintain and require its Affiliates and all Sublicensees to maintain, complete and accurate books and records which enable the royalties, fees, and payments payable under this Agreement to be verified. The records must be maintained for [*] after the submission of each report under Article 3. Upon reasonable prior written notice to Licensee, Licensee and its Affiliates and all Sublicensees will provide Licensor and/or its direct or indirect licensors (and their respective accountants) with access to all of the relevant books, records, and related background information as reasonably required to confirm the accuracy of the royalties, fees, and payments paid to Licensor under this Agreement. Access will be made available: (a) during normal business hours; (b) in a manner reasonably designed to facilitate the auditing partys review or audit without unreasonable disruption to Licensees business; and (c) no more than once each calendar year during the term of this Agreement and for a period of [*] thereafter. Licensee will promptly pay to Licensor the amount of any underpayment determined by the review or audit, plus accrued interest. If the review or audit determines that Licensee has underpaid any payment by [*] or more, then Licensee will also promptly pay the costs and expenses of Licensor and or its direct or indirect licensors and accountants in connection with the review or audit.
3.7 Currency, Interest .
3.7.1 All dollar amounts referred to in this Agreement are expressed in United States dollars. All payments to Licensor under this Agreement must be made in United States dollars.
3.7.2 If Licensee receives payment in a currency other than United States dollars for which a royalty or fee or other payment is owed under this Agreement, then (a) the payment will be converted into United States dollars at the conversion rate for the foreign currency as published in the eastern edition of the Wall Street Journal, as of the last business day of the Calendar Quarter in which the payment was received by Licensee; and (b) the conversion computation will be documented by Licensee in the applicable report delivered to Licensor under Section 3.6.
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3.7.3 All amounts that are not paid by Licensee when due will accrue interest from the date due until paid at a rate equal to 1.5% per month (or the maximum allowed by law, if less).
3.8 Issuance of Common Stock . If Licensee elects to pay any amounts under Section 3.1 or 3.3.1 by the issuance of shares of Licensees common stock, then the provisions of this Section 3.8 will apply.
3.8.1 Each share of Licensees common stock will be valued at [*] per share as of the Effective Date (the Price Per Share ) and shall be issued pursuant to the terms of the Common Stock Purchase Agreement in the form attached hereto as Exhibit C (the Stock Purchase Agreement ). If Licensee at any time or from time to time after the Effective Date effects a subdivision, split, or combination of Licensees outstanding common stock into a greater or lesser number of shares, then, in each such event, the Price Per Share in effect immediately prior to such subdivision, split, or combination will be increased or decreased proportionately. Licensee will provide Licensor with written notice of any such subdivision, split, or combination and the resulting Price Per Share.
3.8.2 The number of shares to be issued to Licensor will be determined by taking the amount of the payment owed under Section 3.1 or 3.3.1, as applicable, and dividing it by the Price Per Share, as calculated pursuant to Section 3.8.1. Licensee will deliver to Licensor, by no later than the date the payment (with respect to which Licensee will fulfill by the issuance of shares of Licensees common stock) is due, (a) a copy of the Stock Purchase Agreement (executed by both Licensor and Licensee), (b) a stock certificate in the name of Licensee for the number of shares of common stock to be issued, and (c) in connection with any issuance pursuant to Section 3.3.1, a certificate signed by an officer of Licensee attesting that Licensees representations and warranties contained in Sections 8.2.1 (with respect to Licensees ability to issue the common stock), 8.2.4 (with respect to Licensees ability to issue the common stock), and 8.2.5 are true and correct as of the date of issuance of such stock with the same effect as though made on and as of such date.
ARTICLE 4: DILIGENCE
4.1 Licensee will use commercially reasonable efforts to develop, commercialize, market, promote, and sell Licensed Products in each of the XLMTM Field and the Pompe Field. Commercially reasonable efforts means efforts equivalent to those utilized by [*] Without limiting the foregoing, Licensee will meet the following:
(a) Acceptance by the FDA of an Investigational New Drug application for a Licensed Product in the XLMTM Field by no later than [*]; and
(b) Acceptance by the FDA of an Investigational New Drug application for a Licensed Product in the Pompe Field by no later than [*].
Licensee will notify Licensor in writing as soon as Licensee believes in good faith that Licensee will not be able to achieve either milestone set forth in Section 4.l (a) or (b) by the relevant deadline date, and, upon the payment to Licensor of [*] within [*] of the original deadline date, the deadline date for such milestone set forth in Section 4.l (a) or (b), as applicable, will be extended for [*] from the original deadline date; provided that Licensee will only be entitled to [*] for the XLMTM Field and [*] for the Pompe Field, each of which extensions will require a payment of [*] as provided in this Section 4.1.
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4.2 Within [*] after the Effective Date and within [*] of each December 1 thereafter, Licensee shall provide Licensor with written progress reports, setting forth in such detail as Licensor may reasonably request, the progress of the development, evaluation, testing, and commercialization of each Licensed Product. Licensee will also notify Licensor within [*] of the first commercial sale by Licensee, its Affiliates, or any Sublicensees of each Licensed Product. Such a report ( Development Progress Report ), setting forth the current stage of development of Licensed Products, shall include:
4.2.1 Date of Development Progress Report and time covered by such report;
4.2.2 Major activities and accomplishments completed by Licensee, its Affiliates, and any Sublicensees relating directly to the Licensed Product since the last Development Progress Report;
4.2.3 Significant research and development projects relating directly to the Licensed Product currently being performed by Licensee, its Affiliates, and any Sublicensees and projected dates of completion;
4.2.4 A development plan covering the next two years at least, which will include future development activities to be undertaken by Licensee, its Affiliates, or any Sublicensees during the next reporting period relating directly to the Licensed Product, Licensees strategy to bring the Licensed Product to commercialization, and projected timeline for completing the necessary tasks to accomplish the goals of the strategy;
4.2.5 Projected total development remaining before product launch of each Licensed Product; and
4.2.6 Summary of significant development efforts using the Licensed Patents being performed by Third Parties, including the nature of the relationship between Licensee and such Third Parties.
4.3 The Parties agree that Development Progress Reports shall be deemed Licensees Confidential Information; provided that Licensor may share a copy of such reports with its direct and indirect licensors.
4.4 Simultaneously with the Development Progress Report, Licensee shall deliver a detailed description of any Licensed Back Improvements, if not previously provided pursuant to Section 2.5.2.
ARTICLE 5: CONFIDENTIALITY
5.1 Treatment of Confidential Information. Each Party, as a receiving party (a Receiving Party ), agrees that it will (a) treat Confidential Information of the other Party (the Disclosing Party ) as strictly confidential; (b) not disclose such Confidential Information to
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Third Parties without the prior written consent of the Disclosing Party, except as may be permitted in this Agreement; provided that any disclosure permitted hereunder be under confidentiality agreements with provisions at least as stringent as those contained in this Agreement; and (c) not use such Confidential Information for purposes other than those authorized expressly in this Agreement. The Receiving Party agrees to ensure that its employees who have access to Confidential Information are obligated in writing to abide by confidentiality obligations at least as stringent as those contained under this Agreement.
5.2 Public Announcements .
5.2.1 The Parties agree they will release a joint press release in the form attached hereto as Exhibit B . Except as provided in Section 5.2.1, any other press releases by either Party with respect to the other Party or any other public disclosures concerning the existence of or terms of this Agreement shall be subject to review and approval by the other Party. Once the joint press release or any other written statement is approved for disclosure by both Parties, either Party may make subsequent public disclosure of the contents of such statement without the further approval of the other Party.
5.2.2 Notwithstanding Section 5.2.1, Licensor has the right to publish (through press releases, scientific journals, or otherwise) and refer to any clinical, regulatory, or research results related to Licensees Licensed Product or AAV8 or AAV9 program that have been publicly disclosed by Licensee, including referring to Licensee by name as a licensee of Licensor, which publication or referral by Licensor shall not require the prior consent of Licensee.
5.3 Authorized Disclosure . Notwithstanding the provisions of Section 5.1 or 5.2, either Party may disclose Confidential Information or make such a disclosure of the existence of and/or terms of this Agreement to any [*]; provided that, in each case, such recipient of Confidential Information is obligated to keep such information confidential on terms no less stringent than those set forth in this Agreement. Furthermore, Licensee agrees that Licensor may share a copy of this Agreement, reports and notices provided by Licensee to Licensor pursuant to the terms of this Agreement, and copies of sublicense agreements provided to Licensor hereunder with any of Licensors direct and indirect licensors of the Licensed Patents. In the event that the Receiving Party receives service of legal process that purports to compel disclosure of the Disclosing Partys Confidential Information or becomes obligated by law to disclose the Confidential Information of the Disclosing Party or the existence of or terms of this Agreement to any governmental authority, the Receiving Party shall promptly notify the Disclosing Party, so that the Disclosing Party may seek an appropriate protective order or other remedy with respect to narrowing the scope of such requirement and/or waive compliance by the Receiving Party with the provisions of this Agreement. The Receiving Party will provide the Disclosing Party with reasonable assistance in obtaining such protective order or other remedy. If, in the absence of such protective order or other remedy, the Receiving Party is nonetheless required by law to disclose the existence of or terms of this Agreement or other Confidential Information of the Disclosing Party, the Receiving Party may disclose such Confidential Information without liability hereunder; provided that the Receiving Party shall furnish only such portion of the Confidential Information that is legally required to be disclosed and only to the extent required by law.
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5.4 Term of Confidentiality . The obligations of this Article 5 shall continue for a period of [*] following the expiration or termination of this Agreement.
ARTICLE 6: TERM AND TERMINATION
6.1 Term of Agreement . This Agreement, unless sooner terminated as provided in this Agreement, expires upon the expiration, lapse, abandonment, or invalidation of the last Valid Claim to expire, lapse, or become abandoned or unenforceable in all countries of the world.
6.2 Licensees Right to Terminate . Licensee may, upon 90 days prior written notice to Licensor, terminate this Agreement for any reason, with or without cause. In exercising such termination right, Licensee may terminate the Agreement in its entirety or, if desired, Licensee may specify in the written notice that this Agreement is terminating only with respect to either the Pompe Field or the XLMTM Field.
6.3 Termination for Breach .
6.3.1 Licensor may terminate this Agreement, if Licensee is late in paying to Licensor royalties, fees, or any other monies due under this Agreement, and Licensee does not pay Licensor in full within 15 days upon written demand from Licensor, which termination shall be effective immediately upon the expiration of such 15-day cure period.
6.3.2 Either Party may terminate this Agreement, if the other Party materially breaches this Agreement and does not cure such material breach within 30 days after written notice of the breach, which termination shall be effective immediately upon the expiration of such 30-day cure period; provided that, if termination is by Licensor as a result of Licensees materially breaching Article 4, and if such breach only relates to either the Pompe Field or XLMTM Field, but not both, then Licensors termination right shall only be with respect to the Pompe Field or XLMTM Field, as applicable, with respect to which the breach related and not both. Notwithstanding the above, if Licensee disputes in good faith that such material breach exists, and gives Licensor written notice of such dispute within 30 days following Licensees receipt of Licensors notice of default, then, Licensor may not terminate this Agreement until the dispute is resolved in accordance with Section 10.6; provided that Licensor shall be entitled to terminate this Agreement at the end of the original 30-day cure period, without waiting for resolution of the dispute in accordance with Section 10.6, if the breach by Licensee of this Agreement would cause Licensor to be in breach of the GSK Agreement or the Penn Agreement.
6.4 Termination for Insolvency .
6.4.1 Licensor may terminate this Agreement, effective immediately upon written notice to Licensee, if Licensee or any of its Affiliates experiences any Trigger Event.
6.4.2 Licensee shall include in each sublicense agreement entered into with a Sublicensee a right of Licensee to terminate such sublicense agreement if such Sublicensee experiences any Trigger Event; and Licensee shall terminate the sublicense agreement, effective immediately upon written notice to the Sublicensee, if the Sublicensee experiences any Trigger Event. In addition, if the Sublicensees experiencing of a Trigger Event gives Licensors
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licensor a right of termination under the Penn Agreement and such licensor provides written notice of such termination to Licensor, then, upon receipt of such notice, Licensor may terminate this Agreement, effective immediately upon written notice to Licensee, if any Sublicensee experiences any Trigger Event.
6.4.3 For purposes of this Section 6.4, Trigger Event means any of the following: (a) if Licensee, any Affiliate, or any Sublicensee, as applicable, (i) becomes insolvent, becomes bankrupt, or generally fails to pay its debts as such debts become due, (ii) is adjudicated insolvent or bankrupt, (iii) admits in writing its inability to pay its debts, (iv) suffers the appointment of a custodian, receiver, or trustee for it or its property and, if appointed without its consent, such appointment is not discharged within 30 days, (v) makes an assignment for the benefit of creditors, or (vi) suffers proceedings being instituted against it under any law related to bankruptcy, insolvency, liquidation, or the reorganization, readjustment, or release of debtors and, if contested by it, not dismissed or stayed within ten days; (b) the institution or commencement by Licensee, any Affiliate, or any Sublicensee, as applicable, of any proceeding under any law related to bankruptcy, insolvency, liquidation, or the reorganization, readjustment, or release of debtors; (c) the entering of any order for relief relating to any of the proceedings described in Section 6.4.3(a) or (b) above; (d) the calling by Licensee, any Affiliate, or any Sublicensee, as applicable, of a meeting of its creditors with a view to arranging a composition or adjustment of its debts; or (e) the act or failure to act by Licensee, any Affiliate, or any Sublicensee, as applicable, indicating its consent to, approval of, or acquiescence in any of the proceedings described in Section 6.4.3(b) through (d) above.
6.5 Patent Challenge .
6.5.1 Licensor may terminate this Agreement, effective immediately upon written notice to Licensee, upon the commencement by Licensee or any of its Affiliates of a Patent Challenge.
6.5.2 Licensee shall include in each sublicense agreement entered into with a Sublicensee a right of Licensee to terminate such sublicense agreement if such Sublicensee commences a Patent Challenge; and Licensee shall terminate the sublicense agreement, effective immediately upon written notice to the Sublicensee, if the Sublicensee commences a Patent Challenge. In addition, if the Sublicensees commencement of a Patent Challenge gives Licensors licensor a right of termination under the Penn Agreement and such licensor provides written notice of such termination to Licensor, then, upon receipt of such notice, Licensor may terminate this Agreement, effective immediately upon written notice to Licensee, if any Sublicensee commences a Patent Challenge.
6.5.3 For purposes of this Section 6.5, Patent Challenge means any action against Licensor, the University of Pennsylvania, or any direct or indirect licensor of Licensor (including an action for declaratory judgment) to declare, or render invalid or unenforceable the Licensed Patents, or any claim thereof.
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6.6 Effects of Termination . The effect of termination by Licensee pursuant to Section 6.2, by either Party, as applicable, under Section 6.3, or by Licensor pursuant to Section 6.4 or 6.5 shall be as follows:
6.6.1 The licenses granted by Licensor hereunder shall terminate, and Licensee and its Affiliates shall cease to make, have made, use, import, sell, and offer for sale all Licensed Products and shall cease to otherwise practice the Licensed Patents; provided that Licensee shall have the right to continue to sell its existing inventories of Licensed Products for a period not to exceed [*] after the effective date of such termination;
6.6.2 All sublicenses granted to Third Parties to the extent of the rights licensed to Licensee hereunder and sublicensed to the Sublicensee shall be assigned to Licensee; provided that (i) prior to such assignment, Licensee shall advise Licensor whether such Sublicensee is then in full compliance with all terms and conditions of its sublicense and continues to perform thereunder, and, if such Sublicensee is not in full compliance or is not continuing to perform, Licensor may elect not to have such sublicense assigned; and (ii) following such assignment, Licensor shall not be liable to such Sublicensee with respect to any obligations of Licensee to the Sublicensee that are not consistent with, or not required by, Licensors obligations to Licensee under this Agreement;
6.6.3 If termination is by Licensee pursuant to Section 6.2 or by Licensor pursuant to Section 6.3, 6.4, or 6.5, Licensee shall grant, and hereby grants to Licensor a non-exclusive, perpetual, irrevocable, worldwide, royalty-free, transferable, sublicensable license under any patentable modifications or improvements (and any intellectual property rights with respect thereto) developed by Licensee, any Affiliates (excluding any such modifications or improvements developed by a Third Party that acquired Licensee or its Affiliates, whether by merger, acquisition or assets sale, prior to the date of such acquisition), or any Sublicensees to any vector that is the subject of a claim within any of the Licensed Patents, for use by Licensor for the research, development, and commercialization of products in any therapeutic indication;
6.6.4 Licensee shall pay all monies then-owed to Licensor under this Agreement; and
6.6.5 Each Receiving Party shall, at the other Partys request, return all Confidential Information of the Disclosing Party. Notwithstanding the foregoing, one copy may be kept by either Party for a record of that Partys obligations.
If termination is only with respect to either the Pompe Field or the XLMTM Field, but not both, then the provisions of this Section 6.6 shall only apply with respect to the terminated Field, and this Agreement shall continue with respect to the non-terminated Field.
6.7 Survival . Licensees obligation to pay all monies due and owed to Licensor under this Agreement which have matured as of the effective date of termination or expiration shall survive the termination or expiration of this Agreement. In addition, the provisions of Section 2.2, (Retained Rights), 2.3 (Government Rights), 2.5 (Improvements), Article 3 (Consideration) (with respect to any final reports or to the extent any amounts are due but unpaid), Section 3.6 (Reports and Records), Article 5 (Confidentiality), Article 6 (Term and Termination), Section 8.3 (Disclaimer of Warranties, Damages), Section 8.4 (Indemnification), Section 8.5 (Insurance), Article 9 (Use of Name), and Article 10 (Additional Provisions) shall survive such termination or expiration of this Agreement in accordance with their respective terms.
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ARTICLE 7: PATENT MAINTENANCE; PATENT INFRINGEMENT
7.1 Prosecution of Licensed Patents . As between Licensor and Licensee, the Parties agree as follows:
7.1.1 Licensor shall have the sole right, but not the obligation, to Prosecute patent applications and issued patents within Licensed Patents, in Licensors sole discretion. Subject to Section 7.1.3, Licensor shall provide Licensee with a reasonable opportunity to review and provide comments in connection with the Prosecution of the Licensed Patents; and Licensor shall keep Licensee reasonably informed as to all material developments with respect to such Licensed Patents and shall supply to Licensee copies of material communications received and filed in connection with the Prosecution of such Licensed Patents.
7.1.2 Nothing in this Agreement obligates Licensor to continue to Prosecute any patent applications or issued patents, and Licensee acknowledges that Licensor shall have no obligation to undertake any inter-party proceedings, such as oppositions or interferences, or to undertake any re-examination or re-issue proceedings, in either case, with respect to the Licensed Patents.
7.1.3 Licensee acknowledges that the University of Pennsylvania controls Prosecution of the Licensed Patents, with Licensor having certain rights to review. Licensee acknowledges and agrees the rights and obligations under this Section 7.1 are subject to the rights of Licensors direct and indirect licensors with respect to the Licensed Patents and Licensors obligations under this Agreement only apply to the extent of Licensors rights with respect to participation in Prosecuting the Licensed Patents under its agreements with its direct and indirect licensors.
7.2 Infringement Actions Against Third Parties .
7.2.1 Licensee is responsible for notifying Licensor promptly of any infringement of Licensed Patents (other than Retained Rights) that may come to Licensees attention. Licensee and Licensor shall consult one another in a timely manner concerning any appropriate response to the infringement.
7.2.2 As between Licensor and Licensee, Licensor shall have the first right, but not the obligation, to prosecute any such infringement at its own expense. In any action to enforce any of the Licensed Patents, Licensee, at the request and expense of Licensor, shall cooperate to the fullest extent reasonably possible, including in the event that, if Licensor is unable to initiate or prosecute such action solely in its own name, Licensee shall join such action voluntarily and shall execute all documents necessary to initiate litigation to prosecute and maintain such action.
7.2.3 If Licensor elects not to pursue any infringement of a Licensed Patent, then, to the extent that a Licensed Product is covered by any such License Patent and such Licensed Patent is being infringed by another product in the Field (such infringement, the Competitive Infringement ), Licensee shall have the second right, but not the obligation, to prosecute such Competitive Infringement with respect to such other product in the Field, at Licensees own expense. In any such action to enforce any of the Licensed Patents, Licensor, at
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the request and expense of Licensee, shall cooperate to the fullest extent reasonably possible, including in the event that, if Licensee is unable to initiate or prosecute such action solely in its own name, Licensor shall join such action voluntarily and shall execute all documents necessary to initiate litigation to prosecute and maintain such action. In prosecuting any such Competitive Infringement, Licensee (a) shall not take any actions that would be detrimental to the Licensed Patents and Licensors rights with respect thereto outside the Field and (b) shall not settle any such Competitive Infringement without the prior consent of Licensor.
7.2.4 Any recovery of damages by Licensor for any infringement other than a Competitive Infringement shall be [*]. Any recovery of damages by the Party undertaking enforcement or defense of a suit for Competitive Infringement shall be applied, as between Licensor and Licensee but subject to the obligations to Licensors direct and indirect licensors, first to reimburse each such Party for costs and expenses (including reasonable attorneys fees and costs) incurred by such Party in connection with such suit, and the balance remaining, if any, from any such recovery shall be [*].
7.2.5 Licensee acknowledges and agrees that (a) the rights and obligations under this Section 7.2 are subject to the rights of Licensors direct and indirect licensors of the Licensed Patents (including any consent or approval rights or rights to control or participate in any enforcement actions); and (b) Licensors obligations under this Agreement only apply to the extent that Licensor has any rights with respect to enforcing the Licensed Patents under its agreements with its direct and indirect licensors. Furthermore, Licensee acknowledges the following:
7.2.5.1 All monies recovered upon the final judgment or settlement of any action with respect to Competitive Infringement will also need to be allocated to Licensors direct and indirect licensors (a) to reimburse the costs and expenses (including reasonable attorneys fees and costs) of such licensors, (b) to take into account the royalties payable to such licensors; and (c) to take into account the relative extent of such licensors financial participation in such action, if applicable.
7.2.5.2 Licensors direct and indirect licensors retain the continuing right to intervene at their own expense and join Licensor or Licensee in any claim or suit for infringement of the Licensed Patents.
7.2.5.3 In any infringement prosecuted by Licensors direct and indirect licensors, all financial recoveries will be [*].
7.2.5.4 In any infringement prosecuted by Licensors direct and indirect licensors, Licensee agrees, at the request and expense of such licensors, to cooperate to the fullest extent reasonably possible, to the same extent as though Licensor were prosecuting such suit (as provided in this Section 7.2, including Section 7.2.2).
7.2.5.5 The written consent of Licensors direct and indirect licensors will be required (a) for any decision that would have a materially adverse affect on the validity, scope of patent claims, or enforceability of the Patent Rights and (b) for any settlement or compromise of any infringement suit that would impose any obligations or restrictions on any of its direct or indirect licensors, or grants any rights to the Licensed Patents other than rights that Licensee has the right to grant under this Agreement.
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7.3 Defense of Infringement Claims . In the event Licensee or Licensor becomes aware that Licensees or any of its Affiliates or any Sublicensees practice of the Licensed Patents is the subject of a claim for patent infringement by a Third Party, that Party shall promptly notify the other, and the Parties shall consider the claim and the most appropriate action to take. Licensee shall cause each of its Affiliates and each Sublicensee to notify Licensee promptly in the event such entity becomes aware that its practice of the Licensed Patents is the subject of a claim of patent infringements by another. To the extent Licensor takes any action, Licensor (or its direct or indirect licensors) shall have the right to require Licensees reasonable cooperation in any such suit, upon written notice to Licensee; and Licensee shall have the obligation to participate upon Licensors request, in which event, Licensor shall bear the cost of Licensees participation. Without Licensors prior written permission, Licensee must not settle or compromise any such suit in a manner that imposes any material obligations or restrictions on Licensor or any of its direct or indirect licensors or grants any rights to the Licensed Patents other than rights that Licensee has the right to grant under this Agreement.
ARTICLE 8: WARRANTIES; INDEMNIFICATION
8.1 Warranty by Licensor . Licensor represents and warrants to Licensee as of the Effective Date:
8.1.1 Licensor has the right, power, and authority to enter into this Agreement and to grant to Licensee the rights specified in this Agreement;
8.1.2 This Agreement when executed shall become the legal, valid and binding obligation of it, enforceable against it, in accordance with its terms;
8.1.3 There are no actions, suits, proceedings, or arbitrations pending or, to the Licensors knowledge, threatened against Licensor relating to the Licensed Patents that would impact activities under this Agreement;
8.1.4 To Licensors knowledge, (a) the Licensed Patents are solely owned by the University of Pennsylvania, and {b) no Third Party (other than Licensors direct and indirect licensors) has any right, interest, or claim in or to such Licensed Patents in the Field that are inconsistent with those granted to Licensee herein;
8.1.5 To Licensors knowledge, Licensor does not Control as of the Effective Date any patent or patent application (other than the Licensed Patents (as defined in Section l.13(a)) that would necessarily be infringed by the use or sale of AAV8 or AAV9 in the Field. If it is determined, in accordance with the procedure of this Section 8.1.5, that Licensor Controls as of the Effective Date a patent or patent application (other than the Licensed Patents) that would necessarily be infringed by the use or sale of AAV8 or AAV9 in the Field, then Licensees sole remedy shall be the inclusion of the applicable patent or patent application as a Licensed Patent hereunder but solely to the extent of the claim(s) that would necessarily be infringed by the use or sale of AAV8 or AAV9. At any time during the term of this Agreement, Licensee may notify Licensor in writing of any such patent or patent application that Licensee believes
20
should be included as a Licensed Patent pursuant to this Section 8.1.5. Such written notice shall identify the relevant patent or patent application and relevant claim(s) and shall explain briefly why Licensee, in good faith, believes it should be included as a Licensed Patent. Licensor has [*] following Licensors receipt of Licensees written notice to dispute the inclusion of such patent or patent application or the scope of the remedy; in which event, such dispute will be resolved in accordance with Section 10.6. Upon the Parties agreement (or a resolution, in favor of Licensee, of the dispute pursuant to Section 10.6), the applicable claim(s) of the applicable patent or patent application will be deemed a Licensed Patent hereunder. For the avoidance of doubt, Licensor makes no representation or warranty under this Section 8.1.5 as to any claim of a patent or patent application covering the manufacture of AAV8 or AAV9, and Licensee acknowledges that manufacturing claims of any patents or patent applications will not be added as Licensed Patents pursuant to the procedure set forth in this Section 8.1.5. For the purpose of this Section 8.1.5, Control means the possession by Licensor (whether by ownership or license, other than pursuant to this Agreement) of the ability to grant to Licensee access, a license, or a sublicense (as applicable) to the applicable patent or patent application on the terms and conditions set forth herein without violating the terms of any agreement or other arrangement with any Third Party;
8.1.6 To Licensors knowledge, no Third Party is infringing any of the Licensed Patents in the Field; and
8.1.7 Licensor has not received any written notice from any Third Party patentee alleging infringement of, and to Licensors knowledge Licensor has not been sued for patent infringement of, Third Party technology by the practice of the Licensed Patents in the Field.
8.2 Warranty by Licensee . Licensee represents and warrants to Licensor as of the Effective Date that:
8.2.1 Licensee has the right, power, and authority to enter into this Agreement, to grant the rights granted by it hereunder, and to issue Licensees common stock to Licensor in accordance with this Agreement;
8.2.2 This Agreement when executed shall become the legal, valid and binding obligation of it, enforceable against it, in accordance with its terms;
8.2.3 Licensee has the ability and the resources, including financial resources, necessary to carry out its obligations under this Agreement;
8.2.4 There are no actions, suits, proceedings, or arbitrations pending or, to the Licensees knowledge, threatened against Licensee that would impact activities under this Agreement; and
8.2.5 Licensees common stock, when issued and delivered in accordance with the terms of Article 3, (a) will be duly and validly authorized and issued, fully paid and non-assessable, and free from all taxes, liens, and charges created by Licensee in respect of the issuance thereof, (b) will be issued in compliance with all applicable federal and state securities laws, and (c) will be free of transfer restrictions (other than the transfer restrictions imposed by any federal or state securities laws and liens or encumbrances created by or imposed by Licensor).
21 | *Confidential Treatment Requested. |
8.3 Disclaimer of Warranties, Damages . EXCEPT AS SET FORTH IN SECTION 8.1, THE LICENSED PATENTS, LICENSED PRODUCTS, AND ALL RIGHTS LICENSED UNDER THIS AGREEMENT ARE PROVIDED ON AN AS IS BASIS, AND LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT THERETO. BY WAY OF EXAMPLE BUT NOT OF LIMITATION, LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES, AND HEREBY DISCLAIMS ALL EXPRESS AND IMPLIED REPRESENTATIONS AND WARRANTIES, (i) OF COMMERCIAL UTILITY, ACCURACY, COMPLETENESS, PERFORMANCE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OR ENFORCEABILITY OF THE LICENSED PATENTS, AND PROFITABILITY; OR (ii) THAT THE USE OF THE LICENSED PATENTS OR LICENSED PRODUCTS WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER PROPRIETARY RIGHTS OF THIRD PARTIES. EXCEPT AS SET FORTH HEREIN, NONE OF LICENSOR OR ANY OF LICENSORS DIRECT OR INDIRECT LICENSORS SHALL BE LIABLE TO LICENSEE, LICENSEES SUCCESSORS OR ASSIGNS, ANY SUBLICENSEES, OR ANY THIRD PARTY WITH RESPECT TO: (a) ANY CLAIM ARISING FROM USE OF THE LICENSED PATENTS, LICENSED PRODUCTS, AND ANY OR ALL RIGHTS LICENSED UNDER THIS AGREEMENT OR FROM THE DEVELOPMENT, TESTING, MANUFACTURE, USE, OR SALE OF LICENSED PRODUCTS; OR (b) ANY CLAIM FOR LOSS OF PROFITS, LOSS OR INTERRUPTION OF BUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ANY ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 8.3 IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY UNDER SECTION 8.4 OR TO LIMIT A PARTYS LIABILITY FOR BREACHES OF ITS OBLIGATION REGARDING CONFIDENTIALITY UNDER ARTICLE 5.
8.4 Indemnification .
8.4.1 By Licensee . Licensee shall defend, indemnify, and hold harmless Licensor, its direct and indirect licensors of the Licensed Patents, and their respective shareholders, members, officers, trustees, faculty, students, contractors, agents, and employees (individually, a Licensor Indemnified Party and, collectively, the Licensor Indemnified Parties ) from and against any and all Third Party liability, loss, damage, action, claim, fee, cost, or expense (including attorneys fees) (individually, a Third Party Liability and, collectively, the Third Party Liabilities ) suffered or incurred by the Licensor Indemnified Parties from claims of such Third Parties that results from or arises out of: [*]; provided, however, that Licensee shall not be liable for claims based on any breach by Licensor of the representations, warranties, or obligations of this Agreement or the gross negligence or intentional misconduct of any of the Licensor Indemnified Parties. Without limiting the foregoing, Licensee must defend, indemnify, and hold harmless the Licensor Indemnified Parties from and against any Third Party Liabilities resulting from:
22 | *Confidential Treatment Requested. |
8.4.1.1 any [*] or other claim of any kind related to the [*] by a Third Party of a Licensed Product that [*] by Licensee, its Affiliates, any Sublicensees, their respective assignees, or vendors;
8.4.1.2 any claim by a Third Party that the [*]; and
8.4.1.3 [*] conducted by or on behalf of Licensee, its Affiliates, any Sublicensees, their respective assignees, or vendors relating to the Licensed Patents or Licensed Products, including any claim by or [*].
8.4.2 By Licensor . Licensor shall defend, indemnify, and hold harmless Licensee, its shareholders, members, officers, contractors, agents, and employees (individually, a Licensee Indemnified Party and, collectively, the Licensee Indemnified Parties ) from and against any and all Third Party Liabilities suffered or incurred by the Licensee Indemnified Parties from claims of such Third Parties that results from or arises out of: [*]; provided, however, that Licensor shall not be liable for claims based on any breach by Licensee of the representations, warranties, or obligations of this Agreement or the gross negligence or intentional misconduct of any of the Licensee Indemnified Parties.
8.4.3 Indemnification Procedure . Each Party, as an indemnifying party (a Indemnifying Party ), shall not be permitted to settle or compromise any claim or action giving rise to Third Party Liabilities in a manner that imposes any restrictions or obligations on any indemnified party (a Indemnified Party ) without the other Partys prior written consent or, if Licensee is the Indemnifying Party, that grants any rights to the Licensed Patents or Licensed Products other than those Licensee has the right to grant under this Agreement without Licensors prior written consent. The Indemnifying Party shall be permitted to control any litigation or potential litigation involving the defense of any claim subject to indemnification pursuant to this Section 8.4, including the selection of counsel, with the reasonable approval of the Indemnified Party. If an Indemnifying Party fails or declines to assume the defense of any such claim or action within [*] after notice thereof, the Indemnified Party may assume the defense of such claim or action at the cost and risk of the Indemnifying Party, and any Third Party Liabilities related thereto shall be conclusively deemed a Third Party Liability of the Indemnifying Party. The indemnification rights of a Indemnified Party contained in this Agreement are in addition to all other rights which such Indemnified Party may have at law or in equity or otherwise. The Indemnifying Party will pay directly all Third Party Liabilities incurred for defense or negotiation of any claim hereunder or will reimburse the Indemnified Party for all documented Third Party Liabilities incident to the defense or negotiation of any such claim within [*] after the Indemnifying Partys receipt of invoices for such fees, expenses, and charges.
8.5 Insurance . Licensee will procure and maintain insurance policies for the following coverages with respect to product liability, personal injury, bodily injury, and property damage arising out of Licensees (and its Affiliates and any Sublicensees) performance under this Agreement: (a) during the term of this Agreement, comprehensive general liability, including broad form and contractual liability, in a minimum amount of [*] combined single limit per occurrence (or claim) and in the aggregate annually; (b) prior to the commencement of clinical trials involving Licensed Products and thereafter for a period of not less than [*] (or such longer period as Licensee is required by applicable law to continue to monitor the participants in
23 | *Confidential Treatment Requested. |
the clinical trial), clinical trials coverage in amounts that are reasonable and customary in the U.S. pharmaceutical industry, subject always to a minimum limit of [*] combined single limit per occurrence (or claim) and in the aggregate annually; and (c) from prior to the first commercial sale of a Licensed Product until [*] after the last sale of a Licensed Product, product liability coverage, in amounts that are reasonable and customary in the U.S. pharmaceutical industry, subject always to a minimum limit of [*] combined single limit per occurrence (or claim) and in the aggregate annually. Licensor may review periodically the adequacy of the minimum amounts of insurance for each coverage required by this Section 8.5, and Licensor reserves the right to require Licensee to adjust the limits accordingly. The required minimum amounts of insurance do not constitute a limitation on Licensees liability or indemnification obligations to the Licensor Indemnified Parties under this Agreement. The policies of insurance required by this Section 8.5 will be issued by an insurance carrier with an A.M. best rating of [*] or better and will name Licensor as an additional insured with respect to Licensees performance (and its Affiliates and any Sublicensees) under this Agreement. Licensee will provide Licensor with insurance certificates evidencing the required coverage within [*] after the Effective Date and the commencement of each policy period and any renewal periods. Upon Licensors written request, each certificate will provide that the insurance carrier will notify Licensor in writing at least [*] prior to the cancellation or material change in coverage. Licensee will cause all Sublicensees to comply with the terms of this Section 8.5 to the same extent as Licensee.
ARTICLE 9: USE OF NAME
Licensee, its Affiliates, any Sublicensees, and all of its and their employees and agents must not use Licensors, the University of Pennsylvanias, or SmithKline Beecham Corporations name, seal, logo, trademark, or service mark (or any adaptation thereof) or the name, seal, logo, trademark, or service mark (or any adaptation thereof) of any of such entities representative, school, organization, employee, or student in any way without the prior written consent of Licensor or such entity, as applicable; provided, however that Licensee may acknowledge the existence and general nature of this Agreement.
ARTICLE 10: ADDITIONAL PROVISIONS
10.1 Relationship . Nothing in this Agreement shall be deemed to establish a relationship of principal and agent between Licensee and Licensor, nor any of their agents or employees for any purpose whatsoever, nor shall this Agreement be construed as creating any other form of legal association or arrangement which would impose liability upon one Party for the act or failure to act of the other Party.
10.2 Assignment . The rights and obligations of Licensee and Licensor hereunder shall inure to the benefit of, and shall be binding upon, their respective permitted successors and assigns. Licensee may not assign this Agreement or any of its rights or obligations under this Agreement without the prior written consent of Licensor; provided, however, that Licensee may assign this Agreement, without Licensors prior written consent, pursuant to a merger or sale of all or substantially all of the assets to which the Agreement relates; provided that, as part of any permitted assignment, (a) Licensee provides Licensor with notice of such assignment at least 5 business days prior to the effectiveness of such assignment, and (b) Licensee requires any such assignee to agree in writing to be legally bound by this Agreement to the same extent as Licensee
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and provides Licensor with a copy of such assignee undertaking. Licensor may assign this Agreement and its rights and obligations without the consent of Licensee. No assignment shall relieve the assigning Party of responsibility for the performance of any accrued obligations which it has prior to such assignment. Any attempted assignment by Licensee in violation of this Section 10.2 shall be null and void and of no legal effect.
10.3 Waiver . A waiver by either Party of a breach of any provision of this Agreement will not constitute a waiver of any subsequent breach of that provision or a waiver of any breach of any other provision of this Agreement.
10.4 Notices . Notices, payments, statements, reports, and other communications under this Agreement shall be in writing and shall be deemed to have been received as of the date received if sent by public courier ( e.g ., Federal Express), by Express Mail, receipt requested, or by facsimile (with a copy of such facsimile also sent by one of the other methods of delivery) and addressed as follows:
If for Licensor: | with a copy to: | |
ReGenX Biosciences, LLC | ReGenX Biosciences, LLC | |
750 17th Street, NW | 750 17th Street, NW | |
Suite 1100 | Suite 1100 | |
Washington, DC 20006 | Washington, DC 20006 | |
Attn: Chief Executive Officer | Attn: General Counsel | |
Telephone: 202-785-7438 | Telephone: 202-785-7438 | |
Facsimile: 202-785-7439 | Facsimile: 202-785-7439 | |
If for Licensee: | with a copy to: | |
Audentes Therapeutics, Inc. | Fenwick and West, LLP. | |
[*] | 1191 Second Avenue, 10 th Floor | |
San Francisco, California, [*] | Seattle, WA 98101 | |
Attn: Matthew Patterson, President & CEO | Attn: Effie Toshav | |
Telephone: 646-712-1001 | Telephone: 206.389.4510 | |
Email: mpatterson@audentestx.com | Facsimile: 206-389-4511 |
Either Party may change its official address upon written notice to the other Party.
10.5 Applicable Law . This Agreement shall be construed and governed in accordance with the laws of the State of Delaware, without giving effect to conflict of law provisions that may require the application of the laws of another jurisdiction. Subject to Section 10.6, the Parties hereby submit to the exclusive jurisdiction of and venue in the courts located in the State of Delaware with respect to any and all disputes concerning the subject of this Agreement.
10.6 Dispute Resolution . In the event of any controversy or claim arising out of or relating to this Agreement, the Parties shall first attempt to resolve such controversy or claim through good faith negotiations for a period of not less than [*] following notification of such controversy or claim to the other Party. If such controversy or claim cannot be resolved by
25 | *Confidential Treatment Requested. |
means of such negotiations during such period, then such controversy or claim shall be resolved by binding arbitration administered by the American Arbitration Association (AAA) in accordance with the Commercial Arbitration Rules of the AAA in effect on the date of commencement of the arbitration, subject to the provisions of this Section 10.6. The arbitration shall be conducted as follows:
10.6.1 The arbitration shall be conducted by three arbitrators, each of whom by training, education, or experience has knowledge of the research, development, and commercialization of biological therapeutic products in the United States. The arbitration shall be conducted in English and held in New York, New York.
10.6.2 In its demand for arbitration, the Party initiating the arbitration shall provide a statement setting forth the nature of the dispute, the names and addresses of all other parties, an estimate of the amount involved (if any), the remedy sought, otherwise specifying the issue to be resolved, and appointing one neutral arbitrator. In an answering statement to be filed by the responding Party within [*] after confirmation of the notice of filing of the demand is sent by the AAA, the responding Party shall appoint one neutral arbitrator. Within [*] from the date on which the responding Party appoints its neutral arbitrator, the first two arbitrators shall appoint a chairperson.
10.6.3 If a Party fails to make the appointment of an arbitrator as provided in Section 10.6.2, the AAA shall make the appointment. If the appointed arbitrators fail to appoint a chairperson within the time specified in Section 10.6.2 and there is no agreed extension of time, the AAA shall appoint the chairperson.
10.6.4 The arbitrators will render their award in writing and, unless all Parties agree otherwise, will include an explanation in reasonable detail of the reasons for their award. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof, including in the courts described in Section 10.5. The arbitrators will have the authority to grant injunctive relief and other specific performance; provided that the arbitrators will have no authority to award damages in contravention of this Agreement, and each Party irrevocably waives any claim to such damages in contravention of this Agreement. The arbitrators will, in rendering their decision, apply the substantive law of the State of Delaware, without giving effect to conflict of law provisions that may require the application of the laws of another jurisdiction. The decision and award rendered by the arbitrators will be final and non-appealable (except for an alleged act of corruption or fraud on the part of the arbitrator).
10.6.5 The Parties shall use their reasonable efforts to conduct all dispute resolution procedures under this Agreement as expeditiously, efficiently, and cost-effectively as possible.
10.6.6 All expenses and fees of the arbitrators and expenses for hearing facilities and other expenses of the arbitration will be borne equally by the Parties unless the Parties agree otherwise or unless the arbitrators in the award assess such expenses against one of the Parties or allocate such expenses other than equally between the Parties. Each of the Parties will bear its own counsel fees and the expenses of its witnesses except to the extent otherwise provided in this Agreement or by applicable law.
26 | *Confidential Treatment Requested. |
10.6.7 Compliance with this Section 10.6 is a condition precedent to seeking relief in any court or tribunal in respect of a dispute, but nothing in this Section 10.6 will prevent a Party from seeking equitable or other interlocutory relief in the courts of appropriate jurisdiction, pending the arbitrators determination of the merits of the controversy, if applicable to protect the confidential information, property, or other rights of that Party or to otherwise prevent irreparable harm that may be caused by the other Partys actual or threatened breach of this Agreement.
10.7 No Discrimination . Licensee, its Affiliates, and any Sublicensees, in their respective activities under this Agreement, shall not discriminate against any employee or applicant for employment because of race, color, sex, sexual, or affectional preference, age, religion, national, or ethnic origin, handicap, or because he or she is a disabled veteran or a veteran (including a veteran of the Vietnam Era).
10.8 Compliance with Law . Licensee (and its Affiliates and any Sublicensees) must comply with all prevailing laws, rules, and regulations that apply to its activities or obligations under this Agreement. Without limiting the foregoing, it is understood that this Agreement may be subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes, and other commodities, articles, and information, including the Arms Export Control Act as amended in the Export Administration Act of 1979 and that Licensees obligations are contingent upon compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may require a license from the cognizant agency of the United States Government and/or written assurances by Licensee that Licensee shall not export data or commodities to certain foreign countries without prior approval of such agency. Licensor neither represents that a license is not required nor that, if required, it will issue.
10.9 Entire Agreement . This Agreement embodies the entire understanding between the Parties relating to the subject matter hereof and supersedes all prior understandings and agreements, whether written or oral, including that certain Mutual Non-Disclosure Agreement between the Parties dated December 3, 2012 . All Confidential Information disclosed by the Parties pursuant to such Mutual Non-Disclosure Agreement shall be deemed Confidential Information under this Agreement (unless and until it falls within one of the exclusions set forth in Section 1.5). This Agreement may not be varied except by a written document signed by duly authorized representatives of both Parties.
10.10 Marking . Licensee, its Affiliates, and any Sublicensees shall mark any Licensed Product (or their containers or labels) made, sold, or otherwise distributed by it or them with any notice of patent rights necessary or desirable under applicable law to enable the Licensed Patents to be enforced to their full extent in any country where Licensed Products are made, used, sold, offered for sale, or imported.
10.11 Severability and Reformation . If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such invalid or unenforceable provision will be automatically revised to be a valid or enforceable provision that comes as close as permitted by law to the Parties original intent; provided that, if the Parties cannot agree upon such valid or enforceable provision, the remaining provisions of this Agreement will remain in full force and effect, unless the invalid or unenforceable provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid or unenforceable provisions.
27
10.12 Further Assurances . Each Party hereto agrees to execute, acknowledge, and deliver such further instruments, and to do all other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
10.13 Interpretation; Construction . The captions to the several Articles and Sections of this Agreement are included only for convenience of reference and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. In this Agreement, unless the context requires otherwise, (a) the word including shall be deemed to be followed by the phrase without limitation or like expression; (b) references to the singular shall include the plural and vice versa; (c) references to masculine, feminine, and neuter pronouns and expressions shall be interchangeable; (d) the words herein or hereunder relate to this Agreement; (e) or is disjunctive but not necessarily exclusive; (f) the word will shall be construed to have the same meaning and effect as the word shall; (g) all references to dollars or $ herein shall mean U.S. Dollars; (h) unless otherwise provided, all reference to Sections and exhibits in this Agreement are to Sections and exhibits of and in this Agreement; and (i) whenever this Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified. Business days shall mean a day on which banking institutions in Washington, D.C. are open for business. Each Party represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof. In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption will apply against the Party which drafted such terms and provisions.
10.14 Cumulative Rights and Remedies . The rights and remedies provided in this Agreement and all other rights and remedies available to either Party at law or in equity are, to the extent permitted by law, cumulative and not exclusive of any other right or remedy now or hereafter available at law or in equity. Neither asserting a right nor employing a remedy shall preclude the concurrent assertion of any other right or employment of any other remedy, nor shall the failure to assert any right or remedy constitute a waiver of that right or remedy.
10.15 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties, intending to be legally bound, have caused this License Agreement to be executed by their duly authorized representatives.
REGENX BIOSCIENCES, LLC | AUDENTES THERAPEUTICS, INC. | |||||||
By: |
/s/ Kenneth T. Mills |
By: |
/s/ Matthew Patterson |
|||||
Name: | Kenneth T. Mills | Name: | Matthew Patterson | |||||
Title: | President & CEO | Title: | President & CEO |
Exhibit A
Licensed Patents
Part 1, Licensed AAVS Patents
Application # |
Patent # |
Filing Date* |
Country |
Status |
||||
[*] | [*] | [*] | [*] | [*] |
* | International Filing Date, where national stage application or foreign divisional thereof |
Part 2, Licensed AAV9 Patents
Application # |
Patent # |
Filing Date |
Country |
Status |
||||
[*] | [*] | [*] | [*] | [*] |
*Confidential Treatment Requested. |
Exhibit B
Press Release
REGENX Biosciences and Audentes Therapeutics Enter into Exclusive License Agreement for
Development of Treatments for Serious, Rare Muscle Diseases Using NAV TM Vectors
WASHINGTON & SAN FRANCISCO(BUSINESS WIRE)REGENX Biosciences, LLC and Audentes Therapeutics, Inc. announce that they have entered into an agreement for the development and commercialization of products to treat X-Linked Myotubular Myopathy (XLMTM) and Pompe disease using NAV vectors.
Under the terms of the Agreement, REGENX granted Audentes an exclusive worldwide license, with rights to sublicense, to REGENXs NAV rAAV8 and rAAV9 vectors for treatment of XLMTM and Pompe disease in humans. In return for these rights, REGENX receives an up-front payment, certain milestone fees and royalties on net sales of products incorporating NAV rAAV8 and rAAV9.
We believe this exclusive license agreement is important to the successful development of NAV-based gene delivery treatments for patients with XLMTM and Pompe disease, said Ken Mills, President and CEO of REGENX. As a leader in gene therapy, we are pleased to be cooperating with the team at Audentes in its pursuit of developing innovative treatments for patients with serious, rare muscle diseases through the application of NAV technology. REGENX has a continued interest to provide commercial partners that evidence outstanding leadership, expertise, resources and a strong commitment to patients, such as Audentes, with access to our NAV technology.
Audentes is committed to the development of new treatments for patients with XLMTM and Pompe disease using AAV gene therapy technology and we feel rAAV8 and rAAV9 are the most promising vectors to achieve this goal, said Matthew R. Patterson, President and CEO of Audentes. We are very pleased to enter into this agreement with REGENX, which we believe offers us the best path to expeditiously develop novel therapies for patients.
About X-Linked Myotubular Myopathy (XLMTM)
X-Linked Myotubular Myopathy (XLMTM) is a rare, inherited disorder characterized by severe muscle weakness and respiratory impairment. It is caused by mutations in the MTM1 gene, which encodes an enzyme called myotubularin. Myotubularin is thought to be involved in the development and maintenance of muscle cells. XLMTM affects approximately 1 in 50,000 newborn males worldwide.
About Pompe Disease
Pompe Disease is a rare, inherited disorder characterized by progressive muscle weakness and respiratory impairment. It is caused by mutations in a gene that encodes an enzyme called acid alpha-glucosidase (GAA), which is needed by the body to break down glycogen a stored form of sugar used for energy. Pompe Disease affects approximately 1 in every 40,000 births.
About REGENX Biosciences
REGENX Biosciences is leading the effort to translate promising gene delivery applications into a pipeline of next generation personalized therapies for a range of severe diseases with serious unmet needs. We believe that the NAV technology to which we have exclusive rights represents the potential promise of curing the root cause of disease rather than the symptoms, and we are committed to establishing best in class standards for our NAV vectors. Our intent is to initially develop treatments for a number of rare, genetic diseases including hypercholesterolemias, the
mucopolysaccharidoses, and retinitis pigmentosa and ensure continuing access for our NAV technology through innovative partnerships, license opportunities and the expansion of our growing team of global collaborators. REGENX holds exclusive rights to a portfolio of over 100 patents and patent applications pertaining to its NAV technology and related applications.
For more information regarding REGENX, please visit www regenxbio.com.
About Audentes Therapeutics, Inc.
Audentes TM is a biotechnology company committed to the development and commercialization of innovative new treatments for people with serious, rare muscle diseases through the application of adeno-associated virus (AAV) gene therapy technology. The company consists of a focused, experienced, and passionate team driven by the goal of improving the lives of patients. Audentes takes pride in strong, global relationships with the patient, research, and medical communities.
For more information regarding Audentes, please visit www.audentestx corn.
Contacts
REGENX Biosciences
Vit Vasista, 202-785-7438
vvasista@regenxbio com
or
Audentes Therapeutics, Inc.
Matthew Patterson, 646-712-1001
mpatterson@audentestx.com
2
EXHIBIT C
[*]
[9 pages omitted]
*Confidential Treatment Requested. |
EXHIBIT 10.16
* Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
LICENSE AGREEMENT
This LICENSE AGREEMENT ( Agreement ) is entered into as of November 3, 2015 ( Effective Date ) by and between REGENXBIO Inc., a corporation organized under the laws of the State of Delaware, with offices at 9712 Medical Center Drive, Suite 100, Rockville, MD 20850 ( Licensor ), and Audentes Therapeutics, Inc., a corporation organized under the laws of the State of Delaware, with offices at 101 Montgomery Street, Suite 2650, San Francisco, California, 94104 ( Licensee ). Licensor and Licensee are hereinafter referred to individually as a Party and collectively as the Parties .
WHEREAS, Licensor has rights under certain Licensed Patents (as defined herein) pertaining to certain recombinant adeno-associated virus serotype 9 vectors; and
WHEREAS, Licensee desires to obtain an exclusive license under the Licensed Patents under the terms set forth herein;
NOW, THEREFORE, in consideration of the promises and covenants contained in this Agreement, and intending to be legally bound, the Parties hereby agree as follows:
ARTICLE 1: DEFINITIONS
1.1 AAV9 means (a) the recombinant adeno-associated virus serotype 9 vector with the specified sequence set forth in GenBank [*] and (b) any recombinant adeno-associated virus derivatives of such serotype 9 vector that are covered by the claims of the Licensed Patents.
1.2 Additional Disease Indication means one or more, or all of the inherited arrhythmias listed in Exhibit B and any Other Monogenetic Inherited Arrhythmia.
1.3 Additional Indication Option has the meaning set forth in Section 2.3.1.
1.4 Additional Indication Term means the period beginning on the Effective Date and ending on the second anniversary of the Effective Date.
1.5 Affiliate means any legal entity directly or indirectly, during the term of this Agreement, controlling, controlled by, or under common control with another entity. For purposes of this Agreement, control means the direct or indirect ownership of more than 50% of the outstanding voting securities of a legal entity, or the right to receive more than 50% of the profits or earnings of a legal entity, or the right to control the policy decisions of a legal entity. An entity may be or become an Affiliate of an entity and may cease to be an Affiliate of an entity, in each case, during the term of this Agreement.
*Confidential Treatment Requested.
CONFIDENTIAL
1.6 Calendar Quarter means each three-month period or any portion thereof, beginning on January 1, April 1, July 1, and October 1.
1.7 Change of Control means (i) any transaction or series of related transactions following which the holders of Licensees capital stock or membership or equity interests immediately prior to such transaction or series of related transactions collectively are the owners of less than 50% of the outstanding equity interests of Licensee entitled to (a) vote with respect to the election of directors (or positions having a similar function) or (b) receive the proceeds upon any sale, liquidation or dissolution of Licensee; (ii) a sale, transfer, or other disposition, in a single transaction or series of related transactions, of all or a material portion of Licensees interest in the Licensed Product; (iii) a sale, transfer, or other disposition, in a single transaction or series of related transactions, of all or a material portion of Licensees right, title, or interest in its assets taken as a whole, (iv) an initial public offering of the stock of Licensee; or (v) the merger of Licensee with a Third Party by operation of law or otherwise.
1.8 Commercial Field means (a) CPVT Field unless and until a Substitution Option is exercised, subject to Section 2.2; (b) if and when a Substitution Indication Option is exercised for an Additional Disease Indication by Licensee under Section 2.2, the treatment of such Additional Disease Indication in human beings by in vivo gene therapy with AAV9; and, additionally, (c) if and when an Additional Indication Option is exercised for an Additional Disease Indication by Licensee under Section 2.3, the treatment of such Additional Disease Indication in human beings by in vivo gene therapy with AAV9.
1.9 Confidential Information means and includes all technical information, inventions, developments, discoveries, software, know-how, methods, techniques, formulae, animate and inanimate materials, data, processes, finances, business operations or affairs, and other proprietary ideas, whether or not patentable or copyrightable, of either Party that are (a) marked or otherwise identified as confidential or proprietary at the time of disclosure in writing; or (b) if disclosed orally, visually, or in another non-written form, identified as confidential at the time of disclosure and summarized in reasonable detail in writing as to its general content within 30 days after original disclosure. The Parties acknowledge that (i) the terms and conditions of this Agreement will be deemed the Confidential Information of both Parties and (ii) the records and reports referred to in Section 3.7 will be deemed the Confidential Information of Licensee, regardless of whether such information is marked or identified as confidential. In addition, information provided to Licensee pursuant to the provisions of Section 7.1 will be deemed the Confidential Information of Licensor, regardless of whether such information is marked or identified as confidential. Notwithstanding the foregoing, Confidential Information will not include the following, in each case, to the extent evidenced by competent written proof of the Receiving Party:
1.9.1 information that was already known to the Receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the Disclosing Party;
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1.9.2 information that was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party;
1.9.3 information that became generally available to the public or otherwise part of the public domain after its disclosure, other than through any act or omission of the Receiving Party in breach of this Agreement;
1.9.4 information that is independently discovered or developed by the Receiving Party without the use of Confidential Information of the Disclosing Party; or
1.9.5 information that was disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the Disclosing Party not to disclose such information to others.
1.10 CPVT Field means the treatment of [*] catecholaminergic polymorphic ventricular tachycardia (CPVT) in human beings by in vivo gene therapy with AAV9.
1.11 Development Plan has the meaning set forth in Section 4.2.1.
1.12 Disclosing Party has the meaning set forth in Section 5.1.
1.13 Disease Indication(s) means one or more, or all of the following: (i) [*] CPVT, (ii) one or more, or all of the inherited arrhythmias listed in Exhibit B, and (iii) any Other Monogenetic Inherited Arrhythmia.
1.14 Domain Antibody means [*].
1.15 FDA means the United States Food and Drug Administration, or a successor agency in the United States with responsibilities comparable to those of the United States Food and Drug Administration.
1.16 GSK Agreement means that certain License Agreement entered into between Licensor and SmithKline Beecham Corporation, effective on March 6, 2009, as amended by that certain Amendment to License Agreement dated April 15, 2009, and as amended from time to time.
1.17 Licensed Patents means, to the extent they cover AAV9, (a) all United States patents and patent applications listed in Exhibit A , including patents arising from such patent applications and (b) any re-examination certificates thereof, (c) the foreign counterparts of the patents and patent applications in subsections (a) and (b), and (d) extensions, continuations, divisionals, and re-issue applications of the patents and patent applications in subsections (a), (b) and (c); provided that Licensed Patents will not include any claim of a patent or patent application covering Manufacturing Technology which is owned or controlled by Licensor.
1.18 Licensed Product means (a) any AAV9 product that is made, made for, used, sold, offered for sale, or imported by Licensee, its Affiliates, and any of its or their Sublicensees, the manufacture, use, sale, offer for sale, or import of which product, in the absence of the license granted pursuant to this Agreement, would infringe or is covered by at least one Valid Claim of the Licensed Patents in the country of manufacture, use, sale, offer for sale, or import, including
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products manufactured by a process that would infringe or is covered by at least one Valid Claim of the Licensed Patents in the country of manufacture, use, sale, offer for sale, or import; or (b) any service sold by Licensee, its Affiliates, and any of its or their Sublicensees with respect to the administration of any AAV9 product to patients that, in the absence of the licenses granted pursuant to this Agreement, would infringe or is covered by at least one Valid Claim of the Licensed Patents in the country of sale.
1.19 Licensee Inventions means any new or improved composition of matter, process, method, formula, information, product, invention (whether or not patentable or otherwise protectable), discovery, idea, material, or other know-how that is first discovered, produced, conceived, or reduced to practice by or on behalf of Licensee, its Affiliates, or any of its or their Sublicensees during the term of the Agreement in connection with the exercise of any rights granted under this Agreement that relate to or are applicable to the inventions claimed in the Licensed Patents; provided that any new or improved process, method, formula, information, invention (whether or not patentable or otherwise protectable), discovery, idea, or other know-how solely to the extent that it covers Manufacturing Technology shall not be included in Licensee Inventions.
1.20 Manufacturing Technology means any and all patents, patent applications, know-how, and all intellectual property rights associated therewith, and including all tangible embodiments thereof, that are claim, cover or relate to the manufacture of adeno-associated viruses, adeno-associated virus vectors, research or commercial reagents related thereto, Licensed Products, or other products, including manufacturing processes, technical information relating to the methods of manufacture, protocols, standard operating procedures, batch records, assays, formulations, quality control data, specifications, scale up methods, any and all improvements, modifications, and changes thereto, and any and all activities associated with such manufacture. Any and all chemistry, manufacturing, and controls (CMC), drug master files (DMFs), or similar materials provided to regulatory authorities and the information contained therein are deemed Manufacturing Technology.
1.21 Marketing Authorization means all approvals, licenses, registrations or authorizations of any federal, state or local regulatory agency, department, bureau or other governmental entity, necessary for the manufacturing, use, storage, import, transport, marketing and sale of Licensed Products in a country or regulatory jurisdiction.
1.22 Other Monogenetic Inherited Arrhythmias means monogenetic inherited arrhythmias that are not listed in Exhibit B; provided that the treatment of such monogenetic inherited arrhythmias would not involve the use of AAV9 to deliver any and all genes encoding I-1c, Serca2a and creatine kinase. For purposes of clarity, the treatment of monogenetic inherited arrhythmias that would involve the use of AAV9 to deliver any and all genes encoding I-1c, Serca2a and creatine kinase are not included in the definition of Other Monogenetic Inherited Arrhythmias.
1.23 NDA means a New Drug Application filed with the FDA as described in 21 C.F.R. § 314, a Biological License Application (BLA) pursuant to 21 C.F.R. § 601.2, or any equivalent or any corresponding application for regulatory approval in any country or regulatory jurisdiction other than the United States.
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1.24 Net Sales means the gross receipts from sales or other disposition of a Licensed Product (including fees for services within the definition of Licensed Product) by Licensee and/or its Affiliates and/or any Sublicensees to Third Parties less the following deductions that are directly attributable to a sale, specifically and separately identified on an invoice or other documentation and actually borne by Licensee, its Affiliates, or any Sublicensees: [*] In the event consideration other than cash is paid to Licensee, its Affiliates, or any Sublicensees, for purposes of determining Net Sales, the Parties shall use the cash consideration that Licensee, its Affiliates, or any Sublicensees would realize from an unrelated buyer in an arms length sale of an identical item sold in the same quantity and at the time and place of the transaction, as determined jointly by Licensor and Licensee based on transactions of a similar type and standard industry practice, if any.
1.25 Penn Agreement means that certain License Agreement entered into between Licensor and The Trustees of the University of Pennsylvania, effective on February 24, 2009, as amended by that letter agreement dated March 6, 2009 and by that certain Second Amendment to License Agreement effective on September 9, 2014, and as amended from time to time.
1.26 Phase 3 Clinical Trial means a pivotal clinical trial in humans performed to gain evidence with statistical significance of the efficacy of a product in a target population, and to obtain expanded evidence of safety for such product that is needed to evaluate the overall benefit-risk relationship of such product, to form the basis for approval of an NDA and to provide an adequate basis for physician labeling, as described in 21 C.F.R. § 312.21(c) or the corresponding regulation in jurisdictions other than the United States.
1.27 Prosecute means preparation, filing, and prosecuting patent applications and maintaining patents, including any reexaminations, reissues, oppositions, inter partes review, and interferences.
1.28 Receiving Party has the meaning set forth in Section 5.1.
1.29 REGENXBIO Licensors means SmithKline Beecham Corporation (or any successor thereto under the GSK Agreement) and The Trustees of the University of Pennsylvania (or any successor thereto under the Penn Agreement).
1.30 Restricted Field means, collectively, (a) the Commercial Field, (b) the treatment of Crigler-Najjar syndrome in humans by in vivo gene therapy using AAV8, (c) the treatment of X-linked myotubular myopathy (XLMTM) in humans by in vivo gene therapy in humans using AAV8 or AAV9, and (d) the treatment of Pompe Disease (GAA deficiency) in humans by in vivo gene therapy in humans using AAV8 or AAV9.
1.31 Retained Rights has the meaning set forth in Section 2.4.
1.32 Sublicensee means (i) any Third Party or Affiliate to whom Licensee grants a sublicense of some or all of the rights granted to Licensee under this Agreement as permitted by this Agreement; and (ii) any other Third Party or Affiliate to whom a sublicensee described in clause (i) has granted a further sublicense as permitted by this Agreement.
1.33 Substitution Indication Option has the meaning set forth in Section 2.2.1.
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1.34 Substitution Indication Term means the period beginning on the Effective Date and ending on the earlier of (i) Licensors second exercise of the Substitution Indication Option, and (ii) the second anniversary of the Effective Date.
1.35 Third Party means any person or entity other than a Party to this Agreement or Affiliates of a Party to this Agreement.
1.36 Valid Claim means a claim of an issued and unexpired patent (including any patent claim the term of which is extended by any extension, supplementary protection certificate, patent term restoration, or the like) included within the Licensed Patents or a claim of a pending patent application included within the Licensed Patents, which has not lapsed, been abandoned, been held revoked, or been deemed unenforceable or invalid by a non-appealable decision or an appealable decision from which no appeal was taken within the time allowed for such appeal of a court or other governmental agency of competent jurisdiction.
ARTICLE 2: LICENSE GRANTS
2.1 Exclusive License Grant . Subject to the terms and conditions of this Agreement, including the Retained Rights, Licensor hereby grants to Licensee an exclusive, sublicensable (as provided in Section 2.6 only), non-transferable (except as provided in Section 10.2), royalty-bearing, worldwide license under the Licensed Patents to make, have made, use, import, sell, and offer for sale Licensed Products in the CPVT Field, including, for the avoidance of doubt, the right to conduct research and development, unless and until a Substitution Indication Option is exercised.
2.2 Substitution Indication License Option .
2.2.1 Option . Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee the option, exercisable at Licensees sole discretion, to cease development of Licensed Products for use in the CPVT Field and to obtain an exclusive, sublicensable (as provided in Section 2.6), non-transferable (except as provided in Section 10.2), royalty-bearing, worldwide license with respect to Licensed Products for a single Additional Disease Indication for which Licensee has not exercised Licensees Additional Indication Option under Section 2.3, in accordance with the provisions below in this Section 2.3.2. After Licensee elects to substitute a single Additional Disease Indication for [*] CPVT, Licensee shall have the option, exercisable at Licensees sole discretion, to cease development of Licensed Products for use with respect to such single Additional Disease Indication and to obtain an exclusive, sublicensable (as provided in Section 2.6), non-transferable (except as provided in Section 10.2), royalty-bearing, worldwide license with respect to Licensed Products for another Additional Disease Indication for which Licensee has not exercised Licensees Additional Indication Option under Section 2.3, in accordance with the provisions below in this Section 2.2. Each of the two substitution options permitted in this Section 2.2 shall be referred to as the Substitution Indication Option .
2.2.2 Method of Exercise . To exercise the Substitution Indication Option for a particular Additional Disease Indication, Licensee must provide written notice to Licensor of an Additional Disease Indication for inclusion in the Commercial Field under this Agreement prior to the end of the Substitution Indication Term. Within [*] of Licensors receipt of such
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nomination, Licensor will inform Licensee in writing whether the nominated Additional Disease Indication is available for licensing based on whether it: (a) is the subject of a conflicting license with a Third Party (or the subject of a license being negotiated with a Third Party, as to which (i) there has been a written request for license terms from such Third Party, (ii) such Third Party or Licensor has submitted a written proposal for terms for a license (which may be limited to financial terms), (iii) Licensor and such Third Party have entered into a confidentiality agreement for purposes of such Third Party conducting a due diligence review, and (iv) a writing for purposes of the foregoing clauses includes e-mail correspondence); or (b) is part of an existing Licensor program (i.e., a program that is the subject of on-going advanced preclinical study (e.g., there has been a pre-IND meeting) or is in clinical development or at a later stage of development or commercialization). If the nominated Additional Disease Indication is subject to a conflicting Third Party license or a license being negotiated with a Third Party, or subject to an existing Licensor program, then the Additional Disease Indication may be rejected upon written notice by Licensor to Licensee; provided that Licensor will notify Licensee if Licensor does not enter into an agreement with the relevant Third Party within [*] after rejecting such Additional Disease Indication, in which case Licensee shall have the right again to nominate such Additional Disease Indication pursuant to this Section 2.2.2. Otherwise, the Additional Disease Indication will be deemed available for licensing and Licensor shall provide written confirmatory notice to Licensee.
2.2.3 License Grant Upon Exercise . If Licensee exercises the Substitution Indication Option for a particular Additional Disease Indication, effective upon Licensors receipt of the notice described in Section 2.2.2 (the Substitution Grant Date for such Additional Disease Indication), subject to the terms and conditions of this Agreement, including the Retained Rights, Licensor shall be deemed to have granted to Licensee an exclusive, sublicensable (as provided in Section 2.6 only), non-transferable (except as provided in Section 10.2), royalty-bearing, worldwide license under the Licensed Patents to make, have made, use, import, sell, and offer for sale Licensed Products in the Commercial Field of such Additional Disease Indication, including, for the avoidance of doubt, the right to conduct research and development. For avoidance of doubt, the license granted pursuant to this Section 2.2.3 will be deemed granted on the Substitution Grant Date with respect to a particular Additional Disease Indication, solely with respect to the Commercial Field associated with Additional Disease Indication for which the Substitution Indication Option was exercised under this Section 2.2 and solely with respect to Licensed Products for the particular Additional Disease Indication.
2.3 Additional Indication License Option .
2.3.1 Option . Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee a non-exclusive option, exercisable at Licensees sole discretion, to obtain an exclusive, sublicensable (as provided in Section 2.6), non-transferable (except as provided in Section 10.2), royalty-bearing, worldwide license with respect to each of the Additional Disease Indications and AAV9 (each such right with respect to a particular Additional Disease Indication, a Additional Indication Option ) in accordance with the following provisions:
2.3.2 Method of Exercise . To exercise the Additional Indication Option for a particular Additional Disease Indication, Licensee may nominate in writing to Licensor an Additional Disease Indication for inclusion in the Commercial Field under this Agreement prior to the end
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of the Additional Indication Term. Within [*] of Licensors receipt of such nomination, Licensor will inform Licensee in writing whether the nominated Additional Disease Indication is available for licensing based on whether it: (a) is the subject of a conflicting license with a Third Party (or the subject of a license being negotiated with a Third Party, as to which (i) there has been a written request for license terms from such Third Party, (ii) such Third Party or Licensor has submitted a written proposal for terms for a license (which may be limited to financial terms), (iii) Licensor and such Third Party have entered into a confidentiality agreement for purposes of such Third Party conducting a due diligence review, and (iv) a writing for purposes of the foregoing clauses includes e-mail correspondence); or (b) is part of an existing Licensor program (i.e., a program that is the subject of on-going advanced preclinical study (e.g., there has been a pre-IND meeting) or is in clinical development or at a later stage of development or commercialization). If the nominated Additional Disease Indication is subject to a conflicting Third Party license or subject to an existing Licensor program, then the Additional Disease Indication may be rejected upon written notice by Licensor to Licensee, provided that Licensor will notify Licensee if Licensor does not enter into an agreement with the relevant Third Party within [*] after rejecting such Additional Disease Indication, in which case Licensee shall have the right again to nominate such Additional Disease Indication pursuant to this Section 2.3.2. Otherwise, the Additional Disease Indication will be deemed available for licensing and Licensor shall provide written confirmatory notice to Licensee. Upon Licensees receipt of Licensors confirmatory written notice that the Additional Disease Indication is available for licensing, Licensee will wire transfer to Licensor the option fee set forth in Section 3.2.
2.3.3 License Grant Upon Exercise . If Licensee exercises the Additional Indication Option for a particular Additional Disease Indication by providing the written notice described in Section 2.3.2, effective upon Licensors receipt of the fee described in Section 2.3.2 (the Grant Date for such Additional Disease Indication), subject to the terms and conditions of this Agreement, including the Retained Rights, Licensor shall be deemed to have granted to Licensee an exclusive, sublicensable (as provided in Section 2.6 only), non-transferable (except as provided in Section 10.2), royalty-bearing, worldwide license under the Licensed Patents to make, have made, use, import, sell, and offer for sale Licensed Products in the Commercial Field of such Additional Disease Indication, including, for the avoidance of doubt, the right to conduct research and development.
2.3.4 Additional Disease Indications . For the avoidance of doubt, the foregoing license granted pursuant to Section 2.3.3 will be deemed granted on the Grant Date on an Additional Disease Indication-by-Additional Disease Indication basis, solely with respect to the Commercial Field associated with the Additional Disease Indication for which the Additional Indication Option was exercised under this Section 2.3 and solely with respect to Licensed Products for the particular Additional Disease Indication. The Parties acknowledge that there may be different Grant Dates for each Additional Disease Indication, depending on when and if Licensee exercises the Additional Indication Option for a particular Additional Disease Indication. As set forth above, Licensee, at its sole discretion, may exercise the Additional Indication Option with respect to any or all of the Additional Disease Indications. The Additional Indication Option will terminate with respect to unexercised Additional Disease Indications at the end of the Additional Indication Term (together with the license granted under Section 2.3.3), and Licensee will have no further rights under this Agreement with respect to the unexercised Additional Disease Indications; provided that the termination of the Additional Indication Option will not affect Licensees rights under this Agreement with respect to the license granted under Section 2.1, and if applicable Section 2.2.3.
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2.4 Retained Rights .
2.4.1 Except for the rights and licenses specified in Section 2.1 and, if applicable, Sections 2.2.3 and 2.3.3, no license or other rights are granted to Licensee under any intellectual property of Licensor, whether by implication, estoppel, or otherwise and whether such intellectual property is subordinate, dominant, or otherwise useful for the practice of the Licensed Patents. Notwithstanding anything to the contrary in this Agreement, Licensor may use and permit others to use the Licensed Patents for any research, development, commercial, or other purposes inside or outside of the Commercial Field (other than to the extent of the exclusive license under Section 2.1 and if applicable, Sections 2.2.3 and 2.3.3). Without limiting the foregoing, and notwithstanding anything in this Agreement to the contrary, Licensee acknowledges and agrees to the following rights retained by Licensor and the REGENX Licensors (individually and collectively, the Retained Rights ), whether inside or outside the Commercial Field:
2.4.1.1 The rights and licenses granted in Section 2.1 and, if applicable, Sections 2.2.3 and 2.3.3 shall not include any right (and Licensor and the REGENX Licensors retain the exclusive (even as to Licensee), fully sublicensable right) under the Licensed Patents to make, have made, use, sell, offer to sell, and import Domain Antibodies that are expressed by an adeno-associated vector, including AAV9.
2.4.1.2 The rights and licenses granted in Section 2.1 and, if applicable, Sections 2.2.3 and 2.3.3 shall not include any right (and Licensor and the REGENX Licensors retain the exclusive (even as to Licensee), fully sublicensable right) under the Licensed Patents to make, have made, use, sell, offer to sell, and import Licensed Products for the treatment of (i) congestive heart failure suffered by Muscular Dystrophy patients and (ii) any and all cardiovascular diseases by delivery of any or all of genes encoding I-1c and Serca2a and creatine kinase.
2.4.1.3 Licensor and the REGENX Licensors retain the following rights with respect to the Licensed Patents:
(a) | A non-exclusive, sublicensable right under the Licensed Patents to make, have made, use, sell, offer to sell, and import products that deliver RNA interference and antisense drugs using an adeno-associated vector, including AAV9; |
(b) | A non-exclusive right for the REGENX Licensors (which right is sublicensable by such licensors) to use the Licensed Patents for non-commercial research purposes and to use the Licensed Patents for such licensors discovery research efforts with non-profit organizations and collaborators; and |
(c) | A non-exclusive, sublicensable right under the Licensed Patents to make, have made, and use an adeno-associated vector, including AAV9, for non-commercial research in the area of congestive heart failure suffered by Muscular Dystrophy patients and other cardiovascular disease. |
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2.4.1.4 The rights and licenses granted in Section 2.1 and, if applicable, Sections 2.2.3 and 2.3.3 shall not include any right (and Licensor retains the exclusive (even as to Licensee), fully sublicensable right) under the Licensed Patents:
(a) | to conduct commercial reagent and services businesses, which includes the right to make, have made, use, sell, offer to sell, and import research reagents, including any viral vector construct; provided that, for clarity, the foregoing retained right does not give Licensor the right to conduct clinical trials in humans in the Commercial Field using AAV9; or |
(b) | to use the Licensed Patents to provide services to any Third Parties; provided that Licensees license under Section 2.1 and, if applicable, Sections 2.2.3 and 2.3.3 does include the right to provide services in connection with the administration of Licensed Products to patients. |
2.4.1.5 Licensor retains the fully sublicensable right under the Licensed Patents to grant non-exclusive research and development licenses to Affiliates and Third Parties; provided that such development rights granted by Licensor shall not include the right to conduct clinical trials in humans in the Commercial Field using AAV9 or any rights to sell products using AAV9 in the Commercial Field.
2.4.1.6 The Trustees of the University of Pennsylvania may use and permit other non-profit organizations or other non-commercial entities to use the Licensed Patents for educational and research purposes.
2.5 Government Rights . Licensee acknowledges that the United States government retains certain rights in intellectual property funded in whole or part under any contract, grant, or similar agreement with a federal agency. The license grants hereunder are expressly subject to all applicable United States government rights, including any applicable requirement that products that result from such intellectual property and are sold in the United States must be substantially manufactured in the United States.
2.6 Sublicensing .
2.6.1 The license granted pursuant to Section 2.1 and, if applicable, Sections 2.2.3 and 2.3.3 is sublicensable by Licensee to any Affiliates or Third Parties [*]; provided that any such sublicense must comply with the provisions of this Section 2.6 (including Section 2.6.2).
2.6.2 The right to sublicense granted to Licensee under this Agreement is subject to the following conditions:
(a) | Licensee may only grant sublicenses pursuant to a written sublicense agreement with the Sublicensee Licensor must receive written notice as soon as practicable following execution of any such sublicenses. Any further sublicenses granted by any Sublicensee (to the extent permitted hereunder) must comply with the provisions of this Section 2.6 (including Section 2.6.2) to the same extend as if Licensee granted such sublicense directly. |
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(b) | In each sublicense agreement, the Sublicensee must be required to comply with the applicable terms and conditions of this Agreement to the same extent as Licensee has agreed and must acknowledge that Licensor is an express third party beneficiary of such terms and conditions under such sublicense agreement. |
(c) | The official language of any sublicense agreement shall be English. |
(d) | Within [*] after entering into a sublicense, Licensor must receive a copy of the sublicense written in the English language for Licensors records and to share with the REGENX Licensors. The copy of the sublicense may be redacted to exclude confidential information of the applicable Sublicensee, but such copy shall not be redacted to the extent that it impairs Licensors (or the REGENX Licensors) ability to ensure compliance with this Agreement; provided that, if either of the REGENX Licensors requires a complete, unredacted copy of the sublicense, Licensee shall provide such complete, unredacted copy. |
(e) | Licensees execution of a sublicense agreement will not relieve Licensee of any of its obligations under this Agreement. Licensee is and shall remain [*] to Licensor for all of Licensees duties and obligations contained in this Agreement and for any act or omission of an Affiliate or Sublicensee that would be a breach of this Agreement if performed or omitted by Licensee, and Licensee will be deemed to be in breach of this Agreement as a result of such act or omission. |
2.7 Non-Exclusive License Under Licensee Inventions . Licensee hereby grants to Licensor a non-exclusive, worldwide, royalty-free, transferable, sublicensable, irrevocable, perpetual license under Licensee Inventions to practice the Licensee Inventions in connection with AAV9 outside of the Restricted Field, including, for avoidance of doubt, the right to conduct research and develop and commercialize products and services outside of the Restricted Field.
2.8 Improvements .
2.8.1 Licensee hereby grants to Licensor a non-exclusive, worldwide, royalty-free, transferable, sublicensable, irrevocable, perpetual license:
(a) | to use any Licensed Back Improvements (and any intellectual property rights with respect thereto) consummate in scope to the Retained Rights, and |
(b) | to practice the Licensed Back Improvements (and any intellectual property rights with respect thereto) in connection with AAV9, including the right to research, develop, make, have made, use, offer for sale, and sell |
products and services; provided that Licensor shall have no right, under the license in this Section 2.8.1(b), to practice the Licensed Back Improvements in the Restricted Field. |
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2.8.2 For purposes of this Agreement, Licensed Back Improvements means any [*] to any vector that is the subject of a claim within the Licensed Patents during the term of the Agreement, which improvements or modifications are developed by Licensee or any of its Affiliates during the term of this Agreement or by any Sublicensee during the term of any sublicense agreement with such Sublicensee.
2.8.3 Licensee agrees to provide prompt notice to Licensor upon the filing of any patent application covering any Licensee Inventions and/or any Licensed Back Improvement, together with a reasonably detailed description of or access to such Licensee Inventions and/or Licensed Back Improvement to permit the practice of any such invention or improvement. For clarity, Licensee shall have no obligation under this Agreement to deliver to Licensor any tangible embodiments of the Licensee Inventions and/or Licensed Back Improvements, if any.
2.9 Section 365(n) of the Bankruptcy Code. All rights and licenses granted to Licensee or Licensor under or pursuant to this Agreement are and will otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (Title 11, U.S. Code), as amended (the Bankruptcy Code ) or any comparable law outside the United States, licenses of rights to intellectual property as defined in Section 101(35A) of the Bankruptcy Code. The Parties will retain and may fully exercise all of their respective rights and elections under the Bankruptcy Code and any comparable law outside the United States.
ARTICLE 3: CONSIDERATION
3.1 Upfront Fee . In partial consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall make the following payment to Licensor: one million U.S. Dollars ($1,000,000) within five (5) days of the Effective Date.
3.2 Additional Indication Option Fee . For each exercise by Licensee of an Additional Indication Option granted to Licensee under Section 2.3, Licensee shall pay Licensor a fee of five hundred thousand U.S. Dollars ($500,000) for the exercise of such option.
3.3 Annual Maintenance Fee . In partial consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall pay Licensor on-going annual maintenance fees on each anniversary of the Effective Date. The annual maintenance fees will be as follows:
(a) | [*] per Disease Indication in the Commercial Field until commencement of the first Phase 3 Clinical Trial for a Licensed Product; provided that the annual maintenance fee shall not exceed a total of [*] per year; and |
(b) | Upon and after commencement of the first Phase 3 Clinical Trial for a Licensed Product, then [*] per Disease Indication licensed; provided that the annual maintenance fee shall not exceed a total of [*] per year. |
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3.4 Milestone Fees .
3.4.1 Development Milestones . In partial consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall pay Licensor the following milestone payments on a per-Disease Indication basis for each Licensed Product to achieve such milestone event:
Milestone |
Milestone Payment |
|
1. First treatment of human subject in a clinical trial ( i.e. , first patient, first dose) |
[*] U.S. Dollars in the form of cash or equity consideration | |
2. First treatment in Phase 3 Clinical Trial ( i.e. , first patient, first dose) |
[*] U.S. Dollars | |
3. NDA submission in the United States |
[*] U.S. Dollars | |
4. Marketing Authorization submission in a country or territory other than the United States |
[*] U.S. Dollars | |
5. NDA approval in the United States |
[*] U.S. Dollars | |
6. Marketing Authorization approval in a country or territory other than the United States |
[*] U.S. Dollars |
3.4.2 Net Sales Milestones . In partial consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall pay Licensor the following milestone payments on the aggregate of Net Sales of all Licensed Products:
First time annual aggregate Net Sales of all Licensed Products equals or exceeds $100,000,000 U.S. Dollars |
[*] U.S. Dollars | |
First time annual aggregate Net Sales of all Licensed Products equals or exceeds $500,000,000 U.S. Dollars |
[*] U.S. Dollars | |
First time annual aggregate Net Sales of all Licensed Products equals or exceeds $750,000,000 U.S. Dollars |
[*] U.S. Dollars |
3.4.3 For clarity, the milestone payments set forth in Section 3.4.1 are payable with respect to each Licensed Product and for each Disease Indication in the Commercial Field that achieves the milestone event, regardless of whether the milestone is achieved by Licensee, any Affiliate, or any Sublicensee. However, if Licensee exercises its Substitution Indication Option, Licensee shall not owe Licensor any milestone payments for Licensed Products for use in the substituted Additional Disease Indication that have been made to Licensor for the achievement
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of the same milestone for Licensed Products for use in the CPVT Field or a previously substituted Additional Disease Indication. To the extent that either of the first two development milestones in Section 3.4.1 (i.e., first treatment of a human subject in a clinical trial or first treatment in Phase 3 Clinical Trial in the applicable Disease Indication) has not been paid at the time of achievement of either the NDA or Marketing Authorization submission milestone within the same Disease Indication (i.e., milestones 3 and 4 in Section 3.4.1), then, upon the achievement of either of such submission milestones, the preceding unpaid development milestone payments within such Disease Indication shall be made in addition to the payment corresponding to the applicable submission milestone that has been achieved.
3.5 Royalties .
3.5.1 In consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall pay to Licensor the following royalties based upon the annual Net Sales worldwide of all Licensed Products in a given calendar year, subject to the reductions in royalty rates set forth in Section 3.5.2:
Cumulative Annual Net Sales of all Licensed Products Worldwide |
Royalty Percentage |
|
Portion of Net Sales in a calendar year less than $300,000,000 U.S. Dollars |
[*]% | |
Portion of Net Sales in a calendar year between (and including) $300,000,000 U.S. Dollars through (and including) $600,000,0000 U.S. Dollars |
[*]% | |
Portion of Net Sales in a calendar year greater than $600,000,000 U.S. Dollars |
[*]% |
3.5.2 Third Party Royalties Stacking Provision . If Licensee must obtain a license from a Third Party to avoid infringement of such Third Partys rights in order to manufacture, use, or commercialize a given Licensed Product and if the royalties required to be paid to such Third Party for such license, together with those royalties payable to Licensor, in the aggregate, exceed [*] percent ([*]%) of Net Sales for any Licensed Product, then the royalty owed to Licensor for that Licensed Product will be reduced by an amount calculated as follows:
STACKING ROYALTY CALCULATIONS
R = (C * (A / (A+B)))
Where
R = reduction of Licensor royalty,
A = unreduced Licensor royalty,
B = sum of all Third Party royalties,
C = increment of projected total royalty above [*]%.
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Example Calculation:
Assume: | i) all Third Party royalties = [*]% | |||
ii) unreduced Licensor royalty = [*]% | ||||
iii) projected total royalty = [*]% |
R = ([*] [*]) * ([*] / ([*] + [*])) R = ([*] * [*]) R = [*] Licensor Stacked Royalty = [*] [*] = [*]% |
Notwithstanding the foregoing, Licensee will pay to Licensor no less than [*] percent ([*]%) of the royalties that Licensee would otherwise pay to Licensor with respect to Net Sales if there were no royalties due to Third Parties.
3.5.3 Royalty Payment Period . Licensees obligation hereunder for payment of a royalty under this Section 3.5 on the Net Sales of Licensed Products in a given country will end on a Licensed Product-by-Licensed Product and country-by-country basis when the Licensed Product ceases to infringe or be covered by a Valid Claim within the Licensed Patents in that country. For clarity, only one royalty, determined in accordance with this Section 3.5, is payable on the Net Sales of any unit of a Licensed Product.
3.6 Sublicense Fees & Priority Review Voucher Transfer Fee .
3.6.1 In further consideration of the rights and licenses granted to Licensee under this Agreement, Licensee will pay Licensor [*] percent ([*]%) of any sublicense fees (including upfront and milestone payments) received by Licensee or its Affiliates for the Licensed Products from any Sublicensee or from any person or entity granted any option to obtain a sublicense.
3.6.2 In further consideration of the rights and licenses granted to Licensee under this Agreement, Licensee will pay Licensor [*] percent ([*]%) of the fees related to the sale or other transfer to a Third Party rights under any priority review voucher issued in connection with or otherwise related to a Licensed Product, provided, however, that this clause shall not apply to any such sale or other transfer that is made in connection with a change of control of Licensee or its Affiliates.
3.6.3 With respect to the obligations under this Section 3.6, Licensee shall not be required to submit any amounts received from a Third Party for the following:
(a) | Reimbursement or payment of Licensees actual costs or on an arms length cost plus arrangement for research, development, and/or manufacturing activities performed by Licensee or its Affiliates corresponding directly to the research, development and/or manufacturing of Licensed Products pursuant to a specific agreement; |
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(b) | Any and all amounts paid to Licensee or its Affiliates by a Sublicensee as royalties (or other similar payments, e.g. , profit share) on sales of Licensed Product sold by the Sublicensee under a sublicense agreement; and |
(c) | Consideration received for the purchase of an equity interest in Licensee or its Affiliates at fair market value or in the form of loans at arms length rates of interest. |
3.6.4 If Licensee or its Affiliates receives sublicense fees from Sublicensees or from any person or entity granted any option to obtain a sublicense under this Agreement in the form of non-cash consideration, then Licensee shall pay Licensor a cash payment as required under this Section 3.6 determined based on the fair market value of such non-cash consideration. If Licensee or its Affiliate enters into any sublicense that is not an arms length transaction, fees due under this Section 3.6 will be calculated based on the fair market value of such transaction, at the time of the transaction, assuming an arms length transaction made in the ordinary course of business, as determined jointly by Licensor and Licensee based on transactions of a similar type and standard industry practice, if any.
3.6.5 To the extent Licensee receives payment from a Third Party relating to one or more of the milestone events set forth in the table in Section 3.4, then the amount of the payment made to Licensor under such Section 3.4 with respect to such milestone event shall not be deemed sublicense fees under this Section 3.6; instead, the amounts due under this Section 3.6 shall be calculated by applying the applicable sublicense fee rate set forth in Section 3.6.1 above to the sublicense fees received by Licensee from such Third Party after deducting the amount of the payment under Section 3.4.
3.7 Reports and Records .
3.7.1 Licensee must deliver to Licensor within [*] after the end of each Calendar Quarter after the first commercial sale of a Licensed Product a report setting forth the calculation of the royalties due to Licensor for such Calendar Quarter, including:
(a) | Number of Licensed Products included within Net Sales, listed by country; |
(b) | Gross consideration for Net Sales of Licensed Product, including all amounts invoiced, billed, or received; |
(c) | Qualifying costs to be excluded from the gross consideration, as described in Section 1.24, listed by category of cost; |
(d) | Net Sales of Licensed Products listed by country; |
(e) | A detailed accounting of any royalty reductions applied pursuant to Section 3.5.2; |
(f) | Royalties owed to Licensor listed by category; and |
(g) | The computations for any applicable currency conversions. |
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3.7.2 Licensee shall pay the royalties due under Section 3.5 within [*] following the last day of the Calendar Quarter in which the royalties accrue. Licensee shall send the royalty payments along with the report described in Section 3.7.1.
3.7.3 Within [*] after the occurrence of a milestone event described in Section 3.4, Licensee must deliver to Licensor a report describing the milestone event that occurred, together with a payment of the applicable amount due to Licensor pursuant to Section 3.4.
3.7.4 Within [*] after the receipt of any fees from any Sublicensee as described in Section 3.5, Licensee must deliver to Licensor a report describing the fees received, together with a payment of the applicable amount due to Licensor pursuant to Section 3.6.
3.7.5 All financial reports under this Section 3.7 will be certified by the chief financial officer of Licensee or Licensees qualified financial representative.
3.7.6 Licensee shall maintain and require its Affiliates and all Sublicensees to maintain, complete and accurate books and records which enable the royalties, fees, and payments payable under this Agreement to be verified. The records must be maintained for [*] after the submission of each report under Article 3. Upon reasonable prior written notice to Licensee, Licensee and its Affiliates and all Sublicensees will provide Licensor and/or the REGENXBIO Licensors (and their respective accountants) with access to all of the relevant books, records, and related background information required to conduct a review or audit of the royalties, fees, and payments payable to Licensor under this Agreement to be verified. Access will be made available: (a) during normal business hours; (b) in a manner reasonably designed to facilitate the auditing partys review or audit without unreasonable disruption to Licensees business; and (c) no more than once each calendar year during the term of this Agreement and for a period of [*] thereafter. Licensee will promptly pay to Licensor the amount of any underpayment determined by the review or audit, plus accrued interest. If the review or audit determines that Licensee has underpaid any payment by [*] or more, then Licensee will also promptly pay the costs and expenses of Licensor and the REGENXBIO Licensors and their respective accountants in connection with the review or audit. If the review or audit determines that Licensee has overpaid any payment, then Licensor shall refund the overpayment to Licensee.
3.8 Currency, Interest .
3.8.1 All dollar amounts referred to in this Agreement are expressed in United States dollars. All payments to Licensor under this Agreement must be made in United States dollars.
3.8.2 If Licensee receives payment in a currency other than United States dollars for which a royalty or fee or other payment is owed under this Agreement, then (a) the payment will be converted into United States dollars at the conversion rate for the foreign currency as published in the eastern edition of the Wall Street Journal, N.Y. edition, as of the last business day of the Calendar Quarter in which the payment was received by Licensee; and (b) the conversion computation will be documented by Licensee in the applicable report delivered to Licensor under Section 3.7.
3.8.3 All amounts that are not paid by Licensee when due will accrue interest from the date due until paid at a rate equal to 1.5% per month (or the maximum allowed by law, if less).
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3.9 Taxes and Withholding .
3.9.1 All payments hereunder will be made free and clear of, and without deduction or deferment in respect of, and Licensee shall pay and be responsible for, and shall hold Licensor harmless from and against, any taxes, duties, levies, fees, or charges, including sales, use, transfer, excise, import, and value added taxes (including any interest, penalties, or additional amounts imposed with respect thereto) but excluding withholding taxes to the extent provided in Section 3.9.2. At the request of Licensee, Licensor will give Licensee such reasonable assistance, which will include the provision of documentation as may be required by the relevant tax authority, to enable Licensee to pay and report and, as applicable, claim exemption from or reduction of, such tax, duty, levy, fee, or charge.
3.9.2 If any payment made by Licensee hereunder becomes subject to withholding taxes with respect to Licensors gross or net income under the laws of any jurisdiction, Licensee will deduct and withhold the amount of such taxes for the account of Licensor to the extent required by law and will pay the amounts of such taxes to the proper governmental authority in a timely manner and promptly transmit to Licensor appropriate proof of payment of such withholding taxes. At the request of Licensor, Licensee will give Licensor such reasonable assistance, which will include the provision of appropriate certificates of such deductions made together with other supporting documentation as may be required by the relevant tax authority, to enable Licensor to claim exemption from or reduction of, or otherwise obtain repayment of, such withholding taxes, and will upon request provide such additional documentation from time to time as is reasonably required to confirm the payment of withholding tax.
ARTICLE 4: DILIGENCE
4.1 Diligence Obligations .
4.1.1 Licensed Product Diligence Obligations . Licensee will use commercially reasonable efforts to develop, commercialize, market, promote, and sell Licensed Products in the CPVT Field unless Licensee elects a Substitution Indication Option for the CPVT Field. Furthermore, if Licensee exercises the Substitution Indication Option and/or Additional Indication Option granted to Licensee under Sections 2.2 and 2.3, respectively, Licensee will use commercially reasonable efforts to develop, commercialize, market, promote, and sell Licensed Products for the Disease Indication(s) subject to such option in the Commercial Field. Commercially reasonable efforts means efforts equivalent to those utilized by [*]. Without limiting the foregoing, Licensee will meet the following:
(a) |
(i) acceptance by the FDA of an Investigational New Drug application, or acceptance by the European Medicines Agency (or any successor entity thereto) of an equivalent application, for a Licensed Product in the CPVT Field by no later than [*] after the Effective Date; or
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(ii) if Licensee exercises the Substitution Indication Option granted to Licensee under Section 2.2, acceptance by the FDA of an Investigational New Drug application, or acceptance by the European Medicines Agency
(or any successor entity thereto) of an equivalent application, for a Licensed Product for an Additional Disease Indication selected in the exercise of such Substitution Indication Option by no later than [*] after the Substitution Grant Date; and
(b) | if Licensee exercises the Additional Indication Option granted to Licensee under Section 2.3, acceptance by the FDA of an Investigational New Drug application, or acceptance by the European Medicines Agency (or any successor entity thereto) of an equivalent application, for a Licensed Product for an Additional Disease Indication selected in the exercise of such Additional Indication Option by no later than [*] after the Grant Date; |
provided, however, that, if Licensee expects not to achieve one of the milestones set forth in clause (a) or (b) on or before the specified deadline in such clause (a) or (b), Licensee may pay Licensor an extension fee of [*] for a [*] extension of the deadline in clause (a), and independently, Licensee may pay Licensor an extension of [*] for a [*] extension of the deadline in clause (b). Licensee is only entitled to [*] for the milestone in (a) and [*] for the milestone in (b). Licensee will provide Licensor written notice within [*] of achieving each milestone set forth in clause (a) and (b).
4.2 Development Plans .
4.2.1 For each Disease Indication and corresponding Licensed Product in the Commercial Field, Licensee will prepare and deliver to Licensor a development plan and budget (each a Development Plan ). The initial Development Plan for the Licensed Product in the CPVT Field will be delivered within [*] after the Effective Date, and the Development Plan for each Additional Disease Indication licensed in accordance with Section 2.2 or Section 2.3 will be delivered within [*] of the date on which the applicable indication is added to the Commercial Field.
4.2.2 Each Development Plan will cover the next two (2) years, and will include future development activities to be undertaken by Licensee, its Affiliates, or any Sublicensees during the next reporting period under Section 4.3 relating directly to the Licensed Product, Licensees strategy to bring the Licensed Product to commercialization, and projected timeline for completing the necessary tasks to accomplish the goals of the strategy.
4.2.3 Following receipt by Licensor of each Development Plan, Licensor will promptly notify Licensee of any comments or requested revisions, and the Parties will thereupon negotiate any appropriate revisions in good faith. With respect to development milestones to be set forth in the initial Development Plans for CVPT Field, the Parties will agree upon reasonable milestones and completion dates to be set forth in the Development Plan (and any amendments thereto).
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4.3 Reporting . Within [*] after the Effective Date and within [*] of each December 1 thereafter, Licensee shall provide Licensor with written progress reports, setting forth in such detail as Licensor may reasonably request, the progress of the development, evaluation, testing, and commercialization of each Licensed Product. Licensee will also notify Licensor within [*] of the first commercial sale by Licensee, its Affiliates, or any Sublicensees of each Licensed Product. Such a report ( Development Progress Report ), setting forth the current stage of development of Licensed Products, shall include:
4.3.1 Date of Development Progress Report and time covered by such report;
4.3.2 Major activities and accomplishments completed by Licensee, its Affiliates, and any Sublicensees relating directly to the Licensed Product since the last Development Progress Report;
4.3.3 Significant research and development projects relating directly to the Licensed Product currently being performed by Licensee, its Affiliates, and any Sublicensees and good faith, but non-binding, projected dates of completion;
4.3.4 A Development Plan covering the next two (2) years at least, which will include future development activities to be undertaken by Licensee, its Affiliates, or any Sublicensees during the next reporting period relating directly to the Licensed Product, Licensees strategy to bring the Licensed Product to commercialization, and good faith, but non-binding, projected timeline for completing the necessary tasks to accomplish the goals of the strategy;
4.3.5 Projected total development remaining before product launch of each Licensed Product; and
4.3.6 Summary of significant development efforts using the Licensed Patents being performed by Third Parties, including the nature of the relationship between Licensee and such Third Parties.
4.4 Confidential Information . The Parties agree that Development Progress Reports shall be deemed Licensees Confidential Information; provided that Licensor may share a copy of such reports with the REGENX Licensors under confidentiality.
4.5 Improvements . Simultaneously with the Development Progress Report, Licensee shall deliver a detailed description of any Licensee Inventions and any Licensed Back Improvements, if not previously provided pursuant to Section 2.8.3, which shall be Licensees Confidential Information.
ARTICLE 5: CONFIDENTIALITY
5.1 Treatment of Confidential Information . Each Party, as a receiving party (a Receiving Party ), agrees that it will (a) treat Confidential Information of the other Party (the Disclosing Party ) as strictly confidential; (b) protect the Confidential Information of the Disclosing Party with at least the same degree of care as it protects its own confidential and proprietary information, and in any event with not less than a reasonable degree of care; (c) not disclose such Confidential Information to Third Parties without the prior written consent of the Disclosing Party, except as may be permitted in this Agreement; provided that any disclosure permitted hereunder shall be under confidentiality agreements with provisions at least as stringent as those contained in this Agreement; and (d) not use such Confidential Information for purposes other
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than those authorized expressly in this Agreement. The Receiving Party agrees to ensure that its employees who have access to Confidential Information are obligated in writing to abide by confidentiality obligations at least as stringent as those contained under this Agreement.
5.2 Public Announcements .
5.2.1 The Parties agree they will release a joint press release in the form attached hereto as Exhibit B . Except as provided in Section 5.2.2, any other press releases by either Party with respect to the other Party or any other public disclosures concerning the existence of or terms of this Agreement shall be subject to review and approval by the other Party. Once the joint press release or any other written statement is approved for disclosure by both Parties, either Party may make subsequent public disclosure of the contents of such statement without the further approval of the other Party.
5.2.2 Notwithstanding Section 5.2.1, Licensor has the right to publish (through press releases, scientific journals, or otherwise) and refer to any clinical, regulatory, or research results related to Licensees Licensed Product or AAV9 program that have been publicly disclosed by Licensee, including referring to Licensee by name as a licensee of Licensor, which publication or referral by Licensor shall not require the prior consent of Licensee.
5.3 Authorized Disclosure . Notwithstanding the provisions of Section 5.1 or 5.2, either Party may disclose the others Confidential Information or make such a disclosure of the existence of and/or terms of this Agreement to any [*]; provided that, in each case, such recipient of Confidential Information is obligated to keep such information confidential on terms no less stringent than those set forth in this Agreement. Furthermore, Licensee agrees that Licensor may share a copy of this Agreement, reports and notices provided by Licensee to Licensor pursuant to the terms of this Agreement, and copies of sublicense agreements provided to Licensor hereunder with the REGENXBIO Licensors to the extent required by the GSK Agreement and the Penn Agreement, under confidentiality. In the event that the Receiving Party receives service of legal process that purports to compel disclosure of the Disclosing Partys Confidential Information or becomes obligated by law, rule, regulation or rules of a security exchange, to disclose the Confidential Information of the Disclosing Party or the existence of or terms of this Agreement to any governmental authority, then, to the extent legally permitted, the Receiving Party shall promptly notify the Disclosing Party, so that the Disclosing Party may seek an appropriate protective order or other remedy with respect to narrowing the scope of such requirement and/or waive compliance by the Receiving Party with the provisions of this Agreement. The Receiving Party will, at the Disclosing Partys request and expense, provide the Disclosing Party with reasonable assistance in obtaining such protective order or other remedy. If, in the absence of such protective order or other remedy, the Receiving Party is nonetheless required by law, rule, regulation or rules of a security exchange, to disclose the existence of or terms of this Agreement or other Confidential Information of the Disclosing Party, the Receiving Party may disclose such Confidential Information without liability hereunder; provided that the Receiving Party shall furnish only such portion of the Confidential Information that is legally required to be disclosed and only to the extent required by law.
5.4 Term of Confidentiality . The obligations of this Article 5 shall continue for a period of [*] following the expiration or termination of this Agreement.
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ARTICLE 6: TERM AND TERMINATION
6.1 Term of Agreement . This Agreement will commence on the Effective Date and continue in effect on a country-by-country, Licensed Product-by-Licensed Product basis until the later of the expiration, lapse, abandonment, or invalidation of the last Valid Claim of the Licensed Patents to expire, lapse, become abandoned, become unenforceable for the applicable Licensed Product; or (ii) 10 years from the first commercial sale, unless sooner terminated as provided in this Agreement.
6.2 Termination for Failure to Exercise Option . This Agreement will terminate automatically with respect to any unexercised Additional Disease Indications at the end of the Substitution Indication Term and Additional Indication Term.
6.3 Term and Additional Indication Term for purposes of the Substitution Indication Option . This Agreement will terminate automatically with respect to the license granted in Section 2.1, if Licensee has exercised the Substitution Indication Option in accordance with Section 2.2.
6.4 Licensees Right to Terminate . Licensee may, upon [*] prior written notice to Licensor, terminate this Agreement for any reason, with or without cause. In exercising such termination right, Licensee may terminate the Agreement in its entirety or, if desired, Licensee may specify in the written notice that this Agreement is terminating only with respect to one or more of the Disease Indications within the Commercial Field.
6.5 Termination for Breach .
6.5.1 Licensor may terminate this Agreement, if Licensee is late in paying to Licensor royalties, fees, or any other monies due under this Agreement, and Licensee does not pay Licensor in full within 15 days upon written demand from Licensor, which termination shall be effective immediately upon the expiration of such 15-day cure period.
6.5.2 Either Party may terminate this Agreement, if the other Party materially breaches this Agreement and does not cure such material breach within 30 days after written notice of the breach, which termination shall be effective immediately upon the expiration of such 30-day cure period. Notwithstanding the above, if Licensee disputes in good faith that such material breach exists, and gives Licensor written notice of such dispute within 30 days following Licensees receipt of Licensors notice of default, then, Licensor may not terminate this Agreement until the dispute is resolved in accordance with Section 10.6; provided that Licensor shall be entitled to terminate this Agreement at the end of the original 30-day cure period, without waiting for resolution of the dispute in accordance with Section 10.6, if the breach by Licensee of this Agreement would cause Licensor to be in breach of the GSK Agreement or the Penn Agreement.
6.6 Termination for Insolvency . Licensor shall have the right to terminate this Agreement, upon notice to the Licensee, in the event that: (a) Licensee shall have: (i) voluntarily commenced any proceeding or filed any petition seeking relief under the bankruptcy, insolvency or other similar laws of any jurisdiction, (ii) applied for, or consented to, the appointment of a receiver, trustee, custodian, sequestrator, conciliator, administrator or similar official for it or for all or substantially all of its property, (iii) filed an answer admitting the material allegations of a petition filed against or in respect of it in any such proceeding, (iv) made a general assignment
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for the benefit of creditors of all or substantially all of its assets, (v) admitted in writing its inability to pay all or substantially all of its debts as they become due, or (vi) taken corporate action for the purpose of effecting any of the foregoing; or (b) An involuntary proceeding shall have been commenced, or any involuntary petition shall have been filed, in a court of competent jurisdiction seeking: (i) relief in respect of Licensee, or of its property, under the bankruptcy, insolvency or similar laws of any jurisdiction, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conciliator, administrator or similar official for the Licensee or for all or substantially all of its property, or (iii) the winding-up or liquidation of the Licensee; and, in each case, such proceeding or petition shall have continued undismissed for sixty (60) days, or an order or decree approving or ordering any of the foregoing shall have continued unstayed, unappealed and in effect for thirty (30) days.
6.7 Patent Challenge .
6.7.1 Licensor may terminate this Agreement, effective immediately upon written notice to Licensee, upon the commencement by Licensee or any of its Affiliates of a Patent Challenge.
6.7.2 Licensee shall include in each sublicense agreement entered into with a Sublicensee a right of Licensee to terminate such sublicense agreement if such Sublicensee commences a Patent Challenge; and Licensee shall terminate the sublicense agreement, effective immediately upon written notice to the Sublicensee, if the Sublicensee commences a Patent Challenge. If Sublicensee commences a Patent Challenge and Licensee fails to terminate the applicable sublicense agreement, then Licensor may terminate such sublicense agreement, effective immediately upon written notice to Sublicense.
6.7.3 For purposes of this Section 6.7, Patent Challenge means any action against Licensor or the REGENXBIO Licensors, including an action for declaratory judgment, to declare or render invalid or unenforceable the Licensed Patents, or any claim thereof.
6.8 Effects of Termination . The effect of termination pursuant to Section 6.3, by Licensee pursuant to Section 6.4, by either Party, as applicable, under Section 6.5, or by Licensor pursuant to Section 6.6 or Section 6.7 shall be as follows; provided that for any termination with respect to a particular Disease Indication, then the following provisions shall apply only with respect to such Disease Indication:
6.8.1 The licenses granted by Licensor hereunder shall terminate, and Licensee, its Affiliates, and (unless the sublicense agreement is assigned pursuant to Section 6.8.2) all Sublicensees shall cease to make, have made, use, import, sell, and offer for sale all Licensed Products and shall cease to otherwise practice the Licensed Patents; provided that Licensee and its Sublicensees shall have the right to continue to sell its existing inventories of Licensed Products for a period not to exceed [*] after the effective date of such termination;
6.8.2 If termination is by Licensor pursuant to Section 6.5, 6.6 or 6.7, then, at Licensors request, Licensee shall assign to Licensor, and Licensor shall assume, any or all sublicenses granted to Third Parties to the extent of the rights licensed to Licensee hereunder and sublicensed to the Sublicensee unless the Sublicensee notifies Licensor in writing that the
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Sublicensee does not wish such sublicense to be so assigned (in which case such sublicense shall terminate); provided that (i) prior to such assignment, Licensee shall advise Licensor whether such Sublicensee is then in full compliance with all terms and conditions of its sublicense and continues to perform thereunder, and, if such Sublicensee is not in full compliance or is not continuing to perform, Licensor may elect not to have such sublicense assigned; and (ii) following such assignment, Licensor shall not be liable to such Sublicensee with respect to any obligations of Licensee to the Sublicensee that are not consistent with, or not required by, Licensors obligations to Licensee under this Agreement; if termination is for any other reason, then all sublicenses shall terminate;
6.8.3 If termination is by Licensee pursuant to Section 6.4 or by Licensor pursuant to Section 6.5, 6.6, or 6.7, Licensee shall grant, and hereby grants, to Licensor a non-exclusive, perpetual, irrevocable, worldwide, royalty-free, transferable, sublicensable license under any Licensed Back Improvements for the research, development, and commercialization of products in any therapeutic indication;
6.8.4 Licensee shall pay all monies then-owed to Licensor under this Agreement; and
6.8.5 Each Receiving Party shall, at the Disclosing Partys request, return all Confidential Information of the Disclosing Party. Notwithstanding the foregoing, one copy may be kept by either Party for a record of that Partys obligations.
6.8.6 If termination is only with respect to a particular Disease Indication within the Commercial Field, but not all Disease Indications, then the provisions of this Section 6.8 shall only apply with respect to the terminated Disease Indications, and this Agreement shall continue with respect to the non-terminated Disease Indications.
6.9 Survival . Licensees obligation to pay all monies due and owed to Licensor under this Agreement which have matured as of the effective date of termination or expiration shall survive the termination or expiration of this Agreement. In addition, the provisions of Section 2.4, (Retained Rights), Section 2.5 (Government Rights), Section 2.7 (Non-Exclusive License Under Licensee Inventions), Section 2.8 (Improvements) Article 3 (Consideration) (with respect to any final reports or to the extent any amounts are due but unpaid), Section 3.7 (Reports and Records), Section 4.4 (Confidential Information), Article 5 (Confidentiality), Article 6 (Term and Termination), Section 8.3 (Disclaimer of Warranties, Damages), Section 8.4 (Indemnification), Section 8.5 (Insurance), Article 9 (Use of Name), and Article 10 (Additional Provisions) shall survive such termination or expiration of this Agreement in accordance with their respective terms.
ARTICLE 7: PATENT MAINTENANCE; PATENT INFRINGEMENT
7.1 Prosecution of Licensed Patents . As between Licensor and Licensee, the Parties agree as follows:
7.1.1 Licensor shall have the sole right, but not the obligation, to Prosecute patent applications and issued patents within Licensed Patents, in Licensors sole discretion. Subject to Section 7.1.3, Licensor shall provide Licensee with a reasonable opportunity to review and provide comments in connection with the Prosecution of the Licensed Patents; and Licensor shall keep Licensee reasonably informed as to all material developments with respect to such Licensed Patents and shall supply to Licensee copies of material communications received and filed in connection with the Prosecution of such Licensed Patents.
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7.1.2 Nothing in this Agreement obligates Licensor to continue to Prosecute any patent applications or issued patents, and Licensee acknowledges that Licensor shall have no obligation to undertake any inter-party proceedings, such as oppositions, inter partes review, or interferences, or to undertake any re-examination or re-issue proceedings, in either case, with respect to the Licensed Patents.
7.1.3 Licensee acknowledges that The Trustees of the University of Pennsylvania control Prosecution of the Licensed Patents, with Licensor having certain rights to review. Licensee acknowledges and agrees that (a) the rights and obligations under this Section 7.1 are subject to the rights of the REGENXBIO Licensors set forth in the GSK Agreement and Penn Agreement with respect to the Licensed Patents, and (b) Licensors obligations under this Agreement only apply to the extent of Licensors rights with respect to participation in Prosecuting the Licensed Patents under the GSK Agreement and the Penn Agreement.
7.2 Infringement Actions Against Third Parties .
7.2.1 Licensee is responsible for notifying the Licensor promptly of any infringement of Licensed Patents (other than Retained Rights) that may come to Licensees attention, including any patent certification filed in the United States under 21 U.S.C. § 355(b)(2) or 21 U.S.C. § 355(j)(2) or similar provisions in other jurisdictions alleging the invalidity, unenforceability or non-infringement of any Licensed Patents, and any notification received pursuant to subsection (k) of 42 U.S.C § 262 for any Licensed Product that becomes a reference product.
7.2.2 As between Licensor and Licensee, but subject to any obligations of Licensor to the REGENXBIO Licensors, Licensor shall have the sole right, but not the obligation, to prosecute any such infringement at its own expense and [*] in connection therewith that are unrelated to the manufacture, use or sale of Licensed Products, with damages recovered in connection with any infringement related to the manufacture, use or sale of Licensed Products shall be [*]. In any action to enforce any of the Licensed Patents, Licensee, at the request and expense of Licensor, shall cooperate to the fullest extent reasonably possible, including in the event that, if Licensor is unable to initiate or prosecute such action solely in its own name, Licensee shall join such action voluntarily and shall execute all documents necessary to initiate litigation to prosecute, maintain, and settle such action. Nothing in this Agreement obligates Licensor to bring or prosecute lawsuits against Third Parties for infringement of any Licensed Patents.
7.2.3 Licensee shall have no right to undertake prosecution of any such infringement.
7.3 Defense of Infringement Claims . In the event Licensee or Licensor becomes aware that Licensees or any of its Affiliates or any Sublicensees practice of the Licensed Patents is the subject of a claim for patent infringement by a Third Party, that Party shall promptly notify the other, and the Parties shall consider the claim and the most appropriate action to take. Licensee
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shall cause each of its Affiliates and each Sublicensee to notify Licensee promptly in the event such entity becomes aware that its practice of the Licensed Patents is the subject of a claim of patent infringement by another. To the extent Licensor takes any action, Licensor (or the REGENXBIO Licensors) shall have the right to require Licensees reasonable cooperation in any such suit, upon written notice to Licensee; and Licensee shall have the obligation to participate upon Licensors request, in which event, Licensor shall bear the cost of Licensees participation. Without Licensors prior written permission, Licensee must not settle or compromise any such suit in a manner that imposes any material obligations or restrictions on Licensor or the REGENXBIO Licensors or grants any rights to the Licensed Patents other than rights that Licensee has the right to grant under this Agreement.
ARTICLE 8: WARRANTIES; INDEMNIFICATION
8.1 Representations and Warranties by Licensor . Licensor represents and warrants to Licensee as of the Effective Date:
8.1.1 Licensor has the right, power, and authority to enter into this Agreement and to grant to Licensee the rights specified in this Agreement;
8.1.2 This Agreement when executed shall become the legal, valid, and binding obligation of it, enforceable against it, in accordance with its terms;
8.1.3 There are no actions, suits, proceedings, or arbitrations pending or, to Licensors knowledge, threatened against Licensor relating to the Licensed Patents that would be inconsistent with the rights granted to Licensee under this Agreement;
8.1.4 To Licensors knowledge, (a) the Licensed Patents are solely owned by The Trustees of the University of Pennsylvania, and (b) no Third Party (other than the REGENXBIO Licensors) has any right, interest, or claim in or to such Licensed Patents in the Commercial Field that are inconsistent with those granted to Licensee in the Commercial Field under this Agreement;
8.1.5 To Licensors knowledge, Licensor does not Control as of the Effective Date any patent or patent application (other than the Licensed Patents (as defined in Section 1.17) that would necessarily be infringed by the use or sale of AAV9 in the CPVT Field. If it is determined, in accordance with the procedure of this Section 8.1.5, that Licensor Controls as of the Effective Date a patent or patent application (other than the Licensed Patents) that would necessarily be infringed by the use or sale of AAV9 in the CPVT Field, then Licensees sole remedy shall be the inclusion of the applicable patent or patent application as a Licensed Patent hereunder but solely to the extent of the claim(s) that would necessarily be infringed by the use or sale of AAV9. At any time during the term of this Agreement, Licensee may notify Licensor in writing of any such patent or patent application that Licensee believes should be included as a Licensed Patent pursuant to this Section 8.1.5. Such written notice shall identify the relevant patent or patent application and relevant claim(s) and shall explain briefly why Licensee, in good faith, believes it should be included as a Licensed Patent. Licensor has [*] following Licensors receipt of Licensees written notice to dispute the inclusion of such patent or patent application or the scope of the remedy; in which event, such dispute will be resolved in
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accordance with Section 10.6. Upon the Parties agreement (or a resolution, in favor of Licensee, of the dispute pursuant to Section 10.6), the applicable claim(s) of the applicable patent or patent application will be deemed a Licensed Patent hereunder. For the avoidance of doubt, Licensor makes no representation or warranty under this Section 8.1.5 as to any claim of a patent or patent application covering the manufacture of AAV9, and Licensee acknowledges that manufacturing claims of any patents or patent applications will not be added as Licensed Patents pursuant to the procedure set forth in this Section 8.1.5. For the purpose of this Section 8.1.5, Control means the possession by Licensor (whether by ownership or license, other than pursuant to this Agreement) of the ability to grant to Licensee access, a license, or a sublicense (as applicable) to the applicable patent or patent application on the terms and conditions set forth herein without violating the terms of any agreement or other arrangement with any Third Party; and
8.1.6 Licensor has not received any written notice from any Third Party patentee alleging such Third Partys patents by the practice of the Licensed Patents in the CPVT Field.
8.2 Representations and Warranties by Licensee . Licensee represents and warrants to Licensor as of the Effective Date that:
8.2.1 Licensee has the right, power, and authority to enter into this Agreement and to grant the rights granted by it hereunder;
8.2.2 This Agreement when executed shall become the legal, valid, and binding obligation of it, enforceable against it, in accordance with its terms;
8.2.3 Licensee has the ability and the resources, including financial resources, necessary to carry out its obligations under this Agreement; and
8.2.4 There are no actions, suits, proceedings, or arbitrations pending or, to Licensees knowledge, threatened against Licensee that would impact activities under this Agreement.
8.3 Disclaimer of Warranties, Damages . EXCEPT AS SET FORTH IN SECTION 8.1, THE LICENSED PATENTS, LICENSED PRODUCTS, AND ALL RIGHTS LICENSED UNDER THIS AGREEMENT ARE PROVIDED ON AN AS IS BASIS, AND LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT THERETO. BY WAY OF EXAMPLE BUT NOT OF LIMITATION, EXCEPT AS SET FORTH IN SECTION 8.1, LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES, AND HEREBY DISCLAIMS ALL EXPRESS AND IMPLIED REPRESENTATIONS AND WARRANTIES, (i) OF COMMERCIAL UTILITY, ACCURACY, COMPLETENESS, PERFORMANCE, TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OR ENFORCEABILITY OF THE LICENSED PATENTS, AND PROFITABILITY; OR (ii) THAT THE USE OF THE LICENSED PATENTS OR LICENSED PRODUCTS WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER PROPRIETARY RIGHTS OF THIRD PARTIES. EXCEPT AS SET FORTH HEREIN, NONE OF LICENSOR AND THE REGENXBIO LICENSORS SHALL BE LIABLE TO LICENSEE, LICENSEES SUCCESSORS OR ASSIGNS, ANY SUBLICENSEES, OR ANY THIRD PARTY WITH RESPECT TO: (a) ANY CLAIM
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ARISING FROM USE OF THE LICENSED PATENTS, LICENSED PRODUCTS, AND ANY OR ALL RIGHTS LICENSED UNDER THIS AGREEMENT OR FROM THE DEVELOPMENT, TESTING, MANUFACTURE, USE, OR SALE OF LICENSED PRODUCTS; OR (b) ANY CLAIM FOR LOSS OF PROFITS, LOSS OR INTERRUPTION OF BUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ANY ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 8.3 IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY UNDER SECTION 8.4 OR TO LIMIT A PARTYS LIABILITY FOR BREACHES OF ITS OBLIGATION REGARDING CONFIDENTIALITY UNDER Article 5.
8.4 Indemnification .
8.4.1 By Licensee . Licensee shall defend, indemnify, and hold harmless Licensor, the REGENXBIO Licensors, and their respective shareholders, members, officers, trustees, faculty, students, contractors, agents, and employees (individually, a Licensor Indemnified Party and, collectively, the Licensor Indemnified Parties ) from and against any and all Third Party liability, loss, damage, action, claim, fee, cost, or expense (including attorneys fees) (individually, a Third Party Liability and, collectively, the Third Party Liabilities ) suffered or incurred by the Licensor Indemnified Parties from claims of such Third Parties that result from or arise out of: [*]; provided, however, that Licensee shall not be liable for claims to the extent based on any breach by Licensor of the representations, warranties, or obligations of this Agreement or the gross negligence or intentional misconduct of any of the Licensor Indemnified Parties. Without limiting the foregoing, Licensee must defend, indemnify, and hold harmless the Licensor Indemnified Parties from and against any Third Party Liabilities resulting from:
(a) | any [*] or other claim of any kind related to the [*] by a Third Party of a Licensed Product that was [*] by Licensee, its Affiliates, any Sublicensees, their respective assignees, or vendors; |
(b) | any claim by a Third Party that [*]; and |
(c) | [*] conducted by or on behalf of Licensee, its Affiliates, any Sublicensees, their respective assignees, or vendors relating to the Licensed Patents or Licensed Products, including any claim by or [*]. |
8.4.2 By Licensor . Licensor shall defend, indemnify, and hold harmless Licensee, its shareholders, members, officers, contractors, agents, and employees (individually, a Licensee Indemnified Party and, collectively, the Licensee Indemnified Parties) from and against any and all Third Party Liabilities suffered or incurred by the Licensee Indemnified Parties from claims of such Third Parties that results from or arises out of: [*]; provided, however, that Licensor shall not be liable for claims based on any breach by Licensee of the representations, warranties, or obligations of this Agreement or the gross negligence or intentional misconduct of any of the Licensee Indemnified Parties.
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8.4.3 Indemnification Procedure . Each Party, as an indemnifying party (an Indemnifying Party ), shall not be permitted to settle or compromise any claim or action giving rise to Third Party Liabilities in a manner that imposes any restrictions or obligations on any indemnified party (an Indemnified Party ) without the other Partys prior written consent or, if Licensee is the Indemnifying Party, that grants any rights to the Licensed Patents or Licensed Products other than those Licensee has the right to grant under this Agreement without Licensors prior written consent. The Indemnifying Party shall be permitted to control any litigation or potential litigation involving the defense of any claim subject to indemnification pursuant to this Section 8.4, including the selection of counsel, with the reasonable approval of the Indemnified Party. Upon the Indemnifying Partys reasonable request, the Indemnified Parties will reasonably cooperate with the Indemnifying Party in the defense and settlement of any such claim, at the Indemnifying Partys cost and expense. If an Indemnifying Party fails or declines to assume the defense of any such claim or action within [*] after notice thereof, the Indemnified Party may assume the defense of such claim or action at the cost and risk of the Indemnifying Party, and any Third Party Liabilities related thereto shall be conclusively deemed a Third Party Liability of the Indemnifying Party. The indemnification rights of a Indemnified Party contained in this Agreement are in addition to all other rights that such Indemnified Party may have at law or in equity or otherwise. The Indemnifying Party will pay directly all Third Party Liabilities incurred for defense or negotiation of any claim hereunder or will reimburse the Indemnified Party for all documented Third Party Liabilities incident to the defense or negotiation of any such claim within [*] after the Indemnifying Partys receipt of invoices for such fees, expenses, and charges.
8.5 Insurance . Licensee will procure and maintain insurance policies for the following coverages with respect to product liability, personal injury, bodily injury, and property damage arising out of Licensees (and its Affiliates and any Sublicensees) performance under this Agreement: (a) during the term of this Agreement, comprehensive general liability, including broad form and contractual liability, in a minimum amount of [*] combined single limit per occurrence (or claim) and in the aggregate annually; (b) prior to the commencement of clinical trials involving Licensed Products and thereafter for a period of not less than [*] (or such longer period as Licensee is required by applicable law to continue to monitor the participants in the clinical trial), clinical trials coverage in amounts that are reasonable and customary in the U.S. pharmaceutical industry, subject always to a minimum limit of [*] combined single limit per occurrence (or claim) and in the aggregate annually; and (c) from prior to the first commercial sale of a Licensed Product until [*] after the last sale of a Licensed Product, product liability coverage, in amounts that are reasonable and customary in the U.S. pharmaceutical industry, subject always to a minimum limit of [*] combined single limit per occurrence (or claim) and in the aggregate annually. Licensor may review periodically the adequacy of the minimum amounts of insurance for each coverage required by this Section 8.5, and Licensor reserves the right to require Licensee to adjust the limits accordingly. The required minimum amounts of insurance do not constitute a limitation on Licensees liability or indemnification obligations to the Licensor Indemnified Parties under this Agreement. The policies of insurance required by this Section 8.5 will be issued by an insurance carrier with an A.M. best rating of [*] or better and will name Licensor as an additional insured with respect to Licensees performance (and its Affiliates and any Sublicensees) under this Agreement. Licensee will provide Licensor with insurance certificates evidencing the required coverage within [*] after the Effective Date and the commencement of each policy period and any renewal periods. Each certificate will provide that the insurance carrier will notify Licensor in writing at least [*] prior to the cancellation or material change in coverage. Licensee will cause all Sublicensees to comply with the terms of this Section 8.5 to the same extent as Licensee.
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ARTICLE 9: USE OF NAME
9.1 Licensee, its Affiliates, any Sublicensees, and all of its and their employees and agents must not use Licensors, the University of Pennsylvanias, or SmithKline Beecham Corporations name, seal, logo, trademark, or service mark (or any adaptation thereof) or the name, seal, logo, trademark, or service mark (or any adaptation thereof) of any of such entities representative, school, organization, employee, or student in any way without the prior written consent of Licensor or such entity, as applicable, unless required to do so pursuant to applicable law, rule, regulation or rules of a securities exchange; provided, however that Licensee may acknowledge the existence and general nature of this Agreement, subject to Section 5.2 or 5.3, as applicable.
9.2 Licensor and all of its employees and agents must not use Licensees name, seal, logo, trademark, or service mark (or any adaptation thereof) in any way without the prior written consent of Licensee; provided, however that Licensor may acknowledge the existence and general nature of this Agreement, subject to Section 5.2 or 5.3, as applicable, and refer to Licensee as a licensee of Licensor.
ARTICLE 10: ADDITIONAL PROVISIONS
10.1 Relationship . Nothing in this Agreement shall be deemed to establish a relationship of principal and agent between Licensee and Licensor, nor any of their agents or employees for any purpose whatsoever, nor shall this Agreement be construed as creating any other form of legal association or arrangement which would impose liability upon one Party for the act or failure to act of the other Party.
10.2 Assignment . The rights and obligations of Licensee and Licensor hereunder shall inure to the benefit of, and shall be binding upon, their respective permitted successors and assigns. Licensee may not assign or otherwise transfer (by operation of law or otherwise) this Agreement or any of its rights or obligations under this Agreement without the prior written consent of Licensor which consent is in the absolute discretion of Licensor; provided, however, Licensee shall be permitted to assign or otherwise transfer (by operation of law or otherwise ) in connection with a Change of Control without the consent of Licensor so long as Licensee: (i) requires any assignee, transferee, or successor to agree in writing to be legally bound by this Agreement to the same extent as Licensee and provides Licensor with a copy of such undertaking; (ii) provides Licensor with written notice of the Change of Control to Licensor within 5 days of the consummation of the transaction resulting in a Change of Control of Licensee; and (iii) provides Licensor with an unredacted copy of the definitive acquisition agreement for the Change of Control of Licensee with 5 days of the consummation of the transaction. Notwithstanding anything to the contrary in this Agreement, for clarity, in case of a Licensee Change of Control, in no event shall any intellectual property rights owned or controlled by the acquirer or its Affiliates immediately prior to such Licensee Change of Control be included in any of the licenses granted to Licensor under this Agreement. Licensor may
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assign this Agreement and its rights and obligations without the consent of Licensee. No assignment shall relieve the assigning Party of responsibility for the performance of any accrued obligations which it has prior to such assignment. Any attempted assignment by Licensee in violation of this Section 10.2 shall be null and void and of no legal effect.
10.3 Waiver . A waiver by either Party of a breach of any provision of this Agreement will not constitute a waiver of any subsequent breach of that provision or a waiver of any breach of any other provision of this Agreement.
10.4 Notices . Notices, payments, statements, reports, and other communications under this Agreement shall be in writing and shall be deemed to have been received as of the date received if sent by public courier ( e.g. , Federal Express), by Express Mail, receipt requested, by facsimile, or by electronic mail (with a copy of such facsimile or electronic mail also sent by one of the other methods of delivery) and addressed as follows:
If for Licensor: | with a copy to: | |
REGENXBIO Inc. 9712 Medical Center Drive Suite 100 Rockville, MD 20850 Attn: Chief Executive Officer Telephone: 240-552-8181 Facsimile: 240-652-9692 |
REGENXBIO Inc. 9712 Medical Center Drive Suite 100 Rockville, MD 20850 Attn: General Counsel Telephone: 240-552-8181 Facsimile: 240-652-9692 |
|
If for Licensee: | ||
Audentes Therapeutics, Inc. 101 Montgomery Street, Suite 2650 Attn: Matthew Patterson, President & CEO Telephone: 646-712-1001 Facsimile: Email: mpatterson@audentestx.com |
Fenwick and West, LLP. 1191 Second Avenue, 10th Floor Seattle, WA 98101 Attn: Effie Toshav Telephone: 206-389-4510 Facsimile: 206-389-4511 |
Either Party may change its official address upon written notice to the other Party in accordance with this Section 10.4
General communications required under this Agreement (including notices under Sections 2.2, 2.3, 2.6.2, 2.8.3, 3.7, 4.1, 4.2, 4.3, 7.1, 7.2, 7.3, 8.5 and 10.2 and notices of changes of address under this Section 10.4) may be sent by any of the means outlined in the first sentence of this Section 10.4 or a copy of the notice letter may be sent by electronic mail (without the requirement of a copy being sent by another means; provided that the receiving Party has confirmed receipt of such electronic mail); however, communications related to requests for disclosures of Confidential Information, breaches or termination of this Agreement, indemnification, and dispute resolution (including notices under Sections 5.2, 5.3, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 8.4 and 10.6) must be sent by one of the means outlined in the first sentence of this Section 10.4.
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10.5 Applicable Law . This Agreement shall be construed and governed in accordance with the laws of the State of Delaware, without giving effect to conflict of law provisions that may require the application of the laws of another jurisdiction. Subject to Section 10.6, the Parties hereby submit to the exclusive jurisdiction of and venue in the courts located in the State of Delaware with respect to any and all disputes concerning the subject of this Agreement.
10.6 Dispute Resolution . In the event of any controversy or claim arising out of or relating to this Agreement, the Parties shall first attempt to resolve such controversy or claim through good faith negotiations for a period of not less than [*] following notification of such controversy or claim to the other Party. If such controversy or claim cannot be resolved by means of such negotiations during such period, then such controversy or claim shall be resolved by binding arbitration administered by the American Arbitration Association ( AAA ) in accordance with the Commercial Arbitration Rules of the AAA in effect on the date of commencement of the arbitration, subject to the provisions of this Section 10.6. The arbitration shall be conducted as follows:
10.6.1 The arbitration shall be conducted by three arbitrators, each of whom by training, education, or experience has knowledge of the research, development, and commercialization of biological therapeutic products in the United States. The arbitration shall be conducted in English and held in New York, New York.
10.6.2 In its demand for arbitration, the Party initiating the arbitration shall provide a statement setting forth the nature of the dispute, the names and addresses of all other parties, an estimate of the amount involved (if any), the remedy sought, otherwise specifying the issue to be resolved, and appointing one neutral arbitrator. In an answering statement to be filed by the responding Party within [*] after confirmation of the notice of filing of the demand is sent by the AAA, the responding Party shall appoint one neutral arbitrator. Within [*] from the date on which the responding Party appoints its neutral arbitrator, the first two arbitrators shall appoint a chairperson.
10.6.3 If a Party fails to make the appointment of an arbitrator as provided in Section 10.6.2, the AAA shall make the appointment. If the appointed arbitrators fail to appoint a chairperson within the time specified in Section 10.6.2 and there is no agreed extension of time, the AAA shall appoint the chairperson.
10.6.4 The arbitrators will render their award in writing and, unless all Parties agree otherwise, will include an explanation in reasonable detail of the reasons for their award. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof, including in the courts described in Section 10.5. The arbitrators will have the authority to grant injunctive relief and other specific performance; provided that the arbitrators will have no authority to award damages in contravention of this Agreement, and each Party irrevocably waives any claim to such damages in contravention of this Agreement. The arbitrators will, in rendering their decision, apply the substantive law of the State of New York, without giving effect to conflict of law provisions that may require the application of the laws of another jurisdiction. The decision and award rendered by the arbitrators will be final and non-appealable (except for an alleged act of corruption or fraud on the part of the arbitrator).
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10.6.5 The Parties shall use their reasonable efforts to conduct all dispute resolution procedures under this Agreement as expeditiously, efficiently, and cost-effectively as possible.
10.6.6 All expenses and fees of the arbitrators and expenses for hearing facilities and other expenses of the arbitration will be borne equally by the Parties unless the Parties agree otherwise or unless the arbitrators in the award assess such expenses against one of the Parties or allocate such expenses other than equally between the Parties. Each of the Parties will bear its own counsel fees and the expenses of its witnesses except to the extent otherwise provided in this Agreement or by applicable law.
10.6.7 Compliance with this Section 10.6 is a condition precedent to seeking relief in any court or tribunal in respect of a dispute, but nothing in this Section 10.6 will prevent a Party from seeking equitable or other interlocutory relief in the courts of appropriate jurisdiction, pending the arbitrators determination of the merits of the controversy, if applicable to protect the confidential information, property, or other rights of that Party or to otherwise prevent irreparable harm that may be caused by the other Partys actual or threatened breach of this Agreement.
10.7 No Discrimination . Licensee and its Affiliates, and Licensee shall require that any Sublicensees, in their respective activities under this Agreement, shall not discriminate against any employee or applicant for employment because of race, color, sex, sexual, or affectional preference, age, religion, national, or ethnic origin, handicap, or because he or she is a disabled veteran or a veteran (including a veteran of the Vietnam Era).
10.8 Compliance with Law . Licensee (and its Affiliates and any Sublicensees) must comply with all prevailing laws, rules, and regulations that apply to its activities or obligations under this Agreement. Without limiting the foregoing, it is understood that this Agreement may be subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes, and other commodities, articles, and information, including the Arms Export Control Act as amended in the Export Administration Act of 1979 and that Licensees obligations are contingent upon compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may require a license from the cognizant agency of the United States Government and/or written assurances by Licensee that Licensee shall not export data or commodities to certain foreign countries without prior approval of such agency. Licensor neither represents that a license is not required nor that, if required, it will issue.
10.9 Entire Agreement . This Agreement embodies the entire understanding between the Parties relating to the subject matter hereof and supersedes all prior understandings and agreements, whether written or oral. All Confidential Information disclosed by the Parties pursuant to such Confidential Disclosure Agreement shall be deemed Confidential Information under this Agreement (unless and until it falls within one of the exclusions set forth in Section 1.9). This Agreement may not be varied except by a written document signed by duly authorized representatives of both Parties.
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10.10 Marking . Licensee, its Affiliates, and any Sublicensees shall mark any Licensed Product (or their containers or labels) made, sold, or otherwise distributed by it or them with any notice of patent rights necessary or desirable under applicable law to enable the Licensed Patents to be enforced to their full extent in any country where Licensed Products are made, used, sold, offered for sale, or imported.
10.11 Severability and Reformation . If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such invalid or unenforceable provision will be automatically revised to be a valid or enforceable provision that comes as close as permitted by law to the Parties original intent; provided that, if the Parties cannot agree upon such valid or enforceable provision, the remaining provisions of this Agreement will remain in full force and effect, unless the invalid or unenforceable provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid or unenforceable provisions.
10.12 Further Assurances . Each Party hereto agrees to execute, acknowledge, and deliver such further instruments, and to do all other reasonable acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
10.13 Interpretation; Construction . The captions to the several Articles and Sections of this Agreement are included only for convenience of reference and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. In this Agreement, unless the context requires otherwise, (a) the word including shall be deemed to be followed by the phrase without limitation or like expression; (b) references to the singular shall include the plural and vice versa; (c) references to masculine, feminine, and neuter pronouns and expressions shall be interchangeable; (d) the words herein or hereunder relate to this Agreement; (e) or is disjunctive but not necessarily exclusive; (f) the word will shall be construed to have the same meaning and effect as the word shall; (g) all references to dollars or $ herein shall mean U.S. Dollars; (h) unless otherwise provided, all reference to Sections, Articles, and exhibits in this Agreement are to Sections, Articles, and exhibits of and in this Agreement; and (i) whenever this Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified. Business days shall mean a day on which banking institutions in Washington, D.C. are open for business. Each Party represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof. In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption will apply against the Party which drafted such terms and provisions.
10.14 Cumulative Rights and Remedies . The rights and remedies provided in this Agreement and all other rights and remedies available to either Party at law or in equity are, to the extent permitted by law, cumulative and not exclusive of any other right or remedy now or hereafter available at law or in equity. Neither asserting a right nor employing a remedy shall preclude the concurrent assertion of any other right or employment of any other remedy, nor shall the failure to assert any right or remedy constitute a waiver of that right or remedy.
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10.15 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.
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IN WITNESS WHEREOF, the Parties, intending to be legally bound, have caused this License Agreement to be executed by their duly authorized representatives.
REGENXBIO INC. | AUDENTES THERAPEUTICS, INC. | |||||||
By: | /s/ Kenneth T. Mills | By: | /s/ Matthew R. Patterson | |||||
Name: Kenneth T. Mills |
Name: Matthew R. Patterson | |||||||
Title: President & CEO |
Title: President & CEO |
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Exhibit A
Licensed Patents (AAV9)
Application # |
Patent # | Filing Date | Country | Status | ||||
[*] |
[*] | [*] | [*] | [*] |
*Confidential Treatment Requested. |
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Exhibit B
Inherited Arrhythmias
[*]
*Confidential Treatment Requested. |
Exhibit C
Press Release
In process to be agreed to by both parties
EXHIBIT 10.17
* Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. |
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EXECUTION COPY
LICENSE AGREEMENT
This LICENSE AGREEMENT ( Agreement ) is entered into as of November 3, 2015 ( Effective Date ) by and between REGENXBIO Inc., a corporation organized under the laws of the State of Delaware, with offices at 9712 Medical Center Drive, Suite 100, Rockville, MD 20850 ( Licensor ), and Audentes Therapeutics, Inc., a corporation organized under the laws of the State of Delaware, with offices at 101 Montgomery Street, Suite 2650, San Francisco, California, 94104 ( Licensee ). Licensor and Licensee are hereinafter referred to individually as a Party and collectively as the Parties .
WHEREAS, Licensor has rights under certain Licensed Patents (as defined herein) pertaining to certain recombinant adeno-associated virus serotype 8 vectors; and
WHEREAS, Licensee desires to obtain an exclusive license under the Licensed Patents under the terms set forth herein;
NOW, THEREFORE, in consideration of the promises and covenants contained in this Agreement, and intending to be legally bound, the Parties hereby agree as follows:
ARTICLE 1: DEFINITIONS
1.1 AAV8 means (a) the recombinant adeno-associated virus serotype 8 vector with the specified sequence set forth in GenBank [*] and (b) any recombinant adeno-associated virus derivatives of such serotype 8 vector that are covered by the claims of the Licensed Patents.
1.2 Affiliate means any legal entity directly or indirectly, during the term of this Agreement, controlling, controlled by, or under common control with another entity. For purposes of this Agreement, control means the direct or indirect ownership of more than 50% of the outstanding voting securities of a legal entity, or the right to receive more than 50% of the profits or earnings of a legal entity, or the right to control the policy decisions of a legal entity. An entity may be or become an Affiliate of an entity and may cease to be an Affiliate of an entity, in each case, during the term of this Agreement.
1.3 Calendar Quarter means each three-month period or any portion thereof, beginning on January 1, April 1, July 1, and October 1.
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1.4 Change of Control means (i) any transaction or series of related transactions following which the holders of Licensees capital stock or membership or equity interests immediately prior to such transaction or series of related transactions collectively are the owners of less than 50% of the outstanding equity interests of Licensee entitled to (a) vote with respect to the election of directors (or positions having a similar function) or (b) receive the proceeds upon any sale, liquidation or dissolution of Licensee, (ii) a sale, transfer, or other disposition, in a single transaction or series of related transactions, of all or a material portion of Licensees interest in the Licensed Product (iii) a sale, transfer, or other disposition, in a single transaction or series of related transactions, of all or a material portion of Licensees right title, or interest in its assets taken as a whole, (iv) an initial public offering of the stock of Licensee; or (v) the merger of Licensee with a Third Party by operation of law or otherwise.
1.5 Confidential Information means and includes all technical information, inventions, developments, discoveries, software, know-how, methods, techniques, formulae, animate and inanimate materials, data, processes, finances, business operations or affairs, and other proprietary ideas, whether or not patentable or copyrightable, of either Party that are (a) marked or otherwise identified as confidential or proprietary at the time of disclosure in writing; or (b) if disclosed orally, visually, or in another non-written form, identified as confidential at the time of disclosure and summarized in reasonable detail in writing as to its general content within 30 days after original disclosure. The Parties acknowledge that (i) the terms and conditions of this Agreement will be deemed the Confidential Information of both Parties and (ii) the records and reports referred to in Section 3.6 will be deemed the Confidential Information of Licensee, regardless of whether such information is marked or identified as confidential. In addition, information provided to Licensee pursuant to the provisions of Section 7.1 will be deemed the Confidential Information of Licensor, regardless of whether such information is marked or identified as confidential. Notwithstanding the foregoing, Confidential Information will not include the following, in each case, to the extent evidenced by competent written proof of the Receiving Party:
1.5.1 information that was already known to the Receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the Disclosing Party;
1.5.2 information that was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party;
1.5.3 information that became generally available to the public or otherwise part of the public domain after its disclosure, other than through any act or omission of the Receiving Party in breach of this Agreement;
1.5.4 information that is independently discovered or developed by the Receiving Party without the use of Confidential Information of the Disclosing Party; or
1.5.5 information that was disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the Disclosing Party not to disclose such information to others.
1.6 Disclosing Party has the meaning set forth in Section 5.1.
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1.7 Domain Antibody [*]
1.8 FDA means the United States Food and Drug Administration, or a successor agency in the United States with responsibilities comparable to those of the United States Food and Drug Administration.
1.9 Field means the treatment of Crigler-Najjar syndrome in humans by in vivo gene therapy using AAV8.
1.10 GSK Agreement means that certain License Agreement entered into between Licensor and SmithKline Beecham Corporation, effective on March 6, 2009, as amended by that certain Amendment to License Agreement dated April 15, 2009, and as amended from time to time.
1.11 Licensed Patents means, to the extent they cover AAV8, (a) all United States patents and patent applications listed in Exhibit A , including patents arising from such patent applications and (b) any re-examination certificates thereof, (c) the foreign counterparts of the patents and patent applications in subsections (a) and (b), and (d) extensions, continuations, divisionals, and re-issue applications of the patents and patent applications in subsections (a), (b) and (c); provided that Licensed Patents will not include any claim of a patent or patent application covering Manufacturing Technology which is owned or controlled by Licensor.
1.12 Licensed Product means (a) any AAV8 product that is made, made for, used, sold, offered for sale, or imported by Licensee, its Affiliates, and any of its or their Sublicensees, the manufacture, use, sale, offer for sale, or import of which product, in the absence of the license granted pursuant to this Agreement, would infringe or is covered by at least one Valid Claim of the Licensed Patents in the country of manufacture, use, sale, offer for sale, or import, including products manufactured by a process that would infringe or is covered by at least one Valid Claim of the Licensed Patents in the country of manufacture, use, sale, offer for sale, or import; or (b) any service sold by Licensee, its Affiliates, and any of its or their Sublicensees with respect to the administration of any AAV8 product to patients that, in the absence of the licenses granted pursuant to this Agreement, would infringe or is covered by at least one Valid Claim of the Licensed Patents in the country of sale.
1.13 Licensee Inventions means any new or improved composition of matter, process, method, formula, information, product, invention (whether or not patentable or otherwise protectable), discovery, idea, material, or other know-how that is first discovered, produced, conceived, or reduced to practice by or on behalf of Licensee, its Affiliates, or any of its or their Sublicensees during the term of the Agreement in connection with the exercise of any rights granted under this Agreement that relate to or are applicable to the inventions claimed in the Licensed Patents; provided that any new or improved process, method, formula, information, invention (whether or not patentable or otherwise protectable), discovery, idea, or other know-how solely to the extent that it covers Manufacturing Technology shall not be included in Licensee Inventions.
1.14 Manufacturing Technology means any and all patents, patent applications, know-how, and all intellectual property rights associated therewith, and including all tangible embodiments thereof, that are claim, cover or relate to the manufacture of adeno-associated viruses, adeno-
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associated virus vectors, research or commercial reagents related thereto, Licensed Products, or other products, including manufacturing processes, technical information relating to the methods of manufacture, protocols, standard operating procedures, batch records, assays, formulations, quality control data, specifications, scale up methods, any and all improvements, modifications, and changes thereto, and any and all activities associated with such manufacture. Any and all chemistry, manufacturing, and controls (CMC), drug master files (DMFs), or similar materials provided to regulatory authorities and the information contained therein are deemed Manufacturing Technology.
1.15 Marketing Authorization means all approvals, licenses, registrations or authorizations of any federal, state or local regulatory agency, department, bureau or other governmental entity, necessary for the manufacturing, use, storage, import, transport, marketing and sale of Licensed Products in a country or regulatory jurisdiction.
1.16 NDA means a New Drug Application filed with the FDA as described in 21 C.F.R. § 314, a Biological License Application (BLA) pursuant to 21 C.F.R. § 601.2, or any equivalent or any corresponding application for regulatory approval in any country or regulatory jurisdiction other than the United States.
1.17 Net Sales means the gross receipts from sales or other disposition of a Licensed Product (including fees for services within the definition of Licensed Product) by Licensee and/or its Affiliates and/or any Sublicensees to Third Parties less the following deductions that are directly attributable to a sale, specifically and separately identified on an invoice or other documentation and actually borne by Licensee, its Affiliates, or any Sublicensees: [*] In the event consideration other than cash is paid to Licensee, its Affiliates, or any Sublicensees, for purposes of determining Net Sales, the Parties shall use the cash consideration that Licensee, its Affiliates, or any Sublicensees would realize from an unrelated buyer in an arms length sale of an identical item sold in the same quantity and at the time and place of the transaction, as determined jointly by Licensor and Licensee based on transactions of a similar type and standard industry practice, if any.
1.18 Penn Agreement means that certain License Agreement entered into between Licensor and The Trustees of the University of Pennsylvania, effective on February 24, 2009, as amended by that letter agreement dated March 6, 2009 and by that certain Second Amendment to License Agreement effective on September 9, 2014, and as amended from time to time.
1.19 Phase 3 Clinical Trial means a pivotal clinical trial in humans performed to gain evidence with statistical significance of the efficacy of a product in a target population, and to obtain expanded evidence of safety for such product that is needed to evaluate the overall benefit-risk relationship of such product, to form the basis for approval of an NDA and to provide an adequate basis for physician labeling, as described in 21 C.F.R. § 312.21(c) or the corresponding regulation in jurisdictions other than the United States.
1.20 Prosecute means preparation, filing, and prosecuting patent applications and maintaining patents, including any reexaminations, reissues, oppositions, inter partes review, and interferences.
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1.21 Receiving Party has the meaning set forth in Section 5.1.
1.22 REGENXBIO Licensors means SmithKline Beecham Corporation (or any successor thereto under the GSK Agreement) and The Trustees of the University of Pennsylvania (or any successor thereto under the Penn Agreement).
1.23 Restricted Field means, collectively, (a) the Field, (b) the treatment of X-linked myotubular myopathy (XLMTM) in humans by in vivo gene therapy in humans using AAV8 or AAV9, (c) the treatment of Pompe Disease (GAA deficiency) in humans by in vivo gene therapy in humans using AAV8 or AAV9, and/or (d) the Commercial Field (as defined in that certain License Agreement entered into between Licensor and Licensee on November 3, 2015).
1.24 Retained Rights has the meaning set forth in Section 2.2.
1.25 Sublicensee means (i) any Third Party or Affiliate to whom Licensee grants a sublicense of some or all of the rights granted to Licensee under this Agreement as permitted by this Agreement; and (ii) any other Third Party or Affiliate to whom a sublicensee described in clause (i) has granted a further sublicense as permitted by this Agreement.
1.26 Third Party means any person or entity other than a Party to this Agreement or Affiliates of a Party to this Agreement.
1.27 Valid Claim means a claim of an issued and unexpired patent (including any patent claim the term of which is extended by any extension, supplementary protection certificate, patent term restoration, or the like) included within the Licensed Patents or a claim of a pending patent application included within the Licensed Patents, which has not lapsed, been abandoned, been held revoked, or been deemed unenforceable or invalid by a non-appealable decision or an appealable decision from which no appeal was taken within the time allowed for such appeal of a court or other governmental agency of competent jurisdiction.
ARTICLE 2: LICENSE GRANT
2.1 License Grant . Subject to the terms and conditions of this Agreement, including the Retained Rights, Licensor hereby grants to Licensee an exclusive, sublicensable (as provided in Section 2.4 only), non-transferable (except as provided in Section 10.2), royalty-bearing, worldwide license, under the Licensed Patents to make, have made, use, import, sell, and offer for sale Licensed Products solely in the Field, including, for the avoidance of doubt, the right to conduct research and development.
2.2 Retained Rights . Except for the rights and licenses specified in Section 2.1, no license or other rights are granted to Licensee under any intellectual property of Licensor, whether by implication, estoppel, or otherwise and whether such intellectual property is subordinate, dominant, or otherwise useful for the practice of the Licensed Patents. Notwithstanding anything to the contrary in this Agreement, Licensor may use and permit others to use the Licensed Patents for any research, development, commercial, or other purposes outside of the Field. Without limiting the foregoing, and notwithstanding anything in this Agreement to the contrary, Licensee acknowledges and agrees that the following rights are retained by Licensor and the REGENXBIO Licensors (individually and collectively, the Retained Rights ), whether inside or outside the Field:
2.2.1 The rights and licenses granted in Section 2.1 shall not include any right (and Licensor and the REGENXBIO Licensors retain the exclusive (even as to Licensee), fully sublicensable right) under the Licensed Patents to make, have made, use, sell, offer to sell, and import Domain Antibodies that are expressed by an adeno-associated vector, including AAV8.
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2.2.2 Licensor and the REGENXBIO Licensors retain the following rights with respect to the Licensed Patents:
(a) | A non-exclusive, sublicensable right under the Licensed Patents to make, have made, use, sell, offer to sell, and import products that deliver RNA interference and antisense drugs using an adeno-associated vector, including AAV8; and |
(b) | A non-exclusive right for the REGENXBIO Licensors (which right is sublicensable by the REGENXBIO Licensors) to use the Licensed Patents for non-commercial research purposes and to use the Licensed Patents for such REGENXBIO Licensors discovery research efforts with non-profit organizations and collaborators. |
2.2.3 The rights and licenses granted in Section 2.1 shall not include any right (and Licensor retains the exclusive (even as to Licensee), fully sublicensable right) under the Licensed Patents:
(a) | to conduct commercial reagent and services businesses, which includes the right to make, have made, use, sell, offer to sell, and import research reagents, including any viral vector construct; provided that, for clarity, such rights retained by Licensor shall not include the right to conduct clinical trials in humans in the Field; or |
(b) | to use the Licensed Patents to provide services to any Third Parties; provided that Licensees license under Section 2.1 does include the right to provide the service of the administration of Licensed Products to patients. |
2.2.4 Licensor retains the fully sublicensable right under the Licensed Patents to grant non-exclusive research and development licenses to Affiliates and Third Parties; provided that such development rights granted by Licensor shall not include the right to conduct clinical trials in humans in the Field or any rights to sell products in the Field.
2.2.5 The Trustees of the University of Pennsylvania may use and permit other non-profit organizations or other non-commercial entities to use the Licensed Patents for educational and research purposes.
2.3 Government Rights . Licensee acknowledges that the United States government retains certain rights in intellectual property funded in whole or part under any contract, grant, or similar
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agreement with a federal agency. The license grant hereunder is expressly subject to all applicable United States government rights, including any applicable requirement that products resulting from such intellectual property sold in the United States must be substantially manufactured in the United States.
2.4 Sublicensing .
2.4.1 The license granted pursuant to Section 2.1 is sublicensable by Licensee to any Affiliates or Third Parties [*]; provided that any such sublicense must comply with the provisions of this Section 2.4 (including Section 2.4.2).
2.4.2 The right to sublicense granted to Licensee under this Agreement is subject to the following conditions:
(a) | Licensee may only grant sublicenses pursuant to a written sublicense agreement with the Sublicensee. Licensor must receive written notice as soon as practicable following execution of any such sublicenses. Any further sublicenses granted by any Sublicensees (to the extent permitted hereunder) must comply with the provisions of this Section 2.4 (including Section 2.4.2) to the same extent as if Licensee granted such sublicense directly. |
(b) | In each sublicense agreement, the Sublicensee must be required to comply with all applicable terms and conditions of this Agreement to the same extent as Licensee has agreed and must acknowledge that Licensor is an express third party beneficiary of such terms and conditions under such sublicense agreement. |
(c) | The official language of any sublicense agreement shall be English. |
(d) | Within [*] after entering into a sublicense, Licensor must receive a copy of the sublicense written in the English language for Licensors records and to share with the REGENXBIO Licensors. The copy of the sublicense may be redacted to exclude confidential information of the applicable Sublicensee, but such copy shall not be redacted to the extent that it impairs Licensors (or the REGENXBIO Licensors) ability to ensure compliance with this Agreement; provided that, if either of the REGENXBIO Licensors requires a complete, unredacted copy of the sublicense, Licensee shall provide such complete, unredacted copy. |
(e) | Licensees execution of a sublicense agreement will not relieve Licensee of any of its obligations under this Agreement. Licensee is and shall remain [*] to Licensor for all of Licensees duties and obligations contained in this Agreement and for any act or omission of an Affiliate or Sublicensee that would be a breach of this Agreement if performed or omitted by Licensee, and Licensee will be deemed to be in breach of this Agreement as a result of such act or omission. |
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2.5 Non-Exclusive License Under Licensee Inventions . Licensee hereby grants to Licensor a non-exclusive, worldwide, royalty-free, transferable, sublicensable, irrevocable, perpetual license under Licensee Inventions to practice the Licensee Inventions in connection with AAV8 outside of the Restricted Field, including, for avoidance of doubt, the right to conduct research and develop and commercialize products and services outside of the Restricted Field.
2.6 Improvements .
2.6.1 Licensee hereby grants to Licensor a non-exclusive, worldwide, royalty-free, transferable, sublicensable, irrevocable, perpetual license:
(a) | to use any Licensed Back Improvements (and any intellectual property rights with respect thereto) consummate in scope to the Retained Rights, and |
(b) | to practice the Licensed Back Improvements (and any intellectual property rights with respect thereto) in connection with AAV8, including the right to research, develop, make, have made, use, offer for sale, and sell products and services; provided that Licensor shall have no right, under the license in this Section 2.6.1(b), to practice the Licensed Back Improvements in the Restricted Field. |
2.6.2 For purposes of this Agreement, Licensed Back Improvements means any [*] to any vector that is the subject of a claim within the Licensed Patents during the term of the Agreement, which improvements or modifications are developed by Licensee or any of its Affiliates during the term of this Agreement or by any Sublicensee during the term of any sublicense agreement with such Sublicensee.
2.6.3 Licensee agrees to provide prompt notice to Licensor upon the filing of any patent application covering any Licensee Inventions and/or any Licensed Back Improvement, together with a reasonably detailed description of or access to such Licensee Inventions and/or Licensed Back Improvement to permit the practice of any such invention or improvement. For clarity, Licensee shall have no obligation under this Agreement to deliver to Licensor any tangible embodiments of the Licensee Inventions and/or Licensed Back Improvements, if any.
2.7 Section 365(n) of the Bankruptcy Code . All rights and licenses granted to Licensee or Licensor under or pursuant to this Agreement are and will otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (Title 11, U.S. Code), as amended (the Bankruptcy Code ) or any comparable law outside the United States, licenses of rights to intellectual property as defined in Section 101(35A) of the Bankruptcy Code. The Parties will retain and may fully exercise all of their respective rights and elections under the Bankruptcy Code and any comparable law outside the United States.
ARTICLE 3: CONSIDERATION
3.1 Initial Fee . In partial consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall pay Licensor: (i) an initial fee of $200,000 upon the Effective Date, and (ii) $400,000 upon the earlier of (a) the execution of a license agreement between
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Licensee and a Third Party for Third Party intellectual property required for the development of a Licensed Product, and (b) twelve (12) months after the Effective Date; provided that any unpaid portion of the initial fee will be immediately payable upon any termination of this Agreement.
3.2 Annual Maintenance Fee . In partial consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall pay Licensor on-going annual maintenance fees of [*] on each anniversary of the Effective Date.
3.3 Milestone Fees .
3.3.1 In partial consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall pay Licensor the following milestone payments for each Licensed Product to achieve such milestone event:
For clarity, the milestone payments set forth in this Section 3.3 are payable regardless of whether the milestone is achieved by Licensee, any Affiliate, or any Sublicensee, and regardless of whether the milestone is achieved by more than one Licensed Product.
3.3.2 To the extent that either of the first two development milestones in Section 3.3.1 ( i.e ., first treatment of a human subject in a clinical trial or first treatment in Phase 3 Clinical Trial) has not been paid at the time of achievement of either the NDA or Marketing Authorization submission milestone ( i.e. , milestones 3 and 4 in Section 3.3.1), then, upon the achievement of either of such submission milestones, the preceding unpaid development milestone payments shall be made in addition to the payment corresponding to the applicable submission milestone that has been achieved.
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3.4 Royalties . In further consideration of the rights and licenses granted to Licensee under this Agreement, Licensee shall pay to Licensor the following royalties based upon Net Sales of Licensed Products, subject to the reductions in royalty rates set forth in Section 3.4.1:
Cumulative Annual Net Sales of all Licensed Products Worldwide |
Royalty Percentage | |||
Portion of Net Sales in a calendar year less than $300 million |
[ | *] | ||
Portion of Net Sales in a calendar year between (and including) $300 million through (and including) $600 million |
[ | *] | ||
Portion of Net Sales in a calendar year greater than $600 million |
[ | *] |
3.4.1 Third Party Royalties Stacking Provision . If Licensee must obtain a license from a Third Party to avoid infringement of such Third Partys rights in order to manufacture, use, or commercialize a given Licensed Product and if the royalties required to be paid to such Third Party for such license, together with those royalties payable to Licensor, in the aggregate, exceed [*] of Net Sales for any Licensed Product, then the royalty owed to Licensor for that Licensed Product will be reduced by an amount calculated as follows:
STACKING ROYALTY CALCULATIONS
R = (C * (A / (A+B)))
Where
R = reduction of Licensor royalty,
A = unreduced Licensor royalty,
B = sum of all Third Party royalties,
C = increment of projected total royalty above [*]
Example Calculation:
Assume: | i) | all Third Party royalties = [*] | ||||||
ii) | unreduced Licensor royalty = [*] | |||||||
iii) | projected total royalty = [*] |
R = ([*] [*]) * ([*] / ([*] + [*])) R = ([*] *[*]) R = [*] Licensor Stacked Royalty = [*] [*] = [*]% (but subject to the cap described below) |
Notwithstanding the foregoing, Licensee will pay to Licensor no less than [*]% of the royalties that Licensee would otherwise pay to Licensor with respect to Net Sales of Licensee if there were no royalties due to Third Parties.
3.4.2 Adjustment of Royalties For Licenses . On a Licensed Product-by-Licensed Product, country-by-country basis, upon the date on which the manufacture, use, sale, offer for sale, or import of a Licensed Product does not infringe or is not covered by a Valid Claim in such country, then the royalty percentage applicable to Net Sales of such Licensed Product under this Section 3.4 in such country shall be reduced by [*]%.
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3.4.3 Royalty Payment Period . Licensees obligation hereunder for payment of a royalty under this Section 3.4 on the Net Sales of Licensed Products in a given country will end on a country-by-country, Licensed Product-by-Licensed Product basis on the later of (i) expiration, lapse, abandonment, or invalidation of the last Valid Claim of the Licensed Patents to expire, lapse, become abandoned or become unenforceable for the applicable Licensed Product, or (ii) [*] from the first commercial sale.
3.5 Sublicense Fees & Priority Review Voucher Transfer Fee .
3.5.1 In further consideration of the rights and licenses granted to Licensee under this Agreement, Licensee will pay Licensor [*] percent ([*]%) of any (i) sublicense fees (including upfront and milestone payments) received by Licensee or its Affiliates for the Licensed Products from any Sublicensee or from any person or entity granted any option to obtain a sublicense.
3.5.2 In further consideration of the rights and licenses granted to Licensee under this Agreement, Licensee will pay Licensor [*] percent ([*]%) of the fees related to the sale or other transfer to a Third Party rights under any priority review voucher issued in connection with or otherwise related to a Licensed Product, provided, however, that this clause shall not apply to any such sale or other transfer that is made in connection with a change of control of Licensee or its Affiliates.
3.5.3 With respect to the obligations under this Section 3.5, Licensee shall not be required to submit any amounts received from a Third Party for the following:
(a) | Reimbursement or payment of Licensees actual costs or on an arms length cost plus arrangement for research, development, and/or manufacturing activities performed by Licensee or its Affiliates corresponding directly to the research, development and/or manufacturing of Licensed Products pursuant to a specific agreement; |
(b) | Any and all amounts paid to Licensee or its Affiliates by a Sublicensee as royalties (or other similar payments, e.g. , profit share) on sales of Licensed Product sold by the Sublicensee under a sublicense agreement; and |
(c) | Consideration received for the purchase of an equity interest in Licensee or its Affiliates at fair market value or in the form of loans at arms length rates of interest. |
3.5.4 If Licensee or its Affiliates receives sublicense fees from Sublicensees or from any person or entity granted any option to obtain a sublicense under this Agreement in the form of non-cash consideration, then Licensee shall pay Licensor a cash payment as required under Section 3.5 determined based on the fair market value of such non-cash consideration. If Licensee or its Affiliate enters into any sublicense that is not an arms length transaction, fees
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due under this Section 3.5 will be calculated based on the fair market value of such transaction, at the time of the transaction, assuming an arms length transaction made in the ordinary course of business, as determined jointly by Licensor and Licensee based on transactions of a similar type and standard industry practice, if any.
3.5.5 To the extent Licensee receives payment from a Third Party relating to one or more of the milestone events set forth in the table in Section 3.3, then the amount of the payment made to Licensor under such Section 3.3 with respect to such milestone event shall not be deemed sublicense fees under this Section 3.5; instead, the amounts due under this Section 3.5 shall be calculated by applying the applicable sublicense fee rate set forth in Section 3.5.1 above to the sublicense fees received by Licensee from such Third Party after deducting the amount of the payment under Section 3.3.
3.6 Reports and Records .
3.6.1 Licensee must deliver to Licensor within [*] after the end of each Calendar Quarter after the first commercial sale of a Licensed Product a report setting forth the calculation of the royalties due to Licensor for such Calendar Quarter, including:
(a) | Number of Licensed Products included within Net Sales, listed by country; |
(b) | Gross consideration for Net Sales of Licensed Product, including all amounts invoiced, billed, or received; |
(c) | Qualifying costs to be excluded from the gross consideration, as described in Section 1.18, listed by category of cost; |
(d) | Net Sales of Licensed Products listed by country; |
(e) | A detailed accounting of any royalty reductions applied pursuant to Section 3.4.1; |
(f) | Royalties owed to Licensor listed by category; and |
(g) | The computations for any applicable currency conversions. |
3.6.2 Licensee shall pay the royalties due under Section 3.4 within [*] following the last day of the Calendar Quarter in which the royalties accrue. Licensee shall send the royalty payments along with the report described in Section 3.6.1.
3.6.3 Within [*] after the occurrence of a milestone event described in Section 3.3, Licensee must deliver to Licensor a report describing the milestone event that occurred, together with a payment of the applicable amount due to Licensor pursuant to Section 3.3.
3.6.4 Within [*] after the receipt of any fees from any Sublicensee as described in Section 3.5, Licensee must deliver to Licensor a report describing the fees received, together with a payment of the applicable amount due to Licensor pursuant to Section 3.5.
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3.6.5 All financial reports under this Section 3.6 will be certified by the chief financial officer of Licensee or Licensees qualified financial representative.
3.6.6 Licensee shall maintain and require its Affiliates and all Sublicensees to maintain, complete and accurate books and records which enable the royalties, fees, and payments payable under this Agreement to be verified. The records must be maintained for [*] after the submission of each report under Article 3. Upon reasonable prior written notice to Licensee, Licensee and its Affiliates and all Sublicensees will provide Licensor and/or the REGENXBIO Licensors (and their respective accountants) with access to all of the relevant books, records, and related background information required to conduct a review or audit of the royalties, fees, and payments payable to Licensor under this Agreement to be verified. Access will be made available: (a) during normal business hours; (b) in a manner reasonably designed to facilitate the auditing partys review or audit without unreasonable disruption to Licensees business; and (c) no more than once each calendar year during the term of this Agreement and for a period of [*] thereafter. Licensee will promptly pay to Licensor the amount of any underpayment determined by the review or audit, plus accrued interest. If the review or audit determines that Licensee has underpaid any payment by [*] or more, then Licensee will also promptly pay the costs and expenses of Licensor and the REGENXBIO Licensors and their respective accountants in connection with the review or audit. If the review or audit determines that Licensee has overpaid any payment, then Licensor shall refund the overpayment to Licensee.
3.7 Currency, Interest .
3.7.1 All dollar amounts referred to in this Agreement are expressed in United States dollars. All payments to Licensor under this Agreement must be made in United States dollars.
3.7.2 If Licensee receives payment in a currency other than United States dollars for which a royalty or fee or other payment is owed under this Agreement, then (a) the payment will be converted into United States dollars at the conversion rate for the foreign currency as published in the eastern edition of the Wall Street Journal , N.Y. edition, as of the last business day of the Calendar Quarter in which the payment was received by Licensee; and (b) the conversion computation will be documented by Licensee in the applicable report delivered to Licensor under Section 3.6.
3.7.3 All amounts that are not paid by Licensee when due will accrue interest from the date due until paid at a rate equal to 1.5% per month (or the maximum allowed by law, if less).
3.8 Taxes and Withholding .
3.8.1 All payments hereunder will be made free and clear of, and without deduction or deferment in respect of, and Licensee shall pay and be responsible for, and shall hold Licensor harmless from and against, any taxes, duties, levies, fees, or charges, including sales, use, transfer, excise, import, and value added taxes (including any interest, penalties, or additional amounts imposed with respect thereto) but excluding withholding taxes to the extent provided in Section 3.8.2. At the request of Licensee, Licensor will give Licensee such reasonable assistance, which will include the provision of documentation as may be required by the relevant tax authority, to enable Licensee to pay and report and, as applicable, claim exemption from or reduction of, such tax, duty, levy, fee, or charge.
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3.8.2 If any payment made by Licensee hereunder becomes subject to withholding taxes with respect to Licensors gross or net income under the laws of any jurisdiction, Licensee will deduct and withhold the amount of such taxes for the account of Licensor to the extent required by law and will pay the amounts of such taxes to the proper governmental authority in a timely manner and promptly transmit to Licensor appropriate proof of payment of such withholding taxes. At the request of Licensor, Licensee will give Licensor such reasonable assistance, which will include the provision of appropriate certificates of such deductions made together with other supporting documentation as may be required by the relevant tax authority, to enable Licensor to claim exemption from or reduction of, or otherwise obtain repayment of, such withholding taxes, and will upon request provide such additional documentation from time to time as is reasonably required to confirm the payment of withholding tax.
ARTICLE 4: DILIGENCE
4.1. Diligence Obligations . Licensee will use commercially reasonable efforts to develop, commercialize, market, promote, and sell Licensed Products in the Field. Commercially reasonable efforts means efforts equivalent to those utilized [*] Without limiting the foregoing, Licensee will meet the following: acceptance by the FDA of an Investigational New Drug application, or acceptance by the European Medicines Agency (or any successor entity thereto) of an equivalent application, for a Licensed Product in the Field by no later than [*] after the Effective Date; provided, however, that, if Licensee expects not to achieve the milestone on or before the specified deadline, Licensee may pay Licensor an extension fee of $[*] on or before such deadline and the deadline shall then be extended by an additional [*]. Licensee will provide Licensor written notice within [*] of achieving the milestone.
4.2 Development Plans .
4.2.1 For each Licensed Product in the Field, Licensee will prepare and deliver to Licensor a development plan and budget (each a Development Plan ). The initial Development Plans for the Licensed Product in the Field will be delivered within [*] after the Effective Date.
4.2.2 Each Development Plan will cover the next 2 years, and will include future development activities to be undertaken by Licensee, its Affiliates, or any Sublicensees during the next reporting period under Section 4.3 relating directly to the Licensed Product, Licensees strategy to bring the Licensed Product to commercialization, and projected timeline for completing the necessary tasks to accomplish the goals of the strategy.
4.2.3 Following receipt by Licensor of each Development Plan, Licensor will promptly notify Licensee of any comments or requested revisions, and the Parties will thereupon negotiate any appropriate revisions in good faith. With respect to development milestones to be set forth in the initial Development Plans for Field, the Parties will agree upon reasonable milestones and completion dates to be set forth in the Development Plan (and any amendments thereto).
4.3 Reporting . Within [*] after the Effective Date and within [*] of each December 1 thereafter, Licensee shall provide Licensor with written progress reports, setting forth in such
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detail as Licensor may reasonably request, the progress of the development, evaluation, testing, and commercialization of each Licensed Product. Licensee will also notify Licensor within [*] of the first commercial sale by Licensee, its Affiliates, or any Sublicensees of each Licensed Product. Such a report ( Development Progress Report ), setting forth the current stage of development of Licensed Products, shall include:
4.3.1 Date of Development Progress Report and time covered by such report;
4.3.2 Major activities and accomplishments completed by Licensee, its Affiliates, and any Sublicensees relating directly to the Licensed Product since the last Development Progress Report;
4.3.3 Significant research and development projects relating directly to the Licensed Product currently being performed by Licensee, its Affiliates, and any Sublicensees and projected dates of completion;
4.3.4 A Development Plan covering the next two years at least, which will include future development activities to be undertaken by Licensee, its Affiliates, or any Sublicensees during the next reporting period relating directly to the Licensed Product, Licensees strategy to bring the Licensed Product to commercialization, and projected timeline for completing the necessary tasks to accomplish the goals of the strategy;
4.3.5 Projected total development remaining before product launch of each Licensed Product; and
4.3.6 Summary of significant development efforts using the Licensed Patents being performed by Third Parties, including the nature of the relationship between Licensee and such Third Parties.
4.4 Confidential Information . The Parties agree that Development Progress Reports shall be deemed Licensees Confidential Information; provided that Licensor may share a copy of such reports with the REGENXBIO Licensors.
4.5 Improvements . Simultaneously with the Development Progress Report, Licensee shall deliver a detailed description of any Licensee Inventions and any Licensed Back Improvements, if not previously provided pursuant to Section 2.6.3.
ARTICLE 5: CONFIDENTIALITY
5.1 Treatment of Confidential Information . Each Party, as a receiving party (a Receiving Party ), agrees that it will (a) treat Confidential Information of the other Party (the Disclosing Party ) as strictly confidential; (b) protect the Confidential Information of the Disclosing Party with at least the same degree of care as it protects its own confidential and proprietary information, and in any event with not less than a reasonable degree of care; (c) not disclose such Confidential Information to Third Parties without the prior written consent of the Disclosing Party, except as may be permitted in this Agreement; provided that any disclosure permitted hereunder shall be under confidentiality agreements with provisions at least as stringent as those contained in this Agreement; and (d) not use such Confidential Information for purposes other
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than those authorized expressly in this Agreement. The Receiving Party agrees to ensure that its employees who have access to Confidential Information are obligated in writing to abide by confidentiality obligations at least as stringent as those contained under this Agreement.
5.2 Public Announcements .
5.2.1 The Parties agree they will release a joint press release in the form attached hereto as Exhibit B . Except as provided in Section 5.2.2, any other press releases by either Party with respect to the other Party or any other public disclosures concerning the existence of or terms of this Agreement shall be subject to review and approval by the other Party. Once the joint press release or any other written statement is approved for disclosure by both Parties, either Party may make subsequent public disclosure of the contents of such statement without the further approval of the other Party.
5.2.2 Notwithstanding Section 5.2.1, Licensor has the right to publish (through press releases, scientific journals, or otherwise) and refer to any clinical, regulatory, or research results related to Licensees Licensed Product or AAV8 program that have been publicly disclosed by Licensee, including referring to Licensee by name as a licensee of Licensor, which publication or referral by Licensor shall not require the prior consent of Licensee.
5.3 Authorized Disclosure . Notwithstanding the provisions of Section 5.1 or 5.2, either Party may disclose the others Confidential Information or make such a disclosure of the existence of and/or terms of this Agreement to any [*]; provided that, in each case, such recipient of Confidential Information is obligated to keep such information confidential on terms no less stringent than those set forth in this Agreement. Furthermore, Licensee agrees that Licensor may share a copy of this Agreement, reports and notices provided by Licensee to Licensor pursuant to the terms of this Agreement, and copies of sublicense agreements provided to Licensor hereunder with the REGENXBIO Licensors to the extent required by the GSK Agreement and the Penn Agreement, under confidentiality. In the event that the Receiving Party receives service of legal process that purports to compel disclosure of the Disclosing Partys Confidential Information or becomes obligated by law, rule, regulation or rules of a security exchange, to disclose the Confidential Information of the Disclosing Party or the existence of or terms of this Agreement to any governmental authority, then, to the extent legally permitted, the Receiving Party shall promptly notify the Disclosing Party, so that the Disclosing Party may seek an appropriate protective order or other remedy with respect to narrowing the scope of such requirement and/or waive compliance by the Receiving Party with the provisions of this Agreement. The Receiving Party will, at the Disclosing Partys request and expense, provide the Disclosing Party with reasonable assistance in obtaining such protective order or other remedy. If, in the absence of such protective order or other remedy, the Receiving Party is nonetheless required by law, rule, regulation or rules of a security exchange, to disclose the existence of or terms of this Agreement or other Confidential Information of the Disclosing Party, the Receiving Party may disclose such Confidential Information without liability hereunder; provided that the Receiving Party shall furnish only such portion of the Confidential Information that is legally required to be disclosed and only to the extent required by law.
5.4 Term of Confidentiality . The obligations of this Article 5 shall continue for a period of [*] following the expiration or termination of this Agreement.
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ARTICLE 6: TERM AND TERMINATION
6.1 Term of Agreement . This Agreement will commence on the Effective Date and continue in effect on a country-by-country, Licensed Product-by-Licensed Product basis until the later of: (i) the expiration, lapse, abandonment, or invalidation of the last Valid Claim of the Licensed Patents to expire, lapse, become abandoned, become unenforceable for the applicable Licensed Product, or (ii) 10 years from the first commercial sale, unless sooner terminated as provided in this Agreement.
6.2 Licensees Right to Terminate . Licensee may, upon [*] prior written notice to Licensor, terminate this Agreement for any reason, with or without cause; provided that, if such termination notice is sent prior to payment in full of the initial fee under Section 3.1, such termination notice shall be accompanied by Licensees payment of all unpaid amounts in satisfaction of the remainder of the initial fee under Section 3.1.
6.3 Termination for Breach .
6.3.1 Licensor may terminate this Agreement, if Licensee is late in paying to Licensor royalties, fees, or any other monies due under this Agreement, and Licensee does not pay Licensor in full within 15 days upon written demand from Licensor, which termination shall be effective immediately upon the expiration of such 15-day cure period.
6.3.2 Either Party may terminate this Agreement, if the other Party materially breaches this Agreement and does not cure such material breach within 30 days after written notice of the breach, which termination shall be effective immediately upon the expiration of such 30-day cure period. Notwithstanding the above, if Licensee disputes in good faith that such material breach exists, and gives Licensor written notice of such dispute within 30 days following Licensees receipt of Licensors notice of default, then, Licensor may not terminate this Agreement until the dispute is resolved in accordance with Section 10.6; provided that Licensor shall be entitled to terminate this Agreement at the end of the original 30-day cure period, without waiting for resolution of the dispute in accordance with Section 10.6, if the breach by Licensee of this Agreement would cause Licensor to be in breach of the GSK Agreement or the Penn Agreement.
6.4 Termination for Insolvency . Licensor shall have the right to terminate this Agreement, upon notice to the Licensee, in the event that:
(a) Licensee shall have: (i) voluntarily commenced any proceeding or filed any petition seeking relief under the bankruptcy, insolvency or other similar laws of any jurisdiction, (ii) applied for, or consented to, the appointment of a receiver, trustee, custodian, sequestrator, conciliator, administrator or similar official for it or for all or substantially all of its property, (iii) filed an answer admitting the material allegations of a petition filed against or in respect of it in any such proceeding, (iv) made a general assignment for the benefit of creditors of all or substantially all of its assets, (v) admitted in writing its inability to pay all or substantially all of its debts as they become due, or (vi) taken corporate action for the purpose of effecting any of the foregoing; or
(b) An involuntary proceeding shall have been commenced, or any involuntary petition shall have been filed, in a court of competent jurisdiction seeking: (i) relief in respect of Licensee, or of its property, under the bankruptcy, insolvency or similar laws of any jurisdiction, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conciliator, administrator or similar
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official for the Licensee or for all or substantially all of its property, or (iii) the winding-up or liquidation of the Licensee; and, in each case, such proceeding or petition shall have continued undismissed for sixty (60) days, or an order or decree approving or ordering any of the foregoing shall have continued unstayed, unappealed and in effect for thirty (30) days.
6.5 Patent Challenge .
6.5.1 Licensor may terminate this Agreement, effective immediately upon written notice to Licensee, upon the commencement by Licensee or any of its Affiliates of a Patent Challenge.
6.5.2 Licensee shall include in each sublicense agreement entered into with a Sublicensee a right of Licensee to terminate such sublicense agreement if such Sublicensee commences a Patent Challenge; and Licensee shall terminate the sublicense agreement, effective immediately upon written notice to the Sublicensee, if the Sublicensee commences a Patent Challenge. If a Sublicensee commences a Patent Challenge and Licensee fails to terminate the applicable sublicense agreement, then Licensor may terminate such sublicense agreement, effective immediately upon written notice to the Sublicensee.
6.5.3 For purposes of this Section 6.5, Patent Challenge means any action against Licensor or the REGENXBIO Licensors, including an action for declaratory judgment, to declare or render invalid or unenforceable the Licensed Patents, or any claim thereof.
6.6 Effects of Termination . The effect of termination by Licensee pursuant to Section 6.2, by either Party, as applicable, under Section 6.3, or by Licensor pursuant to Section 6.4 or 6.5 shall be as follows:
6.6.1 The licenses granted by Licensor hereunder shall terminate, and Licensee, its Affiliates, and (unless the sublicense agreement is assigned pursuant to Section 6.6.2) all Sublicensees shall cease to make, have made, use, import, sell, and offer for sale all Licensed Products and shall cease to otherwise practice the Licensed Patents; provided that Licensee and its Sublicensees shall have the right to continue to sell its existing inventories of Licensed Products for a period not to exceed [*] after the effective date of such termination;
6.6.2 If termination is by Licensor pursuant to Section 6.3, 6.4, or 6.5, then, at Licensors request, Licensee shall assign to Licensor, and Licensor shall assume, any or all sublicenses granted to Third Parties to the extent of the rights licensed to Licensee hereunder and sublicensed to the Sublicensee (unless the Sublicensee notifies Licensor in writing that the Sublicensee does not wish such sublicense to be so assigned (in which case such sublicense shall terminate); provided that (i) prior to such assignment, Licensee shall advise Licensor whether such Sublicensee is then in full compliance with all terms and conditions of its sublicense and continues to perform thereunder, and, if such Sublicensee is not in full compliance or is not continuing to perform, Licensor may elect not to have such sublicense assigned; and (ii) following such assignment, Licensor shall not be liable to such Sublicensee with respect to any obligations of Licensee to the Sublicensee that are not consistent with, or not required by, Licensors obligations to Licensee under this Agreement; and all sublicenses not requested to be assigned to Licensor shall terminate. If termination is for any other reason, then all sublicenses shall terminate;
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6.6.3 If termination is by Licensee pursuant to Section 6.2 or by Licensor pursuant to Section 6.3, 6.4, or 6.5, Licensee shall grant, and hereby grants, to Licensor a non-exclusive, perpetual, irrevocable, worldwide, royalty-free, transferable, sublicensable license under any Licensed Back Improvements for the research, development, and commercialization of products in any therapeutic indication;
6.6.4 Licensee shall pay all monies then-owed to Licensor under this Agreement; and
6.6.5 Each Receiving Party shall, at the Disclosing Partys request, return all Confidential Information of the Disclosing Party. Notwithstanding the foregoing, one copy may be kept by either Party for a record of that Partys obligations.
6.7 Survival . Licensees obligation to pay all monies due and owed to Licensor under this Agreement which have matured as of the effective date of termination or expiration shall survive the termination or expiration of this Agreement. In addition, the provisions of Section 2.2, (Retained Rights), 2.3 (Government Rights), 2.5 (Non-Exclusive License Under Licensee Inventions), 2.6 (Improvements), Article 3 (Consideration) (with respect to any final reports or to the extent any amounts are due but unpaid), Section 3.6 (Reports and Records), Article 5 (Confidentiality), Article 6 (Term and Termination), Section 8.3 (Disclaimer of Warranties, Damages), Section 8.4 (Indemnification), Section 8.5 (Insurance), Article 9 (Use of Name), and Article 10 (Additional Provisions) shall survive such termination or expiration of this Agreement in accordance with their respective terms.
ARTICLE 7: PATENT MAINTENANCE; PATENT INFRINGEMENT
7.1 Prosecution of Licensed Patents . As between Licensor and Licensee, the Parties agree as follows:
7.1.1 Licensor shall have the sole right, but not the obligation, to Prosecute patent applications and issued patents within Licensed Patents, in Licensors sole discretion. Subject to Section 7.1.3, Licensor shall provide Licensee with a reasonable opportunity to review and provide comments in connection with the Prosecution of the Licensed Patents; and Licensor shall keep Licensee reasonably informed as to all material developments with respect to such Licensed Patents and shall supply to Licensee copies of material communications received and filed in connection with the Prosecution of such Licensed Patents.
7.1.2 Nothing in this Agreement obligates Licensor to continue to Prosecute any patent applications or issued patents, and Licensee acknowledges that Licensor shall have no obligation to undertake any inter-party proceedings, such as oppositions, inter partes review, or interferences, or to undertake any re-examination or re-issue proceedings, in either case, with respect to the Licensed Patents.
7.1.3 Licensee acknowledges that The Trustees of the University of Pennsylvania control Prosecution of the Licensed Patents, with Licensor having certain rights to review. Licensee acknowledges and agrees that (a) the rights and obligations under this Section 7.1 are
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subject to the rights of the REGENXBIO Licensors set forth in the GSK Agreement and Penn Agreement with respect to the Licensed Patents, and (b) Licensors obligations under this Agreement only apply to the extent of Licensors rights with respect to participation in Prosecuting the Licensed Patents under the GSK Agreement and the Penn Agreement.
7.2 Infringement Actions Against Third Parties .
7.2.1 Licensee is responsible for notifying the Licensor promptly of any infringement of Licensed Patents (other than Retained Rights) that may come to Licensees attention, including any patent certification filed in the United States under 21 U.S.C. § 355(b)(2) or 21 U.S.C. § 355(j)(2) or similar provisions in other jurisdictions alleging the invalidity, unenforceability or non-infringement of any Licensed Patents, and any notification received pursuant to subsection (k) of 42 U.S.C § 262 for any Licensed Product that becomes a reference product.
7.2.2 As between Licensor and Licensee, but subject to any obligations of Licensor to the REGENXBIO Licensors, Licensor shall have the sole right, but not the obligation, to prosecute any such infringement at its own expense and [*] in connection therewith that are unrelated to the manufacture, use or sale of Licensed Products, with damages recovered in connection with any infringement related to the manufacture, use or sale of Licensed Products shall be [*]. In any action to enforce any of the Licensed Patents, Licensee, at the request and expense of Licensor, shall cooperate to the fullest extent reasonably possible, including in the event that, if Licensor is unable to initiate or prosecute such action solely in its own name, Licensee shall join such action voluntarily and shall execute all documents necessary to initiate litigation to prosecute, maintain, and settle such action. Nothing in this Agreement obligates Licensor to bring or prosecute lawsuits against Third Parties for infringement of any Licensed Patents.
7.2.3 Licensee shall have no right to undertake prosecution of any such infringement.
7.3 Defense of Infringement Claims . In the event Licensee or Licensor becomes aware that Licensees or any of its Affiliates or any Sublicensees practice of the Licensed Patents is the subject of a claim for patent infringement by a Third Party, that Party shall promptly notify the other, and the Parties shall consider the claim and the most appropriate action to take. Licensee shall cause each of its Affiliates and each Sublicensee to notify Licensee promptly in the event such entity becomes aware that its practice of the Licensed Patents is the subject of a claim of patent infringement by another. To the extent Licensor takes any action, Licensor (or the REGENXBIO Licensors) shall have the right to require Licensees reasonable cooperation in any such suit, upon written notice to Licensee; and Licensee shall have the obligation to participate upon Licensors request, in which event, Licensor shall bear the cost of Licensees participation. Without Licensors prior written permission, Licensee must not settle or compromise any such suit in a manner that imposes any material obligations or restrictions on Licensor or the REGENXBIO Licensors or grants any rights to the Licensed Patents other than rights that Licensee has the right to grant under this Agreement.
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ARTICLE 8: WARRANTIES; INDEMNIFICATION
8.1 Representations and Warranties by Licensor . Licensor represents and warrants to Licensee as of the Effective Date:
8.1.1 Licensor has the right, power, and authority to enter into this Agreement and to grant to Licensee the rights specified in this Agreement;
8.1.2 This Agreement when executed shall become the legal, valid, and binding obligation of it, enforceable against it, in accordance with its terms;
8.1.3 There are no actions, suits, proceedings, or arbitrations pending or, to Licensors knowledge, threatened against Licensor relating to the Licensed Patents that would be inconsistent with the rights granted to Licensee under this Agreement;
8.1.4 To Licensors knowledge, (a) the Licensed Patents are solely owned by The Trustees of the University of Pennsylvania, and (b) no Third Party (other than the REGENXBIO Licensors) has any right, interest, or claim in or to such Licensed Patents in the Field that are inconsistent with those granted to Licensee in the Field under this Agreement;
8.1.5 To Licensors knowledge, Licensor does not Control as of the Effective Date any patent or patent application (other than the Licensed Patents (as defined in Section 1.11) that would necessarily be infringed by the use or sale of AAV8 in the Field. If it is determined, in accordance with the procedure of this Section 8.1.5, that Licensor Controls as of the Effective Date a patent or patent application (other than the Licensed Patents) that would necessarily be infringed by the use or sale of AAV8 in the Field, then Licensees sole remedy shall be the inclusion of the applicable patent or patent application as a Licensed Patent hereunder but solely to the extent of the claim(s) that would necessarily be infringed by the use or sale of AAV8. At any time during the term of this Agreement, Licensee may notify Licensor in writing of any such patent or patent application that Licensee believes should be included as a Licensed Patent pursuant to this Section 8.1.5. Such written notice shall identify the relevant patent or patent application and relevant claim(s) and shall explain briefly why Licensee, in good faith, believes it should be included as a Licensed Patent. Licensor has [*] following Licensors receipt of Licensees written notice to dispute the inclusion of such patent or patent application or the scope of the remedy; in which event, such dispute will be resolved in accordance with Section 10.6. Upon the Parties agreement (or a resolution, in favor of Licensee, of the dispute pursuant to Section 10.6), the applicable claim(s) of the applicable patent or patent application will be deemed a Licensed Patent hereunder. For the avoidance of doubt, Licensor makes no representation or warranty under this Section 8.1.5 as to any claim of a patent or patent application covering the manufacture of AAV8, and Licensee acknowledges that manufacturing claims of any patents or patent applications will not be added as Licensed Patents pursuant to the procedure set forth in this Section 8.1.5. For the purpose of this Section 8.1.5, Control means the possession by Licensor (whether by ownership or license, other than pursuant to this Agreement) of the ability to grant to Licensee access, a license, or a sublicense (as applicable) to the applicable patent or patent application on the terms and conditions set forth herein without violating the terms of any agreement or other arrangement with any Third Party; and
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8.1.6 Licensor has not received any written notice from any Third Party patentee alleging such Third Partys patents by the practice of the Licensed Patents in the Field.
8.2 Representations and Warranties by Licensee . Licensee represents and warrants to Licensor as of the Effective Date that:
8.2.1 Licensee has the right, power, and authority to enter into this Agreement and to grant the rights granted by it hereunder;
8.2.2 This Agreement when executed shall become the legal, valid, and binding obligation of it, enforceable against it, in accordance with its terms;
8.2.3 Licensee has the ability and the resources, including financial resources, necessary to carry out its obligations under this Agreement; and
8.2.4 There are no actions, suits, proceedings, or arbitrations pending or, to Licensees knowledge, threatened against Licensee that would impact activities under this Agreement.
8.3 Disclaimer of Warranties, Damages . EXCEPT AS SET FORTH IN SECTION 8.1, THE LICENSED PATENTS, LICENSED PRODUCTS, AND ALL RIGHTS LICENSED UNDER THIS AGREEMENT ARE PROVIDED ON AN AS IS BASIS, AND LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT THERETO. BY WAY OF EXAMPLE BUT NOT OF LIMITATION, EXCEPT AS SET FORTH IN SECTION 8.1, LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES, AND HEREBY DISCLAIMS ALL EXPRESS AND IMPLIED REPRESENTATIONS AND WARRANTIES, (i) OF COMMERCIAL UTILITY, ACCURACY, COMPLETENESS, PERFORMANCE, TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OR ENFORCEABILITY OF THE LICENSED PATENTS, AND PROFITABILITY; OR (ii) THAT THE USE OF THE LICENSED PATENTS OR LICENSED PRODUCTS WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER PROPRIETARY RIGHTS OF THIRD PARTIES. EXCEPT AS SET FORTH HEREIN, NONE OF LICENSOR AND THE REGENXBIO LICENSORS SHALL BE LIABLE TO LICENSEE, LICENSEES SUCCESSORS OR ASSIGNS, ANY SUBLICENSEES, OR ANY THIRD PARTY WITH RESPECT TO: (a) ANY CLAIM ARISING FROM USE OF THE LICENSED PATENTS, LICENSED PRODUCTS, AND ANY OR ALL RIGHTS LICENSED UNDER THIS AGREEMENT OR FROM THE DEVELOPMENT, TESTING, MANUFACTURE, USE, OR SALE OF LICENSED PRODUCTS; OR (b) ANY CLAIM FOR LOSS OF PROFITS, LOSS OR INTERRUPTION OF BUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ANY ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 8.3 IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY UNDER SECTION 8.4 OR TO LIMIT A PARTYS LIABILITY FOR BREACHES OF ITS OBLIGATION REGARDING CONFIDENTIALITY UNDER ARTICLE 5.
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8.4 Indemnification .
8.4.1 By Licensee . Licensee shall defend, indemnify, and hold harmless Licensor, the REGENXBIO Licensors, and their respective shareholders, members, officers, trustees, faculty, students, contractors, agents, and employees (individually, a Licensor Indemnified Party and, collectively, the Licensor Indemnified Parties ) from and against any and all Third Party liability, loss, damage, action, claim, fee, cost, or expense (including attorneys fees) (individually, a Third Party Liability and, collectively, the Third Party Liabilities ) suffered or incurred by the Licensor Indemnified Parties from claims of such Third Parties that result from or arise out of: [*]; provided, however, that Licensee shall not be liable for claims to the extent based on any breach by Licensor of the representations, warranties, or obligations of this Agreement or the gross negligence or intentional misconduct of any of the Licensor Indemnified Parties. Without limiting the foregoing, Licensee must defend, indemnify, and hold harmless the Licensor Indemnified Parties from and against any Third Party Liabilities resulting from:
(a) | any [*] or other claim of any kind related to the [*] by a Third Party of a Licensed Product that was [*] by Licensee, its Affiliates, any Sublicensees, their respective assignees, or vendors; |
(b) | any claim by a Third Party that [*]; and |
(c) | [*] conducted by or on behalf of Licensee, its Affiliates, any Sublicensees, their respective assignees, or vendors relating to the Licensed Patents or Licensed Products, including any claim by or [*] |
8.4.2 By Licensor . Licensor shall defend, indemnify, and hold harmless Licensee, its shareholders, members, officers, contractors, agents, and employees (individually, a Licensee Indemnified Party and, collectively, the Licensee Indemnified Parties) from and against any and all Third Party Liabilities suffered or incurred by the Licensee Indemnified Parties from claims of such Third Parties that results from or arises out of: [*]; provided, however, that Licensor shall not be liable for claims based on any breach by Licensee of the representations, warranties, or obligations of this Agreement or the gross negligence or intentional misconduct of any of the Licensee Indemnified Parties.
8.4.3 Indemnification Procedure . Each Party, as an indemnifying party (an Indemnifying Party ), shall not be permitted to settle or compromise any claim or action giving rise to Third Party Liabilities in a manner that imposes any restrictions or obligations on any indemnified party (an Indemnified Party ) without the other Partys prior written consent or, if Licensee is the Indemnifying Party, that grants any rights to the Licensed Patents or Licensed Products other than those Licensee has the right to grant under this Agreement without Licensors prior written consent. The Indemnifying Party shall be permitted to control any litigation or potential litigation involving the defense of any claim subject to indemnification pursuant to this Section 8.4, including the selection of counsel, with the reasonable approval of the Indemnified Party. Upon the Indemnifying Partys reasonable request, the Indemnified Parties will reasonably cooperate with the Indemnifying Party in the defense and settlement of any such claim, at the Indemnifying Partys cost and expense. If an Indemnifying Party fails or declines to assume the defense of any such claim or action within [*] after notice thereof, the
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Indemnified Party may assume the defense of such claim or action at the cost and risk of the Indemnifying Party, and any Third Party Liabilities related thereto shall be conclusively deemed a Third Party Liability of the Indemnifying Party. The indemnification rights of a Indemnified Party contained in this Agreement are in addition to all other rights that such Indemnified Party may have at law or in equity or otherwise. The Indemnifying Party will pay directly all Third Party Liabilities incurred for defense or negotiation of any claim hereunder or will reimburse the Indemnified Party for all documented Third Party Liabilities incident to the defense or negotiation of any such claim within [*] after the Indemnifying Partys receipt of invoices for such fees, expenses, and charges.
8.5 Insurance . Licensee will procure and maintain insurance policies for the following coverages with respect to product liability, personal injury, bodily injury, and property damage arising out of Licensees (and its Affiliates and any Sublicensees) performance under this Agreement: (a) during the term of this Agreement, comprehensive general liability, including broad form and contractual liability, in a minimum amount of [*] combined single limit per occurrence (or claim) and in the aggregate annually; (b) prior to the commencement of clinical trials involving Licensed Products and thereafter for a period of not less than [*] (or such longer period as Licensee is required by applicable law to continue to monitor the participants in the clinical trial), clinical trials coverage in amounts that are reasonable and customary in the U.S. pharmaceutical industry, subject always to a minimum limit of [*] combined single limit per occurrence (or claim) and in the aggregate annually; and (c) from prior to the first commercial sale of a Licensed Product until [*] after the last sale of a Licensed Product, product liability coverage, in amounts that are reasonable and customary in the U.S. pharmaceutical industry, subject always to a minimum limit of [*] combined single limit per occurrence (or claim) and in the aggregate annually. Licensor may review periodically the adequacy of the minimum amounts of insurance for each coverage required by this Section 8.5, and Licensor reserves the right to require Licensee to adjust the limits accordingly. The required minimum amounts of insurance do not constitute a limitation on Licensees liability or indemnification obligations to the Licensor Indemnified Parties under this Agreement. The policies of insurance required by this Section 8.5 will be issued by an insurance carrier with an A.M. best rating of [*] or better and will name Licensor as an additional insured with respect to Licensees performance (and its Affiliates and any Sublicensees) under this Agreement. Licensee will provide Licensor with insurance certificates evidencing the required coverage within [*] after the Effective Date and the commencement of each policy period and any renewal periods. Each certificate will provide that the insurance carrier will notify Licensor in writing at least [*] prior to the cancellation or material change in coverage. Licensee will cause all Sublicensees to comply with the terms of this Section 8.5 to the same extent as Licensee.
ARTICLE 9: USE OF NAME
9.1 Licensee, its Affiliates, any Sublicensees, and all of its and their employees and agents must not use Licensors, the University of Pennsylvanias, or SmithKline Beecham Corporations name, seal, logo, trademark, or service mark (or any adaptation thereof) or the name, seal, logo, trademark, or service mark (or any adaptation thereof) of any of such entities representative, school, organization, employee, or student in any way without the prior written consent of Licensor or such entity, as applicable, unless required to do so pursuant to applicable law, rule, regulation or rules of a securities exchange; provided, however that Licensee may acknowledge the existence and general nature of this Agreement, subject to Section 5.2 or 5.3, as applicable.
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9.2 Licensor and all of its employees and agents must not use Licensees name, seal, logo, trademark, or service mark (or any adaptation thereof) in any way without the prior written consent of Licensee; provided, however that Licensor may acknowledge the existence and general nature of this Agreement, subject to Section 5.2 or 5.3, as applicable, and refer to Licensee as a licensee of Licensor.
ARTICLE 10: ADDITIONAL PROVISIONS
10.1 Relationship . Nothing in this Agreement shall be deemed to establish a relationship of principal and agent between Licensee and Licensor, nor any of their agents or employees for any purpose whatsoever, nor shall this Agreement be construed as creating any other form of legal association or arrangement which would impose liability upon one Party for the act or failure to act of the other Party.
10.2 Assignment . The rights and obligations of Licensee and Licensor hereunder shall inure to the benefit of, and shall be binding upon, their respective permitted successors and assigns. Licensee may not assign or otherwise transfer (by operation of law or otherwise) this Agreement or any of its rights or obligations under this Agreement without the prior written consent of Licensor which consent is in the absolute discretion of Licensor; provided, however, Licensee shall be permitted to assign or otherwise transfer (by operation of law or otherwise ) in connection with a Change of Control without the consent of Licensor so long as Licensee: (i) requires any assignee, transferee, or successor to agree in writing to be legally bound by this Agreement to the same extent as Licensee and provides Licensor with a copy of such undertaking; (ii) provides Licensor with written notice of the Change of Control to Licensor within 5 days of the consummation of the transaction resulting in a Change of Control of Licensee; and (iii) provides Licensor with an unredacted copy of the definitive acquisition agreement for the Change of Control of Licensee with 5 days of the consummation of the transaction. Notwithstanding anything to the contrary in this Agreement, for clarity, in case of a Licensee Change of Control, in no event shall any intellectual property rights owned or controlled by the acquirer or its Affiliates immediately prior to such Licensee Change of Control be included in any of the licenses granted to Licensor under this Agreement. Licensor may assign this Agreement and its rights and obligations without the consent of Licensee. No assignment shall relieve the assigning Party of responsibility for the performance of any accrued obligations which it has prior to such assignment. Any attempted assignment by Licensee in violation of this Section 10.2 shall be null and void and of no legal effect.
10.3 Waiver . A waiver by either Party of a breach of any provision of this Agreement will not constitute a waiver of any subsequent breach of that provision or a waiver of any breach of any other provision of this Agreement.
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10.4 Notices . Notices, payments, statements, reports, and other communications under this Agreement shall be in writing and shall be deemed to have been received as of the date received if sent by public courier ( e.g. , Federal Express), by Express Mail, receipt requested, by facsimile, or by electronic mail (with a copy of such facsimile or electronic mail also sent by one of the other methods of delivery) and addressed as follows:
If for Licensor: | with a copy to: | |
REGENXBIO Inc. 9712 Medical Center Drive Suite 100 Rockville, MD 20850 Attn: Chief Executive Officer Telephone: 240-552-8181 Facsimile: 240-652-9692 |
REGENXBIO Inc. 9712 Medical Center Drive Suite 100 Rockville, MD 20850 Attn: General Counsel Telephone: 240-552-8181 Facsimile: 240-652-9692 |
|
If for Licensee: | ||
Audentes Therapeutics, Inc. 101 Montgomery Street, Suite 2650 Attn: Matthew Patterson, President & CEO Telephone: 646-712-1001 Facsimile: Email: mpatterson@audentestx.com |
Fenwick and West, LLP. 1191 Second Avenue, 10th Floor Seattle, WA 98101 Attn: Effie Toshav Telephone: 206-389-4510 Facsimile: 206-389-4511 |
Either Party may change its official address upon written notice to the other Party in accordance with this Section 10.4
General communications required under this Agreement (including notices under Sections 2.4.2, 2.6.3, 3.6, 4.1, 4.2.3, 4.3, 7.1, 7.2, 7.3, 8.5, 10.2 and notices of changes of address under this Section 10.4) may be sent by any of the means outlined in the first sentence of this Section 10.4 or a copy of the notice letter may be sent by electronic mail (without the requirement of a copy being sent by another means; provided that the receiving Party has confirmed receipt of such electronic mail); however, communications related to requests for disclosures of Confidential Information, breaches or termination of this Agreement, indemnification, and dispute resolution (including notices under Sections 5.2, 5.3, 6.2, 6.3, 6.4, 6.5, 8.4 and 10.6) must be sent by one of the means outlined in the first sentence of this Section 10.4.
10.5 Applicable Law . This Agreement shall be construed and governed in accordance with the laws of the State of Delaware, without giving effect to conflict of law provisions that may require the application of the laws of another jurisdiction. Subject to Section 10.6, the Parties hereby submit to the exclusive jurisdiction of and venue in the courts located in the State of Delaware with respect to any and all disputes concerning the subject of this Agreement.
10.6 Dispute Resolution . In the event of any controversy or claim arising out of or relating to this Agreement, the Parties shall first attempt to resolve such controversy or claim through good faith negotiations for a period of not less than [*] following notification of such controversy or claim to the other Party. If such controversy or claim cannot be resolved by means of such negotiations during such period, then such controversy or claim shall be resolved by binding
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arbitration administered by the American Arbitration Association ( AAA ) in accordance with the Commercial Arbitration Rules of the AAA in effect on the date of commencement of the arbitration, subject to the provisions of this Section 10.6. The arbitration shall be conducted as follows:
10.6.1 The arbitration shall be conducted by three arbitrators, each of whom by training, education, or experience has knowledge of the research, development, and commercialization of biological therapeutic products in the United States. The arbitration shall be conducted in English and held in New York, New York.
10.6.2 In its demand for arbitration, the Party initiating the arbitration shall provide a statement setting forth the nature of the dispute, the names and addresses of all other parties, an estimate of the amount involved (if any), the remedy sought, otherwise specifying the issue to be resolved, and appointing one neutral arbitrator. In an answering statement to be filed by the responding Party within [*] after confirmation of the notice of filing of the demand is sent by the AAA, the responding Party shall appoint one neutral arbitrator. Within [*] from the date on which the responding Party appoints its neutral arbitrator, the first two arbitrators shall appoint a chairperson.
10.6.3 If a Party fails to make the appointment of an arbitrator as provided in Section 10.6.2, the AAA shall make the appointment. If the appointed arbitrators fail to appoint a chairperson within the time specified in Section 10.6.2 and there is no agreed extension of time, the AAA shall appoint the chairperson.
10.6.4 The arbitrators will render their award in writing and, unless all Parties agree otherwise, will include an explanation in reasonable detail of the reasons for their award. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof, including in the courts described in Section 10.5. The arbitrators will have the authority to grant injunctive relief and other specific performance; provided that the arbitrators will have no authority to award damages in contravention of this Agreement, and each Party irrevocably waives any claim to such damages in contravention of this Agreement. The arbitrators will, in rendering their decision, apply the substantive law of the State of New York, without giving effect to conflict of law provisions that may require the application of the laws of another jurisdiction. The decision and award rendered by the arbitrators will be final and non-appealable (except for an alleged act of corruption or fraud on the part of the arbitrator).
10.6.5 The Parties shall use their reasonable efforts to conduct all dispute resolution procedures under this Agreement as expeditiously, efficiently, and cost-effectively as possible.
10.6.6 All expenses and fees of the arbitrators and expenses for hearing facilities and other expenses of the arbitration will be borne equally by the Parties unless the Parties agree otherwise or unless the arbitrators in the award assess such expenses against one of the Parties or allocate such expenses other than equally between the Parties. Each of the Parties will bear its own counsel fees and the expenses of its witnesses except to the extent otherwise provided in this Agreement or by applicable law.
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10.6.7 Compliance with this Section 10.6 is a condition precedent to seeking relief in any court or tribunal in respect of a dispute, but nothing in this Section 10.6 will prevent a Party from seeking equitable or other interlocutory relief in the courts of appropriate jurisdiction, pending the arbitrators determination of the merits of the controversy, if applicable to protect the confidential information, property, or other rights of that Party or to otherwise prevent irreparable harm that may be caused by the other Partys actual or threatened breach of this Agreement.
10.7 No Discrimination . Licensee and its Affiliates (and Licensee shall require that any Sublicensees), in their respective activities under this Agreement, shall not discriminate against any employee or applicant for employment because of race, color, sex, sexual, or affectional preference, age, religion, national, or ethnic origin, handicap, or because he or she is a disabled veteran or a veteran (including a veteran of the Vietnam Era).
10.8 Compliance with Law . Licensee (and its Affiliates and any Sublicensees) must comply with all prevailing laws, rules, and regulations that apply to its activities or obligations under this Agreement. Without limiting the foregoing, it is understood that this Agreement may be subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes, and other commodities, articles, and information, including the Arms Export Control Act as amended in the Export Administration Act of 1979 and that Licensees obligations are contingent upon compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may require a license from the cognizant agency of the United States Government and/or written assurances by Licensee that Licensee shall not export data or commodities to certain foreign countries without prior approval of such agency. Licensor neither represents that a license is not required nor that, if required, it will issue.
10.9 Entire Agreement . This Agreement embodies the entire understanding between the Parties relating to the subject matter hereof and supersedes all prior understandings and agreements, whether written or oral. All Confidential Information disclosed by the Parties pursuant to such Confidential Disclosure Agreement shall be deemed Confidential Information under this Agreement (unless and until it falls within one of the exclusions set forth in Section 1.6). This Agreement may not be varied except by a written document signed by duly authorized representatives of both Parties.
10.10 Marking . Licensee, its Affiliates, and any Sublicensees shall mark any Licensed Product (or their containers or labels) made, sold, or otherwise distributed by it or them with any notice of patent rights necessary or desirable under applicable law to enable the Licensed Patents to be enforced to their full extent in any country where Licensed Products are made, used, sold, offered for sale, or imported.
10.11 Severability and Reformation . If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such invalid or unenforceable provision will be automatically revised to be a valid or enforceable provision that comes as close as permitted by law to the Parties original intent; provided that, if the Parties cannot agree upon such valid or enforceable provision, the remaining provisions of this Agreement will remain in full force and effect, unless the invalid or unenforceable provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid or unenforceable provisions.
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10.12 Further Assurances . Each Party hereto agrees to execute, acknowledge, and deliver such further instruments, and to do all other reasonable acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
10.13 Interpretation; Construction . The captions to the several Articles and Sections of this Agreement are included only for convenience of reference and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. In this Agreement, unless the context requires otherwise, (a) the word including shall be deemed to be followed by the phrase without limitation or like expression; (b) references to the singular shall include the plural and vice versa; (c) references to masculine, feminine, and neuter pronouns and expressions shall be interchangeable; (d) the words herein or hereunder relate to this Agreement; (e) or is disjunctive but not necessarily exclusive; (f) the word will shall be construed to have the same meaning and effect as the word shall; (g) all references to dollars or $ herein shall mean U.S. Dollars; (h) unless otherwise provided, all reference to Sections, Articles, and exhibits in this Agreement are to Sections, Articles, and exhibits of and in this Agreement; and (i) whenever this Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified. Business days shall mean a day on which banking institutions in Washington, D.C. are open for business. Each Party represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof. In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption will apply against the Party which drafted such terms and provisions.
10.14 Cumulative Rights and Remedies . The rights and remedies provided in this Agreement and all other rights and remedies available to either Party at law or in equity are, to the extent permitted by law, cumulative and not exclusive of any other right or remedy now or hereafter available at law or in equity. Neither asserting a right nor employing a remedy shall preclude the concurrent assertion of any other right or employment of any other remedy, nor shall the failure to assert any right or remedy constitute a waiver of that right or remedy.
10.15 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.
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IN WITNESS WHEREOF, the Parties, intending to be legally bound, have caused this License Agreement to be executed by their duly authorized representatives.
REGENXBIO INC. | AUDENTES THERAPEUTICS, INC. | |||||||
By: |
/s/ Kenneth T. Mills |
By: |
/s/ Matthew R. Patterson |
|||||
Name: | Kenneth T. Mills | Name: | Matthew R. Patterson | |||||
Title: | President & CEO | Title: | President & CEO |
Exhibit A
Licensed Patents
Application # |
Patent # | Filing Date* | Country | Status | ||||
[*] | [*] | [*] | [*] | [*] |
* | International Filing Date, where national stage application or foreign divisional thereof |
*Confidential Treatment Requested.
Exhibit B
Press Release
In process to be agreed to by both parties
Exhibit 21.1
Subsidiary of Audentes Therapeutics, Inc.
Name of Subsidiary |
Jurisdiction of Incorporation or Organization |
|
None |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Audentes 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, California
January 4, 2016