As filed with the Securities and Exchange Commission on July 11, 2016
Registration No. 333-208842
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 3
TO
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) |
600 California Street, 17th Floor
San Francisco, California 94108
(415) 818-1001
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Matthew R. Patterson
600 California Street, 17th Floor
San Francisco, California 94108
(415) 818-1001
(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 (3) |
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Common stock, par value $0.00001 per share |
$92,000,000 | $9,265 | ||
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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. |
(3) | The Registrant previously paid $8,686 of this amount in connection with the initial filing of this Registration Statement. |
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 July 11, 2016
PROSPECTUS
5,000,000 Shares
Common Stock
This is Audentes Therapeutics, Inc.s initial public offering. We are selling 5,000,000 shares of our common stock.
We expect the public offering price to be between $14.00 and $16.00 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. |
Our existing institutional investors associated with our board have indicated an interest in purchasing shares of common stock in this offering with an aggregate value of approximately $30.0 million at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these parties, or any of these parties may determine to purchase more, fewer or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these entities as they will on any other shares sold to the public in this offering.
The underwriters may also exercise their option to purchase up to an additional 750,000 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 built a compelling portfolio of product candidates, including AT132 for the treatment of X-Linked Myotubular Myopathy, or XLMTM, AT342 for the treatment of Crigler-Najjar Syndrome, or Crigler-Najjar, AT982 for the treatment of Pompe disease and AT307 for the treatment of the CASQ2 subtype of Catecholaminergic Polymorphic Ventricular Tachycardia, or CASQ2-CPVT. We plan to submit Investigational New Drug applications, or INDs, or Clinical Trial Authorisations, or CTAs, for AT982 in the third quarter of 2016, for AT342 in the fourth quarter of 2016 and for AT132 in the first quarter of 2017, and expect to have preliminary data from all three programs in the second half of 2017. 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 development of proprietary in-house manufacturing capabilities and the expansion of our pipeline. 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 18 months 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 regulatory 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 portfolio of product candidates employs the use of adeno-associated virus, or AAV, a
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small, non-pathogenic virus that is genetically engineered to function as a delivery vehicle, or vector, and is administered to a patient to introduce 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 a positive clinical effect in our target indications. For example, we believe AAV8 is advantageous for the treatment of Crigler-Najjar 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
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early death with an estimated 50% mortality rate by 18 months of age. 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. 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 and a half 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 . Crigler-Najjar 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. Average life expectancy is reported as being 30 years of age with phototherapy. Crigler-Najjar is estimated to affect approximately one in 1,000,000 newborns. Infants with Crigler-Najjar develop severe jaundice shortly after birth resulting in rapid presentation and diagnosis. Crigler-Najjar 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 Crigler-Najjar is aggressive management of high bilirubin levels with persistent, daily phototherapy, usually for longer than 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.
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
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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.
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 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.
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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 two have 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, and have improved the facility 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, 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 INDs or CTAs for our product candidates as follows: AT982 for the treatment of Pompe disease in the third quarter of 2016, AT342 for the treatment of Crigler-Najjar in the fourth quarter of 2016, AT132 for the treatment of XLMTM in the first quarter of 2017 and AT307 for the treatment of CASQ2-CPVT 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 Crigler-Najjar, AT982 for the treatment of Pompe disease and AT307 for the treatment of CASQ2-CPVT. |
| 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 600 California Street, 17th Floor, San Francisco, California 94108, and our telephone number is (415) 818-1001. 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 |
5,000,000 shares |
Common stock to be outstanding immediately following this offering |
21,020,378 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 750,000 additional shares of our common stock. |
Potential insider participation |
Our existing institutional investors associated with our board have indicated an interest in purchasing shares of common stock in this offering with an aggregate value of approximately $30.0 million at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these parties, or any of these parties may determine to purchase more, fewer or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these entities as they will on any other shares sold to the public in this offering. |
Use of proceeds |
We estimate that the net proceeds from the sale of our common stock sold in this offering will be approximately $66.1 million, assuming an initial public offering price of $15.00 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 Crigler-Najjar, AT982 for the treatment of Pompe disease and AT307 for the treatment of CASQ2-CPVT; to operate and expand our internal manufacturing 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) 2,200,077 shares of our common stock outstanding as of March 31, 2016 and (ii) the automatic conversion of shares of our convertible preferred stock outstanding as of March 31, 2016 into 13,820,301 shares of our common stock effective immediately prior to the completion of this offering.
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The number of shares of our common stock to be outstanding after this offering excludes:
| 2,279,086 shares of our common stock issuable upon the exercise of outstanding options as of March 31, 2016, with a weighted-average exercise price of approximately $3.99 per share; |
| 82,739 shares of our common stock issuable upon the exercise of outstanding options granted after March 31, 2016, with an exercise price of $7.54 per share; |
| 101,127 shares of our common stock issuable upon the exercise of options that we expect to grant on the date of this prospectus, with an exercise price equal to the initial public offering price of our common stock; and |
| 2,208,646 shares of common stock reserved for future issuance under our stock-based compensation plans as of March 31, 2016, consisting of (i) 599,773 shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan as of March 31, 2016 (consisting of 682,512 shares reserved as of March 31, 2016, reduced by 82,739 shares underlying stock options granted after March 31, 2016), (ii) 1,398,873 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan (consisting of 1,500,000 shares, reduced by 101,127 shares underlying stock options that we expect to grant on the date of this prospectus), which will become effective on the date immediately prior to the date of this prospectus and (iii) 210,000 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 13,820,301 shares of our common stock effective immediately prior to the completion of this offering; |
| a 2.22977-to-1 reverse stock split, which became effective on July 7, 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, 2014 and 2015 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our summary consolidated statements of operations data for the three months ended March 31, 2015 and 2016 and our summary consolidated balance sheet data as of March 31, 2016 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 consolidated 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 three months ended March 31, 2016 are not necessarily indicative of operating results to be expected for the full year ending December 31, 2016 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, |
Three Months Ended
March 31, |
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2014 | 2015 | 2015 | 2016 | |||||||||||||
(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 |
$ | 9,280 | $ | 20,235 | $ | 3,080 | $ | 7,906 | ||||||||
General and administrative |
1,670 | 6,491 | 1,083 | 2,632 | ||||||||||||
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Total operating expenses |
10,950 | 26,726 | 4,163 | 10,538 | ||||||||||||
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Loss from operations |
(10,950 | ) | (26,726 | ) | (4,163 | ) | (10,538 | ) | ||||||||
Interest income |
6 | 245 | 61 | 97 | ||||||||||||
Other income (expense), net |
125 | 23 | 47 | (23 | ) | |||||||||||
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Net loss |
$ | (10,819 | ) | $ | (26,458 | ) | $ | (4,055 | ) | $ | (10,464 | ) | ||||
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Net loss per share, basic and diluted (1) |
$ | (21.56 | ) | $ | (23.03 | ) | $ | (6.63 | ) | $ | (4.85 | ) | ||||
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Shares used in computing net loss per share, basic and diluted (1) |
501,707 | 1,148,827 | 612,039 | 2,159,081 | ||||||||||||
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Pro forma net loss per share, basic and diluted (unaudited) (1) |
$ | (2.28 | ) | $ | (0.65 | ) | ||||||||||
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Shares used in computing pro forma net loss per share, basic and diluted (unaudited) (1) |
11,621,249 | 15,979,382 | ||||||||||||||
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(1) | See Notes 2 and 13 to our audited consolidated financial statements and Note 8 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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March 31, 2016 | ||||||||||||
Actual | Pro Forma (1) |
Pro Forma
As Adjusted (2) |
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(in thousands) |
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(unaudited) |
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Consolidated Balance Sheet Data: |
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Cash, cash equivalents and investments |
$ | 80,272 | $ | 80,272 | $ | 146,322 | ||||||
Working capital |
76,150 | 76,150 | 142,200 | |||||||||
Total assets |
110,555 | 110,555 | 176,605 | |||||||||
Convertible preferred stock |
135,750 | | | |||||||||
Accumulated deficit |
(51,207 | ) | (51,207 | ) | (51,207 | ) | ||||||
Total stockholders equity |
91,642 | 91,642 | 157,692 |
(1) | The pro forma consolidated balance sheet data as of March 31, 2016 reflects the automatic conversion of shares of our convertible preferred stock outstanding as of March 31, 2016 into 13,820,301 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 adjustment set forth above and (ii) the sale and issuance of 5,000,000 shares of our common stock in this offering, at an assumed initial public offering price of $15.00 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 $15.00 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 $4.7 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 $14.0 million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions. |
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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, AT982 and AT307 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, or Crigler-Najjar, AT982 for the treatment of Pompe disease and AT307 for the treatment of the CASQ2 subtype of Catecholaminergic Polymorphic Ventricular Tachycardia, or CASQ2-CPVT. 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; |
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| receipt of regulatory approvals from applicable regulatory authorities; |
| 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
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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 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 AT982 in the third quarter of 2016, for AT342 in the fourth quarter of 2016, for AT132 in the first quarter of 2017 and for AT307 in 2017, and expect to have preliminary data from our AT982, AT342 and AT132 programs in the second half of 2017. We also state that we intend to be 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; |
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| 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 |
| 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 two gene therapy products have 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 two gene therapy products have 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 European Union, or 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
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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 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
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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.
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 |
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| the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
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 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
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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 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.
We have established relationships with research facilities, CMOs and our collaborators to manufacture and supply our product candidates for preclinical and clinical studies. We plan to manufacture AT132 in our own facilities, and anticipate that AT342 will be initially manufactured by a CMO. AT982 is currently 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. As we establish and scale our internal manufacturing capabilities, we plan to transition all process development and manufacturing activities to our own facilities. 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
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more clinical trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods and have an adverse effect on our business, financial condition, results of operations and growth prospects.
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.
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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 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 Crigler-Najjar 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
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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, Crigler-Najjar, Pompe disease and CASQ2-CPVT, as well as the people with these diseases who have the potential to benefit from 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.
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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 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, AT342, AT982 and AT307, and may be unsuccessful in obtaining Orphan Drug Designation or transfer of designations obtained by others for our other current or future 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
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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, AT342, AT982 and AT307 in the United States and Europe. However, Orphan Drug Designation does not guarantee future orphan drug marketing exclusivity.
Additionally, even though we have obtained an Orphan Drug Designation for AT132, AT342, AT982 and AT307, and even if we obtain orphan drug exclusivity for these product candidates and other product candidates, that exclusivity may not effectively protect AT132, AT342, AT982 and AT307 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
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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.
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; |
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| 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; |
| 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.
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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 part on our ability to in-license or otherwise acquire the rights to additional product candidates or technologies. We cannot assure you that we will be able 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.
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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 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 Crigler-Najjar, the current standard of care is phototherapy, and upon disease progression, liver transplant. There are currently no products approved specifically for the treatment of Crigler-Najjar. 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 Crigler-Najjar.
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 Pompe disease. Multiple companies, including 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 is neoGAA from Genzyme Corporation. 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.
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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.
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, Crigler-Najjar, Pompe disease and CASQ2-CPVT, 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 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.
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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 relationships with Genethon and the University of Pennsylvania, 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. 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 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.
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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 collaborations with Genethon and the University of Pennsylvania, 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 $10.8 million and $26.5 million for the years ended December 31, 2014 and 2015, respectively, and net losses of $4.1 million and $10.5 million for the three months ended March 31, 2015 and 2016, respectively. As of March 31, 2016, we had an accumulated deficit of $51.2 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 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.
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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, AT982, AT307 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 March 31, 2016, our cash, cash equivalents and investments were $80.3 million. We estimate that the net proceeds from this offering will be approximately $66.1 million, based on an assumed initial public offering price of $15.00 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 2018. 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 |
| 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
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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, 2015, we had federal and state net operating loss carryforwards of $32.1 million and $34.4 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 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
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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 March 31, 2016, 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. Additionally, since March 31, 2016, we have in-licensed a patent application from the University of Pennsylvania relating to AAV vectors containing codon-optimized UGT1A1 for the treatment of Crigler-Najjar. 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, and a patent obtained from the patent application filed by the University of Pennsylvania directed to UGT1A1 would be projected to expire in 2036 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, AT982 or AT307 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 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 2032, or two years before the Genethon patent family will expire in the United States absent patent term adjustment or patent term extension. Similarly, 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. 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 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,
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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.
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
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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 Genethon related to XLMTM, from the University of Pennsylvania relating to Crigler-Najjar, from the University of Florida Research Foundation relating to Pompe disease and from the Fondazione Salvatore Maugeri relating to various nucleic acid sequences associated with single mutation arrhythmias related to CASQ2-CPVT.
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. |
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
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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, the University of Florida, the University of Pennsylvania 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 October 31, 2016 or dosing the first patient in clinical trials in any country by March 31, 2017.
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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 May 31, 2016, we had 75 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. 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, 2017.
During the audit of our financial statements for the years ended December 31, 2014 and 2015 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. 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.
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We have implemented and are continuing to implement 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, 2015 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 applicable stock exchange 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 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.
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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.
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
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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 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.
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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 May 31, 2016, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 75% of our capital stock and, upon the closing of this offering, that same group will hold approximately 57% 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 21,020,378 shares of common stock outstanding based on the number of shares outstanding as of March 31, 2016. This includes the 5,000,000 shares that we sell in this offering, which may be resold in the public market immediately without restriction. The remaining 16,020,378 shares of our common stock will be subject to lock-up agreements with the underwriters of this offering and/or 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 15,375,756 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, AT982 and AT307; to operate and expand our internal manufacturing 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 $15.00 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 $8.19 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 5,000,000 shares of our common stock in this offering at an assumed initial public offering price of $15.00 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 $66.1 million. If the underwriters option to purchase additional shares is exercised in full, we estimate that we will receive additional net proceeds of $10.5 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 $4.7 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 $14.0 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 $18.0 to $20.0 million to advance AT132 for the treatment of XLMTM through preliminary results from a Phase 1/2 clinical trial expected in the fourth quarter of 2017; |
| approximately $13.0 to $15.0 million to advance AT342 for the treatment of Crigler-Najjar through preliminary results from a Phase 1/2 clinical trial expected in the fourth quarter of 2017; |
| approximately $3.0 to $5.0 million to advance preclinical development of AT982 for the treatment of Pompe disease through preliminary results from a Phase 1/2 clinical trial expected in the second half of 2017; |
| approximately $3.0 to $5.0 million to advance preclinical development of AT307 for the treatment of CASQ2-CPVT through submission of an IND or CTA in 2017; |
| approximately $7.0 to $10.0 million to operate and expand our internal manufacturing 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 2018.
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 March 31, 2016 on:
| an actual basis; |
| a pro forma basis to reflect (i) the automatic conversion of shares of our convertible preferred stock outstanding as of March 31, 2016 into 13,820,301 shares of our common stock effective immediately prior to the completion of this offering and (ii) 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 5,000,000 shares of our common stock in this offering, at an assumed initial public offering price of $15.00 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 March 31, 2016 | ||||||||||||
Actual | Pro Forma |
Pro Forma
As Adjusted (1) |
||||||||||
(in thousands, except share and per share amounts) |
||||||||||||
(unaudited) | ||||||||||||
Cash, cash equivalents and investments |
$ | 80,272 | $ | 80,272 | $ | 146,322 | ||||||
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|
|
|
|
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Stockholders equity: |
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Convertible preferred stock, $0.00001 par value: 30,855,031 shares authorized, 13,820,301 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted |
$ | 135,750 | $ | | $ | | ||||||
Preferred stock, $0.00001 par value: no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted |
| | | |||||||||
Common stock, $0.00001 par value: 50,000,000 shares authorized, 2,200,077 shares issued and outstanding, actual; 300,000,000 shares authorized, 16,020,378 shares issued and outstanding, pro forma; 21,020,378 shares issued and outstanding, pro forma as adjusted |
| | | |||||||||
Additional paid-in capital |
7,095 | 142,845 | 208,895 | |||||||||
Accumulated deficit |
(51,207 | ) | (51,207 | ) | (51,207 | ) | ||||||
Accumulated other comprehensive income |
4 | 4 | 4 | |||||||||
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|
|
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Total stockholders equity |
91,642 | 91,642 | 157,692 | |||||||||
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|
|
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Total capitalization |
$ | 91,642 | $ | 91,642 | $ | 157,692 | ||||||
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|
(1) |
A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase |
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(decrease) each of cash, cash equivalents and investments, additional paid-in capital, total stockholders equity and total capitalization by approximately $4.7 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 $14.0 million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions. |
The table above excludes the following shares:
| 2,279,086 shares of our common stock issuable upon the exercise of outstanding options as of March 31, 2016, with a weighted-average exercise price of approximately $3.99 per share; |
| 82,739 shares of our common stock issuable upon the exercise of outstanding options granted after March 31, 2016, with an exercise price of $7.54 per share; |
| 101,127 shares of our common stock issuable upon the exercise of options that we expect to grant on the date of this prospectus, with an exercise price equal to the initial public offering price of our common stock; and |
| 2,208,646 shares of common stock reserved for future issuance under our stock-based compensation plans as of March 31, 2016, consisting of (i) 599,773 shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan as of March 31, 2016 (consisting of 682,512 shares reserved as of March 31, 2016, reduced by 82,739 shares underlying stock options granted after March 31, 2016), (ii) 1,398,873 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan (consisting of 1,500,000 shares, reduced by 101,127 shares underlying stock options that we expect to grant on the date of this prospectus), which will become effective on the date immediately prior to the date of this prospectus and (iii) 210,000 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 March 31, 2016, our pro forma net tangible book value was approximately $77.1 million, or $4.81 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 March 31, 2016, after giving effect to the automatic conversion of shares of our convertible preferred stock outstanding as of March 31, 2016 into 13,820,301 shares of our common stock effective immediately prior to the completion of this offering.
After giving effect to (i) the pro forma adjustment set forth above and (ii) the sale and issuance of 5,000,000 shares of our common stock at an assumed initial public offering price of $15.00 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 March 31, 2016 would have been approximately $143.1 million, or $6.81 per share of our common stock. This represents an immediate increase in pro forma net tangible book value of $2.00 per share to our existing stockholders and an immediate dilution of $8.19 per share to investors purchasing shares in this offering, as follows:
Assumed initial public offering price per share |
$ | 15.00 | ||||||
Pro forma net tangible book value per share as of March 31, 2016 |
$ | 4.81 | ||||||
Increase in pro forma net tangible book value per share attributable to new investors in this offering |
2.00 | |||||||
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Pro forma as adjusted net tangible book value per share after this offering |
6.81 | |||||||
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|
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Dilution in net tangible book value per share to investors in this offering |
$ | 8.19 | ||||||
|
|
A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 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 $0.22, 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 $0.32 per share or $(0.36) 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 $7.05 per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $7.95 per share.
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The following table summarizes, on a pro forma as adjusted basis as of March 31, 2016, 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 $15.00 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 |
16,020,378 | 76.2 | % | $ | 141,291,176 | 65.3 | % | $ | 8.82 | |||||||||||
New public investors |
5,000,000 | 23.8 | 75,000,000 | 34.7 | $ | 15.00 | ||||||||||||||
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Total |
21,020,378 | 100 | % | $ | 216,291,176 | 100 | % | |||||||||||||
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|
A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 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 $5.0 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 $15.0 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 73.6% 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 26.4% of the total number of shares of common stock to be outstanding after this offering.
Our existing institutional investors associated with our board have indicated an interest in purchasing shares of common stock in this offering with an aggregate value of approximately $30.0 million at the initial public offering price. As these indications of interest are non-binding, the foregoing discussion and table do not reflect the potential purchase of any shares in this offering by these parties.
The number of shares of our common stock to be outstanding after this offering excludes:
| 2,279,086 shares of our common stock issuable upon the exercise of outstanding options as of March 31, 2016, with a weighted-average exercise price of approximately $3.99 per share; |
| 82,739 shares of our common stock issuable upon the exercise of outstanding options granted after March 31, 2016, with an exercise price of $7.54 per share; |
| 101,127 shares of our common stock issuable upon the exercise of options that we expect to grant on the date of this prospectus, with an exercise price equal to the initial public offering price of our common stock; and |
| 2,208,646 shares of common stock reserved for future issuance under our stock-based compensation plans as of March 31, 2016, consisting of (i) 599,773 shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan as of March 31, 2016 (consisting of 682,512 shares reserved as of March 31, 2016, reduced by 82,739 shares underlying stock options granted after March 31, 2016), (ii) 1,398,873 shares of common stock reserved for future issuance under our 2016 Equity Incentive Plan (consisting of 1,500,000 shares, reduced by 101,127 shares underlying stock options that we expect to grant on the date of this prospectus), which will become effective on the date immediately prior to the date of this prospectus and (iii) 210,000 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 consolidated statements of operations data for the years ended December 31, 2014 and 2015 and the consolidated balance sheet data as of December 31, 2014 and 2015 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our selected consolidated statements of operations data for the three months ended March 31, 2015 and 2016 and our consolidated balance sheet data as of March 31, 2016 from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements were prepared on a basis consistent with our audited financial statements and include, in managements opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in any future period and the results for the three months ended March 31, 2016 are not necessarily indicative of results to be expected for the full year ending December 31, 2016 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, | Three Months Ended March 31, | |||||||||||||||
2014 | 2015 | 2015 | 2016 | |||||||||||||
(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 |
$ | 9,280 | $ | 20,235 | $ | 3,080 | $ | 7,906 | ||||||||
General and administrative |
1,670 | 6,491 | 1,083 | 2,632 | ||||||||||||
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Total operating expenses |
10,950 | 26,726 | 4,163 | 10,538 | ||||||||||||
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Loss from operations |
(10,950 | ) | (26,726 | ) | (4,163 | ) | (10,538 | ) | ||||||||
Interest income |
6 | 245 | 61 | 97 | ||||||||||||
Other income (expense), net |
125 | 23 | 47 | (23 | ) | |||||||||||
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Net loss |
$ | (10,819 | ) | $ | (26,458 | ) | $ | (4,055 | ) | $ | (10,464 | ) | ||||
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Net loss per share, basic and diluted (1) |
$ | (21.56 | ) | $ | (23.03 | ) | $ | (6.63 | ) | $ | (4.85 | ) | ||||
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Shares used in computing net loss per share, basic and diluted (1) |
501,707 | 1,148,827 | 612,039 | 2,159,081 | ||||||||||||
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Pro forma net loss per share, basic and diluted (unaudited) (1) |
$ | (2.28 | ) | $ | (0.65 | ) | ||||||||||
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Shares used in computing pro forma net loss per share, basic and diluted (unaudited) (1) |
11,621,249 | 15,979,382 | ||||||||||||||
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(1) | See Notes 2 and 13 to our audited consolidated financial statements and Note 8 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. |
December 31, |
March 31, 2016 |
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2014 | 2015 | |||||||||||
(in thousands) |
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(unaudited) | ||||||||||||
Consolidated Balance Sheet Data: |
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Cash, cash equivalents and investments |
$ | 62,148 | $ | 95,227 | $ | 80,272 | ||||||
Working capital |
57,830 | 91,916 | 76,150 | |||||||||
Total assets |
63,009 | 117,469 | 110,555 | |||||||||
Convertible preferred stock |
72,403 | 135,750 | 135,750 | |||||||||
Accumulated deficit |
(14,285 | ) | (40,743 | ) | (51,207 | ) | ||||||
Total stockholders equity |
59,864 | 101,689 | 91,642 |
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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 development of proprietary in-house manufacturing capabilities and the expansion of our pipeline. We have assembled a world-class team with expertise in gene therapy, rare disease drug development and commercialization, and biologics manufacturing.
We have built a compelling portfolio of product candidates, including AT132 for the treatment of X-Linked Myotubular Myopathy, or XLMTM, AT342 for the treatment of Crigler-Najjar Syndrome, or Crigler-Najjar, AT982 for the treatment of Pompe disease and AT307 for the treatment of the CASQ2 subtype of Catecholaminergic Polymorphic Ventricular Tachycardia, or CASQ2-CPVT. We plan to submit Investigational New Drug applications, or INDs, or Clinical Trial Authorisations, or CTAs, for AT982 in the third quarter of 2016, for AT342 in the fourth quarter of 2016 and for AT132 in the first quarter of 2017, and expect to have preliminary data from all three programs in the second half of 2017. 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 regulatory 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. In May 2016, we entered into a license and collaboration agreement with the The Trustees of the University of Pennsylvania, or the University of Pennsylvania, pursuant to which we obtained a license to develop and commercialize a gene therapy product for Crigler-Najjar.
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Upon execution of the license and collaboration agreement with the University of Pennsylvania, we met the conditions of a contractual milestone under our Crigler-Najjar license agreement with REGENXBIO, and made the required payment of $0.4 million to REGENXBIO. We also paid the University of Pennsylvania an upfront fee of $0.5 million, as well as $3.0 million for certain preclinical development activities. We may be required to make additional milestone payments and pay royalties and other amounts to third parties pursuant to our license and collaboration 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 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 $10.8 million and $26.5 million for the years ended December 31, 2014 and 2015, respectively, and $4.1 million and $10.5 million for the three months ended March 31, 2015 and 2016, respectively. As of March 31, 2016, we had an accumulated deficit of $51.2 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 March 31, 2016, we had cash, cash equivalents and investments of $80.3 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.
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Financial Operations Overview
Research and Development Expenses
External 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; |
| costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers; and |
| costs related to in-licensing of rights to develop and commercialize our product candidate portfolio. |
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; |
| lab supplies and equipment used for internal research and development activities; and |
| the change in fair value of contingent consideration payable. |
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:
Years Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||
2014 | 2015 | 2015 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
(unaudited) | ||||||||||||||||
AT132 external program costs |
$ | 4,802 | $ | 5,909 | $ | 1,238 | $ | 1,571 | ||||||||
AT982 external program costs |
700 | 2,162 | 253 | 593 | ||||||||||||
AT342 external program costs |
| 600 | | 548 | ||||||||||||
AT307 external program costs |
| 1,805 | | 177 | ||||||||||||
Other external program costs |
| | | 201 | ||||||||||||
Internal research and development costs |
3,778 | 9,759 | 1,589 | 4,816 | ||||||||||||
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|
|
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Total research and development expenses |
$ | 9,280 | $ | 20,235 | $ | 3,080 | $ | 7,906 | ||||||||
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|
|
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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 as 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. In addition, we incurred acquisition costs, which were primarily legal and accounting fees, in connection with our acquisition of Cardiogen in 2015. There was no comparable expense in 2014 or the three months ended March 31, 2016. We expect our general and administrative expenses to increase 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 expense, 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 (Expense), net
Other income (expense), net consists primarily 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.
Business Combinations
We allocate 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 us to make estimates and assumptions, notably at the acquisition date with respect to intangible assets and in-process research and development.
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Contingent Consideration Payable
We determine 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, we revalue these obligations and record increases or decreases in their fair value as adjustments to research and development expense. Changes in the fair value of 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 estimated discount rates.
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 various 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 fees 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.
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 |
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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, 2014 and 2015, stock-based compensation expense was $0.5 million and $1.3 million respectively. For the three months ended March 31, 2015 and 2016, stock-based compensation expense was $0.1 million and $0.4 million, respectively. As of March 31, 2016, we had $4.8 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, which we expect to recognize over a weighted-average period of 3.16 years.
Historically, for all periods prior to this initial public offering, the fair value of the shares of common stock underlying our share-based awards were estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, contemporaneous valuations of our common stock prepared by an unrelated third-party valuation firm 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.
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 March 31, 2016 was $25.0 million based on the estimated fair value of our common stock of $15.00 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.
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As of December 31, 2015, our total gross deferred tax assets were $19.4 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 loss 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.
Results of Operations
Comparison of the three months ended March 31, 2015 and 2016
Three Months Ended
March 31, |
Change | |||||||||||
2015 | 2016 | |||||||||||
(in thousands) |
||||||||||||
Operating expenses: |
||||||||||||
Research and development |
$ | 3,080 | $ | 7,906 | $ | 4,826 | ||||||
General and administrative. |
1,083 | 2,632 | 1,549 | |||||||||
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Total operating expenses |
4,163 | 10,538 | 6,375 | |||||||||
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Loss from operations |
(4,163 | ) | (10,538 | ) | (6,375 | ) | ||||||
Interest income |
61 | 97 | 36 | |||||||||
Other income (expense), net |
47 | (23 | ) | (70 | ) | |||||||
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Net loss |
$ | (4,055 | ) | $ | (10,464 | ) | $ | (6,409 | ) | |||
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Research and Development
Research and development expenses increased by $4.8 million, or 157%, from $3.1 million for the three months ended March 31, 2015 to $7.9 million for the three months ended March 31, 2016. The increase was primarily due to a $1.4 million increase in personnel costs, a $0.7 million increase in lab supplies and consulting expenses for internal research activities, a $0.5 million increase in facilities costs as we expanded our research and development headcount and internal operations and a $0.1 million increase in stock-based compensation expense. There was also a $0.7 million increase in expenses for our AT132 and AT982 programs related to preclinical studies, increased manufacturing of study materials and increased consulting and initiation costs in
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preparation for future anticipated clinical trials. In addition, during the three months ended March 31, 2016, we incurred $0.7 million of expenses associated with the launch of the AT342 and AT307 programs late in 2015 and $0.2 million of expenses in connection with other external research and development, with no comparable expenses in the same period in 2015.
General and Administrative
General and administrative expenses increased by $1.5 million, or 143%, from $1.1 million for the three months ended March 31, 2015 to $2.6 million for the three months ended March 31, 2016. The increase was primarily due to a $0.6 million increase in personnel and consulting costs due to increased headcount, a $0.2 million increase in facilities costs, a $0.4 million increase in legal and accounting fees to support general corporate, in-licensing and patent-related activities and a $0.2 million increase in stock-based compensation expense.
Interest Income
Interest income increased by $36,000, from $61,000 for the three months ended March 31, 2015 to $97,000 for the three months ended March 31, 2016, as we invested the funds we received from our Series C preferred stock financing into short duration fixed-income securities.
Other Income (Expense), Net
Other income (expense), net changed from income of $47,000 for the three months ended March 31, 2015 to a charge of $23,000 for the three months ended March 31, 2016. The change was primarily due to a reduction in foreign currency gains resulting from Euro-based invoices settled in U.S. dollars.
Comparison of the years ended December 31, 2014 and 2015
Year ended
December 31, |
Change | |||||||||||
2014 | 2015 | |||||||||||
(in thousands) | ||||||||||||
Operating expenses: |
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Research and development |
$ | 9,280 | $ | 20,235 | $ | 10,955 | ||||||
General and administrative. |
1,670 | 6,491 | 4,821 | |||||||||
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Total operating expenses |
10,950 | 26,726 | 15,776 | |||||||||
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Loss from operations |
(10,950 | ) | (26,726 | ) | (15,776 | ) | ||||||
Interest income |
6 | 245 | 239 | |||||||||
Other income (expense), net |
125 | 23 | (102 | ) | ||||||||
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Net loss |
$ | (10,819 | ) | $ | (26,458 | ) | $ | (15,639 | ) | |||
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Research and Development
Research and development expenses increased by $11.0 million, or 118%, from $9.3 million for the year ended December 31, 2014 to $20.2 million for the year ended December 31, 2015. The increase was primarily due to a $3.8 million increase in personnel costs and a $0.9 million increase in facilities costs due to an increase in our research and development headcount. In addition, there was a $2.6 million increase in expenses related to our AT132 and AT982 programs, as we conducted additional preclinical studies, increased manufacturing of study materials and incurred consulting and initiation costs in preparation for future clinical trials. In addition, we launched the AT342 and AT307 programs in 2015, incurring total costs of $2.4 million in 2015, with no comparable costs in 2014. There was also an increase of $1.2 million for lab supplies and $0.6 million for other expenses related to expanded research and development activities in support of preclinical activities and manufacturing process development. In addition, the increase in the fair value of the acquisition contingent consideration payable was $0.1 million, with no comparable expense in 2014.
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General and Administrative
General and administrative expenses increased by $4.8 million, or 282%, from $1.7 million for the year ended December 31, 2014 to $6.5 million for the year ended December 31, 2015. The increase was primarily due to a $2.7 million increase in personnel and consulting costs, a $0.5 million increase in facilities costs due to increased headcount and a $1.0 million increase for legal fees in support of general corporate, in-licensing and patent related activities. Additionally, we incurred $0.4 million in transaction costs associated with the acquisition of Cardiogen in 2015, with no comparable expense in 2014.
Interest Income
Interest income increased by $239,000 from $6,000 for the year ended December 31, 2014 to $245,000 for the year ended December 31, 2015 as we invested the funds we received from our preferred stock financings into short duration fixed-income securities.
Other Income, Net
Other income, net decreased by $102,000 from $125,000 for the year ended December 31, 2014 to $23,000 for the year ended December 31, 2015. The decrease was due to a reduction in foreign currency gains resulting from Euro-based invoices settled in U.S. dollars.
Liquidity, Capital Resources and Plan of Operations
Since our inception in 2012 through March 31, 2016, our operations have been financed solely by net proceeds of $135.8 million from the sale of shares of our convertible preferred stock. As of March 31, 2016, we had $80.3 million in cash, cash equivalents and investments and an accumulated deficit of $51.2 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 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 will be sufficient to meet our anticipated cash and capital expenditure requirements for at least the next 12 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,
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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:
Years Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||
2014 | 2015 | 2015 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Cash used in operating activities |
$ | (8,069 | ) | $ | (27,515 | ) | $ | (4,849 | ) | $ | (12,849 | ) | ||||
Cash (used in) provided by investing activities |
(16,664 | ) | (8,876 | ) | (24,158 | ) | 428 | |||||||||
Cash provided by financing activities |
57,386 | 62,850 | | 76 | ||||||||||||
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Net increase (decrease) in cash and cash equivalents |
$ | 32,653 | $ | 26,459 | $ | (29,007 | ) | $ | (12,345 | ) | ||||||
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Cash Flows from Operating Activities
Cash used in operating activities for the three months ended March 31, 2016 was $12.8 million. Our net loss was $10.5 million, which included noncash charges of $0.7 million, consisting primarily of $0.3 million of stock-based compensation expense and $0.2 million of depreciation and amortization expense. In addition, our prepaid expenses and other current assets increased by $1.4 million, our accounts payable and accrued liabilities decreased by $2.8 million and our facility lease obligations increased by $1.0 million, which resulted in a net use of cash.
Cash used in operating activities for the three months ended March 31, 2015 was $4.8 million. Our net loss was $4.1 million, which included noncash charges of $0.2 million, consisting primarily of $0.1 million of stock-based compensation expense. In addition, our prepaid expenses and other current assets increased by $0.3 million and our accounts payable and accrued liabilities decreased by $0.6 million, which resulted in a use of cash.
Cash used in operating activities for the year ended December 31, 2015 was $27.5 million. Our net loss was $26.5 million, which included noncash charges of $2.4 million, consisting primarily of $1.3 million of stock-based compensation expense and $0.8 million of depreciation and amortization expense. In addition, our prepaid expenses and other current assets increased by $7.0 million primarily due to prepayments for our research and development activities, which was partially offset by a net reduction in our use of cash due to a $3.3 million increase in our accounts payable and accrued liabilities and a $0.3 million increase in facility lease obligations.
Cash used in operating activities for the year ended December 31, 2014 was $8.1 million. Our net loss was $10.8 million, which included noncash charges of $0.5 million, primarily for stock-based compensation expense. In addition, our prepaid expenses and other current assets increased by $0.3 million and our accounts payable and accrued liabilities increased by $2.5 million, which resulted in a net reduction in our use of cash.
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Cash Flows from Investing Activities
Cash provided by investing activities was $0.4 million for the three months ended March 31, 2016, primarily from the maturity or sale of marketable securities of $17.2 million, partially offset by the purchases of property and equipment of $2.1 million and the purchases of marketable securities of $14.7 million.
Cash used for investing activities was $24.1 million for the three months ended March 31, 2015, primarily for the purchase of marketable securities of $26.1 million, partially offset by the maturity or sales of marketable securities of $2.0 million.
Cash used for investing activities was $8.9 million for the year ended December 31, 2015 and was related to the purchase of marketable securities for $40.1 million and purchases of property and equipment for $1.7 million, partially offset by the maturity or sale of marketable securities of $32.8 million and cash received in the acquisition of Cardiogen of $0.1 million.
Cash used for investing activities for the year ended December 31, 2014 was $16.7 million related to the purchase of marketable securities for $16.5 million and purchases of property and equipment for $0.1 million.
Cash Flows from Financing Activities
Cash provided by financing activities for the three months ended March 31, 2016 was related to proceeds from the exercise of stock options of $0.1 million. There were no financing activities in the three months ended March 31, 2015.
Cash provided by financing activities for the year ended December 31, 2015 was related to net proceeds from the issuance of convertible preferred stock of $62.8 million and proceeds from the exercise of stock options of $0.1 million.
Cash provided by financing activities for the year ended December 31, 2014 was primarily related to net proceeds from the issuance of convertible preferred stock of $57.4 million.
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of December 31, 2015:
Payments Due by Period | ||||||||||||||||||||||||||||
Less
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3 years |
4 years |
5 years |
More
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Total |
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(in thousands) | ||||||||||||||||||||||||||||
Operating lease obligations: |
$ | 1,603 | $ | 1,794 | $ | 1,643 | $ | 1,691 | $ | 1,740 | $ | 2,591 | $ | 11,062 | ||||||||||||||
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Total contractual obligations |
$ | 1,603 | $ | 1,794 | $ | 1,643 | $ | 1,691 | $ | 1,740 | $ | 2,591 | $ | 11,062 | ||||||||||||||
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Lease Agreements
Beginning in January 2015, we entered into a series of amendments to our prior Janssen facility lease to increase the office and lab space, which resulted in a quarterly lease expense of approximately $0.1 million and an increase in the aggregate security deposit to approximately $0.1 million. The Janssen facility lease was terminated in June 2016. 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 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 we exercised in May 2016; the ten-year lease will become effective in June 2017.
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In September 2015, we entered into a lease agreement for approximately 22,000 square feet of office space in San Francisco, which serves as our headquarters location. The initial term commenced 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 1,293,058 shares of common stock and 46,969 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 uncertain.
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 $8.85 million in combined milestone fees per licensed product related to XLMTM and up to $8.85 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 digit to low twenties royalty 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 digit to low teens royalty percentages on net sales of licensed products sold by us, our affiliates and sublicensees and (v) a low twenties 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 digit to low teens royalty percentages on net sales of licensed products sold by us, our affiliates and sublicensees and (iv) a low twenties 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.
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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.
Under a 2016 license and collaboration agreement with the University of Pennsylvania, we are obligated to pay the University of Pennsylvania (i) up to an aggregate of $6.0 million for preclinical development activities agreed upon by both parties, subject to adjustment based on the work plan, which amount includes the $3.0 million already paid in May 2016, (ii) up to an aggregate of $13.7 million in development, regulatory and net sales milestone payments for the first licensed product; (iii) low to mid-single digit royalty percentages on tiered annual net sales of the licensed products and (iv) mid-single digit to low double-digit percentages of any sublicense fees we receive from third parties for the grant of sublicenses to any licensed patent rights.
As of March 31, 2016, we had not developed a commercial product using the licensed technologies and no milestones had been achieved under these agreements, except for a $0.4 million payment to REGENXBIO that was due upon our entry into the license and collaboration agreement with the University of Pennsylvania. 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.
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, 2014 and 2015, 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. 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 have implemented and are continuing to implement 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, 2015 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.
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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 $95.2 million and $80.3 million as of December 31, 2015 and March 31, 2016, 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 debt outstanding as of December 31, 2015 and March 31, 2016.
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 August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern , or ASU 2014-15, which requires management to evaluate whether there is substantial doubt that we are able to continue operating as a going concern within one year after the date the financial statements are issued or available to be issued. If there is substantial doubt, additional disclosure is required, including the principal condition or event that raised the substantial doubt, our evaluation of the condition or event in relation to our ability to meet our obligations and our plan to alleviate (or, which is intended to alleviate) the substantial doubt. ASU 2014-15 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. We are currently assessing what impact, if any, the adoption of this ASU will have on our consolidated financial statements and related disclosure.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 20196-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, which for us is January 1, 2018. We are currently assessing what impact, if any, the adoption of this ASU will have on our consolidated financial statements and related disclosure.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. Under the new guidance, (with the exception of short-term leases) at the commencement date, lessees will be required to recognize a lease liability and a right-of-use asset. Lessor accounting is largely unchanged, while lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (January 1, 2019, for us). Early application is permitted. Lessees (for capital and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosure.
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In March 2016, the FASB Issued ASU No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting , or ASU 2016-09. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early application permitted. We are currently assessing what impact, if any, the adoption of this ASU will have on our consolidated financial statements and related disclosure.
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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 built a compelling portfolio of product candidates, including AT132 for the treatment of X-Linked Myotubular Myopathy, or XLMTM, AT342 for the treatment of Crigler-Najjar Syndrome, or Crigler-Najjar, AT982 for the treatment of Pompe disease and AT307 for the treatment of the CASQ2 subtype of Catecholaminergic Polymorphic Ventricular Tachycardia, or CASQ2-CPVT. We plan to submit Investigational New Drug applications, or INDs, or Clinical Trial Authorisations, or CTAs, for AT982 in the third quarter of 2016, for AT342 in the fourth quarter of 2016 and for AT132 in the first quarter of 2017, and expect to have preliminary data from all three programs in the second half of 2017. 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 development of proprietary in-house manufacturing capabilities and the expansion of our pipeline. 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 18 months 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 regulatory 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 portfolio of product candidates employs the use of adeno-associated virus, or AAV, a small, non-pathogenic virus that is genetically engineered to function as a delivery vehicle, or vector, and is administered to a patient to introduce 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 Crigler-Najjar given its ability to penetrate the liver, the primary organ implicated in this disease pathology.
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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 . XLMTM is characterized by extreme muscle weakness, respiratory failure and early death with an estimated 50% mortality rate in the first 18 months 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 . Crigler-Najjar 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. Average life expectancy is reported as being 30 years of age with phototherapy. Crigler-Najjar is estimated to affect approximately one in 1,000,000 newborns. Infants with Crigler-Najjar develop severe jaundice shortly after birth
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resulting in rapid presentation and diagnosis. Crigler-Najjar 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 Crigler-Najjar is aggressive management of high bilirubin levels with persistent, daily phototherapy, usually for longer than 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.
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.
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.
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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 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 two have 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, and have improved the facility 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, 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 plan to submit INDs or CTAs for our product candidates as follows: AT982 for the treatment of Pompe disease in the third quarter of 2016, AT342 for the treatment of Crigler-Najjar in the fourth quarter of 2016, AT132 for the treatment of XLMTM in the first quarter of 2017 and AT307 for the treatment of CASQ2-CPVT 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. |
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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 Crigler-Najjar, AT982 for the treatment of Pompe disease and AT307 for the treatment of CASQ2-CPVT. |
| 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
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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 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 18 months of life. There is no approved treatment for XLMTM and disease management is primarily supportive. Of the patients that survive the
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infantile period, most are severely incapacitated and do not have a life expectancy beyond early adolescence. 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 less than 0.1% 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 and a half 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 and a half 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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XLMTM 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 three 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 first quarter of 2017 and initiate ASPIRO, a Phase 1/2 interventional clinical trial thereafter. We anticipate preliminary data from ASPIRO to be available in the fourth quarter of 2017. We are currently conducting a retrospective chart review and a prospective natural history and run-in 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, clinical management and/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 Study (Ongoing)Prospective Natural History and Run-In Study: The INCEPTUS study is an international, non-interventional clinical assessment study of approximately 12 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 is evaluating subjects over a three to 12-month period prior to potential enrollment in ASPIRO, the Phase 1/2 interventional study of AT132. |
| ASPIRO Study (Planned)Phase 1/2 Interventional Study: The ASPIRO study is planned as a Phase 1/2 multicenter, multinational, open-label, dose escalation study evaluating the safety and preliminary efficacy of AT132 in approximately nine XLMTM patients up to four years of age. Primary safety endpoints include an assessment of the rate of adverse events and certain laboratory parameters, and primary efficacy endpoints include assessments of neuromuscular and respiratory function. Secondary endpoints include the burden of disease and health related quality of life, and muscle tissue histology and biomarkers. The primary analysis is expected to be conducted at 12 months, with interim evaluations expected to be conducted at earlier time points. After the primary 12-month assessment, patients are expected to continue on for another four years to assess long term safety, durability of effect and developmental progression. |
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Regulatory Interactions
We have met with and are planning additional meetings with regulatory authorities regarding our planned IND and CTA submissions. In addition, both the FDA and European Medicines Agency, or EMA, have granted orphan drug designation for AT132.
AT342 for the Treatment of Crigler-Najjar
Overview of Crigler-Najjar
Crigler-Najjar 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. Crigler-Najjar 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. Unconjugated bilirubin can cross the blood brain barrier, and the accumulation of unconjugated bilirubin in the central nervous system can lead to irreversible neurological damage and death.
Infants with Crigler-Najjar 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 Crigler-Najjar is aggressive management of high bilirubin levels with persistent, daily phototherapy, usually for longer than 12 hours per day, for the rest of a patients life. Exchange transfusion or plasmapheresis are sometimes required in order to lower bilirubin levels rapidly. Phototherapy becomes less effective as a child ages, beginning around the age of four years. Average life expectancy is reported as being 30 years of age with phototherapy, and there is an ongoing lifelong risk of a catastrophic cerebral event. Crigler-Najjar is estimated to affect approximately one in 1,000,000 newborns.
Limitations of Current Therapy for Crigler-Najjar
There are currently no products approved specifically for the treatment of Crigler-Najjar. The current standard of care for Crigler-Najjar is aggressive management of high bilirubin levels, with persistent, daily phototherapy, usually for longer than 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 Crigler-Najjar infants and children begin to experience progression of neurological symptoms and increasing risk of a catastrophic cerebral event, 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 Crigler-Najjar.
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 Crigler-Najjar 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
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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 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 plan to complete dose selection and toxicology studies with AT342 prior to initiating clinical development.
Planned Clinical Development of AT342
We plan to begin clinical development of AT342 with a natural history and run-in study, followed by a Phase 1/2 clinical trial, in which we plan to evaluate the safety of AT342 in Crigler-Najjar patients, as well as assess efficacy measures including bilirubin levels and time on phototherapy.
We plan to submit an IND or CTA for AT342 in the fourth quarter of 2016, and expect preliminary data from the Phase 1/2 clinical trial in the fourth quarter of 2017.
| Prospective Natural History and Run-In Study: The prospective natural history study is planned as an international, non-interventional clinical assessment study of approximately 12 to 15 patients with Crigler-Najjar. The primary objective of this study is to characterize the disease course, natural history, bilirubin variability and phototherapy usage of patients with Crigler-Najjar, with a specific focus on serum bilirubin levels and time on phototherapy. In addition, the study is expected to assess the burden of disease on Crigler-Najjar subjects and caregivers. The study is also expected to identify patients for potential enrollment in the Phase 1/2 study and as a control for the Phase 1/2 study. |
| Phase 1/2 Study: The Phase 1/2 study of AT342 is planned as a multicenter, multinational, open-label, ascending dose trial to evaluate the safety and efficacy of AT342 in approximately nine Crigler-Najjar patients greater than or equal to two years of age. Planned efficacy measures include serum bilirubin levels and time on phototherapy. The primary analysis is expected to be conducted at 12 months, with interim evaluations expected to be conducted at earlier time points. Other endpoints include the percent of patients receiving phototherapy, quality of life, auditory function and bilirubin kinetics. |
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Regulatory Interactions
The FDA has granted orphan drug designation for AT342, and we are planning pre-IND and CTA meetings with the FDA and several European Union country health authorities to discuss the planned Phase 1/2 trial of AT342.
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, |
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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
Breathing Frequency
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Total Respiratory Cycle Time
Planned Clinical Development of AT982
We plan to submit an IND for AT982 in the third quarter of 2016 and initiate the Phase 1/2 proof-of-concept trial in adults with Pompe disease shortly thereafter. We expect preliminary data from the Phase 1/2 proof-of-concept trial to be available in the second half of 2017.
| Phase 1/2 Proof-of-Concept Study: The Phase 1/2 proof-of-concept study is planned as a double-blind, randomized trial in approximately eight adult patients with Pompe disease who are currently on enzyme replacement therapy, the current standard of care in Pompe disease. The study is expected to evaluate safety and GAA protein expression after administration of AT982 injected into the TA muscle of the leg, and also after readministration of AT982 into the TA muscle of the contralateral leg. A well-characterized immune modulation strategy is expected to be employed prior to the initial exposure to AT982 in one leg and to the subsequent exposure of AT982 to the contralateral leg after four months. At each dosing of AT982, the contralateral leg is expected to receive placebo. Patients will act as their own control and two different doses are expected to be used to explore a dose response. |
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| Potential Future development of AT982: After the completion of the intra-muscular Phase 1/2 proof-of-concept study, we plan to evaluate different routes of administration of AT982, including intravenous and potentially intrathecal administration. |
Regulatory Interactions
A pre-IND meeting has been held with the FDA and a pre-CTA meeting has been held with the EMA. The Phase 1/2 proof of concept study protocol has been reviewed by the National Institutes of Health, or NIH, Recombinant DNA Advisory Committee, or RAC. Both the FDA and EMA have granted orphan drug designation for AT982.
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.
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.
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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
Newborn Mice
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Adult Mice
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We are conducting a large-animal study to determine the optimal route of administration of AT307, and are conducting additional studies in the murine model to select our development candidate and to determine an appropriate dose for our planned clinical trial.
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 use the clear efficacy endpoint of an exercise electrocardiogram as a means to evaluate therapeutic benefit.
Regulatory Interactions
Both the FDA and EMA have granted orphan drug designation for AT307, and we plan to discuss our development plans with the FDA and several European Union country health authorities.
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
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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.
Process development research is currently ongoing in our internal laboratories. Our new manufacturing facility is also supporting our development programs with production of AAV vectors for preclinical studies, and is expected to be available for cGMP manufacturing of our product candidates in the second half of 2016. We anticipate this 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. We plan to manufacture AT132 in our own facilities, and anticipate that AT342 will be initially manufactured by a CMO. AT982 is currently manufactured by the University of Florida in a facility that we believe complies with cGMPs. As we establish and scale our internal manufacturing capabilities, we plan to transition all process development and manufacturing activities to our own facilities.
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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 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 March 31, 2016, 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; |
| one U.S. patent application relating to AT342, which, if granted, would be projected to expire in 2036, comprising claims directed to recombinant AAV for use in treating Crigler-Najjar and AAV constructs containing a codon-optimized UGT1A1 gene; |
| 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.
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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 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 50,228 shares of our common stock. We will also owe REGENXBIO (i) an annual maintenance fee; (ii) up to $8.85 million in combined milestone fees per licensed product related to XLMTM and up to $8.85 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 digit to low twenties royalty 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.
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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.
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 an additional $0.4 million upon our entry into the license and collaboration agreement with the University of Pennsylvania. 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 digit to low teens royalty percentages on net sales of licensed products sold by us, our affiliates and sublicensees and (iv) a low twenties 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 digit to low teens royalty percentages on net sales of licensed
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products sold by us, our affiliates and sublicensees and (v) a low twenties 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 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 262,396 shares of our common stock to Genethon, of which 87,465 shares vested immediately, 87,465 shares vested in January 2015 and 87,466 shares vested 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
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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, which was amended in June 2016. 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 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 51,968 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.
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University of Pennsylvania License and Collaboration Agreement
In May 2016, we entered into a license and collaboration agreement with The Trustees of the University of Pennsylvania, or the University of Pennsylvania. Under the agreement, the University of Pennsylvania granted us an exclusive worldwide license under certain patent rights to research, develop, use, sell, offer for sale, have sold, make, have made and import licensed products for the treatment of Crigler-Najjar.
As consideration for the licensed rights, we paid the University of Pennsylvania an upfront fee of $0.5 million, as well as $3.0 million for certain preclinical development activities. We are obligated to pay the University of Pennsylvania (i) up to an aggregate of $6.0 million for preclinical development activities agreed upon by both parties, subject to adjustment based on the work plan, which amount includes the $3.0 million already paid in May 2016, (ii) up to an aggregate of $13.7 million in development, regulatory and net sales milestone payments for the first licensed product; (iii) low to mid single-digit royalty percentages on tiered annual net sales of the licensed products sold by us, our affiliates or sublicensees and (iv) mid single-digit to low double-digit percentages of any sublicense fees we receive from third parties for the grant of sublicenses to any licensed patent rights.
Under the agreement, we are obligated to use commercially reasonable efforts to develop, pursue regulatory approval for, market and commercialize at least one licensed product. The University of Pennsylvania will be responsible for conducting preclinical development activities according to a work plan, including all IND-enabling non-clinical studies and research grade manufacturing. We will be responsible for regulatory strategy and operations, clinical development, GMP manufacture and commercialization of the licensed products.
The agreement will continue on a country-by-country basis and expire upon the later of the expiration of the last valid claim of the licensed patent rights that covers the exploitation of such licensed patent rights in such country, or ten years after first commercial sale of such licensed product in such country. We may terminate the agreement upon 60 days prior written notice. Either party may terminate the agreement for material breach that is not cured within a specified number of days.
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.
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. |
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AT342 for Crigler-Najjar. The current standard of care for the treatment of Crigler-Najjar 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. |
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There are currently no products approved for the treatment of Crigler-Najjar. 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 Crigler-Najjar. |
| 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 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 is neoGAA from Genzyme Corporation. 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. |
| 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. |
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.
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.
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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 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
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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 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
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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 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 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.
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
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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 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
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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 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.
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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.
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.
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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 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
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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 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.
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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.
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; |
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| 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.
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
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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.
Facilities
We currently occupy 21,596 square feet of office space in San Francisco, California, 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 exercised an option to enter into a ten-year lease for approximately 17,000 additional square feet of contiguous manufacturing space; the ten-year lease will become effective in June 2017. Additionally, we have subleased 8,983 square feet of research and development laboratory space in South San Francisco, California, under a sublease that expires in January 2018.
Employees
As of May 31, 2016, we had 75 full-time employees, including 15 employees with M.D. or Ph.D. degrees, and one part-time employee, who holds a Ph.D. degree. Of our workforce, 62 employees are engaged in research and development activities and 13 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 May 31, 2016:
Name |
Age |
Position |
||||
Executive Officers: |
||||||
Matthew Patterson |
45 | President, Chief Executive Officer and Director | ||||
Natalie Holles |
43 | Senior Vice President, Chief Operating Officer | ||||
Thomas Soloway |
49 | 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. |
53 | Senior Vice President, Research and Development | ||||
Non-Employee Directors: |
||||||
Jonathan Silverstein (1) |
49 | Chairman of Board of Directors | ||||
Louis Lange, M.D., Ph.D. |
68 | Director | ||||
Jonathan Leff |
47 | Director | ||||
Scott Morrison (2) |
58 | Director | ||||
Kush Parmar, M.D., Ph.D. (1)(3) |
35 | Director | ||||
Thomas Schuetz, M.D., Ph.D. (2) |
55 | Director | ||||
Stephen Squinto, Ph.D. (3) |
59 | Director | ||||
Thomas Woiwode, Ph.D. (2)(3) |
44 | Director |
(1) | Member of the Nominating and Corporate Governance Committee |
(2) | Member of the Audit Committee |
(3) | Member of the Compensation 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 qualifies 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 Messrs. Silverstein, Woiwode and Schuetz, and their terms will expire at the first annual meeting of stockholders following this offering; |
| the Class II directors will be Drs. Parmar, Squinto and Lange, and their terms will expire at the second annual meeting of stockholders following this offering; and |
| the Class III directors will be Messrs. Morrison and Patterson, and their terms will expire at the third annual meeting of stockholders following this offering. |
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 composed of Messrs. Morrison, Schuetz and Woiwode. Mr. Morrison is the chairperson of our audit committee. Messrs. Morrison, Schuetz and Woiwode 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 Mr. Morrison 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 composed of Messrs. Squinto, Parmar and Woiwode. Mr. Squinto 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 committee is (i) an outside director, as defined pursuant to Section 162(m) of the Internal
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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 composed of Messrs. Silverstein and Parmar. Mr. Silverstein 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
Our board of directors has adopted a code of business conduct and ethics that will become effective upon completion of this offering 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.
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 |
$ | | $ | 192,746 | $ | 192,746 | ||||||
Thomas Schuetz |
31,000 | 8,620 | 39,620 | |||||||||
Stephen Squinto |
24,750 | 34,511 | 59,261 |
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(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 33,635 shares of common stock with an exercise price of $9.50 per share, Dr. Schuetz held outstanding options to purchase 18,086 shares of common stock with an exercise price of $0.79 per share and options to purchase 5,605 shares of common stock at an exercise price of $2.19 per share, and Dr. Squinto held outstanding options to purchase 22,423 shares of common stock with an exercise price of $2.19 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 10 to our audited consolidated 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 5,605 and 22,423 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 33,635 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 10 to our audited consolidated 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 141,297, 24,217 and 17,939 shares of common stock, respectively, with an exercise price of $2.19 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 189,819, 47,454 and 56,945 shares of common stock, respectively, with an exercise price of $9.50 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 |
197,327 | (2) | 89,695 | $ | 0.79 | 9/25/2023 | ||||||||||
| 141,297 | (3) | 2.19 | 2/04/2025 | ||||||||||||
| 189,819 | (5) | 9.50 | 12/18/2025 | ||||||||||||
Dr. Prasad |
42,381 | (3) | 54,489 | 0.79 | 2/18/2024 | |||||||||||
3,531 | (4) | 20,686 | 2.19 | 5/27/2025 | ||||||||||||
| 47,454 | (5) | 9.50 | 12/18/2025 | ||||||||||||
Dr. Gray |
22,423 | (3) | 49,333 | 1.05 | 9/17/2024 | |||||||||||
2,615 | (4) | 15,324 | 2.19 | 5/27/2025 | ||||||||||||
| 56,945 | (5) | 9.50 | 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. |
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Employment Agreements
We have entered into employment agreements with our Named Executive Officers that provide for at-will employment and include each Named Executive Officers base salary, a discretionary annual incentive bonus opportunity and standard employee benefit plan participation. These agreements also provide for severance benefits upon termination of employment or a change in control of our company.
If a Named Executive Officer is terminated for cause or in the event of a Named Executive Officers death, disability or voluntary separation from service at any time and for any reason, such Named Executive Officer will be entitled to receive (i) any earned but unpaid base salary, (ii) other unpaid vested amounts or benefits under the compensation, incentive and benefits plans we have in which such Named Executive Officers participates and (iii) reimbursement for all reasonable and necessary expenses incurred in connection with such Named Executive Officers performance of services on our behalf in accordance with our applicable policies and guidelines, in each case as of the effective date of such separation from service. The compensation referred to in (i)-(iii) above is collectively referred to as Accrued Compensation.
If a Named Executive Officers is terminated without cause or resigns for good reason, and such Named Executive Officer delivers to us a signed general release of claims, such Named Executive Officer will be entitled to receive (i) the Accrued Compensation, (ii) a lump sum cash payment in an amount equal to six months of such Named Executive Officers base salary and (iii) reimbursement for any monthly COBRA premium payments for 12 months, subject to certain limitations.
If a Named Executive Officer is terminated without cause or resigns for good reason, in each case during the period of time commencing 90 days prior to the execution of a definitive agreement providing for the consummation of a change in control and ending on the first anniversary of the consummation of such change in control, and provided that such Named Executive Officer delivers to us a signed general release of claims, such Named Executive Officer will be entitled to receive (i) the Accrued Compensation, (ii) a lump sum cash payment in an amount equal to six months of his base salary, (iii) reimbursement for any monthly COBRA premium payments for the 12 months, subject to certain limitations, (iv) accelerated vesting of 100% of the unvested stock or equity awards granted to such Named Executive Officer pursuant to the terms of the employment agreement, if any, and (v) accelerated vesting of 100% of the unvested portion of any equity awards granted to such Named Executive Officer after the effective date of the employment agreement.
Under the employment agreements, cause generally means (i) failure to satisfactorily perform duties after there has been delivered a written demand for performance which describes the specific deficiencies in performance and the specific manner in which performance must be improved, and which provides 30 business days from the date of notice to remedy such performance deficiencies; (ii) conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude which our board of directors believes has had or will have a detrimental effect on our reputation or business, (iii) engaging in an act of gross negligence or willful misconduct in the performance of employment obligations and duties, (iv) committing an act of fraud against, material misconduct or willful misappropriation of property belonging to us; (v) engaging in any other misconduct that has had or will have a material adverse effect on our reputation or business; or (vi) breach of the Employee Invention Assignment and Confidentiality Agreement or other unauthorized misuse of the our trade secrets or proprietary information.
Under the employment agreements, change in control means (i) a sale, conveyance, exchange or transfer (excluding any venture-backed or similar investments) in which any person or entity, other than persons or entities who as of immediately prior to such sale, conveyance, exchange or transfer own securities, either directly or indirectly, becomes the beneficial owner, directly or indirectly, of securities representing more than 50% of the total voting power of all its then outstanding voting securities; (ii) our merger or consolidation in which our voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving
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entity immediately after the merger or consolidation; or (iii) a sale of substantially all of our assets or our liquidation or dissolution.
Under the employment agreements, disability has the meaning set forth in Section 22(e)(3) of the Code.
Under the employment agreements, good reason means any of the following taken without the Named Executive Officers written consent and provided (i) we receive, within 30 days following the occurrence of any of the events set forth in clauses (a) through (id) below, written notice from the Named Executive Officer specifying the specific basis for the Named Executive Officers belief that the Named Executive Officer is entitled to terminate employment for Good Reason, (ii) we fail to cure the event constituting Good Reason within 30 days after receipt of such written notice of the event, and (iii) the Named Executive Officer terminates employment within the earlier of 10 days following expiration of such cure period or receipt from us that such deficiencies will not be cured: (a) a material change, adverse to the Named Executive Officer, in the Named Executive Officers position, titles, offices or duties; (b) an assignment of any significant duties to the Named Executive Officer that are inconsistent with the Named Executive Officers positions or offices held; (c) a decrease in base salary by more than 10% (other than in connection with a general decrease in the base salary of all other executive officers); or (d) relocation to a facility or a location more than 50 miles from the then-current location.
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 March 31, 2016, we had reserved 3,107,517 shares of our common stock for issuance under the 2012 Plan and 682,512 shares remained available for future grant. 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
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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 adopted the 2016 Plan, which will become effective on the date immediately prior to the date of this prospectus and serve as the successor to the 2012 Plan. We reserved 1,500,000 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 January 1 of each calendar, year continuing through the tenth calendar year during the term of the 2016 Plan by the number of shares equal to 5% 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; |
| 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 at the original issuance price 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 1,000,000 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 2,000,000 shares under the plan in the calendar year in which the employee commences employment. No participant will be eligible to receive more than $5.0 million in performance awards in any calendar year. No more than 10,000,000 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 150,000.
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
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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 provides 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, except that the maximum permitted term of incentive stock options granted to 10% stockholders is five years.
An RSA is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price, if any, of an RSA will be determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the 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
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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 12 months in the case of death or disability, or such shorter period (not less than six months) or 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 continued, assumed or substituted by the successor company. In the alternative, outstanding awards may be cancelled in exchange for a payment in cash or securities of the successor entity or acquirer. Outstanding awards may also be cancelled in exchange for no consideration. Outstanding awards that are not converted, 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.
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 adopted 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 have reserved 210,000 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 January 1 of each calendar year beginning after the first offering date and continuing through the first ten calendar years by the number of shares equal to 1% 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 2,100,000 shares of our common stock.
Our compensation committee will administer the 2016 ESPP. Our employees generally are eligible to participate in the 2016 ESPP. Our compensation committee may in its discretion elect to exclude employees who do not meet certain eligibility requirements under applicable law. 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 first purchase date under the 2016 ESPP unless it is terminated earlier by our board of directors.
The 2016 ESPP is implemented through a series of offering periods 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. The time and duration of the offering periods and the purchase periods will be determined by the compensation committee, provided that an offering period will in no event be longer than 27 months, except as otherwise provided by an applicable subplan. Offering periods may be consecutive or
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overlapping; purchase periods will be consecutive. Each offering period may consist of one or more purchase periods. The compensation committee will determine the duration and commencement date of each offering period and purchase period, provided that a purchase period will not end later than the close of the offering period in which it begins. 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 $25,000, 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 2,100 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 85% 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 2016 ESPP will depend on the date on which the compensation committee first implements the 2016 ESPP.
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 2016 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 |
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| 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 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 5,022,876 shares of our Series A convertible preferred stock at a purchase price of $5.9727 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) |
2,511,441 | $ | 14,999,997 | |||||
Entities affiliated with 5AM Ventures (2) |
1,423,147 | 8,499,993 | ||||||
Entities affiliated with Versant Ventures (3) |
1,088,288 | 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 3,796,635 shares of our Series B convertible preferred stock at a purchase price of $11.1942 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) |
1,071,992 | $ | 12,000,003 | |||||
Entities affiliated with Deerfield Management (2) |
803,993 | 9,000,002 | ||||||
Entities affiliated with 5AM Ventures (3) |
632,772 | 7,083,332 | ||||||
Entities affiliated with Versant Ventures (4) |
483,885 | 5,416,668 | ||||||
Sofinnova Venture Partners IX, L.P. |
446,663 | 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 4,325,954 shares of our Series C convertible preferred stock at a purchase price of $15.0256 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) |
332,766 | $ | 4,999,994 | |||||
Entities affiliated with Deerfield Management (2) |
199,660 | 2,999,998 | ||||||
Entities affiliated with 5AM Ventures (3) |
266,212 | 3,999,999 | ||||||
Entities affiliated with Versant Ventures (4) |
199,659 | 2,999,998 | ||||||
Sofinnova Venture Partners IX, L.P. |
798,640 | 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 46,969 shares of our Series B convertible preferred stock, 1,293,058 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) |
587,300 | 24,633 |
(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 reimbursed entities affiliated with OrbiMed, a holder of more than 5% of our capital stock, $400,000 for certain expenses incurred in connection with the founding of our company.
Potential Insider Participation
Our existing institutional investors associated with our board have indicated an interest in purchasing shares of common stock in this offering with an aggregate value of approximately $30.0 million at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these parties, or any of these parties may determine to purchase more, fewer or no shares in this offering.
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.
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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.
Review, Approval or Ratification of Transactions with Related-Parties
In connection with this offering, we adopted a written related-person transactions policy that will become effective upon completion of this offering and 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 May 31, 2016, 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 16,020,378 shares of common stock issued and outstanding as of May 31, 2016 and assumes the conversion of all outstanding shares of preferred stock into an aggregate of 13,820,301 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 5,000,000 shares of common stock will be issued by us in our initial public offering based on an assumed initial public offering price of $15.00 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 May 31, 2016. 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., 600 California Street, 17th Floor, San Francisco, California 94108.
Our existing institutional investors associated with our board have indicated an interest in purchasing shares of common stock in this offering with an aggregate value of approximately $30.0 million at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these parties, or any of these parties may determine to purchase more, fewer or no shares in this offering. The following table does not reflect any potential purchases by these parties.
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Shares Beneficially Owned
Prior to this Offering |
Shares Beneficially
Owned After this Offering |
|||||||||||||||
Name of Beneficial Owner |
Number | Percentage | Number | Percentage | ||||||||||||
5% Stockholders: |
||||||||||||||||
OrbiMed Private Investments IV, LP (1) |
4,768,304 | 29.8 | % | 4,768,304 | 22.7 | % | ||||||||||
Entities affiliated with 5AM Ventures (2) |
2,322,131 | 14.5 | 2,322,131 | 11.0 | ||||||||||||
Entities affiliated with Versant Ventures (3) |
1,771,832 | 11.1 | 1,771,832 | 8.4 | ||||||||||||
Sofinnova Venture Partners IX, L.P. (4) |
1,245,303 | 7.8 | 1,245,303 | 5.9 | ||||||||||||
Entities affiliated with Deerfield Management (5) |
1,003,653 | 6.3 | 1,003,653 | 4.8 | ||||||||||||
Directors and Named Executive Officers: |
||||||||||||||||
Matthew Patterson (6) |
453,568 | 2.8 | 453,568 | 2.1 | ||||||||||||
Suyash Prasad (7) |
67,484 | * | 67,484 | * | ||||||||||||
John Gray (8) |
48,227 | * | 48,227 | * | ||||||||||||
Louis Lange (9) |
611,933 | 3.8 | 611,933 | 2.9 | ||||||||||||
Jonathan Leff |
| | | | ||||||||||||
Scott Morrison (10) |
5,606 | * | 5,606 | * | ||||||||||||
Kush Parmar (2) |
2,322,131 | 14.5 | 2,322,131 | 11.0 | ||||||||||||
Thomas Schuetz (11) |
107,388 | * | 107,388 | * | ||||||||||||
Jonathan Silverstein (1) |
4,768,304 | 29.8 | 4,768,304 | 22.7 | ||||||||||||
Stephen Squinto (12) |
9,343 | * | 9,343 | * | ||||||||||||
Thomas Woiwode (3) |
1,771,832 | 11.1 | 1,771,832 | 8.4 | ||||||||||||
All executive officers and directors as a group (15 persons) (13) |
10,217,124 | 62.0 | 10,217,124 | 47.6 |
* | 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) 2,263,790 shares held by 5AM Ventures III, L.P., or 5AM Ventures, and (ii) 58,341 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) 1,760,743 shares held by Versant Venture Capital IV, L.P., or VVC IV, and (ii) 11,089 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 and Dr. Anand Mehra, 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) 367,827 shares held by Deerfield Special Situations Fund, L.P., or Deerfield Fund, and (ii) 635,826 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. |
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(6) | Represents (i) 201,814 shares of common stock and (ii) 251,754 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2016. |
(7) | Represents 67,484 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2016. |
(8) | Represents 48,227 shares of common stock underlying options to purchase common stock that are exercisable within 60 days of May 31, 2016. |
(9) | Represents (i) 475,799 shares held by Mr. Lange, (ii) 25,678 shares held by Amygdala Lange Trust, of which Mr. Langes domestic partner is a trustee, (iii) 8,558 shares held by Lange Minors Trust, of which Mr. Langes domestic partner is a trustee, (iv) 87,343 shares held by Asset Management Ventures Fund, L.P., of which Mr. Lange is a general partner, and (v) 14,555 shares held by Camp Lowell, LLC, of which Mr. Lange is president. |
(10) | Represents 5,606 shares underlying options to purchase common stock that are exercisable with 60 days of May 31, 2016. |
(11) | Represents (i) 89,695 shares of common stock and (ii) 17,693 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2016. |
(12) | Represents 9,343 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2016. |
(13) | Represents (i) 9,765,709 shares of common stock and (ii) 451,415 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2016. |
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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 300,000,000 shares of common stock, $0.00001 par value per share, and 10,000,000 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 the conversion of all outstanding shares of our convertible preferred stock into 13,820,301 shares of common stock, as of March 31, 2016, there were 16,020,378 shares of our common stock issued and outstanding, held by approximately 58 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 10,000,000 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 March 31, 2016, we had outstanding options to purchase an aggregate of 2,279,086 shares of our common stock, with a weighted-average exercise price of approximately $3.99 per share. Subsequent to March 31, 2016, we issued options to purchase an aggregate of 82,739 shares of our common stock, with an exercise price of $7.54 per share. We also expect to grant stock options to purchase up to 101,127 shares of our common stock on the date of this prospectus, with an exercise price equal to the initial public offering price of our common stock.
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 15,375,756 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.
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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 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.
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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, 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 |
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prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management. |
| Classified Board. Our restated certificate of incorporation and restated bylaws will provide that our board of directors will be classified into three classes of directors, each with staggered three-year terms. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See 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 10,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means. |
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| Choice of Forum. Our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our restated bylaws; any action to interpret, apply, enforce or determine the validity of our restated certificate of incorporation or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The enforceability of similar choice of forum provisions in other companies certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. |
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 21,020,378 shares of our common stock outstanding, assuming (i) the automatic conversion of shares of our convertible preferred stock outstanding as of March 31, 2016 into 13,820,301 shares of our common stock effective immediately prior to the completion of this offering and (ii) the sale and issuance of 5,000,000 shares of our common stock in this offering, at an assumed initial public offering price of $15.00 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, 16,020,378 additional shares will become eligible for sale in the public market, of which 9,765,709 shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below. |
The foregoing does not reflect the potential purchase of any shares by our existing institutional investors associated with our board pursuant to their indications of interest to purchase shares of common stock in this offering with an aggregate value of approximately $30.0 million at the initial public offering price.
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 210,204 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 |
5,000,000 | |||
|
|
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 $3.7 million. We have also agreed to reimburse the underwriters for up to $30,000 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 750,000 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.
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Electronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. 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.
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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.
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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.
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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
163
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.
164
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, 2014 and 2015, and for each of the years in the two-year period ended December 31, 2015, 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.
165
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
Financial Statements |
||||
Consolidated Balance Sheets as of December 31, 2014 and 2015 |
F-3 | |||
F-4 | ||||
Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2014 and 2015 |
F-5 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014 and 2015 |
F-6 | |||
F-7 | ||||
Unaudited Interim Condensed Consolidated Financial Statements |
||||
Condensed Consolidated Balance Sheets as of December 31, 2015 and March 31, 2016 |
F-34 | |||
F-35 | ||||
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2016 |
F-36 | |||
Notes to Unaudited Interim Condensed Consolidated Financial Statements |
F-37 |
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors
Audentes Therapeutics, Inc.:
We have audited the accompanying consolidated balance sheets of Audentes Therapeutics, Inc. and subsidiary as of December 31, 2014 and 2015, and the related consolidated statements of operations and comprehensive loss, stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Audentes Therapeutics, Inc. and subsidiary as of December 31, 2014 and 2015, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
March 9, 2016, except for the second paragraph of Note 15, as to which the date is July 7, 2016
F-2
Consolidated Balance Sheets
(in thousands, except shares and per share data)
December 31, | ||||||||
2014 | 2015 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 45,599 | $ | 72,058 | ||||
Short-term investments |
14,851 | 23,169 | ||||||
Restricted cash |
50 | 730 | ||||||
Prepaid expenses and other current assets |
441 | 3,682 | ||||||
|
|
|
|
|||||
Total current assets |
60,941 | 99,639 | ||||||
Restricted cash-long-term |
| 2,930 | ||||||
Property and equipment, net |
264 | 2,968 | ||||||
Goodwill |
| 3,631 | ||||||
Intangible assets |
| 8,000 | ||||||
Long-term investments |
1,698 | | ||||||
Other assets . |
106 | 301 | ||||||
|
|
|
|
|||||
Total assets |
$ | 63,009 | $ | 117,469 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,240 | $ | 2,789 | ||||
Accrued liabilities |
1,871 | 4,797 | ||||||
Facility lease obligations |
| 137 | ||||||
|
|
|
|
|||||
Total current liabilities |
3,111 | 7,723 | ||||||
Facility lease obligations |
34 | 519 | ||||||
Contingent acquisition consideration payable |
| 4,278 | ||||||
Deferred tax liability, net |
| 3,260 | ||||||
|
|
|
|
|||||
Total liabilities |
3,145 | 15,780 | ||||||
|
|
|
|
|||||
Stockholders equity: |
||||||||
Convertible preferred stock, Series Seed, $0.00001 par value: 1,400,000 shares authorized as of December 31, 2014 and 2015; 627,867 shares issued and outstanding as of December 31, 2014 and 2015, aggregate liquidation preference of $1,400 as of December 31, 2014 and 2015 |
1,378 | 1,378 | ||||||
Convertible preferred stock, Series A, $0.00001 par value: 11,199,876 shares authorized as of December 31, 2014 and 2015; 5,022,876 shares issued and outstanding as of December 31, 2014 and 2015; aggregate liquidation preference of $30,000 as of December 31, 2014 and 2015 |
28,757 | 28,757 | ||||||
Convertible preferred stock, Series B, $0.00001 par value: 8,500,000 and 8,570,366 shares authorized as of December 31, 2014 and 2015, respectively; 3,796,635 and 3,843,604 shares issued and outstanding as of December 31, 2014 and 2015, respectively; aggregate liquidation preference of $42,500 and $43,026 as of December 31, 2014 and 2015, respectively . |
42,268 | 42,835 | ||||||
Convertible preferred stock, Series C, $0.00001 par value: zero and 9,684,789 shares authorized as of December 31, 2014 and 2015, respectively; zero and 4,325,954 shares issued and outstanding as of December 31, 2014 and 2015, respectively; aggregate liquidation preference of zero and $65,000 as of December 31, 2014 and 2015, respectively |
| 62,780 | ||||||
Common stock, $0.00001 par value, 28,000,000 and 50,000,000 shares authorized as of December 31, 2014 and 2015, respectively; 761,100 and 2,106,152 shares issued and outstanding as of December 31, 2014 and 2015, respectively |
| | ||||||
Additional paid-in capital |
1,756 | 6,692 | ||||||
Accumulated deficit . |
(14,285 | ) | (40,743 | ) | ||||
Accumulated other comprehensive loss |
(10 | ) | (10 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
59,864 | 101,689 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 63,009 | $ | 117,469 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
Consolidated Statements of Operations and Comprehensive Loss
(in thousands)
Year Ended December 31, | ||||||||
2014 | 2015 | |||||||
Operating expenses: |
||||||||
Research and development |
$ | 9,280 | $ | 20,235 | ||||
General and administrative . |
1,670 | 6,491 | ||||||
|
|
|
|
|||||
Total operating expenses |
10,950 | 26,726 | ||||||
|
|
|
|
|||||
Loss from operations |
(10,950 | ) | (26,726 | ) | ||||
Interest income |
6 | 245 | ||||||
Other income, net |
125 | 23 | ||||||
|
|
|
|
|||||
Net loss |
(10,819 | ) | (26,458 | ) | ||||
Unrealized losses on available-for-sale securities |
(10 | ) | | |||||
|
|
|
|
|||||
Net loss and comprehensive loss |
$ | (10,829 | ) | $ | (26,458 | ) | ||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (21.56 | ) | $ | (23.03 | ) | ||
|
|
|
|
|||||
Shares used in computing net loss per share, basic and diluted . |
501,707 | 1,148,827 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted (unaudited) |
$ | (2.28 | ) | |||||
|
|
|||||||
Shares used in computing pro forma net loss per share, basic and diluted |
11,621,249 | |||||||
|
|
See accompanying notes to consolidated financial statements.
F-4
Consolidated Statements of Stockholders Equity
Years ended December 31, 2014 and 2015
(in thousands, except shares)
Series Seed
Convertible Preferred Stock |
Series A
Convertible Preferred stock |
Series B
Convertible Preferred Stock |
Series C
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 | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2014 |
627,867 | $ | 1,378 | 2,511,435 | $ | 13,759 | | $ | | | $ | | 498,704 | $ | | $ | 1,241 | $ | (3,466 | ) | $ | | $ | 12,912 | ||||||||||||||||||||||||||||||||
Issuance of common stock to Genethon (see note 7) |
| | | | | | | | 262,396 | | 336 | | | 336 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series A convertible preferred stock, net of $2 in issuance costs |
| | 2,511,441 | 14,998 | | | | | | | | | | 14,998 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series B convertible preferred stock, net of $217 in issuance costs |
| | | | 3,796,635 | 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 |
627,867 | 1,378 | 5,022,876 | 28,757 | 3,796,635 | 42,268 | | | 761,100 | | 1,756 | (14,285 | ) | (10 | ) | 59,864 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for acquisition of business (see note 6) |
| | | | | | | | 1,293,058 | | 3,575 | | | 3,575 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | | | 51,994 | | 70 | | | 70 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series B convertible preferred stock, for acquisition of business (see Note 6) |
| | | | 46,969 | 567 | | | | | | | | 567 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series C convertible preferred stock, net of $2,208 in issuance costs |
| | | | | | 4,325,954 | 62,780 | | | | | | 62,780 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | 1,291 | | | 1,291 | ||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (26,458 | ) | | (26,458 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Balance at December 31, 2015 |
627,867 | $ | 1,378 | 5,022,876 | $ | 28,757 | 3,843,604 | $ | 42,835 | 4,325,954 | $ | 62,780 | 2,106,152 | $ | | $ | 6,692 | $ | (40,743 | ) | $ | (10 | ) | $ | 101,689 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31, | ||||||||
2014 | 2015 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (10,819 | ) | $ | (26,458 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Amortization of discount on investments |
| 660 | ||||||
Depreciation and amortization |
35 | 166 | ||||||
Stock-based compensation |
515 | 1,291 | ||||||
Accretion of asset retirement obligation |
| 136 | ||||||
Non-cash change in fair value of contingent acquisition consideration payable |
| 131 | ||||||
Other |
(9 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Restricted cash |
| (3,610 | ) | |||||
Prepaid expenses and other current assets |
(300 | ) | (3,188 | ) | ||||
Other assets |
(36 | ) | (195 | ) | ||||
Accounts payable |
857 | 628 | ||||||
Accrued liabilities |
1,683 | 2,634 | ||||||
Facility lease obligations |
5 | 290 | ||||||
|
|
|
|
|||||
Net cash used in operating activities |
(8,069 | ) | (27,515 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Cash acquired in business acquisition |
| 142 | ||||||
Purchases of property and equipment |
(125 | ) | (1,686 | ) | ||||
Proceeds from sales and maturities of marketable securities |
| 32,792 | ||||||
Purchases of marketable securities |
(16,539 | ) | (40,124 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(16,664 | ) | (8,876 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of Series A convertible preferred stock, net of issuance costs |
14,998 | | ||||||
Proceeds from issuance of Series B convertible preferred stock, net of issuance costs |
42,388 | | ||||||
Proceeds from issuance of Series C convertible preferred stock, net of issuance costs |
| 62,780 | ||||||
Proceeds from exercises of stock options |
| 70 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
57,386 | 62,850 | ||||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
32,653 | 26,459 | ||||||
Cash and cash equivalents at beginning of period |
12,946 | 45,599 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 45,599 | $ | 72,058 | ||||
|
|
|
|
|||||
Noncash investing and financing activities: |
||||||||
Increase (decrease) in accounts payable, facility lease obligations and accrued liabilities related to property and equipment purchases |
$ | 65 | $ | 1,140 | ||||
Preferred stock issuance costs |
$ | (120 | ) | $ | |
See accompanying notes to consolidated financial statements.
F-6
AUDENTES THERAPEUTICS, INC.
NOTES TO 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 consolidated financial statements include the accounts of Audentes Therapeutics, Inc., and its wholly owned subsidiary, Audentes Therapeutics UK Ltd. All intercompany 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 had an accumulated deficit of $40.7 million, as of December 31, 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, 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 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.
Reclassifications
The Company has made certain reclassifications to the consolidated financial statements and related disclosures for the year ended December 31, 2014 to conform to current period presentation. These reclassifications had no impact on previously reported consolidated comprehensive loss.
F-7
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Cash: Restricted cash consists of cash pledged as security for letters of credit and is typically held in money market funds.
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 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.
F-8
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 consolidated 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 facility leases and is classified as current or long-term depending on the lease requirements for the respective letters of credit.
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, has concluded that minimal credit risk exists with respect to the financial institution.
Concentration of Manufacturing Risk
As of December 31, 2015, 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.
Deferred Offering Costs
Deferred offering costs, consisting of legal, accounting, printer and filing fees related to the proposed initial public offering, or IPO, are capitalized. The deferred offering costs will be offset against proceeds from the IPO upon completion of the offering. In the event the offering is terminated, all capitalized deferred offering costs will be expensed. As of December 31, 2015, $2.3 million of deferred offering costs were capitalized, which are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. No offering costs were deferred as of December 31, 2014.
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 into 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 consolidated balance sheets and the resulting gain or loss is reflected in operations.
F-9
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 are subject to an annual impairment analysis.
The Company performs its annual impairment review of goodwill and indefinite lived intangibles during December 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. The Company has recorded no impairment of any long-lived assets during any of the periods presented.
As of December 31, 2015, the Company had only one reporting unit.
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 estimates and assumptions, notably at the acquisition date with respect to intangible assets and in-process research and development.
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.
F-10
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 consolidated balance sheets and within research and development expense in the consolidated 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.
Research and Development Costs
Research and development costs are expensed as incurred and consist primarily of personnel and consultant costs, lab supplies, allocated facility and other costs, fees paid to third parties to conduct research and development activities on the Companys behalf and expenses incurred in connection with license agreements.
Facility Lease Obligations
Rent expense is recognized on a straight-line basis over the non-cancelable term of the Companys operating leases 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.
Under the terms of its sublease for manufacturing facilities, the Company assumed a restoration obligation from the previous tenant. The liability is being accreted to rent expense through the end of the lease term. In addition, the Company received approximately $0.2 million of laboratory equipment for de minimis consideration. This amount has been recorded in property and equipment and will be depreciated when placed in service. The related liability will be amortized over the remaining lease term as a reduction to rent expense.
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 non-cash 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 non-employees 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
F-11
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Interest Income
Interest income consists of interest earned from investments and money market accounts.
Other Income
Other income consists primarily of foreign currency gains and losses.
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 April 2015, the FASB issued ASU 2015-05, Customers Accounting for Fees Paid in a Cloud Computing Arrangement, which provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for public business entities for the fiscal years, and the interim reporting periods within those years beginning after December 15, 2015. An entity can elect to adopt the amendments either prospectively or retrospectively. Early adoption is permitted for all entities. The Company does not anticipate adoption of this guidance to have a material impact to its financial statements or disclosures.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16). The amended guidance requires that an acquirer recognize adjustments to
F-12
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments are effective prospectively for the fiscal years, and the interim reporting periods within those years, beginning on or after December 15, 2015 and early adoption is permitted. The Company has elected to early adopt ASU 2015-16. The guidance did not have a material impact to the Companys financial statements or disclosures.
In November 2015 the FASB issued ASU 2015-17 , Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU is effective for the Company in its first quarter of fiscal 2017, with early application permitted and, upon adoption, may be applied either prospectively or retrospectively. The Company has elected to early adopt ASU 2015-17 and applied its provisions retrospectively in the accompanying consolidated financial statements. This guidance did not have a material impact to the Companys financial statements or disclosures.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 20196-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, which for the Company is January 1, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, (with the exception of short-term leases) at the commencement date, lessees will be required to recognize a lease liability and a right-of-use asset. Lessor accounting is largely unchanged, while lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (January 1, 2019, for the Company). Early application is permitted. Lessees (for capital and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
3. Cash Equivalents and Available for Sale 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 and 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 | |||||||
|
|
|
|
|
|
|
|
F-13
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 | ||||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 19,787 | $ | | $ | | $ | 19,787 | ||||||||
Commercial paper |
3,996 | | | 3,996 | ||||||||||||
Corporate debt securities |
16,548 | | (8 | ) | 16,540 | |||||||||||
U.S. Govt Agency Securities |
4,016 | | (2 | ) | 4,014 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 44,347 | $ | | $ | (10 | ) | $ | 44,337 | |||||||
|
|
|
|
|
|
|
|
Realized gains and losses on the sale of marketable securities during the years ended December 31, 2014 and 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 for the years ended December 31, 2014 and 2015:
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 | |||||||
|
|
|
|
|
|
|
|
December 31, 2015 | ||||||||||||||||
Amortized
|
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
Less than one year |
$ | 44,347 | $ | | $ | (10 | ) | $ | 44,337 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 44,347 |
$
|
|
|
$ | (10 | ) | $ | 44,337 | ||||||
|
|
|
|
|
|
|
|
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 tables set forth the fair value of the Companys financial assets as of the years ended December 31, 2014 and 2015:
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 |
$ | 56,858 | $ | 36,989 | $ | 19,869 | $ | | ||||||||
|
|
|
|
|
|
|
|
F-14
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 19,787 | $ | 19,787 | $ | | $ | | ||||||||
Commercial paper |
3,996 | | 3,996 | | ||||||||||||
Corporate debt securities |
16,540 | | 16,540 | | ||||||||||||
U.S. Govt Agency Securities |
4,014 | | 4,014 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 44,337 | $ | 19,787 | $ | 24,550 | $ | | ||||||||
|
|
|
|
|
|
|
|
Liabilities Measured at Fair Value
The Companys financial liabilities are valued based upon observable inputs when available or upon estimates made by management. The following table sets forth the fair value of the Companys financial liabilities as of December 31, 2015 (there were no financial liabilities as of December 31, 2014):
December 31, 2015 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Contingent acquisition consideration payable |
$ | 4,278 | $ | | $ | | $ | 4,278 | ||||||||
Asset retirement obligation |
136 | | | 136 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | 4,414 | $ | | $ | | $ | 4,414 | ||||||||
|
|
|
|
|
|
|
|
The Companys contingent acquisition consideration payable (resulting from the Cardiogen acquisition (see Note 6)) 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, the estimated timing of when a milestone may be attained and assumed discount periods and rates. Subsequent changes in the fair value of the contingent acquisition consideration payable, resulting from managements revision of key assumptions, will be recorded in research and development expense in the accompanying consolidated statement of operations and comprehensive loss. 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.
The following is a summary of the contingent acquisition consideration payable, recorded as a non-current liability in the accompanying consolidated balance sheets:
(In thousands) | ||||
Balance, December 31, 2014 |
$ | | ||
Fair value of contingent payments at acquisition |
4,147 | |||
Addition of contingent acquisition consideration payable related to the Cardiogen acquisition |
131 | |||
|
|
|||
Balance, December 31, 2015 |
$ | 4,278 | ||
|
|
F-15
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of its sublease for manufacturing facilities, the Company assumed a restoration obligation from the previous tenant. The liability is being accreted to rent expense through the end of the lease term. The asset retirement obligation is included in facilities lease obligations in the accompanying consolidated balance sheets.
(In thousands) | ||||
Balance, December 31, 2014 |
$ | | ||
Accretion expense |
136 | |||
|
|
|||
Balance, December 31, 2015 |
$ | 136 | ||
|
|
5. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net, consist of the following:
December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Furniture and office equipment |
$ | 165 | $ | 168 | ||||
Computer equipment |
67 | 67 | ||||||
Software |
5 | 87 | ||||||
Leasehold improvements |
65 |
|
64
|
|
||||
Laboratory equipment |
|
|
723
|
|
||||
Construction in progress |
| 2,063 | ||||||
|
|
|
|
|||||
Total property and equipment |
302 | 3,172 | ||||||
Less accumulated depreciation and amortization |
(38 | ) | (204 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 264 | $ | 2,968 | ||||
|
|
|
|
Property and equipment depreciation expense for the years ended December 31, 2014 and 2015 was approximately $35,000 and $166,000, respectively.
Accrued Liabilities
Accrued liabilities consist of the following:
December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Accrued payroll and related expenses |
$ | 518 | $ | 1,152 | ||||
Accrued research and development expenses |
1,204 | 2,682 | ||||||
Other |
149 | 963 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 1,871 | $ | 4,797 | ||||
|
|
|
|
F-16
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Facility Lease Obligations
Facility lease obligations consist of the following as of December 31, 2014 and 2015:
2014 | 2015 | |||||||||||||||||||||||
Long-term | Current | Total | Long-term | Current | Total | |||||||||||||||||||
Equipment purchase obligation |
$ | | $ | | $ | | $ | 44 | $ | 107 | $ | 151 | ||||||||||||
Asset retirement obligation |
| | | 136 | | 136 | ||||||||||||||||||
Deferred rent |
34 | | 34 | 339 | 30 | 369 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 34 | $ | | $ | 34 | $ | 519 | $ | 137 | $ | 656 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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 1,293,058 shares of common stock, of which 133,986 shares have been held back from the Cardiogen shareholders to cover potential indemnification requirements, as specified in the merger agreement, and 46,969 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 for the year ended December 31, 2015, were expensed. These legal and accounting expenses are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2015.
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
F-17
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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: estimated 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 liabilities assumed. See Note 2 for accounting policies for goodwill, intangible assets and contingent consideration payable.
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 | |||
Liabilities assumed (net of cash acquired) |
(82 | ) | ||
|
|
|||
Net assets acquired |
$ | 8,289 | ||
|
|
The results of operations of Cardiogen have been included in the Companys consolidated statements of operations and comprehensive loss 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.
7. License and Collaboration Agreements
REGENXBIO License Agreements
REGENXBIO XLMTM and Pompe License
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 50,228 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;
F-18
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(iii) mid to high single digit royalty percentages on net sales of licensed products and (iv) mid-single digit to low twenties royalty percentages of any sublicense fees it receives from sublicensees for the licensed patent rights.
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, 2015, none of the development milestones had been reached or were probable of achievement.
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 digit to low teens royalty percentages on net sales of licensed products sold by the Company, its affiliates and sublicensees and (v) a low twenties 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.
F-19
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 digit to low teens royalty percentages on net sales of licensed products sold by the Company, its affiliates and sublicensees and (iv) a low twenties 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.
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 262,396 shares of common stock to Genethon, of which 87,465 shares vested immediately, 87,465 shares vested in January 2015 and 87,466 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 (see Note 10).
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
F-20
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. During the years ended December 31, 2014 and 2015, the Company benefited from foreign exchange gains on these accounts payable of approximately $0.1 million, reported as other income in its consolidated statements of operations and comprehensive loss.
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 research 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.
F-21
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $0.3 million related to those agreements. Additionally, the Company is obligated to pay $0.3 million upon the occurrence of certain milestones or upon termination of the respective agreements. One agreement provides for a payment of $0.1 million 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.
8. Convertible Preferred Stock
Convertible preferred stock consisted of the following:
December 31, 2014 | ||||||||||||||||||||
Shares
|
Original Issue
|
Shares
|
Net Carrying
|
Aggregate
|
||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||
Series Seed |
1,400,000 | $ | 2.2300 | 627,867 | $ | 1,378 | $ | 1,400 | ||||||||||||
Series A |
11,199,876 | 5.9727 | 5,022,876 | 28,757 | 30,000 | |||||||||||||||
Series B |
8,500,000 | 11.1942 | 3,796,635 | 42,268 | 42,500 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total convertible preferred stock |
21,099,876 | 9,447,378 | $ | 72,403 | $ | 73,900 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2015 | ||||||||||||||||||||
Shares
|
Original Issue
|
Shares
|
Net Carrying
|
Aggregate
|
||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||
Series Seed |
1,400,000 | $ | 2.2300 | 627,867 | $ | 1,378 | $ | 1,400 | ||||||||||||
Series A |
11,199,876 | 5.9727 | 5,022,876 | 28,757 | 30,000 | |||||||||||||||
Series B |
8,570,366 | 11.1942 | 3,843,604 | 42,835 | 43,026 | |||||||||||||||
Series C |
9,684,789 | 15.0256 | 4,325,954 | 62,780 | 65,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total convertible preferred stock |
30,855,031 | 13,820,301 | $ | 135,750 | $ | 139,426 | ||||||||||||||
|
|
|
|
|
|
|
|
In November 2014, the Series A preferred stockholders elected to purchase shares pursuant to a third and final tranche option and the Company issued 2,511,441 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 3,796,635 shares of Series B convertible preferred stock at a price per shares of $11.1942 for net proceeds of approximately $42.3 million.
In October 2015, the Company entered into a preferred stock purchase agreement with existing and new investors and issued 4,325,954 shares of Series C convertible preferred stock at a price per share of $15.0256. Proceeds to the Company net of the placement agent fee and expenses were approximately $62.8 million.
F-22
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED 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 $2.2300 for holders of Series Seed convertible preferred stock, $5.9727 for holders of Series A convertible preferred stock, $11.1942 for holders of Series B convertible preferred stock and $15.0256 for holders of Series C 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 |
F-23
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the original issuance price by the conversion price in effect at the time of conversion. As of December 31, 2015, the conversion ratio was 1:1 for all series of preferred stock. |
(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 $24.0410, 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, 2015, Series Seed preferred shares had a conversion price of $2.2300 per share, Series A preferred shares had a conversion price of $5.9727 per share, Series B preferred shares had a conversion price of $11.1942 per share and Series C preferred shares had a conversion price of $15.0256 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, 2015.
9. 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, 2015, no dividends had been declared by the Board of Directors.
Common stock reserved for issuance was as follows:
December 31, | ||||||||
2014 | 2015 | |||||||
Convertible preferred stock, on an as-converted basis |
9,447,378 | 13,820,301 | ||||||
Options issued and outstanding |
784,790 | 2,303,862 | ||||||
Options available for future grants |
977,297 | 751,661 | ||||||
|
|
|
|
|||||
Total |
11,209,465 | 16,875,824 | ||||||
|
|
|
|
F-24
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock
Certain founding directors purchased 224,238 common shares that were subject to a repurchase right upon termination or cessation of services at the original purchase price of $0.02 per share. Compensation expense of such shares is remeasured at fair value over the vesting period at each reporting date. This repurchase right lapses as vesting occurs. At December 31, 2015, no amounts were recorded in liabilities related to restricted share sales as the repurchase right had lapsed.
A summary of restricted stock activity and related information follows:
Number of
Restricted Shares Outstanding |
||||
Unvested sharesDecember 31, 2014 |
42,978 | |||
Vested |
(42,978 | ) | ||
|
|
|||
Unvested sharesDecember 31, 2015 |
| |||
|
|
There were no restricted share awards granted during 2015.
10. Stock Compensation
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 3,107,517 shares were reserved for issuance under the 2012 Plan at December 31, 2015, of which 751,661 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 |
||||||||||||||||
Balance, December 31, 2014 |
977,297 | 784,790 | $ | 0.83 | 9.01 | $ | 1,074 | |||||||||||||
Shares reserved for issuance |
1,345,430 | | | |||||||||||||||||
Options granted |
(1,687,484 | ) | 1,687,484 | $ | 4.64 | |||||||||||||||
Options exercised |
| (51,994 | ) | $ | 1.34 | |||||||||||||||
Options forfeited |
104,787 | (104,787 | ) | $ | 1.01 | |||||||||||||||
Options canceled |
11,631 | (11,631 | ) | $ | 1.59 | |||||||||||||||
|
|
|
|
|||||||||||||||||
Balance Outstanding, December 31, 2015 |
751,661 | 2,303,862 | $ | 3.60 |
|
9.18 |
|
$ |
13,593 |
|
||||||||||
|
|
|
|
|
|
|||||||||||||||
Exercisable, December 31, 2015 |
634,390 | $ | 1.31 | 8.36 | $ | 5,192 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Vested and expected to vest, December 31, 2015 |
2,256,392 | $ | 3.52 | 9.16 | $ | 13,489 | ||||||||||||||
|
|
|
|
F-25
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED 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, 2015. During the year ended December 31, 2015, 51,994 options with an intrinsic value of approximately $59,000 were exercised.
Stock-Based Compensation Expense
Total stock-based compensation expense was as follows:
Year Ended December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Research and development |
$ | 387 | $ | 932 | ||||
General and administrative |
128 | 359 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 515 | $ | 1,291 | ||||
|
|
|
|
|||||
Employees |
$ | 142 | $ | 413 | ||||
Non-employees |
373 | 878 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 515 | $ | 1,291 | ||||
|
|
|
|
The weighted average grant date fair value of employee options granted during the years ended December 31, 2014 and 2015 was $0.67 and $3.01 per share, respectively. As of December 31, 2015, the total unrecognized compensation expense related to unvested employee options, net of estimated forfeitures, was approximately $4.6 million which the Company expects to recognize over an estimated weighted-average period of 3.34 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, | ||||||||
2014 | 2015 | |||||||
Fair value of common stock |
$0.78 1.05 | $2.19 $9.50 | ||||||
Expected term (in years) |
6.1 | 5.8 6.1 | ||||||
Expected volatility |
88% 91% | 66% 85% | ||||||
Risk-free interest rate |
1.5% 1.8% | 1.3% 1.9% | ||||||
Expected dividend yield |
% | % |
There were no non-employee option grants during the year ended December 31, 2014. The weighted-average grant date fair value of non-employee options granted during the year ended December 31, 2015 was $1.61. As of December 31, 2015, the total unrecognized compensation expense related to unvested non-employee options, net of estimated forfeitures, was approximately $57,000, which includes $27,000 of expense for unvested common stock issued to Genethon (see Note 7). Research and development includes $0.3 million and $0.7 million of stock-based compensation expense related to remeasurement of Genethon shares during the years ended December 31, 2014 and 2015, respectively.
F-26
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of stock options for non-employees was estimated using a Black-Scholes option pricing model with the following assumptions:
Year Ended December 31, | ||||||||
2014 | 2015 | |||||||
Fair value of common stock |
$0.78 2.19 | $2.19 9.50 | ||||||
Expected term (in years) |
8.7 9.5 | 7.7 10 | ||||||
Expected volatility |
70% 71% | 69% 72% | ||||||
Risk-free interest rate |
1.9% 2.4% | 1.6% 2.3% | ||||||
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 non-employee 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.
11. Income Taxes
For financial reporting purposes, loss before provision for income taxes, includes the following components:
Year Ended December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands) |
||||||||
Domestic |
$ | (10,819 | ) | $ | (26,458 | ) | ||
|
|
|
|
|||||
Total |
$ | (10,819 | ) | $ | (26,458 | ) | ||
|
|
|
|
F-27
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes for 2014 and 2015 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, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
U.S. federal provision (benefit): |
||||||||
At statutory rate |
$ | (3,788 | ) | $ | (9,260 | ) | ||
State taxes |
1 | 1 | ||||||
Change in valuation allowance |
3,998 | 10,263 | ||||||
Tax credits |
(345 | ) | (1,347 | ) | ||||
Stock-based compensation |
60 | 160 | ||||||
Other |
74 | 183 | ||||||
|
|
|
|
|||||
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, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Deferred tax assets: |
||||||||
Federal & state net operating loss carryforward |
$ | 5,125 | $ | 14,286 | ||||
Research and other credits |
487 | 2,858 | ||||||
Intangibles |
296 | 1,211 | ||||||
Reserves and accruals |
414 | 690 | ||||||
Stock-based compensation |
6 | 22 | ||||||
Start-up costs |
164 | 174 | ||||||
Other |
44 | 141 | ||||||
|
|
|
|
|||||
Total gross deferred tax assets |
6,536 | 19,382 | ||||||
Less valuation allowance |
(6,531 | ) | (19,350 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets |
5 | 32 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Other intangibles |
| (3,260 | ) | |||||
Property plant and equipment |
(5 | ) | (32 | ) | ||||
|
|
|
|
|||||
Total gross deferred tax liability |
(5 | ) | (3,292 | ) | ||||
|
|
|
|
|||||
Net deferred tax liability |
$ | | $ | (3,260 | ) | |||
|
|
|
|
F-28
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED 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, 2014 and 2015, the Company had net operating loss carryforwards for federal income tax purposes of $11.7 million and $32.1 million, respectively, which will begin to expire in 2033. The Company had total state net operating loss carryforwards of approximately $11.8 million and $34.4 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 $3.1 million which will begin to expire in 2033 and state research credits of approximately $0.5 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, | ||||||||
2014 | 2015 | |||||||
(in thousands) | ||||||||
Beginning balance |
$ | 15 | $ | 121 | ||||
Tax positions related to current year: |
||||||||
Federal and state |
106 | 593 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 121 | $ | 714 | ||||
|
|
|
|
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
F-29
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
benefits over the next 12 months. During the year ended December 31, 2015, no interest or penalties were recognized relating to unrecognized tax benefit.
12. 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 original lease would have expired in January 2017 and included an initial rent-free period. The lease also provided 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 November 2015, the Company entered into an early lease termination agreement in exchange for $0.2 million, which accelerated the expiration date to April 2016. The lease termination fee was recorded as facilities expense as of the termination agreement date.
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 successive 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. During 2015, the Company entered into multiple lease amendments, each increasing the space available to the Company for research purposes and increasing the security deposit to $76,000 as of December 31, 2015. The Company recognizes rent expense on a straight-line basis over each non-cancelable lease term.
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 current restricted cash on the Companys consolidated balance sheet at December 31, 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 was 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 Company recognized $0.1 million of additional rent expense in 2015.
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
F-30
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, which was recorded as research and development expense in 2015.
In connection with the lease option agreement, the Company also entered into a separate agreement for restoration of premises between JCN, Solstice and a previous sub-tenant, 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, which is recorded in long-term restricted cash on the consolidated balance sheets.
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, which is recorded as long-term restricted cash in the accompanying consolidated balance sheets, following execution of the agreement.
The agreement also provides for up to $1.6 million of leasehold improvements to be paid by MEPT. The Company reports its leasehold improvement expenditures as a miscellaneous receivable on a pro-rata basis with the offsetting amount recorded as deferred rent.
Rent expense under non-cancelable operating leases was approximately $0.3 million and $1.5 million for the years ended December 31, 2014 and 2015, respectively, including approximately $0.2 million for lease termination payments and lease options. Future minimum lease payments under non-cancelable operating leases as of December 31, 2015 were as follows:
Year ended
December 31, Amount |
||||
(in thousands) | ||||
2016 |
$ | 1,603 | ||
2017 |
1,794 | |||
2018 |
1,643 | |||
2019 |
1,691 | |||
2020 |
1,740 | |||
Thereafter |
2,591 | |||
|
|
|||
$ | 11,062 | |||
|
|
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
F-31
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
13. Net Loss per Share and 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, 2014 and 2015, 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, 2014 and 2015:
Year Ended December 31, | ||||||||
2014 | 2015 | |||||||
(in thousands, except share
and per share data) |
||||||||
Net loss |
$ | (10,819 | ) | $ | (26,458 | ) | ||
|
|
|
|
|||||
Weighted-average shares used in computing net loss per share |
501,707 | 1,148,827 | ||||||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (21.56 | ) | $ | (23.03 | ) | ||
|
|
|
|
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, | ||||||||
2014 | 2015 | |||||||
Convertible preferred stock (on an as-if-converted basis) |
9,447,378 | 13,820,301 | ||||||
Stock options to purchase common stock |
784,790 | 2,303,862 | ||||||
Restricted stock subject to future vesting |
217,909 | 95,595 | ||||||
|
|
|
|
|||||
Total |
10,450,077 | 16,219,758 | ||||||
|
|
|
|
F-32
AUDENTES THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2015. The following table sets forth the computation of the Companys pro forma basic and diluted net loss per common share for the year ended December 31, 2015 (in thousands, except share and per share amounts):
Pro Forma Net Loss Per Share |
||||
Net loss per sharebasic and diluted |
$ | (26,458 | ) | |
|
|
|||
Shares used in computing pro forma net loss per share: |
||||
Weighted-average shares used in computing net loss per sharebasic and diluted |
1,148,827 | |||
Pro forma adjustment to reflect assumed conversion of convertible preferred stock |
10,472,422 | |||
|
|
|||
Weighted-average shares used in computing pro forma net loss per sharebasic and diluted |
11,621,249 | |||
|
|
|||
Pro forma net loss per share, basic and diluted |
$ | (2.28 | ) | |
|
|
14. Related Party Transactions
Aggregate payments in connection with related party transactions totaled approximately $47,000 and $32,000 during the years ended December 31, 2014 and 2015, respectively, and consisted primarily of cost reimbursements to certain investors.
15. Subsequent Events
In March 2016, the Company granted options to purchase 200,239 shares of its common stock at an exercise price of $7.54 per share.
In July 2016, the Companys board of directors approved an amendment to the Companys amended and restated certificate of incorporation to effect a reverse split of the Companys issued and outstanding common stock and convertible preferred stock at a 2.22977-to-1 ratio, which was effected on July 7, 2016. The par value and authorized shares of common stock and convertible preferred stock were not adjusted as a result of the reverse split. All issued and outstanding common stock and convertible preferred stock, options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect the reverse stock split for all periods presented.
F-33
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share data)
December 31,
2015 |
March 31,
2016 |
Pro Forma
Stockholder Equity as of March 31, 2016 |
||||||||||
(unaudited) | (unaudited) | |||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 72,058 | $ | 59,713 | ||||||||
Short-term investments |
23,169 | 20,559 | ||||||||||
Restricted cash |
730 | 730 | ||||||||||
Prepaid expenses and other current assets |
3,682 | 5,001 | ||||||||||
|
|
|
|
|||||||||
Total current assets |
99,639 | 86,003 | ||||||||||
Restricted cash-long-term |
2,930 | 2,930 | ||||||||||
Property and equipment, net |
2,968 | 9,690 | ||||||||||
Goodwill |
3,631 | 3,631 | ||||||||||
Intangible assets |
8,000 | 8,000 | ||||||||||
Other assets |
301 | 301 | ||||||||||
|
|
|
|
|||||||||
Total assets |
$ | 117,469 | $ | 110,555 | ||||||||
|
|
|
|
|||||||||
Liabilities and Stockholders Equity |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 2,789 | $ | 548 | ||||||||
Accrued liabilities |
4,797 | 8,950 | ||||||||||
Facility lease obligations |
137 | 355 | ||||||||||
|
|
|
|
|||||||||
Total current liabilities |
7,723 | 9,853 | ||||||||||
Facility lease obligations |
519 | 1,432 | ||||||||||
Contingent acquisition consideration payable |
4,278 | 4,368 | ||||||||||
Deferred tax liability, net |
3,260 | 3,260 | ||||||||||
|
|
|
|
|||||||||
Total liabilities |
15,780 | 18,913 | ||||||||||
|
|
|
|
|||||||||
Stockholders equity: |
||||||||||||
Convertible preferred stock, Series Seed, $0.00001 par value; 1,400,000 shares authorized as of December 31, 2015 and March 31, 2016; 627,867 shares issued and outstanding as of December 31, 2015 and March 31, 2016, aggregate liquidation preference of $1,400 as of December 31, 2015 and March 31, 2016 |
1,378 | 1,378 | $ | | ||||||||
Convertible preferred stock, Series A, $0.00001 par value; 11,199,876 shares authorized as of December 31, 2015 and March 31, 2016; 5,022,876 shares issued and outstanding as of December 31, 2015 and March 31, 2016, aggregate liquidation preference of $30,000 as of December 31, 2015 and March 31, 2016 |
28,757 | 28,757 | | |||||||||
Convertible preferred stock, Series B, $0.00001 par value; 8,570,366 shares authorized as of December 31, 2015 and March 31, 2016; 3,843,604 shares issued and outstanding as of December 31, 2015 and March 31, 2016, aggregate liquidation preference of $43,026 as of December 31, 2015 and March 31, 2016 |
42,835 | 42,835 | | |||||||||
Convertible preferred stock, Series C, $0.00001 par value; 9,684,789 shares authorized as of December 31, 2015 and March 31, 2016; 4,325,954 shares issued and outstanding as of December 31, 2015 and March 31, 2016, aggregate liquidation preference of $65,000 as of December 31, 2015 and March 31, 2016 |
62,780 | 62,780 | | |||||||||
Common stock, $0.00001 par value, 50,000,000 shares authorized as of December 31, 2015 and March 31, 2016; 2,106,152 and 2,200,077 shares issued and outstanding as of December 31, 2015 and March 31, 2016, respectively; 16,020,378 shares issued and outstanding, pro forma (unaudited) |
| | | |||||||||
Additional paid-in capital |
6,692 | 7,095 | 142,845 | |||||||||
Accumulated deficit |
(40,743 | ) | (51,207 | ) | (51,207 | ) | ||||||
Accumulated other comprehensive income (loss) |
(10 | ) | 4 | 4 | ||||||||
|
|
|
|
|
|
|||||||
Total stockholders equity |
101,689 | 91,642 | $ | 91,642 | ||||||||
|
|
|
|
|
|
|||||||
Total liabilities and stockholders equity |
$ | 117,469 | $ | 110,555 | ||||||||
|
|
|
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
F-34
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except shares and per share data)
Three Months Ended
March 31, |
||||||||
2015 | 2016 | |||||||
Operating expenses: |
||||||||
Research and development |
$ | 3,080 | $ | 7,906 | ||||
General and administrative |
1,083 | 2,632 | ||||||
|
|
|
|
|||||
Total operating expenses |
4,163 | 10,538 | ||||||
|
|
|
|
|||||
Loss from operations |
(4,163 | ) | (10,538 | ) | ||||
Interest income |
61 | 97 | ||||||
Other income (expense), net |
47 | (23 | ) | |||||
|
|
|
|
|||||
Net loss |
(4,055 | ) | (10,464 | ) | ||||
Unrealized gains on available-for-sale securities |
3 | 14 | ||||||
|
|
|
|
|||||
Net loss and comprehensive loss |
$ | (4,052 | ) | $ | (10,450 | ) | ||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (6.63 | ) | $ | (4.85 | ) | ||
|
|
|
|
|||||
Shares used in computing net loss per share, basic and diluted |
612,039 | 2,159,081 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted |
$ | (0.65 | ) | |||||
|
|
|||||||
Shares used in computing pro forma net loss per share, basic and diluted |
15,979,382 | |||||||
|
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
F-35
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
March 31, |
||||||||
2015 | 2016 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (4,055 | ) | $ | (10,464 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
23 | 78 | ||||||
Stock-based compensation |
116 | 327 | ||||||
Accretion of asset retirement obligation |
69 | 82 | ||||||
Amortization of discount on investments |
| 133 | ||||||
Non-cash change in fair value of contingent acquisition consideration payable |
| 90 | ||||||
Other |
| 31 | ||||||
Changes in operating assets and liabilities: |
||||||||
Prepaid expenses and other current assets |
(287 | ) | (1,402 | ) | ||||
Other assets |
(70 | ) | | |||||
Accounts payable |
(69 | ) | (2,323 | ) | ||||
Accrued liabilities |
(573 | ) | (450 | ) | ||||
Facility lease obligations |
(3 | ) | 1,049 | |||||
|
|
|
|
|||||
Net cash used in operating activities |
(4,849 | ) | (12,849 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(24 | ) | (2,145 | ) | ||||
Proceeds from sales and maturities of marketable securities |
2,000 | 17,229 | ||||||
Purchases of marketable securities |
(26,134 | ) | (14,656 | ) | ||||
|
|
|
|
|||||
Net cash (used in) provided by investing activities |
(24,158 | ) | 428 | |||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of stock options |
| 76 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
| 76 | ||||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(29,007 | ) | (12,345 | ) | ||||
Cash and cash equivalents at beginning of period |
45,599 | 72,058 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 16,592 | $ | 59,713 | ||||
|
|
|
|
|||||
Noncash investing and financing activities: |
||||||||
Increase (decrease) in accounts payable, facility lease obligations and accrued liabilities related to property and equipment purchases |
$ | (88 | ) | $ | 3,415 |
See accompanying notes to unaudited interim condensed consolidated financial statements.
F-36
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 condensed consolidated financial statements include the accounts of Audentes Therapeutics, Inc., and its wholly owned subsidiary, Audentes Therapeutics UK Ltd. All intercompany 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 as of March 31, 2016, had an accumulated deficit of $51.2 million. 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 its 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
Unaudited Interim Condensed Consolidated Financial Statements
The interim condensed consolidated financial statements as of March 31, 2016 and for the three months ended March 31, 2015 and 2016 are unaudited. The unaudited interim 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 March 31, 2016 and its consolidated results of operations and cash flows for the three months ended March 31, 2015 and 2016. The financial data and the other information disclosed in these notes to consolidated financial statements related to the two periods are unaudited. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any other future annual or interim period. The balance sheet as of December 31, 2015 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.
Unaudited Pro Forma Stockholders Equity
The unaudited pro forma stockholders equity as of March 31, 2016 presents the Companys stockholders equity as though all the Companys outstanding convertible preferred stock had converted into 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-37
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.
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 and short-term investments on the Companys consolidated balance sheets.
Deferred Offering Costs
Deferred offering costs, consisting of legal, accounting, printer and filing fees related to the proposed IPO are capitalized. The deferred offering costs will be offset against proceeds from the IPO upon completion of the offering. In the event the offering is terminated, all capitalized deferred offering costs will be immediately expensed. As of December 31, 2015 and March 31, 2016, the Company had $2.3 million and $3.0 million, respectively, of deferred offering costs, which are included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.
F-38
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
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 consolidated balance sheets and within research and development expense in the consolidated 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.
Research and Development Costs
Research and development costs are expensed as incurred and consist primarily of personnel and consultant costs, lab supplies, allocated facility and other costs, fees paid to third parties to conduct research and development activities on the Companys behalf and expenses incurred in connection with license agreements.
Facility Lease Obligations
Rent expense is recognized on a straight-line basis over the non-cancelable term of the Companys operating leases 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.
Under the terms of its sublease for manufacturing facilities, the Company assumed a restoration obligation from the previous tenant. The liability is being accreted to rent expense through the end of the lease term. In addition, upon execution of the sublease in July 2015, the Company received approximately $0.2 million of laboratory equipment for de minimis consideration. This amount has been recorded in property and equipment and will be depreciated when placed in service. The related liability will be amortized over the remaining lease term as a reduction to rent expense.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern , or ASU 2014-15, which requires management to evaluate whether there is substantial doubt that the Company is able to continue operating as a going concern within one year after the date the financial statements are issued or available to be issued. If there is substantial doubt, additional disclosure is required, including the principal condition or event that raised the substantial doubt, the Companys evaluation of the condition or event in relation to its ability to meet its obligations and the Companys plan to alleviate (or, which is intended to alleviate) the substantial doubt. ASU 2014-15 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosure.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , or ASU 2016-01. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
F-39
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, which for the Company is January 1, 2018. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosure.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. Under the new guidance, (with the exception of short-term leases) at the commencement date, lessees will be required to recognize a lease liability and a right-of-use asset. Lessor accounting is largely unchanged, while lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (January 1, 2019, for the Company). Early application is permitted. Lessees (for capital and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The Company is currently assessing what impact the adoption of this ASU will have on its consolidated financial statements and related disclosure.
In March 2016, the FASB Issued ASU No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting , or ASU 2016-09. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early application permitted. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosure.
3. Cash Equivalents and Available for Sale Securities
The fair value and amortized cost of cash equivalents and available-for-sale debt securities by major security type as of December 31, 2015 and March 31, 2016 are presented in the tables that follow:
December 31, 2015 | ||||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 19,787 | $ | | $ | | $ | 19,787 | ||||||||
Commercial paper |
3,996 | | | 3,996 | ||||||||||||
Corporate debt securities |
16,548 | | (8 | ) | 16,540 | |||||||||||
U.S. government agency Securities |
4,016 | | (2 | ) | 4,014 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 44,347 | $ | | $ | (10 | ) | $ | 44,337 | |||||||
|
|
|
|
|
|
|
|
March 31, 2016 | ||||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 17,856 | $ | | $ | | $ | 17,856 | ||||||||
Commercial paper |
9,233 | | | 9,233 | ||||||||||||
Corporate debt securities |
7,717 | 1 | | 7,718 | ||||||||||||
U.S. government agency Securities |
6,007 | 3 | | 6,010 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 40,813 | $ | 4 | $ | | $ | 40,817 | ||||||||
|
|
|
|
|
|
|
|
Realized gains and losses on the sale of marketable securities during the three months ended March 31, 2015 and 2016 were not material.
F-40
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
The following tables summarize 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 December 31, 2015 and March 31, 2016:
December 31, 2015 | ||||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Less than one year |
$ | 44,347 | $ | | $ (10 | ) | $ | 44,337 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 44,347 | $ | | $ (10 | ) | $ | 44,337 | ||||||||
|
|
|
|
|
|
|
|
March 31, 2016 | ||||||||||||||||
Amortized
Cost |
Unrealized
Gains |
Unrealized
Losses |
Market
Value |
|||||||||||||
(in thousands) | ||||||||||||||||
Less than one year |
$ | 40,813 | $ | 4 | $ | | $ | 40,817 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash equivalents and available-for sale securities |
$ | 40,813 | $ | 4 | $ | | $ | 40,817 | ||||||||
|
|
|
|
|
|
|
|
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 tables set forth the fair value of the Companys financial assets as of December 31, 2015 and March 31, 2016:
December 31, 2015 | ||||||||||||||||
Total | Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 19,787 | $ | 19,787 | $ | | $ | | ||||||||
Commercial paper |
3,996 | | 3,996 | | ||||||||||||
Corporate debt securities |
16,540 | | 16,540 | | ||||||||||||
U.S. government agency securities |
4,014 | | 4,014 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 44,337 | $ | 19,787 | $ | 24,550 | $ | | ||||||||
|
|
|
|
|
|
|
|
March 31, 2016 | ||||||||||||||||
Total | Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
(in thousands) | ||||||||||||||||
Money market funds |
$ | 17,856 | $ | 17,856 | $ | | $ | | ||||||||
Commercial paper |
9,233 | | 9,233 | | ||||||||||||
Corporate debt securities |
7,718 | | 7,718 | | ||||||||||||
U.S. government agency securities |
6,010 | | 6,010 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial assets |
$ | 40,817 | $ | 17,856 | $ | 22,961 | $ | | ||||||||
|
|
|
|
|
|
|
|
F-41
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Liabilities Measured at Fair Value
The Companys financial liabilities are valued based upon observable inputs when available or upon estimates made by management. The following tables set forth the fair value of the Companys financial liabilities as of December 31, 2015 and March 31, 2016:
December 31, 2015 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Contingent acquisition consideration payable |
$ | 4,278 | $ | | $ | | $ | 4,278 | ||||||||
Asset retirement obligation |
136 | | | 136 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | 4,414 | $ | | $ | | $ | 4,414 | ||||||||
|
|
|
|
|
|
|
|
March 31, 2016 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Contingent acquisition consideration payable |
$ | 4,368 | $ | | $ | | $ | 4,368 | ||||||||
Asset retirement obligation |
218 | | | 218 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | 4,586 | $ | | $ | | $ | 4,586 | ||||||||
|
|
|
|
|
|
|
|
The Companys contingent acquisition consideration payable, resulting from the acquisition of Cardiogen Sciences, Inc. in August 2015, 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 probability of occurrence, the estimated timing of when the milestone may be attained and assumed discount period and discount rate. Subsequent changes in the fair value of the contingent acquisition consideration payable, resulting from managements revision of key assumptions will be recorded in research and development expense in the condensed consolidated statement of operations and comprehensive loss. 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 probability of occurrence.
The following is a summary of the contingent acquisition consideration payable, recorded as a non-current liability in the accompanying consolidated balance sheets:
Amount | ||||
(in thousands) | ||||
Balance, December 31, 2015 |
$ | 4,278 | ||
Change in fair value of contingent acquisition consideration payable |
90 | |||
|
|
|||
Balance, March 31, 2016 |
$ | 4,368 | ||
|
|
F-42
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Under the terms of its sublease for manufacturing facilities, the Company assumed an asset restoration obligation from the previous tenant. The liability is being accreted to rent expense through the end of the lease term. The asset retirement obligation is included in facilities lease obligations in the accompanying consolidated balance sheets.
Amount | ||||
(in thousands) | ||||
Balance, December 31, 2015 |
$ | 136 | ||
Asset retirement obligation accretion expense |
82 | |||
|
|
|||
Balance, March 31, 2016 |
$ | 218 | ||
|
|
5. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net, consist of the following:
December 31,
2015 |
March 31,
2016 |
|||||||
(in thousands) | ||||||||
Furniture and office equipment |
$ | 168 | $ | 171 | ||||
Computer equipment |
67 | 67 | ||||||
Software |
87 | 91 | ||||||
Leasehold improvements |
64 | 64 | ||||||
Laboratory equipment |
723 | 723 | ||||||
Construction in progress |
2,063 | 8,856 | ||||||
|
|
|
|
|||||
Total property and equipment |
3,172 | 9,972 | ||||||
Less accumulated depreciation and amortization |
(204 | ) | (282 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 2,968 | $ | 9,690 | ||||
|
|
|
|
A portion of the Companys construction in progress is subject to mechanics lien encumbrances while the assets remain under construction. Property and equipment depreciation and amortization expense for the three months ended March 31, 2015 and 2016 was $23,000 and $78,000, respectively.
Accrued Liabilities
Accrued liabilities consist of the following:
December 31, | March 31, | |||||||
2015 | 2016 | |||||||
(in thousands) | ||||||||
Accrued payroll and related expenses |
$ | 1,152 | $ | 914 | ||||
Accrued research and development expenses |
2,682 | 2,749 | ||||||
Accrued construction in progress |
| 3,312 | ||||||
Accrued professional services |
740 | 874 | ||||||
Other |
223 | 1,101 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 4,797 | $ | 8,950 | ||||
|
|
|
|
F-43
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Facility Lease Obligations
Facility lease obligations consist of the following as of December 31, 2015 and March 31, 2016:
December 31, 2015 | March 31, 2016 | |||||||||||||||||||||||
Long-term | Current | Total | Long-term | Current | Total | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Equipment purchase obligation |
$ | 44 | $ | 107 | $ | 151 | $ | 18 | $ | 107 | $ | 125 | ||||||||||||
Asset retirement obligation |
136 | | 136 | 218 | | 218 | ||||||||||||||||||
Deferred rent |
339 | 30 | 369 | 1,195 | 249 | 1,444 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 519 | $ | 137 | $ | 656 | $ | 1,431 | $ | 356 | $ | 1,787 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
6. Stock-based Compensation
Under the Companys 2012 Equity Incentive Plan, 3,107,517 shares were reserved for issuance as of March 31, 2016. The plan requires that options are granted at an exercise price not less than fair market value. The following table summarizes option activity for the year ended December 31, 2015 and the three months ended March 31, 2016:
Shares
Available for Grant |
Number of
Options Outstanding |
Weighted-
Average Exercise Price Per Option |
Weighted-
Average Remaining Contract Term (Years) |
Aggregate
Intrinsic Value |
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance, December 31, 2015 |
751,661 | 2,303,862 | $ | 3.60 | 9.2 | $ | 13,593 | |||||||||||||
Options granted |
(200,239 | ) | 200,239 | $ | 7.54 | |||||||||||||||
Options exercised |
| (93,925 | ) | $ | 0.82 | |||||||||||||||
Options forfeited |
130,796 | (130,796 | ) | $ | 4.72 | |||||||||||||||
Options cancelled |
294 | (294 | ) | $ | 2.19 | |||||||||||||||
|
|
|
|
|||||||||||||||||
Balance, March 31, 2016 |
682,512 | 2,279,086 | $ | 3.99 | 9.0 | $ | 8,071 | |||||||||||||
|
|
|
|
|||||||||||||||||
Exercisable, March 31, 2016 |
784,219 | $ | 1.84 | 8.3 | $ | 4,536 | ||||||||||||||
|
|
|||||||||||||||||||
Vested and expected to vest,
|
2,280,241 | $ | 3.84 | 9.0 | $ | 9,335 | ||||||||||||||
|
|
Stock-based compensation expense by category was as follows for the three months ended March 31, 2015 and 2016:
Three Months Ended
March 31, |
||||||||
2015 | 2016 | |||||||
Research and development |
$ | 38 | $ | 210 | ||||
General and administrative |
42 | 217 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 80 | $ | 427 | ||||
|
|
|
|
|||||
Employees |
$ | 48 | $ | 295 | ||||
Non-employees |
32 | 132 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 80 | $ | 427 | ||||
|
|
|
|
F-44
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
As of March 31, 2016, the Company had total unrecognized stock-based compensation expense related to unvested options, net of estimated forfeitures, of $4.8 million, which it expects to recognize over an estimated weighted-average period of 3.16 years.
During the three months ended March 31, 2016, 93,925 options with an intrinsic value of $707,000 were exercised. On the exercise dates, the Company received cash payments of $76,000. No options were exercised during the three months ended March 31, 2015.
The fair value of stock options for employees was estimated using a Black-Scholes option pricing model with the following assumptions:
Three Months Ended
March 31, |
||||||||
2015 | 2016 | |||||||
Fair value of employee options |
$ | 1.56 | $ | 4.64 | ||||
Fair value of common stock |
$ | 2.19 | $ | 7.54 | ||||
Expected term (in years) |
6.1 | 6.1 | ||||||
Expected volatility |
84% 85% | 68% | ||||||
Risk-free interest rate |
1.3% 1.5% | 1.5% | ||||||
Expected dividend yield |
0% | 0% |
The fair value of stock options for non-employees was estimated using a Black-Scholes option pricing model with the following assumptions:
Three Months Ended
March 31, |
||||||||
2015 | 2016 | |||||||
Fair value of non-employee options |
$1.63 $1.85 | $5.66 $8.21 | ||||||
Fair value of common stock |
$2.19 | $7.54 $8.72 | ||||||
Expected term (in years) |
8.5 10 | 7.7 10 | ||||||
Expected volatility |
69% 70% | 69% 71% | ||||||
Risk-free interest rate |
1.6% 2.0% | 1.7% 2.1% | ||||||
Expected dividend yield |
0% | 0% |
7. Income Taxes
For the three months ended March 31, 2015 and 2016, the Company did not record an income tax provision. The U.S. federal 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.
F-45
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
8. Net Loss per Share and Pro Forma Net Loss per Share
The following table sets forth the computation of basic and diluted net loss per share of common stock during the three months ended March 2015 and 2016:
Three Months Ended
March 31, |
||||||||
2015 | 2016 | |||||||
(in thousands, except share
and per share data) |
||||||||
Net loss |
$ | (4,055 | ) | $ | (10,464 | ) | ||
|
|
|
|
|||||
Shares used in computing net loss per share |
612,039 | 2,159,081 | ||||||
|
|
|
|
|||||
Net loss per share, basic and diluted |
$ | (6.63 | ) | $ | (4.85 | ) | ||
|
|
|
|
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:
March 31, | ||||||||
2015 | 2016 | |||||||
Convertible preferred stock (on an as-if-converted basis) |
9,447,378 | 13,820,301 | ||||||
Stock options to purchase common stock |
1,121,139 | 2,279,086 | ||||||
Restricted stock subject to future vesting |
124,838 | | ||||||
|
|
|
|
|||||
10,693,355 | 16,099,387 | |||||||
|
|
|
|
The following table sets forth the computation of the Companys pro forma basic and diluted net loss per common share for the three months ended March 31, 2016 (in thousands, except share and per share amounts):
Net loss |
$ | (10,464 | ) | |
|
|
|||
Shares used in computing pro forma net loss per share: |
||||
Shares used in computing net loss per share, basic and diluted |
2,159,081 | |||
Pro forma adjustment to reflect assumed conversion of convertible preferred stock |
13,820,301 | |||
|
|
|||
Shares used in computing pro forma net loss per share, basic and diluted |
15,979,382 | |||
|
|
|||
Pro forma net loss per share, basic and diluted |
$ | (0.65 | ) | |
|
|
9. Related Party Transactions
Aggregate payments in connection with related party transactions totaled approximately $16,000 and $8,000 during the three months ended March 31, 2015 and 2016, respectively, and consisted of cost reimbursements paid to certain investors.
F-46
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
10. Subsequent Events
Solazyme Sublease
In April 2016, the Company entered into a sublease agreement with Solazyme, Inc. to sublease approximately 8,983 square feet of research and development laboratory space in South San Francisco, California with total minimum lease payments of $0.6 million over an approximately two year term.
Manufacturing Lease Option Exercise
In May 2016, the Company exercised its option to enter into a ten-year lease for its existing 22,000 square feet of manufacturing space in South San Francisco plus approximately 17,000 additional square feet of manufacturing space; the ten-year lease will become effective in June 2017.
The University of Pennsylvania Collaboration Agreement
In May 2016, the Company entered into a license and collaboration agreement with The Trustees of the University of Pennsylvania, or the University of Pennsylvania. Under the agreement, the University of Pennsylvania granted the Company an exclusive worldwide license under certain patent rights to research, develop, use, sell, offer for sale, have sold, make, have made and import licensed products for the treatment of Crigler-Najjar.
As consideration for the licensed rights, the Company paid the University of Pennsylvania an upfront fee of $0.5 million, as well as $3.0 million for certain preclinical development activities. The Company is obligated to pay the University of Pennsylvania (i) up to an aggregate of $6.0 million for preclinical development activities agreed upon by both parties, subject to adjustment based on the work plan, which amount includes the $3.0 million already paid in May 2016, (ii) up to an aggregate of $13.7 million in development, regulatory and net sales milestone payments for the first licensed product; (iii) low to mid single-digit royalty percentages on tiered annual net sales of the licensed products sold by the Company, its affiliates or sublicensees and (iv) mid single-digit to low double-digit percentages of any sublicense fees the Company receives from third parties for the grant of sublicenses to any licensed patent rights.
Under the agreement, the Company is obligated to use commercially reasonable efforts to develop, pursue regulatory approval for, market and commercialize at least one licensed product. The University of Pennsylvania will be responsible for conducting preclinical development activities according to a work plan, including all IND-enabling non-clinical studies and research grade manufacturing. The Company will be responsible for regulatory strategy and operations, clinical development, GMP manufacture and commercialization of the licensed products.
The agreement will continue on a country-by-country basis and expire upon the later of the expiration of the last valid claim of the licensed patent rights that covers the exploitation of such licensed patent rights in such country, or ten years after first commercial sale of such licensed product in such country. The Company may terminate the agreement upon 60 days prior written notice. Either party may terminate the agreement for material breach that is not cured within a specified number of days.
Upon execution of the license and collaboration agreement with the University of Pennsylvania, the Company met the conditions of a contractual milestone pursuant to its license agreement with REGENXBIO Inc. relating to Crigler-Najjar. Subsequently, the Company made a payment of $0.4 million to REGENXBIO Inc.
F-47
AUDENTES THERAPEUTICS, INC.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Option Grants
In April 2016, the Company granted options to employees to purchase an aggregate of 82,739 shares of common stock at an exercise price of $7.54 per share, pursuant to its 2012 Equity Incentive Plan.
Reverse Split
In July 2016, the Companys board of directors approved an amendment to the Companys amended and restated certificate of incorporation to effect a reverse split of the Companys issued and outstanding common stock and convertible preferred stock at a 2.22977-to-1 ratio, which was effected on July 7, 2016. The par value and authorized shares of common stock and convertible preferred stock were not adjusted as a result of the reverse split. All issued and outstanding common stock and convertible preferred stock, options to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect the reverse stock split for all periods presented.
F-48
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.
5,000,000 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 |
$ | 9,265 | ||
FINRA filing fee |
14,300 | |||
NASDAQ Global Market listing fee |
125,000 | |||
Blue sky qualification fees and expenses |
5,000 | |||
Printing and engraving expenses |
500,000 | |||
Legal fees and expenses |
1,900,000 | |||
Accounting fees and expenses |
1,000,000 | |||
Transfer agent and registrar fees and expenses |
15,000 | |||
Miscellaneous expenses |
131,435 | |||
|
|
|||
Total |
$ | 3,700,000 | ||
|
|
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 June 30, 2013 and through June 30, 2016, the Registrant has issued and sold the following securities:
1. | From June 30, 2013 to June 30, 2016, the Registrant has granted to its directors, officers, employees and consultants options to purchase 2,755,256 shares of common stock under its 2012 Equity Incentive Plan with per share exercise prices ranging from $0.79 to $9.50, and has issued 153,393 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, in connection with the license agreement entered into with REGENXBIO Inc., the Registrant issued 50,228 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 $5.9727 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 5,022,876 shares of its Series A convertible preferred stock at a purchase price of $5.9727 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, in connection with the collaborative development agreement entered into with Genethon, the Registrant issued 262,396 shares of its common stock to one purchaser. 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 3,843,604 shares of its Series B convertible preferred stock at a purchase price of $11.1942 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 1,293,058 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 4,325,954 shares of its Series C convertible preferred stock at a purchase price of $15.0256 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.
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.
II-3
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 11th day of July 2016.
A UDENTES T HERAPEUTICS , I NC . | ||
By: | /s/ Matthew Patterson | |
Matthew Patterson President and Chief Executive Officer |
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) | July 11, 2016 | ||
/s/ Tom Soloway Tom Soloway |
Chief Financial Officer (Principal Financial and Accounting Officer) | July 11, 2016 | ||
* Louis Lange |
Director | July 11, 2016 | ||
* Jonathan Leff |
Director | July 11, 2016 | ||
* Scott Morrison |
Director | July 11, 2016 | ||
* Kush Parmar |
Director | July 11, 2016 | ||
* Thomas Schuetz |
Director | July 11, 2016 | ||
* Jonathan Silverstein |
Director | July 11, 2016 | ||
* Stephen Squinto |
Director | July 11, 2016 | ||
* Thomas Woiwode |
Director | July 11, 2016 |
* Pursuant to Power of Attorney |
||
By: |
/s/ Tom Soloway |
|
Tom Soloway Attorney-in-Fact |
II-5
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, effective July 16, 2013, by and between the Registrant and Matthew Patterson. | |
10.6 | Executive Employment Agreement, effective February 18, 2014, by and between the Registrant and Suyash Prasad. | |
10.7 |
Executive Employment Agreement, effective December 18, 2015, by and between the Registrant and John Gray. |
|
10.8# | Form of Board Member Offer Letter. | |
10.9 # |
Sublease, dated April 21, 2016, by and between the Registrant and Solazyme, Inc. |
|
10.10 A# | Sublease, dated July 30, 2015, by and between the Registrant and Solstice Neurosciences, LLC. | |
10.10B# | Net Commercial Lease, effective June 1, 2017, by and between the Registrant and JCN Partners. | |
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 Crigler-Najjar). | |
10.18# | Exclusive License and Collaboration Agreement, dated May 3, 2016, by and between the Registrant and The Trustees of the University of Pennsylvania. | |
10.19# | First Amendment to License Agreement No. A13169, dated June 14, 2016, between the Registrant and the University of Florida Research Foundation, Inc. | |
21.1 # | Subsidiary of the Registrant. |
Exhibit
|
Description of Document |
|
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. |
# | Previously filed. |
| 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 1.1
AUDENTES THERAPEUTICS, INC.
(a Delaware corporation)
[●] Shares of Common Stock
UNDERWRITING AGREEMENT
Dated: [●], 2016
AUDENTES THERAPEUTICS, INC.
(a Delaware corporation)
[●] Shares of Common Stock
UNDERWRITING AGREEMENT
[●], 2016
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Cowen and Company, LLC
Piper Jaffray & Co.
as Representatives of the several Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
One Bryant Park
New York, New York 10036
c/o Cowen and Company, LLC
599 Lexington Avenue, 27 th Floor
New York, New York 10022
c/o Piper Jaffray & Co.
800 Nicollet Mall, Suite 1000
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Audentes Therapeutics, Inc., a Delaware corporation (the Company), confirms its agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), Cowen and Company, LLC (Cowen), Piper Jaffray & Co. (Piper) and each of the other Underwriters named in Schedule A hereto (collectively, the Underwriters, which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Cowen and Piper are acting as representatives (in such capacity, the Representatives), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $0.00001 per share, of the Company (Common Stock) set forth in Schedule A hereto and (ii) the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [●] additional shares of Common Stock. The aforesaid [●] shares of Common Stock (the Initial Securities) to be purchased by the Underwriters and all or any part of the [●] shares of Common Stock subject to the option described in Section 2(b) hereof (the Option Securities) are herein called, collectively, the Securities.
The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the Commission) a registration statement on Form S-1 (No. 333-208842), including the related preliminary prospectus or prospectuses, covering the registration of the sale of the Securities under the Securities Act of 1933, as amended (the 1933 Act). Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430A (Rule 430A) of the rules and regulations of the Commission under the 1933 Act (the 1933 Act Regulations) and Rule 424(b) (Rule 424(b)) of the 1933 Act Regulations. The information included in such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective pursuant to Rule 430A(b) is herein called the Rule 430A Information. Such registration statement, including the amendments thereto, the exhibits thereto and any schedules thereto, at the time it became effective, and including the Rule 430A Information, is herein called the Registration Statement. Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein called the Rule 462(b) Registration Statement and, after any such filing, the term Registration Statement shall be deemed to include the Rule 462(b) Registration Statement. Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a preliminary prospectus. The final prospectus, in the form first furnished to the Underwriters for use in connection with the offering of the Securities, is herein called the Prospectus. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system or any successor system (EDGAR).
As used in this Agreement:
Applicable Time means [__:00 P.M./A.M.], New York City time, on [●] or such other time as agreed by the Company and the Representatives.
General Disclosure Package means any Issuer General Use Free Writing Prospectuses issued at or prior to the Applicable Time, the most recent preliminary prospectus that is distributed to investors prior to the Applicable Time and the information included on Schedule B-1 hereto, all considered together.
Issuer Free Writing Prospectus means any issuer free writing prospectus, as defined in Rule 433 of the 1933 Act Regulations (Rule 433), including without limitation any free writing prospectus (as defined in Rule 405 of the 1933 Act Regulations (Rule 405)) relating to the Securities that is (i) required to be filed with the Commission by the Company, (ii) a road show that is a written communication within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Companys records pursuant to Rule 433(g).
Issuer General Use Free Writing Prospectus means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a bona fide electronic
2
road show, as defined in Rule 433 (the Bona Fide Electronic Road Show)), as evidenced by its being specified in Schedule B-2 hereto.
Issuer Limited Use Free Writing Prospectus means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the 1933 Act.
Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the 1933 Act.
SECTION 1. Representations and Warranties .
(a) Representations and Warranties by the Company . The Company represents and warrants to each Underwriter as of the date hereof, the Applicable Time, the Closing Time (as defined below) and any Date of Delivery (as defined below), and agrees with each Underwriter, as follows:
(i) Registration Statement and Prospectuses . Each of the Registration Statement and any post-effective amendment thereto has become effective under the 1933 Act. No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Companys knowledge, threatened by the Commission. The Company has complied with each request (if any) from the Commission for additional information.
Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus, the Prospectus and any amendment or supplement thereto, at the time each was filed with the Commission, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus delivered to the Underwriters for use in connection with this offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Accurate Disclosure . Neither the Registration Statement nor any amendment thereto, at its effective time, at the Closing Time or at any Date of Delivery, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As of the Applicable Time, none of (A) the General Disclosure Package, (B) any individual Issuer Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package and (C) any individual Written Testing-the-Waters Communication, when considered together with the General Disclosure Package, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Time or at any Date of Delivery, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to
3
state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement (or any amendment thereto), the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use therein. For purposes of this Agreement, the only information so furnished shall be [the information in the first paragraph under the heading UnderwritingCommissions and Discounts, the information in the second, third and fourth paragraphs under the heading UnderwritingPrice Stabilization, Short Positions and Penalty Bids and the information under the heading UnderwritingElectronic Offer, Sale and Distribution of Shares] in each case contained in the Prospectus (collectively, the Underwriter Information).
(iii) Issuer Free Writing Prospectuses . No Issuer Free Writing Prospectus conflicts or will conflict with the information contained in the Registration Statement or the Prospectus, and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified. The representations and warranties in this subsection shall not apply to statements in or omissions from any Issuer Free Writing Prospectus made in reliance upon and in conformity with the Underwriter Information. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) such that no filing of any road show (as defined in Rule 433(h)) is required in connection with the offering of the Securities.
(iv) Testing-the-Waters Materials . The Company (A) has not engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representatives with entities that it has a reasonable basis to believe are qualified institutional buyers within the meaning of Rule 144A under the 1933 Act or institutions that are accredited investors within the meaning of Rule 501 under the 1933 Act and (B) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule B-3 hereto.
(v) Company Not Ineligible Issuer . At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities and at the date hereof, the Company was not and is not an ineligible issuer, as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
(vi) Emerging Growth Company Status. From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any Person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an emerging growth company, as defined in Section 2(a) of the 1933 Act (an Emerging Growth Company).
(vii) Independent Accountants . The accountants who certified the financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus are
4
independent public accountants as required by the 1933 Act, the 1933 Act Regulations and the Public Company Accounting Oversight Board.
(viii) Financial Statements . The financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related schedules, if any, and notes, present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) applied on a consistent basis throughout the periods involved, except in the case of unaudited interim financial statements, which are subject to normal year-end audit adjustments that are not expected to be material and the exclusion of certain footnotes. The supporting schedules, if any, present fairly in accordance with GAAP the information required to be stated therein. The selected historical financial data set forth under the captions Summary Consolidated Financial Data and Selected Consolidated Financial Data included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly, in all material respects, the information shown therein and have been compiled on a basis consistent with that of the audited and unaudited financial statements included therein. Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included or incorporated by reference in the Registration Statement, the General Disclosure Package or the Prospectus under the 1933 Act or the 1933 Act Regulations. There are no non-GAAP financial measures (as such term is defined by the rules and regulations of the Commission) in the Registration Statement, the General Disclosure Package and the Prospectus.
(ix) No Material Adverse Change in Business . Except as otherwise stated therein, since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a Material Adverse Effect), (B) there have been no transactions entered into by the Company or any of its subsidiaries (Subsidiaries), other than those in the ordinary course of business, which are material with respect to the Company and its Subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.
(x) Good Standing of the Company . The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required (or such equivalent concept to the extent it exists under the laws of such jurisdiction), whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not reasonably be expected to result in a Material Adverse Effect.
(xi) Good Standing of Subsidiaries . Each significant subsidiary of the Company (as such term is defined in Rule 1-02 of Regulation S-X) (each, a Significant Subsidiary and, collectively, the Significant Subsidiaries) has been duly incorporated or organized under the
5
laws of the jurisdiction of its incorporation or organization and is validly existing in good standing (or such equivalent concept to the extent it exists under the laws of such jurisdiction), has corporate or similar power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and is duly qualified to transact business and is in good standing (or such equivalent concept to the extent it exists under the laws of such jurisdiction) in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not reasonable be expected to result in a Material Adverse Effect. Except as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. None of the outstanding shares of capital stock of any Subsidiary were issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary. The only Significant Subsidiaries of the Company are the subsidiaries listed on Exhibit 21 to the Registration Statement.
(xii) Capitalization . The authorized, issued and outstanding shares of capital stock of the Company are as set forth in the Registration Statement, the General Disclosure Package and the Prospectus in the column entitled Actual under the caption Capitalization (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements, employee benefit or equity incentive plans referred to in the Registration Statement, the General Disclosure Package and the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Registration Statement, the General Disclosure Package and the Prospectus). The outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. None of the outstanding shares of capital stock of the Company were issued in violation of the preemptive or other similar rights of any securityholder of the Company.
(xiii) Authorization of Agreement . This Agreement has been duly authorized, executed and delivered by the Company.
(xiv) Authorization and Description of Securities . The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. The Common Stock conforms in all material respects to all statements relating thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus and such description conforms in all material respects to the rights set forth in the instruments defining the same. No holder of Securities will be subject to personal liability solely by reason of being such a holder.
(xv) Registration Rights . There are no persons with registration rights or other similar rights to have any securities registered for sale pursuant to the Registration Statement or otherwise registered for sale or sold by the Company under the 1933 Act pursuant to this Agreement, other than those rights that have been disclosed in the Registration Statement, the General Disclosure Package and the Prospectus and have been waived.
6
(xvi) Absence of Violations, Defaults and Conflicts . Neither the Company nor any of its Subsidiaries is (A) in violation of its charter, by-laws or similar organizational document, (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound or to which any of the properties or assets of the Company or any Subsidiary is subject (collectively, Agreements and Instruments), except for such defaults that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect, or (C) in violation of any law, statute, rule, regulation, judgment, order, writ or decree of any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having jurisdiction over the Company or any of its Subsidiaries or any of their respective properties, assets or operations (each, a Governmental Entity), except for such violations that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein (including the issuance and sale of the Securities and the use of proceeds from the sale of the Securities as described in the Registration Statement, the General Disclosure Package and the Prospectus under the caption Use of Proceeds, assuming such proceeds are used as contemplated therein) and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any Subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect), nor will such action result in any violation of (i) the provisions of the charter, by-laws or similar organizational document of the Company or any of its Subsidiaries or (ii) any law, statute, rule, regulation, judgment, order, writ or decree of any Governmental Entity, except, in the case of clause (ii) above, for such violation that would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect and as would not materially and adversely affect the consummation of the transactions contemplated in this Agreement. As used herein, a Repayment Event means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holders behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Subsidiaries.
(xvii) Absence of Labor Dispute . No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any Subsidiarys principal suppliers, manufacturers, customers or contractors, which, in either case, would reasonably be expected to result in a Material Adverse Effect.
(xviii) Absence of Proceedings . Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, there is no action, suit, proceeding, inquiry or, to the knowledge of the Company, investigation before or brought by any Governmental Entity now pending or, to the knowledge of the Company, threatened, against or affecting the Company or any of its Subsidiaries, which would reasonably be expected to result in a Material Adverse Effect, or which would reasonably be expected to materially and adversely affect their respective properties or assets or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; and the aggregate of all pending
7
legal or governmental proceedings to which the Company or any such Subsidiary is a party or of which any of their respective properties or assets is the subject which are not described in the Registration Statement, the General Disclosure Package and the Prospectus, including ordinary routine litigation incidental to the business, would not reasonably be expected to result in a Material Adverse Effect.
(xix) Accuracy of Exhibits . There are no contracts or documents which are required to be described in the Registration Statement, the General Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement which have not been so described in all material respects and filed as required.
(xx) Absence of Further Requirements . No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Governmental Entity is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as (A) have been already obtained (B) may be required under the 1933 Act, the 1933 Act Regulations, the rules of the NASDAQ Stock Market LLC, state securities laws or the rules of the Financial Industry Regulatory Authority, Inc. (FINRA) or (C) if not made or obtain would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect or materially and adversely affect the consummation of the transactions contemplated in this Agreement.
(xxi) Possession of Licenses and Permits . The Company and its Subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, Governmental Licenses) issued by the appropriate Governmental Entities necessary to conduct the business now operated by them, except where the failure so to possess would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The Company and its Subsidiaries are in compliance with the terms and conditions of all Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. All of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to result in a Material Adverse Effect.
(xxii) Title to Property . The Company and its Subsidiaries do not own any real property. The Company and its Subsidiaries have good title to all other properties (excluding for the purpose of this section Intellectual Property (as defined below)) owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (A) are described in the Registration Statement, the General Disclosure Package and the Prospectus or (B) do not, singly or in the aggregate, materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement, the General Disclosure Package or the Prospectus, are in full force and effect, and neither the Company nor any such Subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the
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Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.
(xxiii) Possession of Intellectual Property . The Company and its Subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names and other intellectual property (collectively, Intellectual Property) necessary to carry on the business now operated by them and as currently proposed to be conducted as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, and neither the Company nor any of its Subsidiaries has received any notice or is otherwise aware of (i) any infringement of or conflict with asserted rights of others with respect to any intellectual property or (ii) any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. To the Companys knowledge: (i) there are no third parties who have rights to any Intellectual Property, except for customary reversionary rights of third-party licensors with respect to Intellectual Property that is disclosed in the most recent Preliminary Prospectus and the Prospectus as licensed to the Company or its Subsidiaries; and (ii) there is no infringement by third parties of any Intellectual Property. There is no pending or, to the Companys knowledge, threatened action, suit, proceeding or claim by others: (A) challenging the Companys rights in or to any Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such action, suit, proceeding or claim; (B) challenging the validity, enforceability or scope of any Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such action, suit, proceeding or claim; or (C) asserting that the Company or any of its Subsidiaries infringes, misappropriates or otherwise violates, or would, upon the commercialization of any product or service described in the most recent Prospectus as under development, infringe, misappropriate or otherwise violate, any intellectual property rights of others, and the Company is unaware of any facts which would form a reasonable basis for any such action, suit, proceeding or claim. The Company and its Subsidiaries have complied with the terms of each agreement pursuant to which Intellectual Property has been licensed to the Company or its Subsidiaries, and all such agreements are in full force and effect. To the Companys knowledge, there are no material defects in any of the patents or patent applications included in the Intellectual Property.
(xxiv) Environmental Laws . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus or would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect, (A) neither the Company nor any of its Subsidiaries is in violation of any applicable federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of hazardous chemicals, pollutants, contaminants, hazardous wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or toxic mold (collectively, Hazardous Materials) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively,
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Environmental Laws), (B) the Company and its Subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws for the operation of their business or the occupancy of their real property and are each in compliance with their requirements, (C) there are no pending or, to the Companys knowledge, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, proceedings or, to the Companys knowledge, investigations relating to any Environmental Law against the Company or any of its Subsidiaries and (D) to the Companys knowledge, there are no events or circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or Governmental Entity, against or affecting the Company or any of its Subsidiaries relating to Hazardous Materials or any Environmental Laws.
(xxv) Accounting Controls . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, the Company and each of its Subsidiaries maintain effective internal control over financial reporting (as defined under Rule 13-a15 and 15d-15 under the rules and regulations of the Commission under the Securities Exchange Act of 1934, as amended (the 1934 Act)) and a system of internal accounting controls designed to provide reasonable assurances that (A) transactions are executed in accordance with managements general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with managements general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, since the end of the Companys most recent audited fiscal year, there has been (1) no material weakness in the Companys internal control over financial reporting (whether or not remediated) and (2) no change in the Companys internal control over financial reporting that has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Companys internal control over financial reporting.
(xxvi) Compliance with the Sarbanes-Oxley Act. The Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration Statement, it will be in compliance with all provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof (the Sarbanes-Oxley Act) that are then in effect and with which the Company is required to comply as of the effectiveness of the Registration Statement.
(xxvii) Payment of Taxes . All U.S. federal income tax returns of the Company and its Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except assessments against which appeals have been or will be promptly taken and as to which adequate reserves have been provided. The U.S. federal income tax returns of the Company through the fiscal year ended December 31, 2015 have been settled and no assessment in connection therewith has been made against the Company. The Company and its Subsidiaries have filed all other tax returns that are required to have been filed by them pursuant to applicable foreign, state, local or other law except insofar as the failure to file such returns would not reasonably be expected to result in a Material Adverse Effect, and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company and its Subsidiaries, except for such taxes, if any, (A) as are being contested in good faith and as to which adequate reserves have been established by the Company or (B) insofar as the failure to pay would not reasonably be expected to result in a Material
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Adverse Effect. The charges, accruals and reserves on the books of the Company in respect of any income and corporation tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income tax for any years not finally determined, except to the extent of any inadequacy that would not reasonably be expected to result in a Material Adverse Effect.
(xxviii) Insurance . The Company and its Subsidiaries carry or are entitled to the benefits of insurance, with financially sound and reputable insurers, in such amounts and covering such risks the Company reasonably believes is generally maintained by companies of established repute engaged in the same or similar business, and all such insurance is in full force and effect. The Company has no reason to believe that it or any of its Subsidiaries will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Effect. Neither of the Company nor any of its Subsidiaries has been denied any insurance coverage which it has sought or for which it has applied.
(xxix) Investment Company Act . The Company is not required, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Registration Statement, the General Disclosure Package and the Prospectus will not be required, to register as an investment company under the Investment Company Act of 1940, as amended (the 1940 Act).
(xxx) Absence of Manipulation . Neither the Company nor, to the Companys knowledge, any affiliate of the Company, has taken, nor will the Company or any of its Subsidiaries take, directly or indirectly, any action which is designed, or would reasonably be expected, to cause or result in, or which constitutes, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or to result in a violation of Regulation M under the 1934 Act.
(xxxi) Foreign Corrupt Practices Act . None of the Company, any of its Subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, controlled affiliate or other person acting on behalf of the Company or any of its Subsidiaries is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the FCPA), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any foreign official (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA and the Company and, to the knowledge of the Company, its controlled affiliates have conducted their businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.
(xxxii) Money Laundering Laws . The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar applicable rules, regulations or guidelines,
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issued, administered or enforced by any Governmental Entity (collectively, the Money Laundering Laws); and no action, suit or proceeding by or before any Governmental Entity involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(xxxiii) OFAC . None of the Company, any of its Subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, controlled affiliate or representative of the Company or any of its Subsidiaries is an individual or entity (Person) currently the subject or target of any sanctions administered or enforced by the United States Government, including, without limitation, the U.S. Department of the Treasurys Office of Foreign Assets Control (OFAC), the United Nations Security Council (UNSC), the European Union, Her Majestys Treasury (HMT), or other relevant sanctions authority (collectively, Sanctions), nor is the Company located, organized or resident in a country or territory that is the subject of Sanctions; and the Company will not directly or indirectly use the proceeds of the sale of the Securities, or lend, contribute or otherwise make available such proceeds to any Subsidiaries, joint venture partners or other Person, to fund any activities of or business with any Person, or in any country or territory, that, at the time of such funding, is the subject of Sanctions or in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions.
(xxxiv) Lending Relationship . Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company (i) does not have any material lending or other relationship with any bank or lending affiliate of any Underwriter and (ii) does not intend to use any of the proceeds from the sale of the Securities to repay any outstanding debt owed to any affiliate of any Underwriter.
(xxxv) Statistical and Market-Related Data . Any statistical and market-related data included in the Registration Statement, the General Disclosure Package or the Prospectus are based on or derived from sources that the Company believes, after reasonable inquiry, to be reliable and accurate in all material respects and, to the extent required, the Company has obtained the written consent to the use of such data from such sources.
(xxxvi) Regulatory Matters . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, and except as would not, individually or in the aggregate, have or may reasonably be expected to have a Material Adverse Effect: (i) neither the Company nor any of its Subsidiaries has received any written notice of adverse filing, warning letter, untitled letter or other correspondence or notice from the U.S. Food and Drug Administration or other relevant regulatory authorities, or any other court or arbitrator or federal, state, local or foreign governmental or regulatory authority, alleging or asserting material noncompliance with the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 301 et seq.) (the FFDCA), section 351 of the Public Health Service Act (42 U.S.C. § 262) ( section 351 of the PHSA) or similar state, federal or foreign law or regulation; (ii) the Company and any Subsidiary, and to the Companys knowledge, their respective directors, officers, employees or agents, are and have been in compliance in all material respects with applicable health care laws, including without limitation, the FFDCA, section 351 of the PHSA, each as amended, and the regulations promulgated thereunder; and all other comparable local, state, federal, national, supranational and foreign laws, and the regulations promulgated thereunder, (collectively, Health Care Laws); (iii) neither the Company nor any Subsidiary has received written notice of any ongoing claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any U.S. or non-U.S. federal, national, state, local or other governmental or
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regulatory authority, governmental or regulatory agency or body, court, arbitrator or self-regulatory organization (each, a Governmental Authority) or third party alleging that any product operation or activity is in violation of any Health Care Laws or has any knowledge that any such Governmental Authority or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (iv) neither the Company nor any Subsidiary has received written notice that any Governmental Authority has taken, is taking or intends to take action to limit, suspend, modify or revoke any applicable Permit or has any knowledge that any such Governmental Authority is considering such action; (v) the Company and each Subsidiary has filed, obtained, maintained or submitted all reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Health Care Laws and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete, correct and not misleading on the date filed (or were corrected or supplemented by a subsequent submission); and (vi) neither the Company nor any Subsidiary or any of their respective directors, officers, employees or agents is or has been debarred, suspended or excluded, or has been convicted of any crime or engaged in any conduct that would result in a debarment, suspension or exclusion from any federal or state government health care program.
(xxxvii) Preclinical Matters . The preclinical studies conducted by or on behalf of the Company have been and, if still pending, are being conducted in accordance with experimental protocols, procedures and controls pursuant to all applicable Health Care Laws and Governmental Licenses; the descriptions of the results of such preclinical studies contained in the Registration Statement, the General Disclosure Package and the Prospectus are accurate and complete in all material respects and fairly present the data derived from such preclinical studies; except to the extent disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company is not aware of any preclinical or clinical studies, the results of which the Company believes reasonably call into question the preclinical study results described in the Registration Statement, the General Disclosure Package and the Prospectus when viewed in the context in which such results are described; and neither the Company nor any of its Subsidiaries has received any notices or correspondence from any Governmental Authority requiring the termination, suspension or modification of any preclinical study conducted by or on behalf of the Company, except as described in the Registration Statement, the General Disclosure Package and the Prospectus or as would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.
(xxxviii) No Rated Securities . Neither the Company nor its Subsidiaries have any debt securities or preferred stock that are rated by any nationally recognized statistical rating organization (as defined in Section 3(a)(62) of the 1934 Act).
(b) Officers Certificates . Any certificate signed by any officer of the Company or any of its Subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company (and not by such officer in his or her personal capacity) to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing .
(a) Initial Securities . On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule A, that number of Initial Securities set forth in
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Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject, in each case, to such adjustments among the Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares.
(b) Option Securities . In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional [●] shares of Common Stock, at the price per share set forth in Schedule A, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted may be exercised for 30 days after the date hereof and may be exercised in whole or in part at any time from time to time upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a Date of Delivery) shall be determined by the Representatives, but any Date of Delivery occurring after the Closing Time shall not be later than seven full business days nor earlier than two full business days after the exercise of said option, nor shall the Date of Delivery occur prior to the Closing Time. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject, in each case, to such adjustments as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares.
(c) Payment . Payment of the purchase price for, and delivery of electronic book entry made for, the Initial Securities shall be made at the offices of Cooley LLP, 4401 Eastgate Mall, San Diego, California 92121, or at such other place as shall be agreed upon by the Representatives and the Company, at 10:00 A.M. (New York City time) on the third (fourth, if the pricing occurs after 4:30 P.M. (New York City time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called Closing Time). Delivery of the Initial Securities at the Closing Time shall be made through the facilities of The Depository Trust Company (DTC) unless the Representatives otherwise instruct.
In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of electronic book entry made for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. Delivery of the Option Securities of each Date of Delivery shall be made through the facilities of DTC unless the Representatives otherwise instruct.
Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company against delivery to the Representatives for the respective accounts of the Underwriters of electronic book entry made for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been
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received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
SECTION 3. Covenants of the Company . The Company covenants with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests . The Company, subject to Section 3(b), will comply with the requirements of Rule 430A, and will notify the Representatives as soon as practicable, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the 1933 Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities. The Company will effect all filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof as soon as practicable.
(b) Continued Compliance with Securities Laws . The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Registration Statement, the General Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172 of the 1933 Act Regulations (Rule 172), would be) required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) amend or supplement the General Disclosure Package or the Prospectus in order that the General Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the General Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly (A) give the Representatives notice of such event, (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the General Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representatives with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representatives or counsel for the Underwriters shall
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reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request.
(c) Delivery of Registration Statements . The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters, in each case if requested by the Representatives. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses . The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Blue Sky Qualifications . The Company will use its reasonable best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale by the Company under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representatives may reasonably designate and to maintain such qualifications in effect so long as required to complete the distribution of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
(f) Rule 158 . The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(g) Use of Proceeds . The Company will use the net proceeds received by it from the sale of the Securities in the intended manner specified in the Registration Statement, the General Disclosure Package and the Prospectus under Use of Proceeds.
(h) Listing . The Company will use its reasonable best efforts to effect and maintain the listing of the Common Stock (including the Securities) on the Nasdaq Global Market.
(i) Restriction on Sale of Securities . During a period through and including 180 days from the date of the Prospectus (the Lock-Up Period), the Company will not, without the prior written consent of Merrill Lynch and Cowen, (i) directly or indirectly, 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 any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any
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transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or the conversion of a security outstanding on the date hereof and referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (C) any shares of Common Stock issued, options to purchase Common Stock granted or other equity awards convertible into or exercisable or exchangeable for Common Stock, in each case granted pursuant to employee benefit or equity incentive plans of the Company referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (D) the filing of a registration statement on Form S-8 or any successor form thereto with respect to the registration of securities to be offered under any employee benefit or equity incentive plans of the Company described in the Registration Statement, the General Disclosure Package and the Prospectus, (E) the entry into agreements providing for the issuance by the Company of shares of Common Stock or any security convertible into or exercisable for shares of Common Stock in connection with the acquisition by the Company or any of its Subsidiaries of the securities, business, property or other assets of another person or entity pursuant to an employee benefit plan assumed by the Company in connection with such acquisition, and the issuance of any such securities pursuant to any such agreement, and (F) the entry into agreements providing for the issuance of shares of Common Stock or any security convertible into or exercisable for shares of Common Stock in connection with joint ventures, commercial relationships or other strategic transactions, and the issuance of any such securities pursuant to any such agreement; provided that in the case of clauses (E) and (F), the aggregate number of shares of Common Stock that the Company may sell or issue or agree to sell or issue pursuant to clauses (E) and (F) shall not exceed 10% of the total number of shares of the Common Stock issued and outstanding as of immediately after the completion of the transactions contemplated by this Agreement, and provided further that, in the case of clauses (B) through (F), (x) the Company shall cause each recipient of such securities to execute and deliver, on or prior to the issuance of such securities, a lock-up agreement on substantially the same terms as the lock-up agreements described in Section 5(k) hereof to the extent and for the duration that such terms remain in effect at the time of the transfer, and (y) the Company shall authorize its transfer agent to decline to make any transfer of such shares in violation of such lock-up agreements.
(j) The Company shall enforce all existing agreements between the Company and any of its securityholders that prohibit the sale, transfer, assignment, pledge or hypothecation of any of the Companys securities in connection with the Companys initial public offering until, in respect of any particular securityholder, the earlier to occur of (i) the expiration of the Lock-Up Period or (ii) the expiration of any similar arrangement entered into by such securityholder with Merrill Lynch and Cowen; and will direct the transfer agent to place stop transfer restrictions upon any such securities of the Company that are bound by such existing lock-up, market stand-off, holdback or similar provisions of such agreements for the duration of the periods contemplated in the preceding clause; and not to release or otherwise grant any waiver of such provisions in such agreements during such periods without the prior written consent of Merrill Lynch and Cowen.
(k) If Merrill Lynch and Cowen, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up agreement described in Section 5(k) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by either (A) a press release substantially in the form of Exhibit B hereto through a major news service at least two business days before the effective date of the release or waiver
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or (B) any other method reasonably acceptable to the Representatives that satisfies the obligations described in FINRA Rule 5131(d)(2).
(l) Reporting Requirements . The Company, during the period when a Prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and 1934 Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Securities as may be required under Rule 463 under the 1933 Act.
(m) Issuer Free Writing Prospectuses . The Company agrees that, unless it obtains the prior written consent of the Representatives, it will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a free writing prospectus, or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representatives will be deemed to have consented to the Issuer Free Writing Prospectuses listed on Schedule B-2 hereto and any road show that is a written communication within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representatives. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representatives as an issuer free writing prospectus, as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement, any preliminary prospectus or the Prospectus or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission. Each Underwriter represents that it has not made, and agrees that, without the prior consent of the Company, it will not make any offer relating to the Securities that would constitute a free writing prospectus required to be filed by the Company with the Commission or retained by the Company under Rule 433 of the 1933 Act Regulations; provided that the Company will be deemed to have consented to any road show that has been reviewed and approved by the Company and is a written communication within the meaning of Rule 433(d)(8)(i) of the 1933 Act Regulations.
(n) Testing-the-Waters Materials. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
(o) Emerging Growth Company Status. The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Securities within the meaning of the 1933 Act and (ii) completion of the Lock-Up Period.
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SECTION 4. Payment of Expenses .
(a) Expenses . The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of copies of each preliminary prospectus, each Issuer Free Writing Prospectus and the Prospectus and any amendments or supplements thereto and reasonable costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (iii) the preparation, issuance and delivery of the electronic book entries for the Securities to be issued by the Company to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Companys counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(e) hereof, including filing fees and the reasonable and documented fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto in an amount not to exceed $5,000, (vi) the fees and expenses of any transfer agent or registrar for the Securities, (vii) the costs and expenses of the Company relating to investor presentations on any road show undertaken in connection with the marketing of the Securities, including without limitation, expenses associated with the production of road show slides and graphics, reasonable and documented fees and expenses of any consultants engaged in connection with the road show presentations with the prior authorization of the Company (which may be by email), travel and lodging expenses of the representatives and officers of the Company and any such consultants (which, for the avoidance of doubt, does not include the Underwriters or their representatives), and the cost of transportation in connection with the road show; provided that 50% of the cost shall be paid by the Underwriters and 50% of the cost shall be paid by the Company of any aircraft chartered in connection with the road show with the prior authorization of the Company (which may be by email) and (viii) the filing fees incident to, and the reasonable and documented fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms of the sale of the Securities in an amount not to exceed $30,000, and (ix) the fees and expenses incurred in connection with the listing of the Securities on the Nasdaq Global Market.
(b) Termination of Agreement . If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5, Section 9(a)(i) or (iii) or Section 10 hereof, the Company shall reimburse the non-defaulting Underwriters for all of their reasonable and documented out-of-pocket expenses, including the reasonable and documented fees and disbursements of counsel for the Underwriters. For the avoidance of doubt, in the case of termination in accordance with the provisions of Section 10 hereof, the Company shall have no obligation to reimburse any defaulting Underwriter pursuant to this Section 4(b).
SECTION 5. Conditions of Underwriters Obligations . The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained herein or in certificates of any officer of the Company or any of its Subsidiaries delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement; Rule 430A Information . The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and, at the Closing Time, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes
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have been instituted or are pending or, to the Companys knowledge, threatened by the Commission; and the Company has complied with each request (if any) from the Commission for additional information. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) without reliance on Rule 424(b)(8) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.
(b) Opinion of Counsel for Company . At the Closing Time, the Representatives shall have received the opinion and negative assurance letter, each dated the Closing Time, of Fenwick & West LLP, counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters.
(c) Opinions of IP Counsel for Company . At the Closing Time, the Representatives shall have received the opinion, dated the Closing Time, from each of Clark+Elbing LLP and Biospark Intellectual Property Law, intellectual property counsel for the Company, each in form and substance reasonably satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters.
(d) Opinion of Regulatory Counsel for Company . At the Closing Time, the Representatives shall have received the opinion, dated the Closing Time, of Hyman, Phelps & McNamara, P.C., regulatory counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters.
(e) Opinion of Counsel for Underwriters . At the Closing Time, the Representatives shall have received the opinion and negative assurance letter, each dated the Closing Time, of Cooley LLP, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters with respect to such matters as the Representatives may require.
(f) Officers Certificate . At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any Material Adverse Effect, and the Representatives shall have received a certificate of the Chief Executive Officer or the President of the Company and of the chief financial or chief accounting officer of the Company, in their respective capacities as such officers only, dated the Closing Time, to the effect that (i) there has been no such Material Adverse Effect, (ii) the representations and warranties of the Company in this Agreement are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement under the 1933 Act has been issued, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to their knowledge, threatened by the Commission.
(g) Accountants Comfort Letter . At the time of the execution of this Agreement, the Representatives shall have received from KPMG LLP a letter, dated such date, in form and substance reasonable satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package and the Prospectus.
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(h) Bring-down Comfort Letter . At the Closing Time, the Representatives shall have received from KPMG LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (g) of this Section, except that the specified date referred to shall be a date not more than three business days prior to the Closing Time.
(i) Approval of Listing . At the Closing Time, the Securities shall have been approved for listing on the Nasdaq Global Market, subject only to official notice of issuance.
(j) No Objection . FINRA has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements relating to the offering of the Securities.
(k) Lock-up Agreements . At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit A hereto signed by each director and officer of the Company and substantially all other beneficial owners (as defined according to Rule 13d-3 under the 1934 Act) of any securities of the Company.
(l) Maintenance of Rating . Neither the Company nor its Subsidiaries have any debt securities or preferred stock that are rated by any nationally recognized statistical rating organization (as defined in Section 3(a)(62) of the 1934 Act).
(m) Conditions to Purchase of Option Securities . In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company and any of its Subsidiaries hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:
(i) Officers Certificate . A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(f) hereof remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company . If requested by the Representatives, the opinion and negative assurance letter of Fenwick & West LLP, counsel for the Company, each in form and substance reasonably satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof.
(iii) Opinions of IP Counsel for Company . If requested by the Representatives, the opinion of each of Clark+Elbing LLP and Biospark Intellectual Property Law, intellectual property counsel for the Company, each in form and substance reasonably satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchase on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof.
(iv) Opinion of Regulatory Counsel for Company . If requested by the Representatives, the opinion of Hyman, Phelps & McNamara, P.C., regulatory counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchase on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(d) hereof.
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(v) Opinion of Counsel for Underwriters . If requested by the Representatives, the opinion and negative assurance letter of Cooley LLP, counsel for the Underwriters, each dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(e) hereof.
(vi) Bring-down Comfort Letter . If requested by the Representatives, a letter from KPMG LLP, in form and substance reasonably satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(g) hereof, except that the specified date in the letter furnished pursuant to this paragraph shall be a date not more than three business days prior to such Date of Delivery.
(n) Additional Documents . At the Closing Time and at each Date of Delivery (if any) counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters.
(o) Termination of Agreement . If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by written notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7, 8, 14, 15 and 16 shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification .
(a) Indemnification of Underwriters . The Company agrees to indemnify and hold harmless each Underwriter, its affiliates (as such term is defined in Rule 501(b) under the 1933 Act (each, an Affiliate)), its selling agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included (A) in any preliminary prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto), or (B) in any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the offering of the Securities (Marketing Materials), including any roadshow or investor presentations made to investors by the Company (whether in person or electronically), or the omission or alleged omission in any preliminary prospectus, Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, Prospectus or in any Marketing Materials of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
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(ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company;
(iii) against any and all reasonably documented expense whatsoever, as incurred (including the fees and disbursements of one counsel (in addition to any local counsel) chosen by Merrill Lynch and Cowen), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, the General Disclosure Package, any preliminary prospectus, Issuer Free Writing Prospectus, Written Testing-the-Waters Communication or the Prospectus (or any amendment or supplement thereto) or in any Marketing Materials in reliance upon and in conformity with the Underwriter Information.
(b) Indemnification of Company, Directors and Officers . Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, the General Disclosure Package, any preliminary prospectus, Issuer Free Writing Prospectus, Written Testing-the-Waters Communication or the Prospectus (or any amendment or supplement thereto) or in any Marketing Materials in reliance upon and in conformity with the Underwriter Information.
(c) Actions against Parties; Notification . Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action and assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or
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proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse . If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by this Section 6, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
SECTION 7. Contribution . If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and of the Underwriters, on the other hand, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting discount received by the Underwriters, on the other hand, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus.
The relative fault of the Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any
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governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the underwriting commissions received by such Underwriter in connection with the Securities underwritten by it and distributed to the public.
No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriters Affiliates and selling agents shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive . All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its Subsidiaries submitted pursuant hereto shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company and (ii) delivery of and payment for the Securities.
SECTION 9. Termination of Agreement .
(a) Termination . The Representatives may terminate this Agreement, by written notice to the Company, at any time at or prior to the Closing Time (i) if there has been, in the judgment of the Representatives, since the time of execution of this Agreement or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any Material Adverse Effect, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to proceed with the completion of the offering or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq Global Market, or (iv) if trading generally on the NYSE MKT or the New York Stock Exchange or in the Nasdaq Global Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by order of the Commission, FINRA or any other governmental authority, (v) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States or (vi) if a banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities . If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7, 8, 14, 15 and 16 shall survive such termination and remain in full force and effect.
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SECTION 10. Default by One or More of the Underwriters . If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase from the Company the Securities which it or they are obligated to purchase under this Agreement (the Defaulted Securities), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then:
(i) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or
(ii) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase, and the Company to sell, the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.
Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of the Company except to the extent set forth in Section 4(b).
In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either (i) the Representatives or (ii) the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement, the General Disclosure Package or the Prospectus or in any other documents or arrangements. As used herein, the term Underwriter includes any person substituted for an Underwriter under this Section 10.
SECTION 11. Notices . All notices and other communications hereunder shall, unless expressly set forth otherwise herein, be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to Merrill Lynch at One Bryant Park, New York, New York 10036, attention of Syndicate Department (facsimile: (646) 855-3073), with a copy to ECM Legal (facsimile: (212) 230-8730); and Cowen and Company, LLC, Attention: Head of Equity Capital Markets (facsimile: (646) 562-1249, with a copy to the General Counsel (facsimile: (646) 562-1124); notices to the Company shall be directed to it at 101 Montgomery Street, Suite 2650, San Francisco, California 94104, attention of Chief Executive Officer.
SECTION 12. No Advisory or Fiduciary Relationship . The Company acknowledges and agrees that (a) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the initial public offering price of the Securities and any related discounts and commissions, is an arms-length commercial transaction between the Company, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the offering of the Securities and the process leading thereto, each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company,
26
any of its Subsidiaries or their respective stockholders, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Company with respect to the offering of the Securities or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any of its Subsidiaries on other matters) and no Underwriter has any obligation to the Company with respect to the offering of the Securities except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company and (e) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering of the Securities and the Company has consulted its own respective legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.
SECTION 13. Parties . This Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. Trial by Jury . The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
SECTION 15. GOVERNING LAW . THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS.
SECTION 16. Consent to Jurisdiction; Waiver of Immunity . Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (Related Proceedings) shall be instituted in (i) the federal courts of the United States of America located in the City and County of New York, Borough of Manhattan or (ii) the courts of the State of New York located in the City and County of New York, Borough of Manhattan (collectively, the Specified Courts), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a Related Judgment), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such partys address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum.
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SECTION 17. TIME . TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 18. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.
SECTION 19. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
[signature pages follow]
28
If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters and the Company in accordance with its terms.
Very truly yours, | ||
AUDENTES THERAPEUTICS, INC. | ||
By |
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Name: Matthew Patterson | ||
Title: Chief Executive Officer |
CONFIRMED AND ACCEPTED, as of the date first above written: |
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MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED |
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COWEN AND COMPANY, LLC | ||
PIPER JAFFRAY & CO. | ||
By: |
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED |
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By |
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Authorized Signatory | ||
By: | COWEN AND COMPANY, LLC | |
By |
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Authorized Signatory | ||
By: | PIPER JAFFRAY & CO. | |
By |
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Authorized Signatory |
For themselves and as Representatives of the other Underwriters named in Schedule A hereto.
[Signature Page to Underwriting Agreement]
SCHEDULE A
The initial public offering price per share for the Securities shall be $[●].
The purchase price per share for the Securities to be paid by the several Underwriters shall be $[●], being an amount equal to the initial public offering price set forth above less $[●] per share, subject to adjustment in accordance with Section 2(b) for dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities.
Name of Underwriter |
Number
of
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Merrill Lynch, Pierce, Fenner & Smith Incorporated |
[ ] | |
Cowen and Company, LLC |
[ ] | |
Piper Jaffray & Co. |
[ ] | |
Wedbush Securities Inc. |
[ ] | |
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Total |
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A-1
SCHEDULE B-1
Pricing Terms
1. The Company is selling [●] shares of Common Stock.
2. The Company has granted an option to the Underwriters, severally and not jointly, to purchase up to an additional [●] shares of Common Stock.
3. The initial public offering price per share for the Securities shall be $[●].
SCHEDULE B-2
Free Writing Prospectuses
[SPECIFY ANY ISSUER GENERAL USE FREE WRITING PROSPECTUS]
SCHEDULE B-3
Written Testing-the-Waters Communications
[SPECIFY ANY WRITTEN TESTING-THE-WATERS COMMUNICATIONS]
B-1
Exhibit A
Form of lock-up from directors, officers or other stockholders pursuant to Section 5(k)
, 2016
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Cowen and Company, LLC
Piper Jaffray & Co.
as Representatives of the several
Underwriters to be named in the
within-mentioned Underwriting Agreement
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
One Bryant Park
New York, New York 10036
c/o Cowen and Company, LLC
599 Lexington Avenue, 27 th Floor
New York, New York 10022
c/o Piper Jaffray & Co.
800 Nicollet Mall, Suite 1000
Minneapolis, Minnesota 55402
Re: | Proposed Public Offering by Audentes Therapeutics, Inc. |
Dear Sirs:
The undersigned, a stockholder, officer and/or director of Audentes Therapeutics, Inc., a Delaware corporation (the Company), understands that Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), Cowen and Company, LLC (Cowen) and Piper Jaffray & Co. (Piper and together with Merrill Lynch and Cowen, the Representatives) propose to enter into an Underwriting Agreement (the Underwriting Agreement) with the Company providing for the public offering (the Offering) of shares of the Companys common stock (the Common Stock). In recognition of the benefit that such an Offering will confer upon the undersigned as a stockholder, officer and/or director of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Underwriting Agreement that, during the period beginning on the date hereof and ending on the date that is 180 days from the date of the Underwriting Agreement, (the Restricted Period) the undersigned will not, without the prior written consent of Merrill Lynch and Cowen, (i) directly or indirectly, 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 any shares of the Companys Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the Lock-Up Securities), or exercise any right with respect to the registration of any of the Lock-Up Securities, or file or cause to be filed any registration statement in connection therewith, under the Securities Act of 1933, as amended (the
Securities Act), or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Securities the undersigned may purchase in the Offering.
If the undersigned is an officer or director of the Company, (1) Merrill Lynch and Cowen agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of the Common Stock, Merrill Lynch and Cowen will notify the Company of the impending release or waiver, and (2) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by Merrill Lynch and Cowen hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (i) the release or waiver is effected solely to permit a transfer not for consideration and (ii) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.
Notwithstanding the foregoing, the undersigned may transfer the Lock-Up Securities without the prior written consent of Merrill Lynch and Cowen:
(i) | provided that (1) the Representatives receive a signed lock-up agreement for the balance of the Restricted Period from each donee, trustee, distributee, or transferee, as the case may be, (2) any such transfer shall not involve a disposition for value, (3) such transfers are not required to be reported with the Securities and Exchange Commission on Form 4 in accordance with Section 16 of the Securities Exchange Act of 1934, as amended (the Exchange Act), and (4) the undersigned does not otherwise voluntarily effect any public filing or report regarding such transfers (other than a Form 5 with respect to a bona fide gift or gifts that is filed no sooner than February 10, 2017): |
(a) as a bona fide gift or gifts; or
(b) by will or intestacy;
(c) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned (for purposes of this lock-up agreement, immediate family shall mean any relationship by blood, marriage or adoption, not more remote than first cousin);
(d) if the undersigned is a trust, to the trustor or beneficiary of such trust or to the estate of a beneficiary of such trust;
(e) as a distribution to limited partners, stockholders, members of, or owners of similar equity interests in the undersigned; or
(f) to the undersigneds affiliates or to any investment fund or other entity controlled or managed by the undersigned.
(ii) |
pursuant to a sale of shares of Common Stock of the Company purchased by the undersigned in the Offering or on the open market following the Offering; provided that |
(i) such sales are not required to be reported in any public report or filing with the Securities and Exchange Commission, or otherwise and (ii) the undersigned does not otherwise voluntarily effect any public filing or report regarding such sales; |
(iii) | pursuant to the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that (i) such plan does not provide for the transfer of Common Stock during the Restricted Period and (ii) the undersigned is not required to and does not voluntarily effect any public filing or report in connection therewith; |
(iv) | pursuant to the exercise of an option to purchase shares of Common Stock granted under any stock incentive plan of the Company described in the final prospectus relating to the Offering, including the surrender of shares of Common Stock to the Company in lieu of payment in cash of the exercise price and any tax withholding obligations due as a result of such exercise; provided that (i) the shares of Common Stock received by the undersigned upon exercise shall continue to be subject to the restrictions on transfer set forth in this lock-up agreement, (ii) such exercise is not required to be reported in any public report or filing with the Securities and Exchange Commission, or otherwise and (iii) the undersigned does not otherwise voluntarily effect any public filing or report regarding such exercise; |
(v) | pursuant to the transfer, sale, tender or other disposition of Common Stock to a bona fide third party pursuant to a tender offer for securities of the Company made to all stockholders of the Company, or any merger, consolidation, stock exchange or other business combination that results in all of the Companys stockholders having the right to exchange their Common Stock for cash, securities or other property, in each case that is approved by the independent members of the Board of Directors of the Company and involves a change in ownership of a majority of the voting capital stock of the Company; provided that in the event that the tender offer, merger, consolidation, stock exchange or other business combination is not completed, the Lock-Up Securities owned by the undersigned shall remain subject to the restrictions in this lock-up agreement; |
(vi) | to the Company pursuant to an agreement under which the Company has the option to repurchase shares or a right of first refusal with respect to transfer of such shares upon termination of service of the undersigned; and |
(vii) | pursuant to a court order or settlement agreement related to the distribution of assets in connection with the dissolution of marriage or civil union; provided that (i) any public disclosure or filing under the Exchange Act or otherwise that is required to be made during the Restricted Period as a result of such transfer shall include a statement that such transfer has occurred by operation of law and (ii) the Representatives receive a signed lock-up agreement for the balance of the Restricted Period from transferee and (iii) the undersigned does not otherwise voluntarily effect any public filing or report regarding such transfer. |
The restrictions set forth in this lock-up agreement shall not apply to the registration of the offer and sale of the Common Stock in the Offering, and the sale of the Common Stock to the Underwriters, in each case contemplated by the Underwriting Agreement, or the conversion of the outstanding Preferred Stock of the Company into Common Stock in connection with the consummation of the Offering, provided that the shares of Common Stock received upon conversion shall be subject to the restrictions in this lock-up agreement.
The undersigned also agrees and consents to the entry of stop transfer instructions with the Companys transfer agent and registrar against the transfer of the Lock-Up Securities except in compliance with the foregoing restrictions. The undersigned hereby agrees that, to the extent that the terms of this lock-up agreement conflict with or are in any way inconsistent with any registration rights agreement, any market standoff agreement or any other lock-up agreement related to the Common Stock to which the undersigned and the Company may be party, this lock-up agreement supersedes such registration rights agreement, market standoff agreement or other lock-up agreement.
This lock-up agreement shall automatically terminate, and the undersigned shall be released from its obligations hereunder, upon the earliest to occur, if any, of (1) the Company advises the Representatives in writing prior to the execution of the Underwriting Agreement that it has determined not to proceed with the Offering, (2) the Company withdraws the registration statement related to the Offering, (3) the Underwriting Agreement is executed but is terminated prior to the closing of the Offering or (4) September 30, 2016, in the event that the Underwriting Agreement has not been executed by such date.
Very truly yours, | ||
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Name of Securityholder (Print exact name) | ||
By: |
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Signature | ||
If not signing in an individual capacity: | ||
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Name of Authorized Signatory (Print ) | ||
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Title of Authorized Signatory (Print ) | ||
(indicate capacity of person signing if signing as custodian, trustee or on behalf of an entity) |
Exhibit B
FORM OF PRESS RELEASE
TO BE ISSUED PURSUANT TO SECTION 3([k])
AUDENTES THERAPEUTICS, INC.
[Date]
Audentes Therapeutics, Inc. (the Company) announced today that BofA Merrill Lynch, the lead book-running manager in the Companys recent public sale of [●] shares of common stock, is [waiving] [releasing] a lock-up restriction with respect to shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
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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CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
AUDENTES THERAPEUTICS, INC.
Audentes Therapeutics, Inc. (the Company ), a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the DGCL ), does hereby certify that the following amendment to the Companys Restated Certificate of Incorporation, filed with the Delaware Secretary of State on October 8, 2015 (the Current Certificate ), has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendment by the Companys stockholders having been given by written consent without a meeting in accordance with Sections 228(d) and 242 of the DGCL:
1. The following two paragraphs are hereby added to precede the first paragraph of Article IV of the Current Certificate:
Contingent and effective upon the filing of this Certificate of Amendment to the Restated Certificate of Incorporation (the Certificate of Amendment ), every 2.22977 outstanding shares of Common Stock and Preferred Stock will be combined into and automatically, without any further action by the Corporation or the stockholders thereof, become one outstanding share of Common Stock and Preferred Stock, respectively, of the Corporation (the Reverse Stock Split ). No fractional share shall be issued in connection with the foregoing combination of the shares pursuant to the Reverse Split. The Corporation will pay in cash the fair value of such fractional shares, without interest and as determined in good faith by the Board of Directors of the Corporation when those entitled to receive such fractional shares are determined.
The Reverse Stock Split shall occur automatically without any further action by the holders of Common Stock or Preferred Stock, and whether or not the certificates representing such shares have been surrendered to the Corporation; provided, however , that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock or Preferred Stock issuable as a result of the Reverse Stock Split unless the existing certificates evidencing the applicable shares of stock prior to the Reverse Stock Split are either delivered to the Corporation, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed, and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.
2. The foregoing amendment to the Current Certificate has been duly approved by the Companys Board of Directors in accordance with Sections 141 and 242 of the DGCL.
3. The foregoing amendment to Current Certificate has been duly approved by the Companys stockholders in accordance with Sections 228 and 242 of the DGCL.
4. This Certificate of Amendment shall be effective upon filing with the Delaware Secretary of State.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by its duly authorized officer this 7th day of July, 2016 and the foregoing facts stated herein are true and correct.
AUDENTES THERAPEUTICS, INC. | ||
By: | /s/ Matthew Patterson | |
Name: | Matthew Patterson | |
Title: | President and Chief Executive Officer |
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Exhibit 3.2
AUDENTES THERAPEUTICS, INC.
RESTATED CERTIFICATE OF INCORPORATION
Audentes Therapeutics, Inc., a Delaware corporation, hereby certifies as follows.
1. The name of the corporation is Audentes Therapeutics, Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was November 13, 2012 under the name Audentes Therapeutics, Inc.
2. The Restated Certificate of Incorporation of the corporation attached hereto as Exhibit A , which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation as previously amended or supplemented, has been duly adopted by the Board of Directors and by the stockholders in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the corporations stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this corporation has caused this Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct.
Dated: |
AUDENTES THERAPEUTICS, INC. | |||||||||
By: |
|
|||||||||
Name: | Matthew Patterson | |||||||||
Title: | President and Chief Executive Officer |
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EXHIBIT A
AUDENTES THERAPEUTICS, INC.
RESTATED CERTIFICATE OF INCORPORATION
ARTICLE I: NAME
The name of the corporation is Audentes Therapeutics, Inc. (the Corporation ).
ARTICLE II: AGENT FOR SERVICE OF PROCESS
The address of the Corporations registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808. The name of the registered agent of the Corporation at that address is Corporation Service Company.
ARTICLE III: PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV: AUTHORIZED STOCK
1. Total Authorized . The total number of shares of all classes of stock that the Corporation has authority to issue is Three Hundred and Ten Million (310,000,000) shares, consisting of two classes: Three Hundred Million (300,000,000) shares of Common Stock, $0.00001 par value per share ( Common Stock ), and Ten Million (10,000,000) shares of Preferred Stock, $0.00001 par value per share ( Preferred Stock ).
2. Designation of Additional Series.
2.1. The Board of Directors of the Corporation (the Board ) is authorized, subject to any limitations prescribed by the law of the State of Delaware, to provide for the issuance of the shares of Preferred Stock in one or more series, and, by filing a Certificate of Designation pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, to fix the designation, vesting, powers, preferences and relative, participating, optional or other rights, if any, of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series. The number of authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of two-thirds of the voting power of all the then-outstanding shares of capital stock of the Corporation entitled to vote thereon, without a vote of the holders of the Preferred Stock, unless a vote of any such holders is required pursuant to the terms of any certificate or certificates establishing a series of Preferred Stock.
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2.2 Except as otherwise expressly provided in any Certificate of Designation designating any series of Preferred Stock pursuant to the foregoing provisions of this Article IV, any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, the Preferred Stock or any future class or series of Preferred Stock or Common Stock.
2.3 Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided , however , that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock).
ARTICLE V: AMENDMENT OF BYLAWS
The Board shall have the power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board shall require the approval of a majority of the Whole Board. For purposes of this Certificate of Incorporation, the term Whole Board shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided , however , that in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation (including any Preferred Stock issued pursuant to a Certificate of Designation), the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation.
ARTICLE VI: MATTERS RELATING TO THE BOARD OF DIRECTORS
1. Director Powers . The conduct of the affairs of the Corporation shall be managed by or under the direction of the Board. In addition to the powers and authority expressly conferred upon them by applicable law or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
2. Number of Directors . Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors shall be fixed from time to time exclusively by resolution adopted by a majority of the Whole Board.
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3. Classified Board . Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided, with respect to the time for which they severally hold office, into three classes designated as Class I, Class II and Class III, respectively (the Classified Board ). The Board may assign members of the Board already in office to the Classified Board, which assignments shall become effective at the same time the Classified Board becomes effective. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board, with the number of directors in each class to be divided as nearly equal as reasonably possible. The initial term of office of the Class I directors shall expire at the Corporations first annual meeting of stockholders following the closing of the Corporations initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, relating to the offer and sale of Common Stock to the public (the Initial Public Offering ), the initial term of office of the Class II directors shall expire at the Corporations second annual meeting of stockholders following the closing of the Initial Public Offering and the initial term of office of the Class III directors shall expire at the Corporations third annual meeting of stockholders following the closing of the Initial Public Offering. At each annual meeting of stockholders following the closing of the Initial Public Offering, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election.
4. Term and Removal . Each director shall hold office until such directors successor is elected and qualified, or until such directors earlier death, resignation or removal. Any director may resign at any time upon notice to the Corporation given in writing or by any electronic transmission permitted in the Corporations Bylaws. Subject to the rights of the holders of any series of Preferred Stock, no director may be removed except for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of the then-outstanding shares of capital stock of the Corporation then entitled to vote at an election of directors voting together as a single class. No decrease in the authorized number of directors constituting the Board shall shorten the term of any incumbent director.
5. Board Vacancies . Subject to the rights of the holders of any series of Preferred Stock, any vacancy occurring in the Board for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall, unless (a) the Board determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders or (b) as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which the director has been assigned expires or until such directors successor shall have been duly elected and qualified, or until such directors earlier death, resignation or removal.
6. Vote by Ballot . Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
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ARTICLE VII: DIRECTOR LIABILITY
1. Limitation of Liability . To the fullest extent permitted by law, no director of the Corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
2. Change in Rights . Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision.
ARTICLE VIII: MATTERS RELATING TO STOCKHOLDERS
1. No Action by Written Consent of Stockholders . Subject to the rights of any series of Preferred Stock, no action shall be taken by the stockholders of the Corporation except at a duly called annual or special meeting of stockholders and no action shall be taken by the stockholders by written consent.
2. Special Meeting of Stockholders . Special meetings of the stockholders of the Corporation may be called only by the Chairperson of the Board, the Chief Executive Officer, the President or the Board acting pursuant to a resolution adopted by a majority of the Whole Board.
3. Advance Notice of Stockholder Nominations and Stockholder-Proposed Business; Business Transacted at Special Meetings . Advance notice of stockholder nominations for the election of directors of the Corporation and of business to be brought by stockholders before any meeting of stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. Business transacted at special meetings of stockholders shall be confined to the purpose or purposes stated in the notice of meeting.
ARTICLE IX: CHOICE OF FORUM
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporations stockholders; (c) any action asserting a claim against the Corporation arising pursuant to any provision of the Delaware General Corporation Law, this Certificate of Incorporation or the Bylaws; (d) any action to interpret, apply, enforce or determine the validity of this Certificate of Incorporation or the Bylaws; or (e) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article IX.
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ARTICLE X: AMENDMENT OF CERTIFICATE OF INCORPORATION
If any provision of this Certificate of Incorporation becomes or is declared on any ground by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Certificate of Incorporation, and the court will replace such illegal, void or unenforceable provision of this Certificate of Incorporation with a valid and enforceable provision that most accurately reflects the Corporations intent, in order to achieve, to the maximum extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Certificate of Incorporation shall be enforceable in accordance with its terms.
The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided , however , that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article X or Article V, Article VI, Article VII or Article VIII.
* * * * * * * * * * *
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Exhibit 3.4
AUDENTES THERAPEUTICS, INC.,
a Delaware Corporation
AMENDED AND RESTATED BYLAWS
As Adopted , 2016
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AUDENTES THERAPEUTICS, INC.,
a Delaware Corporation
AMENDED AND RESTATED BYLAWS
TABLE OF CONTENTS
Article I - STOCKHOLDERS |
1 | |||||
Section 1.1: |
Annual Meetings | 1 | ||||
Section 1.2: |
Special Meetings | 1 | ||||
Section 1.3: |
Notice of Meetings | 1 | ||||
Section 1.4: |
Adjournments | 1 | ||||
Section 1.5: |
Quorum | 2 | ||||
Section 1.6: |
Organization | 2 | ||||
Section 1.7: |
Voting; Proxies | 2 | ||||
Section 1.8: |
Fixing Date for Determination of Stockholders of Record | 2 | ||||
Section 1.9: |
List of Stockholders Entitled to Vote | 3 | ||||
Section 1.10: |
Inspectors of Elections | 3 | ||||
Section 1.11: |
Notice of Stockholder Business; Nominations | 4 | ||||
Article II - BOARD OF DIRECTORS | 7 | |||||
Section 2.1: |
Number; Qualifications | 7 | ||||
Section 2.2: |
Election; Resignation; Removal; Vacancies | 7 | ||||
Section 2.3: |
Regular Meetings | 7 | ||||
Section 2.4: |
Special Meetings | 7 | ||||
Section 2.5: |
Remote Meetings Permitted | 8 | ||||
Section 2.6: |
Quorum; Vote Required for Action | 8 | ||||
Section 2.7: |
Organization | 8 | ||||
Section 2.8: |
Written Action by Directors | 8 | ||||
Section 2.9: |
Powers | 8 | ||||
Section 2.10: |
Compensation of Directors | 8 | ||||
Article III - COMMITTEES | 8 | |||||
Section 3.1: |
Committees | 8 | ||||
Section 3.2: |
Committee Rules | 9 | ||||
Article IV - OFFICERS | 9 | |||||
Section 4.1: |
Generally | 9 | ||||
Section 4.2: |
Chief Executive Officer | 9 | ||||
Section 4.3: |
Chairperson of the Board | 10 | ||||
Section 4.4: |
President | 10 | ||||
Section 4.5: |
Vice President | 10 |
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Section 4.6: |
Chief Financial Officer | 10 | ||
Section 4.7: |
Treasurer | 10 | ||
Section 4.8: |
Secretary | 11 | ||
Section 4.9: |
Delegation of Authority | 11 | ||
Section 4.10: |
Removal | 11 | ||
Article V - STOCK | 11 | |||
Section 5.1: |
Certificates | 11 | ||
Section 5.2: |
Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares | 11 | ||
Section 5.3: |
Other Regulations | 12 | ||
Article VI - INDEMNIFICATION | 12 | |||
Section 6.1: |
Indemnification of Officers and Directors | 12 | ||
Section 6.2: |
Advancement of Expenses | 12 | ||
Section 6.3: |
Non-Exclusivity of Rights | 13 | ||
Section 6.4: |
Indemnification Contracts | 13 | ||
Section 6.5: |
Right of Indemnitee to Bring Suit | 13 | ||
Section 6.6: |
Nature of Rights | 14 | ||
Section 6.7: |
Insurance | 14 | ||
Article VII - NOTICES | 14 | |||
Section 7.1: |
Notice | 14 | ||
Section 7.2: |
Waiver of Notice | 15 | ||
Article VIII - INTERESTED DIRECTORS | 15 | |||
Section 8.1: |
Interested Directors | 15 | ||
Section 8.2: |
Quorum | 16 | ||
Article IX MISCELLANEOUS | 16 | |||
Section 9.1: |
Fiscal Year | 16 | ||
Section 9.2: |
Seal | 16 | ||
Section 9.3: |
Form of Records | 16 | ||
Section 9.4: |
Reliance Upon Books and Records | 16 | ||
Section 9.5: |
Certificate of Incorporation Governs | 16 | ||
Section 9.6: |
Severability | 16 | ||
Article X - AMENDMENT | 17 |
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AUDENTES THERAPEUTICS, INC.,
a Delaware Corporation
AMENDED AND RESTATED BYLAWS
As Adopted , 2016
ARTICLE I: STOCKHOLDERS
Section 1.1 : Annual Meetings . An annual meeting of stockholders shall be held for the election of directors at such date and time as the Board of Directors of the Corporation (the Board ) shall each year fix. The meeting may be held either at a place, within or without the State of Delaware as permitted by the Delaware General Corporation Law (the DGCL ), or by means of remote communication as the Board in its sole discretion may determine. Any proper business may be transacted at the annual meeting.
Section 1.2 : Special Meetings . Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President or the Board acting pursuant to a resolution adopted by a majority of the Whole Board , which shall mean the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships. Special meetings may not be called by any other person or persons. The special meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine.
Section 1.3 : Notice of Meetings . Notice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided by law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation (the Certificate of Incorporation ), such notice shall be given not less than ten (10), nor more than sixty (60), days before the date of the meeting to each stockholder of record entitled to vote at such meeting.
Section 1.4 : Adjournments . The chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any). Any meeting of stockholders may adjourn from time to time, and notice need not be given of any such adjourned meeting if the time, date and place (if any) thereof and the means of remote communications (if any) by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided , however , that if the adjournment is for more than thirty (30) days, or if a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. To the fullest extent permitted by law, the Board may postpone or reschedule any previously scheduled special or annual meeting of stockholders before it is to be held, in which case notice shall be provided to the stockholders of the new date, time and place, if any, of the meeting as provided in Section 1.3 above.
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Section 1.5 : Quorum . At each meeting of stockholders the holders of a majority of the voting power of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, unless otherwise required by applicable law. Where a separate vote by a class or classes or series is required, a majority of the voting power of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the 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 1.10 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such 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 may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes cast. Unless otherwise provided by applicable law, the rules of any stock exchange upon which the Corporations securities are listed, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by a majority of the votes cast for or against the matter.
Section 1.8 : Fixing Date for Determination of Stockholders of Record . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, unless otherwise required by law, the Board may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which shall not be more than sixty (60), nor less than ten (10), days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed by the Board, then the record date shall be as provided by applicable law. To the fullest extent permitted by law, a determination of stockholders of
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record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for the adjourned meeting.
Section 1.9 : List of Stockholders Entitled to Vote . A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either on a reasonably accessible electronic network as permitted by law (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the principal place of business of the Corporation. If the meeting is held at a location where stockholders may attend in person, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. If the meeting is held solely by means of remote communication, then the list shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of the meeting.
Section 1.10 : Inspectors of Elections .
1.10.1 Applicability . Unless otherwise required by the Certificate of Incorporation or by the DGCL, the following provisions of this Section 1.10 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions of this Section 1.10 shall be optional, and at the discretion of the Board.
1.10.2 Appointment . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.
1.10.3 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.
1.10.4 Duties of Inspectors . At a meeting of stockholders, the inspectors of election shall (a) ascertain the number of shares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
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1.10.5 Opening and Closing of Polls . The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
1.10.6 Determinations . In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with any information provided pursuant to Section 211(a)(2)(b)(i) or (iii) of the DGCL, or Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.10 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors belief that such information is accurate and reliable.
Section 1.11: Notice of Stockholder Business; Nominations .
1.11.1 Annual Meeting of Stockholders .
(a) Nominations of persons for election to the Board and the proposal of business to be considered by the stockholders shall be made at an annual meeting of stockholders (i) pursuant to the Corporations notice of such meeting, (ii) by or at the direction of the Board or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.11, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 1.11. For the avoidance of doubt, the foregoing clause (iii) shall be the exclusive means for a stockholder to make nominations or propose business (other than business included in the Corporations proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (such act, and the rules and regulations promulgated thereunder, the Exchange Act )), at an annual meeting of stockholders.
(b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 1.11.1(a):
(i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation;
(ii) such other business must otherwise be a proper matter for stockholder action;
(iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice, as that term is defined in this Section, such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporations voting shares required under applicable law to carry any
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such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporations voting shares reasonably believed by such stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice; and
(iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section.
To be timely, a stockholders notice must be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the seventy-fifth (75th) day nor earlier than the close of business on the one hundred and fifth (105th) day prior to the first anniversary of the preceding years annual meeting (except in the case of the Corporations first annual meeting following its initial public offering, for which such notice shall be timely if delivered in the same time period as if such meeting were a special meeting governed by Section 1.11.2); provided , however , that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered (A) no earlier than the close of business on the one hundred and fifth (105th) day prior to currently proposed annual meeting and (B) no later than the close of business on the later of the seventy-fifth (75th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which Public Announcement of the date of such meeting is first made by the Corporation. Such stockholders notice shall set forth:
(x) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors, or would be otherwise required, in each case pursuant to Regulation 14A under the Exchange Act, including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected;
(y) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and
(z) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (aa) the name and address of such stockholder, as they appear on the Corporations books, and of such beneficial owner, (bb) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner, (cc) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, (dd) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, stock appreciation or similar rights,
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hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholders notice by, or on behalf of, such stockholder and such beneficial owners, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to shares of stock of the Corporation, (ee) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination and (ff) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporations voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporations voting shares to elect such nominee or nominees (an affirmative statement of such intent being a Solicitation Notice ). If requested by the Corporation, the information required under clauses (bb), (cc) and (dd) of this subparagraph (z) shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such information as of the record date.
(c) Notwithstanding anything in the second sentence of Section 1.11.1(b) to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no Public Announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least seventy five (75) days prior to the first anniversary of the preceding years annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy five (75) days prior to such annual meeting), a stockholders notice required by this Section 1.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation no later than the close of business on the tenth (10th) day following the day on which such Public Announcement is first made by the Corporation.
1.11.2 Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of such meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of such meeting (a) by or at the direction of the Board or (b) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporations notice of meeting, if the stockholders notice required by Section 1.11.1(b) shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation (i) no earlier than the one hundred fifth (105th) day prior to such special meeting and (ii) no later than the close of business on the later of the seventy fifth (75th) day prior to such special meeting or the tenth (10th) day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting.
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1.11.3 General .
(a) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.11. Except as otherwise provided by law or these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.11 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded.
(b) For purposes of this Section 1.11, the term Public Announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(c) Notwithstanding the foregoing provisions of this Section 1.11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II: BOARD OF DIRECTORS
Section 2.1 : Number; Qualifications . The Board shall consist of one or more members. The number of directors shall be fixed from time to time as set forth in the Certificate of Incorporation. No decrease in the authorized number of directors constituting the Board shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation.
Section 2.2 : Election; Resignation; Removal; Vacancies . The directors shall be divided, with respect to the time for which they severally hold office, into classes as provided in the Certificate of Incorporation, and vacancies occurring in the Board and any newly created directorships resulting from any increase in the authorized number of directors shall be filled, as provided in the Certificate of Incorporation.
Section 2.3 : Regular Meetings . Regular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as the Board may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board.
Section 2.4 : Special Meetings . Special meetings of the Board may be called by the Chairperson of the Board, the Chief Executive Officer, 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
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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 . Subject to the Certificate of Incorporation regarding the ability of members of the Board to fill a vacancy occurring in the Board, a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time without further notice thereof. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board.
Section 2.7 : Organization . Meetings of the Board shall be presided over by the Chairperson of the Board, or in such persons absence by the Chief Executive Officer, 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.
Section 2.8 : Written Action by Directors . Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee, respectively, in the minute books of the Corporation. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 2.9: Powers . The Board may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and manage and direct all such acts and things as may be exercised or done by the Corporation.
Section 2.10 : Compensation of Directors . Members of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board.
ARTICLE III: COMMITTEES
Section 3.1 : Committees . The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the
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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 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;
(d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation; and
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(e) To vote and otherwise act on, or to authorize any officer to vote or otherwise act on, on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise, or authorize any officer otherwise to exercise, any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.
The President shall be the Chief Executive Officer of the Corporation unless the Board shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board has not designated any other officer to be the Chief Executive Officer, then the Chairperson of the Board shall be the Chief Executive Officer.
Section 4.3 : Chairperson of the Board . The Chairperson of the Board shall have the power to preside at all meetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time to time prescribe.
Section 4.4 : President . The Chief Executive Officer shall be the President of the Corporation unless the Board shall have designated one individual as the President and a different individual as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board to the Chairperson of the Board, and/or to any other officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board.
Section 4.5 : Vice President . Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive 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.
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Section 4.8 : Secretary . The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or the Chief Executive Officer may from time to time prescribe.
Section 4.9 : Delegation of Authority . The Board may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
Section 4.10 : Removal . Any officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or without cause, by the Board; provided that if the Board has empowered the Chief Executive Officer to appoint any Vice Presidents of the Corporation, then such Vice Presidents may be removed by the Chief Executive Officer. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.
ARTICLE V: STOCK
Section 5.1 : Certificates . The shares of capital stock of the Corporation shall be represented by certificates; provided, however, that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock may be uncertificated shares. Notwithstanding the adoption of such resolution by the Board, each holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairperson or Vice-Chairperson of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
Section 5.2 : Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares . The Corporation may issue a new certificate of stock, or uncertificated shares, in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such 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.
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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 proceeding, whether civil, criminal, administrative or investigative (a Proceeding ), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was a member of the Board or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor as a member of the board of directors, officer or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an Indemnitee ), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the DGCL as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe the 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. To the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described in this Section 6.1 or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith.
Section 6.2 : Advancement of Expenses . Except as otherwise provided in a written indemnification agreement between the Corporation and an Indemnitee upon written request, the Corporation shall pay all expenses (including attorneys fees) incurred by such an Indemnitee in defending any such Proceeding as they are incurred in advance of its final disposition; provided , however , that if the DGCL then so requires, the payment of such expenses incurred by such Indemnitee in advance of the final disposition of such Proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all amounts so advanced if it should be determined ultimately by final judicial decision from which there is no appeal that such Indemnitee is not entitled to be indemnified under this Article VI or
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otherwise. Such expenses (including attorneys fees) incurred by former directors and officers or other employees and agents of the Corporation or by persons serving at the request of the Corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate. The right to advancement of expenses shall not apply to any claim for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding referenced in Section 6.1 prior to a determination that the person is not entitled to be indemnified by the Corporation.
Section 6.3: Non-Exclusivity of Rights . The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.
Section 6.4 : Indemnification Contracts . The Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, that provide indemnification or advancement rights to such person. Such rights may be greater than those provided in this Article VI.
Section 6.5: Right of Indemnitee to Bring Suit . The following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 above.
6.5.1 Right to Bring Suit . If a claim under Section 6.1 or 6.2 of this Article VI is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Indemnitee has not met any applicable standard for indemnification set forth in applicable law.
6.5.2 Effect of Determination . Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in applicable law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit.
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6.5.3 Burden of Proof . In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI, or otherwise, shall be on the Corporation.
Section 6.6 : Nature of Rights . The rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitees heirs, executors and administrators. Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of an Indemnitee or an 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.
Section 6.7: Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of the DGCL.
ARTICLE VII: NOTICES
Section 7.1 : Notice .
7.1.1 Form and Delivery . Except as otherwise specifically required in these Bylaws (including, without limitation, Section 7.1.2 below) or by law, all notices required to be given pursuant to these Bylaws shall be in writing and may, (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, cablegram, overnight express courier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively delivered to a stockholder when given by hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by the stockholder as described in Section 7.1.2 of this Article VII by sending such notice by telegram, cablegram, facsimile, electronic mail or other form of electronic transmission. Any such notice shall be addressed to the person to whom notice is to be given at such 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.
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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.
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
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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, 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, Records and Experts . 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.
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ARTICLE X: AMENDMENT
Notwithstanding any other provision of these Bylaws, any amendment or repeal of these Bylaws, or adoption of Bylaws, shall require the approval of the Board or the stockholders of the Corporation as provided in the Certificate of Incorporation.
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Exhibit 5.1
July 11, 2016
Audentes Therapeutics, Inc.
101 Montgomery Street, Suite 2650
San Francisco, California 94104
Gentlemen and Ladies:
At your request, we have examined the Registration Statement on Form S-1 (File Number 333-208842) filed by Audentes Therapeutics, Inc., a Delaware corporation (the Company ), with the Securities and Exchange Commission on January 4, 2016, as amended (the Registration Statement ) in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 5,750,000 shares of the Companys Common Stock (the Stock ).
In rendering this opinion, we have examined such matters of fact as we have deemed necessary in order to render the opinion set forth herein, which included examination of the following:
(1) | the Companys Restated Certificate of Incorporation, as amended, certified by the Delaware Secretary of State on October 8, 2015 (the Restated Certificate ) and the Restated Certificate of Incorporation that the Company intends to file and that will be effective upon the consummation of the sale of the Stock (the Post-Effective Restated Certificate ); |
(2) | the Companys Amended and Restated Bylaws, adopted by the Companys Board of Directors (the Board ) on July 16, 2013 (the Restated Bylaws ) and the Amended and Restated Bylaws that the Company has adopted in connection with, and that will be effective upon the consummation of the sale of the Stock (the Post-Effective Bylaws ); |
(3) | the Registration Statement, together with the Exhibits filed as a part thereof or incorporated therein by reference; |
(4) | the prospectus prepared in connection with the Registration Statement (the Prospectus ); |
(5) | minutes of meetings and actions by written consent of the Board and the Companys stockholders (the Stockholders ) at which, or pursuant to which, the Restated Certificate, the Post-Effective Restated Certificate, the Restated Bylaws and the Post-Effective Bylaws were approved; |
(6) | minutes of meetings and actions by written consent of the Board and Stockholders at which, or pursuant to which, the sale and issuance of the Stock and related matters were approved; |
(7) | the stock records for the Company (consisting of a list of Stockholders and a list of the Companys option holders and of any rights to purchase capital stock, each dated July 6, 2016, verifying the number of such issued and outstanding securities); |
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(8) | a Certificate of Good Standing issued by the Delaware Secretary of State dated July 8, 2016, stating that the Company is qualified to do business and is in good standing under the laws of the State of Delaware (the Certificate of Good Standing ); |
(9) | a Management Certificate addressed to us and dated of even date herewith executed by the Company containing certain factual representations (the Management Certificate ); and |
(10) | the underwriting agreement to be entered into by and among the Company and the several Underwriters named in Schedule A thereto. |
In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal capacity of all persons or entities executing the same and the lack of any undisclosed termination, modification, waiver or amendment to any document referenced in clauses (5) and (6) above to us.
We render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing laws of the United States of America and of the Delaware General Corporation Law and reported judicial decisions relating thereto.
In connection with our opinion expressed in paragraph (2) below, we have assumed that, at or prior to the time of the delivery of any shares of Stock, the Registration Statement will have been declared effective under the Securities Act of 1933, as amended, that the registration will apply to such shares of Stock and will not have been modified or rescinded and that there will not have occurred any change in law affecting the validity of the issuance of such shares of Stock.
Based upon the foregoing, we are of the following opinion:
(1) the Company is a corporation validly existing, in good standing, under the laws of the State of Delaware; and
(2) the up to 5,750,000 shares of Stock to be issued and sold by the Company, when issued, sold and delivered in the manner and for the consideration stated in the Registration Statement and the Prospectus and in accordance with the resolutions adopted by the Board and to be adopted by the Pricing Committee of the Board, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement, the Prospectus constituting a part thereof and any amendments thereto.
This opinion is intended solely for use in connection with the sale of shares subject to the Registration Statement and is not to be relied upon for any other purpose. This opinion is rendered as of the date first written above and based solely on our understanding of facts in existence as of such date after the aforementioned examination. We assume no obligation to advise you of any fact, circumstance, event or change in the law subsequent to the date of effectiveness of the Registration Statement or the facts that may thereafter be brought to our attention whether or not such occurrence would affect or modify the opinions expressed herein.
Very truly yours, |
/s/ Fenwick & West LLP |
FENWICK & WEST LLP |
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Exhibit 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of , 2016 is made by and between Audentes Therapeutics, Inc., a Delaware corporation (the Company ), and , a director, officer or key employee of the Company or one of the Companys subsidiaries or other service provider who satisfies the definition of Indemnifiable Person set forth below ( Indemnitee ).
RECITALS
A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as representatives of corporations unless they are protected by comprehensive liability insurance and indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no relationship to the compensation of such representatives;
B. The members of the Board of Directors of the Company (the Board ) have concluded that to retain and attract talented and experienced individuals to serve as representatives of the Company and its Subsidiaries and Affiliates and to encourage such individuals to take the business risks necessary for the success of the Company and its Subsidiaries and Affiliates, it is necessary for the Company to contractually indemnify certain of its representatives and the representatives of its Subsidiaries and Affiliates, and to assume for itself maximum liability for Expenses and Other Liabilities in connection with claims against such representatives in connection with their service to the Company and its Subsidiaries and Affiliates;
C. Section 145 of the Delaware General Corporation Law ( Section 145 ), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises, and expressly provides that the indemnification provided thereby is not exclusive; and
D. The Company desires and has requested Indemnitee to serve or continue to serve as a representative of the Company and/or the Subsidiaries or Affiliates of the Company free from undue concern about inappropriate claims for damages arising out of or related to such services to the Company and/or the Subsidiaries or Affiliates of the Company.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions .
(a) Affiliate . For purposes of this Agreement, Affiliate of the Company means any corporation, partnership, limited liability company, joint venture, trust or other enterprise in respect of which Indemnitee is or was or will be serving as a director, officer, trustee,
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manager, member, partner, employee, agent, attorney, consultant, member of the entitys governing body (whether constituted as a board of directors, board of managers, general partner or otherwise), fiduciary, or in any other similar capacity at the request, election or direction of the Company, and including, but not limited to, any employee benefit plan of the Company or a Subsidiary or Affiliate of the Company.
(b) Change in Control . For purposes of this Agreement, Change in Control means (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a Subsidiary or a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Subsidiary, is or becomes the Beneficial Owner (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Companys then outstanding capital stock or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the outstanding capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into capital stock of the surviving entity) at least 80% of the total voting power represented by the capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Companys assets.
(c) Expenses . For purposes of this Agreement, Expenses means all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys fees and related disbursements, and other out-of-pocket costs), paid or incurred by Indemnitee in connection with either the investigation, defense or appeal of, or being a witness in, a Proceeding, or establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise; provided, however, that Expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a Proceeding.
(d) Indemnifiable Event . For purposes of this Agreement, Indemnifiable Event means any event or occurrence related to Indemnitees service for the Company or any Subsidiary or Affiliate as an Indemnifiable Person (as defined below), or by reason of anything done or not done, or any act or omission, by Indemnitee in any such capacity.
(e) Indemnifiable Person . For the purposes of this Agreement, Indemnifiable Person means any person who is or was a director, officer, trustee, manager, member, partner, employee, attorney, consultant, member of an entitys governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of the Company or a Subsidiary or Affiliate of the Company.
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(f) Independent Counsel . For purposes of this Agreement, Independent Counsel means legal counsel that has not performed services for the Company or Indemnitee in the five years preceding the time in question and that would not, under applicable standards of professional conduct, have a conflict of interest in representing either the Company or Indemnitee.
(g) Independent Director . For purposes of this Agreement, Independent Director means a member of the Board who is not a party to the Proceeding for which a claim is made under this Agreement.
(h) Other Liabilities . For purposes of this Agreement, Other Liabilities means any and all liabilities of any type whatsoever (including, but not limited to, judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties, and amounts paid in settlement and all interest, taxes, assessments and other charges paid or payable in connection with or in respect of any such judgments, fines, ERISA (or other benefit plan related) excise taxes or penalties, or amounts paid in settlement).
(i) Proceeding . For the purposes of this Agreement, Proceeding means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative, legislative or any other type whatsoever, preliminary, informal or formal, including any arbitration or other alternative dispute resolution and including any appeal of any of the foregoing.
(j) Subsidiary . For purposes of this Agreement, Subsidiary means any entity of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company.
2. Agreement to Serve . The Indemnitee agrees to serve and/or continue to serve as an Indemnifiable Person in the capacity or capacities in which Indemnitee currently serves the Company as an Indemnifiable Person, and any additional capacity in which Indemnitee may agree to serve, until such time as Indemnitees service in a particular capacity shall end according to the terms of an agreement, the Companys Certificate of Incorporation or Bylaws, governing law, or otherwise. Nothing contained in this Agreement is intended to create any right to continued employment or other form of service for the Company or a Subsidiary or Affiliate of the Company by Indemnitee.
3. Mandatory Indemnification .
(a) Agreement to Indemnify . In the event Indemnitee is a person who was or is a party to or witness in or is threatened to be made a party to or witness in any Proceeding by reason of an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses and Other Liabilities incurred by Indemnitee in connection with (including in preparation for) such Proceeding to the fullest extent not prohibited by the Delaware General Corporation Law ( DGCL ), as the same may be amended from time to time (but only to the extent that such amendment permits the Company to provide broader indemnification rights than the DGCL permitted prior to the adoption of such amendment).
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(b) Exception for Amounts Covered by Insurance and Other Sources . Notwithstanding the foregoing, the Company shall not be obligated to indemnify Indemnitee for Expenses or Other Liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to Indemnitee (or paid directly to a third party on Indemnitees behalf) by any directors and officers, or other type, of insurance maintained by the Company.
(c) Company Obligations Primary . The Company hereby acknowledges that Indemnitee may have rights to indemnification for Expenses and Other Liabilities provided by [name of VC or other sponsoring organization ( Other Indemnitor )]. The Company agrees with Indemnitee that the Company is the indemnitor of first resort of Indemnitee with respect to matters for which indemnification is provided under this Agreement and that the Company will be obligated to make all payments due to or for the benefit of Indemnitee under this Agreement without regard to any rights that Indemnitee may have against the Other Indemnitor. The Company hereby waives any equitable rights to contribution or indemnification from the Other Indemnitor in respect of any amounts paid to Indemnitee hereunder. The Company further agrees that no reimbursement of Other Liabilities or payment of Expenses by the Other Indemnitor to or for the benefit of Indemnitee shall affect the obligations of the Company hereunder, and that the Company shall be obligated to repay the Other Indemnitor for all amounts so paid or reimbursed to the extent that the Company has an obligation to indemnify Indemnitee for such Expenses or Other Liabilities hereunder.
4. Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses or Other Liabilities but not entitled, however, to indemnification for the total amount of such Expenses or Other Liabilities, the Company shall nevertheless indemnify Indemnitee for such total amount except as to the portion thereof for which indemnification is prohibited by the provisions of the DGCL. In any review or Proceeding to determine the extent of indemnification, the Company shall bear the burden to establish, by clear and convincing evidence, the lack of a successful resolution of a particular claim, issue or matter and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved.
5. Liability Insurance . So long as Indemnitee shall continue to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding as a result of an Indemnifiable Event, the Company shall use reasonable efforts to maintain in full force and effect for the benefit of Indemnitee as an insured (i) liability insurance issued by one or more reputable insurers and having the policy amount and deductible deemed appropriate by the Board and providing in all respects coverage at least comparable to and in the same amount as that provided to the Chairman of the Board or the Chief Executive Officer of the Company and (ii) any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that being provided to the Chairman of the Board or the Chief Executive Officer of the Company. The purchase, establishment and maintenance of any such insurance or other arrangements shall not in any way limit or affect the rights and obligations of the Company or of Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and Indemnitee shall not in any way limit or affect the rights and obligations of the
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Company or the other party or parties thereto under any such insurance or other arrangement. In the event of a Change in Control subsequent to the date of this Agreement, or the Companys becoming insolvent, including being placed into receivership or entering the federal bankruptcy process, the Company shall maintain in force any directors and officers liability insurance policies then maintained by the Company in providing insurance in respect of Indemnitee, for a period of six years thereafter.
6. Mandatory Advancement of Expenses . If requested by Indemnitee, the Company shall advance prior to the final disposition of the Proceeding all Expenses reasonably incurred by Indemnitee in connection with (including in preparation for) a Proceeding related to an Indemnifiable Event. Indemnitee hereby undertakes to repay such amounts advanced if, and only if and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the DGCL, and no additional form of undertaking with respect to such obligation to repay shall be required. The advances to be made hereunder shall be paid by the Company to Indemnitee or directly to a third party designated by Indemnitee within thirty (30) days following delivery of a written request therefor by Indemnitee to the Company. Indemnitees undertaking to repay any Expenses advanced to Indemnitee hereunder shall be unsecured and shall not be subject to the accrual or payment of any interest thereon. In the event that Indemnitees request for the advancement of Expenses shall be accompanied by an affidavit of counsel to Indemnitee to the effect that such counsel has reviewed such Expenses and that such Expenses are reasonable in such counsels view, then such Expenses shall be deemed reasonable in the absence of clear and convincing evidence to the contrary.
7. Notice and Other Indemnification Procedures .
(a) Notification . Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any Proceeding, Indemnitee shall, if Indemnitee believes that indemnification or advancement of Expenses with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. However, a failure so to notify the Company promptly following Indemnitees receipt of such notice shall not relieve the Company from any liability that it may have to Indemnitee except to the extent that the Company is materially prejudiced in its defense of such Proceeding as a result of such failure.
(b) Insurance and Other Matters . If, at the time of the receipt of a notice of the commencement of a Proceeding pursuant to Section 7(a) above, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such insurance policies.
(c) Assumption of Defense . In the event the Company shall be obligated to advance the Expenses for any Proceeding against Indemnitee, the Company, if deemed appropriate by the Company, shall be entitled to assume the defense of such Proceeding as provided herein. Such defense by the Company may include the representation of two or more
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parties by one attorney or law firm as permitted under the ethical rules and legal requirements related to joint representations. Following delivery of written notice to Indemnitee of the Companys election to assume the defense of such Proceeding, the approval by Indemnitee (which approval shall not be unreasonably withheld) of counsel designated by the Company and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees and expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. If (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have notified the Board in writing that Indemnitee has reasonably concluded that there is likely to be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company fails to employ counsel to assume the defense of such Proceeding, the fees and expenses of Indemnitees counsel shall be subject to indemnification and/or advancement pursuant to the terms of this Agreement. Nothing herein shall prevent Indemnitee from employing counsel for any such Proceeding at Indemnitees expense.
(d) Settlement . The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Companys written consent; provided, however, that if a Change in Control has occurred subsequent to the date of this Agreement, the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. Neither the Company nor any Subsidiary or Affiliate shall enter into a settlement of any Proceeding that might result in the imposition of any Expense, Other Liability, penalty, limitation or detriment on Indemnitee, whether indemnifiable under this Agreement or otherwise, without Indemnitees written consent. Neither the Company nor Indemnitee shall unreasonably withhold consent from any settlement of any Proceeding. The Company shall promptly notify Indemnitee upon the Companys receipt of an offer to settle, or if the Company makes an offer to settle, any Proceeding, and provide Indemnitee with a reasonable amount of time to consider such settlement, in the case of any such settlement for which the consent of Indemnitee would be required hereunder. The Company shall not, on its own behalf, settle any part of any Proceeding to which Indemnitee is a party with respect to other parties (including the Company) without the written consent of Indemnitee if any portion of the settlement is to be funded from insurance proceeds unless approved by a majority of the Independent Directors, provided that this sentence shall cease to be of any force and effect if it has been determined in accordance with this Agreement that Indemnitee is not entitled to indemnification hereunder with respect to such Proceeding or if the Companys obligations hereunder to Indemnitee with respect to such Proceeding have been fully discharged.
8. Determination of Right to Indemnification .
(a) Success on the Merits or Otherwise . To the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Section 3(a) above or in the defense of any claim, issue or matter described therein, the Company shall indemnify Indemnitee against Expenses actually and reasonably incurred in connection therewith.
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(b) Indemnification in Other Situations . In the event that Section 8(a) is inapplicable, the Company shall also indemnify Indemnitee if Indemnitee has not failed to meet the applicable standard of conduct for indemnification.
(c) Forum . Indemnitee shall be entitled to select the forum in which determination of whether or not Indemnitee has met the applicable standard of conduct shall be decided, and such election will be made from among the following:
a. Those members of the Board who are Independent Directors even though less than a quorum;
b. A committee of Independent Directors designated by a majority vote of Independent Directors, even though less than a quorum; or
c. Independent Counsel selected by Indemnitee and approved by the Board, which approval may not be unreasonably withheld, which counsel shall make such determination in a written opinion.
If Indemnitee is an officer or a director of the Company at the time that Indemnitee is selecting the forum, then Indemnitee shall not select Independent Counsel as such forum unless there are no Independent Directors or unless the Independent Directors agree to the selection of Independent Counsel as the forum.
The selected forum shall be referred to herein as the Reviewing Party. Notwithstanding the foregoing, following any Change in Control subsequent to the date of this Agreement, the Reviewing Party shall be Independent Counsel selected in the manner provided in c. above.
(d) As soon as practicable, and in no event later than thirty (30) days after receipt by the Company of written notice of Indemnitees choice of forum pursuant to Section 8(c) above, the Company and Indemnitee shall each submit to the Reviewing Party such information as they believe is appropriate for the Reviewing Party to consider. The Reviewing Party shall arrive at its decision within a reasonable period of time following the receipt of all such information from the Company and Indemnitee, but in no event later than thirty (30) days following the receipt of all such information, provided that the time by which the Reviewing Party must reach a decision may be extended by mutual agreement of the Company and Indemnitee. All Expenses associated with the process set forth in this Section 8(d), including but not limited to the Expenses of the Reviewing Party, shall be paid by the Company.
(e) Delaware Court of Chancery . Notwithstanding a final determination by any Reviewing Party that Indemnitee is not entitled to indemnification with respect to a specific Proceeding, Indemnitee shall have the right to apply to the Court of Chancery, for the purpose of enforcing Indemnitees right to indemnification pursuant to this Agreement.
(f) Expenses . The Company shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any hearing or Proceeding under this Section 8 involving Indemnitee and against all Expenses and Other Liabilities incurred by Indemnitee in connection with any other Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims of Indemnitee in any such Proceeding was frivolous or made in bad faith.
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(g) Determination of Good Faith . For purposes of any determination of whether Indemnitee acted in good faith Indemnitee shall be deemed to have acted in good faith if in taking or failing to take the action in question Indemnitee relied on the records or books of account of the Company or a Subsidiary or Affiliate, including financial statements, or on information, opinions, reports or statements provided to Indemnitee by the officers or other employees of the Company or a Subsidiary or Affiliate in the course of their duties, or on the advice of legal counsel for the Company or a Subsidiary or Affiliate, or on information or records given or reports made to the Company or a Subsidiary or Affiliate by an independent certified public accountant or by an appraiser or other expert selected by the Company or a Subsidiary or Affiliate, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Company or a Subsidiary or Affiliate. In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, or to advancement of Expenses, the Reviewing Party or court shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification or advancement of Expenses, as the case may be, and the burden of proof shall be on the Company to establish, by clear and convincing evidence, that Indemnitee is not so entitled. The provisions of this Section 8(g) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. In addition, the knowledge and/or actions, or failures to act, of any other person serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person shall not be imputed to Indemnitee for purposes of determining the right to indemnification hereunder.
9. Exceptions . Any other provision herein to the contrary notwithstanding,
(a) Claims Initiated by Indemnitee . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (1) with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement, any other statute or law, as permitted under Section 145, or otherwise, (2) where the Board has consented to the initiation of such Proceeding, or (3) with respect to Proceedings brought to discharge Indemnitees fiduciary responsibilities, whether under ERISA or otherwise, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or
(b) Actions Based on Federal Statutes Regarding Profit Recovery and Return of Bonus Payments . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of (i) any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of l934 and amendments thereto or similar provisions of any federal, state or local statutory law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from
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the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or
(c) Unlawful Indemnification . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee for Other Liabilities if such indemnification is prohibited by law as determined by a court of competent jurisdiction in a final adjudication not subject to further appeal.
10. Non-exclusivity . The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, the Companys Certificate of Incorporation or Bylaws, the vote of the Companys stockholders or disinterested directors, other agreements, or otherwise, both as to acts or omissions in his or her official capacity and to acts or omissions in another capacity while serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person and Indemnitees rights hereunder shall continue after Indemnitee has ceased serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person and shall inure to the benefit of the heirs, executors and administrators of Indemnitee.
11. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
12. Supersession, Modification and Waiver . This Agreement supersedes any prior indemnification agreement between the Indemnitee and the Company, its Subsidiaries or its Affiliates. If the Company and Indemnitee have previously entered into an indemnification agreement providing for the indemnification of Indemnitee by the Company, parties entry into this Agreement shall be deemed to amend and restate such prior agreement to read in its entirety as, and be superseded by, this Agreement. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) and except as expressly provided herein, no such waiver shall constitute a continuing waiver.
13. Successors and Assigns . The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto.
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14. Notice . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and a receipt is provided by the party to whom such communication is delivered, (ii) if mailed by certified or registered mail with postage prepaid, return receipt requested, on the signing by the recipient of an acknowledgement of receipt form accompanying delivery through the U.S. mail, (iii) personal service by a process server, or (iv) delivery to the recipients address by overnight delivery (e.g., FedEx, UPS or DHL) or other commercial delivery service. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice complying with the provisions of this Section 14. Delivery of communications to the Company with respect to this Agreement shall be sent to the attention of the Companys General Counsel.
15. No Presumptions . For purposes of this Agreement, the termination of any Proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law or otherwise. In addition, neither the failure of the Company or a Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Company or a Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of Proceedings by Indemnitee to secure a judicial determination by exercising Indemnitees rights under Section 8(e) of this Agreement shall be a defense to Indemnitees claim or create a presumption that Indemnitee has failed to meet any particular standard of conduct or did not have any particular belief or is not entitled to indemnification under applicable law or otherwise.
16. Survival of Rights . The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has ceased to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and shall inure to the benefit of Indemnitees heirs, executors and administrators.
17. Subrogation and Contribution.
(a) In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
(b) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by or on behalf of Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s)
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giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
18. Specific Performance, Etc. The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute Proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.
19. Counterparts . This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
20. Headings . The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.
21. Governing Law . This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely with Delaware.
22. Consent to Jurisdiction . The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any Proceeding which arises out of or relates to this Agreement.
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The parties hereto have entered into this Indemnity Agreement effective as of the date first above written.
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Exhibit 10.3
AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
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, and any Parents, Subsidiaries and Affiliates that exist now or in the future, by offering them an opportunity to participate in the Companys future performance through the grant of Awards. Capitalized terms not defined elsewhere in the text are defined in Section 28.
2. SHARES SUBJECT TO THE PLAN .
2.1. Number of Shares Available . Subject to Sections 2.6 and 21 and any other applicable provisions hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan as of the date of adoption of the Plan by the Board, is One Million Five Hundred Thousand (1,500,000) Shares, plus (a) any reserved Shares not issued or subject to outstanding grants under the Companys 2012 Equity Incentive Plan (the Prior Plan ) on the Effective Date (as defined below), (b) Shares that are subject to stock options or other awards granted under the Prior Plan that cease to be subject to such stock options or other awards by forfeiture or otherwise after the Effective Date, (c) Shares issued under the Prior Plan before or after the Effective Date pursuant to the exercise of stock options that are, after the Effective Date, forfeited, (d) Shares issued under the Prior Plan that are repurchased by the Company at the original issue price and (e) Shares that are subject to stock options or other awards under the Prior Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award.
2.2. Lapsed, Returned Awards . Shares subject to Awards, and Shares issued under the Plan under any Award, will again be available for grant and issuance in connection with subsequent Awards under this Plan to the extent such Shares: (a) are subject to issuance upon exercise of an Option or SAR granted under this Plan but which cease to be subject to the Option or SAR for any reason other than exercise of the Option or SAR; (b) are subject to Awards granted under this Plan that are forfeited or are repurchased by the Company at the original issue price; (c) are subject to Awards granted under this Plan that otherwise terminate without such Shares being issued; or (d) are surrendered pursuant to an Exchange Program. To the extent an Award under the Plan is paid out in cash or other property rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Shares used to pay the exercise price of an Award or withheld to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. For the avoidance of doubt, Shares that otherwise become available for grant and issuance because of the provisions of this Section 2.2 shall not include Shares subject to Awards that initially became available because of the substitution clause in Section 21.2 hereof.
2.3. Minimum Share Reserve . At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Awards granted under this Plan.
2.4. Automatic Share Reserve Increase . The number of Shares available for grant and issuance under the Plan shall be increased on January 1, of each of the Ten (10) calendar years during the term of the Plan, by the lesser of (a) Five Percent (5%) of the number of Shares issued and outstanding on each December 31 immediately prior to the date of increase or (b) such number of Shares determined by the Board.
2.5. Limitations . No more than Ten Million (10,000,000) Shares shall be issued pursuant to the exercise of ISOs.
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2.6. Adjustment of Shares . If the number of outstanding Shares is changed by a stock dividend, extraordinary dividends or distributions (whether in cash, Shares or other property, other than a regular cash dividend) recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, spin-off or similar change in the capital structure of the Company, without consideration, then (a) the number of Shares reserved for issuance and future grant under the Plan set forth in Section 2.1, including Shares reserved under sub-clauses (a)-(e) of Section 2.1, (b) the Exercise Prices of and number of Shares subject to outstanding Options and SARs, (c) the number of Shares subject to other outstanding Awards, (d) the maximum number of Shares that may be issued as ISOs set forth in Section 2.5, (e) the maximum number of Shares that may be issued to an individual or to a new Employee in any one calendar year set forth in Section 3 and (f) the number of Shares that may be granted as Awards to Non-Employee Directors as set forth in Section 12, shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with applicable securities laws; provided that fractions of a Share will not be issued.
3 . ELIGIBILITY . ISOs may be granted only to Employees. All other Awards may be granted to Employees, Consultants, Directors and Non-Employee Directors; provided such Consultants, Directors and Non-Employee Directors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No Participant will be eligible to receive an Award or Awards for more than One Million (1,000,000) Shares in any calendar year under this Plan except that new Employees of the Company or of a Parent or Subsidiary are eligible to be granted up to a maximum of an Award or Awards for Two Million (2,000,000) Shares in the calendar year in which they commence their employment.
4. ADMINISTRATION .
4.1. Committee Composition; Authority . This Plan will be administered by the Committee or by the Board acting as the Committee. 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, except, however, the Board shall establish the terms for the grant of an Award to Non-Employee Directors. 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 and rescind rules and regulations relating to this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may vest and be exercised (which may be based on performance criteria) or settled, any vesting acceleration or waiver of forfeiture restrictions, the method to satisfy tax withholding obligations or any other tax liability legally due and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Committee will determine;
(e) determine the number of Shares or other consideration subject to Awards;
(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;
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(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 any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate;
(h) grant waivers of Plan or Award conditions;
(i) determine the vesting, exercisability and payment of Awards;
(j) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;
(k) determine whether an Award has been earned;
(l) determine the terms and conditions of any, and to institute any Exchange Program;
(m) reduce or waive any criteria with respect to Performance Factors;
(n) adjust Performance Factors to take into account changes in law and accounting or tax rules as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships provided that such adjustments are consistent with the regulations promulgated under Section 162(m) of the Code with respect to persons whose compensation is subject to Section 162(m) of the Code;
(o) 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;
(p) make all other determinations necessary or advisable for the administration of this Plan;
(q) delegate any of the foregoing to one or more executive officers pursuant to a specific delegation as permitted by applicable law, including Section 157(c) of the Delaware General Corporation Law; and
(r) to exercise negative discretion on Performance Awards, reducing or eliminating the amount to be paid to Participants.
4.2. Committee Interpretation and Discretion . Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. Any dispute regarding the interpretation of the Plan or any Award Agreement shall be submitted by the Participant or Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and the Participant. The Committee may delegate to one or more executive officers the authority to review and resolve disputes with respect to Awards held by Participants who are not Insiders, and such resolution shall be final and binding on the Company and the Participant.
4.3. Section 162(m) of the Code and Section 16 of the Exchange Act . When necessary or desirable for an Award to qualify as performance-based compensation under Section 162(m) of the Code, the Committee administering the Plan in accordance with the requirements of Rule 16b-3 and Section 162(m) of the Code shall consist of at least two individuals, each of whom qualifies as (a) a Non-Employee Director under Rule 16b-3, and (b) an outside director pursuant to Code Section 162(m) and the regulations issued thereunder. At least two (or a majority if more than two then serve on the
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Committee) such outside directors shall approve the grant of such Award and timely determine (as applicable) the Performance Period and any Performance Factors upon which vesting or settlement of any portion of such Award is to be subject. When required by Section 162(m) of the Code, prior to settlement of any such Award at least two (or a majority if more than two then serve on the Committee) such outside directors then serving on the Committee shall determine and certify in writing the extent to which such Performance Factors have been timely achieved and the extent to which the Shares subject to such Award have thereby been earned. Awards granted to Participants who are subject to Section 16 of the Exchange Act must be approved by two or more non-employee directors (as defined in the regulations promulgated under Section 16 of the Exchange Act). With respect to Participants whose compensation is subject to Section 162(m) of the Code, and provided that such adjustments are consistent with the regulations promulgated under Section 162(m) of the Code, the Committee may adjust the performance goals to account for changes in law and accounting and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships, including without limitation (a) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (b) an event either not directly related to the operations of the Company or not within the reasonable control of the Companys management, or (c) a change in accounting standards required by generally accepted accounting principles.
4.4. Documentation . The Award Agreement for a given Award, the Plan and any other documents may be delivered to, and accepted by, a Participant or any other person in any manner (including electronic distribution or posting) that meets applicable legal requirements.
4.5. Foreign Award Recipients . Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws and practices in other countries in which the Company and its Subsidiaries and Affiliates operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to: (a) determine which Subsidiaries and Affiliates shall be covered by the Plan; (b) determine which individuals outside the United States are eligible to participate in the Plan, which may include individuals who provide services to the Company, Subsidiary or Affiliate under an agreement with a foreign nation or agency; (c) modify the terms and conditions of any Award granted to individuals outside the United States or foreign nationals to comply with applicable foreign laws, policies, customs and practices; (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the Share limitations contained in Section 2.1 hereof; and (e) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.
5. OPTIONS . An Option is the right but not the obligation to purchase a Share, subject to certain conditions, if applicable. The Committee may grant Options to eligible Employees, Consultants and Directors and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ( ISOs ) or Nonqualified Stock Options ( NSOs ), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may vest and be exercised, and all other terms and conditions of the Option, subject to the following terms of this section.
5.1. Option Grant . Each Option granted under this Plan will identify the Option as an ISO or an NSO. An Option may be, but need not be, awarded upon satisfaction of such Performance Factors during any Performance Period as are set out in advance in the Participants individual Award Agreement. If the Option is being earned upon the satisfaction of Performance Factors, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Option; and (b) select
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from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to Options that are subject to different performance goals and other criteria.
5.2. 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, or a specified future date. The Award Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.
5.3. Exercise Period . Options may be vested and exercisable within the times or upon the conditions as set forth in the Award Agreement governing such Option; provided , however , that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who, at the time the ISO is granted, 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.
5.4. Exercise Price . The Exercise Price of an Option will be determined by the Committee when the Option is granted; provided that: (a) the Exercise Price of an Option will be not less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (b) the Exercise Price of any 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 may be made in accordance with Section 11 and the Award Agreement and in accordance with any procedures established by the Company.
5.5. Method of Exercise . Any Option granted hereunder will be vested and exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. An Option will be deemed exercised when the Company receives: (a) notice of exercise (in such form as the Committee may specify from time to time) from the person entitled to exercise the Option (and/or via electronic execution through the authorized third party administrator), and (b) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Committee and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.6 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.
5.6. Termination of Service . If the Participants Service terminates for any reason except for Cause or the Participants death or Disability, then the Participant may exercise such Participants Options only to the extent that such Options would have been exercisable by the Participant on the date Participants Service terminates no later than three (3) months after the date Participants Service terminates (or such shorter time period not less than thirty (30) days or longer time period as may be determined by the Committee, with any exercise beyond three (3) months after the date Participants Service terminates deemed to be the exercise of an NSO), but in any event no later than the expiration date of the Options.
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(a) Death . If the Participants Service terminates because of the Participants death (or the Participant dies within three (3) months after Participants Service terminates other than for Cause or because of the Participants Disability), then the Participants Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participants Service terminates and must be exercised by the Participants legal representative, or authorized assignee, no later than twelve (12) months after the date Participants Service terminates (or such shorter time period not less than six (6) months or longer time period as may be determined by the Committee), but in any event no later than the expiration date of the Options.
(b) Disability . If the Participants Service terminates because of the Participants Disability, then the Participants Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participants Service terminates and must be exercised by the Participant (or the Participants legal representative or authorized assignee) no later than twelve (12) months after the date Participants Service terminates (or such shorter time period not less than six (6) months or longer time period as may be determined by the Committee, with any exercise beyond (a) three (3) months after the date Participants Service terminates when the termination of Service is for a Disability that is not a permanent and total disability as defined in Section 22(e)(3) of the Code, or (b) twelve (12) months after the date Participants Service terminates when the termination of Service is for a Disability that is a permanent and total disability as defined in Section 22(e)(3) of the Code, deemed to be exercise of an NSO), but in any event no later than the expiration date of the Options.
(c) Cause . If the Participant is terminated for Cause, then Participants Options shall expire on such Participants date of termination of Service, or at such later time and on such conditions as are determined by the Committee, but in any event no later than the expiration date of the Options. Unless otherwise provided in an employment agreement or Award Agreement, Cause shall have the meaning set forth in the Plan.
5.7. Limitations on Exercise . The Committee may specify a minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent any Participant from exercising the Option for the full number of Shares for which it is then exercisable.
5.8. Limitations on ISOs . With respect to Awards granted as ISOs, to the extent that the aggregate Fair Market Value of the Shares with respect to which such ISOs are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as NSOs. For purposes of this Section 5.8, ISOs will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.
5.9. 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 18 of this Plan, by written notice to affected Participants, the Committee may reduce the Exercise Price of outstanding Options without the consent of such Participants; provided , however , that the Exercise Price may not be reduced below the Fair Market Value on the date the action is taken to reduce the Exercise Price.
5.10. 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 affected, to disqualify any ISO under Section 422 of the Code.
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6. RESTRICTED STOCK AWARDS . A Restricted Stock Award is an offer by the Company to sell to an eligible Employee, Consultant, or Director Shares that are subject to restrictions ( Restricted Stock ). The Committee will determine to whom an offer will be made, the number of Shares the Participant may purchase, the Purchase Price, the restrictions under which the Shares will be subject and all other terms and conditions of the Restricted Stock Award, subject to the Plan.
6.1. Restricted Stock Purchase Agreement . All purchases under a Restricted Stock Award will be evidenced by an Award Agreement. Except as may otherwise be provided in an Award Agreement, a Participant accepts a Restricted Stock Award by signing and delivering to the Company an Award Agreement with full payment of the Purchase Price, within thirty (30) days from the date the Award Agreement was delivered to the Participant. If the Participant does not accept such Award within thirty (30) days, then the offer of such Restricted Stock Award will terminate, unless the Committee determines otherwise.
6.2. Purchase Price . The Purchase Price for a Restricted Stock Award will be determined by the Committee and may be less than Fair Market Value on the date the Restricted Stock Award is granted. Payment of the Purchase Price must be made in accordance with Section 11 of the Plan, and the Award Agreement and in accordance with any procedures established by the Company.
6.3. Terms of Restricted Stock Awards . Restricted Stock Awards will be subject to such restrictions as the Committee may impose or are required by law. These restrictions may be based on completion of a specified number of years of service with the Company or upon completion of Performance Factors, if any, during any Performance Period as set out in advance in the Participants Award Agreement. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria.
6.4. Termination of Service . Except as may be set forth in the Participants Award Agreement, vesting ceases on such date Participants Service terminates (unless determined otherwise by the Committee).
7. STOCK BONUS AWARDS . A Stock Bonus Award is an award to an eligible Employee, Consultant, or Director of Shares for Services to be rendered or for past Services already rendered to the Company or any Parent, Subsidiary or Affiliate. All Stock Bonus Awards shall be made pursuant to an Award Agreement. No payment from the Participant will be required for Shares awarded pursuant to a Stock Bonus Award.
7.1. Terms of Stock Bonus Awards . The Committee will determine the number of Shares to be awarded to the Participant under a Stock Bonus Award and any restrictions thereon. These restrictions may be based upon completion of a specified number of years of service with the Company or upon satisfaction of performance goals based on Performance Factors during any Performance Period as set out in advance in the Participants Stock Bonus Agreement. Prior to the grant of any Stock Bonus Award the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Stock Bonus Award; (b) select from among the Performance Factors to be used to measure performance goals; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Stock Bonus Awards that are subject to different Performance Periods and different performance goals and other criteria.
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7.2. Form of Payment to Participant . Payment may be made in the form of cash, whole Shares, or a combination thereof, based on the Fair Market Value of the Shares earned under a Stock Bonus Award on the date of payment, as determined in the sole discretion of the Committee.
7.3. Termination of Service . Except as may be set forth in the Participants Award Agreement, vesting ceases on such date Participants Service terminates (unless determined otherwise by the Committee).
8. STOCK APPRECIATION RIGHTS . A Stock Appreciation Right ( SAR ) is an award to an eligible Employee, Consultant, or Director that may be settled in cash, or Shares (which may consist of Restricted Stock), having a value equal to (a) the difference between the Fair Market Value on the date of exercise over the Exercise Price multiplied by (b) the number of Shares with respect to which the SAR is being settled (subject to any maximum number of Shares that may be issuable as specified in an Award Agreement). All SARs shall be made pursuant to an Award Agreement.
8.1. Terms of SARs . The Committee will determine the terms of each SAR including, without limitation: (a) the number of Shares subject to the SAR; (b) the Exercise Price and the time or times during which the SAR may be settled; (c) the consideration to be distributed on settlement of the SAR; and (d) the effect of the Participants termination of Service on each SAR. The Exercise Price of the SAR will be determined by the Committee when the SAR is granted, and may not be less than Fair Market Value. A SAR may be awarded upon satisfaction of Performance Factors, if any, during any Performance Period as are set out in advance in the Participants individual Award Agreement. If the SAR is being earned upon the satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for each SAR; and (y) select from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to SARs that are subject to different Performance Factors and other criteria.
8.2. 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 SAR Agreement shall set forth the expiration date; provided that no SAR will be exercisable after the expiration of ten (10) years from the date the SAR is granted. The Committee may also provide for SARs to become exercisable at one time or from time to time, periodically or otherwise (including, without limitation, upon the attainment during a Performance Period of performance goals based on Performance Factors), in such number of Shares or percentage of the Shares subject to the SAR as the Committee determines. Except as may be set forth in the Participants Award Agreement, vesting ceases on the date Participants Service terminates (unless determined otherwise by the Committee). Notwithstanding the foregoing, the rules of Section 5.6 also will apply to SARs.
8.3. Form of Settlement . Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying (a) the difference between the Fair Market Value of a Share on the date of exercise over the Exercise Price; times (b) the number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment from the Company for the SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. The portion of a SAR being settled may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee determines, provided that the terms of the SAR and any deferral satisfy the requirements of Section 409A of the Code.
8.4. Termination of Service . Except as may be set forth in the Participants Award Agreement, vesting ceases on such date Participants Service terminates (unless determined otherwise by the Committee).
9. RESTRICTED STOCK UNITS . A Restricted Stock Unit ( RSU ) is an award to an eligible Employee, Consultant, or Director covering a number of Shares that may be settled in cash, or by issuance of those Shares (which may consist of Restricted Stock). All RSUs shall be made pursuant to an Award Agreement.
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9.1. Terms of RSUs . The Committee will determine the terms of an RSU including, without limitation: (a) the number of Shares subject to the RSU; (b) the time or times during which the RSU may be settled; (c) the consideration to be distributed on settlement; and (d) the effect of the Participants termination of Service on each RSU; provided that no RSU shall have a term longer than ten (10) years. An RSU may be awarded upon satisfaction of such performance goals based on Performance Factors during any Performance Period as are set out in advance in the Participants Award Agreement. If the RSU is being earned upon satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for the RSU; (y) select from among the Performance Factors to be used to measure the performance, if any; and (z) determine the number of Shares deemed subject to the RSU. Performance Periods may overlap and participants may participate simultaneously with respect to RSUs that are subject to different Performance Periods and different performance goals and other criteria.
9.2. Form and Timing of Settlement . Payment of earned RSUs shall be made as soon as practicable after the date(s) determined by the Committee and set forth in the Award Agreement. The Committee, in its sole discretion, may settle earned RSUs in cash, Shares, or a combination of both. The Committee may also 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.
9.3. Termination of Service . Except as may be set forth in the Participants Award Agreement, vesting ceases on such date Participants Service terminates (unless determined otherwise by the Committee).
10. PERFORMANCE AWARDS . A Performance Award is an award to an eligible Employee, Consultant, or Director of a cash bonus or an award of Performance Shares or Performance Units denominated in Shares that may be settled in cash, or by issuance of those Shares (which may consist of Restricted Stock). Grants of Performance Awards shall be made pursuant to an Award Agreement.
10.1. Types of Performance Awards . Performance Awards shall include Performance Shares, Performance Units, and cash-based Awards as set forth in Sections 10.1(a), 10.1(b), and 10.1(c) below.
(a) Performance Shares . The Committee may grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares and the terms and conditions of each such Award. Performance Shares shall consist of a unit valued by reference to a designated number of Shares, the value of which may be paid to the Participant by delivery of Shares or, if set forth in the instrument evidencing the Award, of such property as the Committee shall determine, including, without limitation, cash, Shares, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee. The amount to be paid under an Award of Performance Shares may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion.
(b) Performance Units . The Committee may grant Awards of Performance Units, designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award. Performance Units shall consist of a unit valued by reference to a designated amount of property other than Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, Shares, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee.
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(c) Cash-Settled Performance Awards . The Committee may also grant cash-settled Performance Awards to Participants under the terms of this Plan. Such awards will be based on the attainment of performance goals using the Performance Factors within this Plan that are established by the Committee for the relevant performance period.
10.2. Terms of Performance Awards . The Committee will determine, and each Award Agreement shall set forth, the terms of each Performance Award including, without limitation: (a) the amount of any cash bonus, (b) the number of Shares deemed subject to an award of Performance Shares; (c) the Performance Factors and Performance Period that shall determine the time and extent to which each award of Performance Shares shall be settled; (d) the consideration to be distributed on settlement, and (e) the effect of the Participants termination of Service on each Performance Award. In establishing Performance Factors and the Performance Period the Committee will: (x) determine the nature, length and starting date of any Performance Period; (y) select from among the Performance Factors to be used; and (z) determine the number of Shares deemed subject to the award of Performance Shares. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant. Prior to settlement the Committee shall determine the extent to which Performance Awards have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Performance Awards that are subject to different Performance Periods and different performance goals and other criteria. No Participant will be eligible to receive more than Five Million Dollars ($5,000,000) in Performance Awards in any calendar year under this Plan.
10.3. Termination of Service . Except as may be set forth in the Participants Award Agreement, vesting ceases on the date Participants Service terminates (unless determined otherwise by the Committee).
11. PAYMENT FOR SHARE PURCHASES . Payment from a Participant for Shares purchased pursuant to this Plan may be made in cash or by check or, where expressly approved for the Participant by the Committee and where permitted by law (and to the extent not otherwise set forth in the applicable Award Agreement):
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of Shares held by the Participant that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Award will be exercised or settled;
(c) by waiver of compensation due or accrued to the Participant for services rendered or to be rendered to the Company or a Parent or Subsidiary;
(d) by consideration received by the Company pursuant to a broker-assisted or other form of cashless exercise program implemented by the Company in connection with the Plan;
(e) by any combination of the foregoing; or
(f) by any other method of payment as is permitted by applicable law.
12. GRANTS TO NON-EMPLOYEE DIRECTORS . Non-Employee Directors are eligible to receive any type of Award offered under this Plan except ISOs. Awards pursuant to this Section 12 may be automatically made pursuant to policy adopted by the Board, or made from time to time as determined in the discretion of the Board. The aggregate number of Shares subject to Awards granted to a Non-Employee Director pursuant to this Section 12 in any calendar year shall not exceed One Hundred Fifty Thousand (150,000) Shares.
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12.1. Eligibility . Awards pursuant to this Section 12 shall be granted only to Non-Employee Directors. A Non-Employee Director who is elected or re-elected as a member of the Board will be eligible to receive an Award under this Section 12.
12.2. Vesting, Exercisability and Settlement . Except as set forth in Section 21, Awards shall vest, become exercisable and be settled as determined by the Board. With respect to Options and SARs, the exercise price granted to Non-Employee Directors shall not be less than the Fair Market Value of the Shares at the time that such Option or SAR is granted.
12.3. Election to receive Awards in Lieu of Cash . A Non-Employee Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash or Awards or a combination thereof, as determined by the Committee. Such Awards shall be issued under the Plan. An election under this Section 12.3 shall be filed with the Company on the form prescribed by the Company.
13. WITHHOLDING TAXES .
13.1. Withholding Generally . Whenever Shares are to be issued in satisfaction of Awards granted under this Plan or a tax event occurs, the Company may require the Participant to remit to the Company, or to the Parent, Subsidiary or Affiliate employing the Participant, as applicable, an amount sufficient to satisfy applicable U.S. federal, state, local and international withholding tax requirements or any other tax or social insurance liability legally due from the Participant prior to the delivery of Shares pursuant to exercise or settlement of any Award. Whenever payments in satisfaction of Awards granted under this Plan are to be made in cash, such payment will be net of an amount sufficient to satisfy applicable U.S. federal, state, local and international withholding tax or social insurance requirements or any other tax liability legally due from the Participant. Unless otherwise determined by the Committee, the Fair Market Value of the Shares will be determined as of the date that the taxes are required to be withheld and such Shares will be valued based on the value of the actual trade or, if there is none, the Fair Market Value of the Shares as of the previous trading day.
13.2. Stock Withholding . The Committee, or its delegate(s), as permitted by applicable law, in its sole discretion and pursuant to such procedures as it may specify from time to time and to limitations of local law, may require or permit a Participant to satisfy such tax withholding obligation or any other tax liability legally due from the Participant, in whole or in part by (without limitation) (a) paying cash, (b) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld, (c) delivering to the Company already-owned Shares having a Fair Market Value equal to the minimum amount required to be withheld or (d) withholding from the proceeds of the sale of otherwise deliverable Shares acquired pursuant to an Award either through a voluntary sale or through a mandatory sale arranged by the Company for the minimum amount required to be withheld.
14. TRANSFERABILITY .
14.1. Transfer Generally . Unless determined otherwise by the Committee or pursuant to Section 14.2, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution. If the Committee makes an Award transferable, including, without limitation, by instrument to an inter vivos or testamentary trust in which the Awards are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift or by domestic relations order to a Permitted Transferee, such Award will contain such additional terms and conditions as the Committee deems appropriate. All Awards shall be exercisable: (a) during the Participants lifetime only by (i) the Participant, or (ii) the Participants guardian or legal representative; (b) after the Participants death, by the legal representative of the Participants heirs or legatees; and (c) in the case of all awards except ISOs, by a Permitted Transferee.
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14.2. Award Transfer Program . Notwithstanding any contrary provision of the Plan, the Committee shall have all discretion and authority to determine and implement the terms and conditions of any Award Transfer Program instituted pursuant to this Section 14.2 and shall have the authority to amend the terms of any Award participating, or otherwise eligible to participate in, the Award Transfer Program, including (but not limited to) the authority to (a) amend (including to extend) the expiration date, post-termination exercise period and/or forfeiture conditions of any such Award, (b) amend or remove any provisions of the Award relating to the Award holders continued Service to the Company or its Parent, Subsidiary or Affiliate, (c) amend the permissible payment methods with respect to the exercise or purchase of any such Award, (d) amend the adjustments to be implemented in the event of changes in the capitalization and other similar events with respect to such Award, and (e) make such other changes to the terms of such Award as the Committee deems necessary or appropriate in its sole discretion.
15. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES .
15.1. Voting and Dividends . No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant, except for any Dividend Equivalent Rights permitted by an applicable Award Agreement. Any Dividend Equivalent Rights shall be subject to the same vesting or performance conditions as the underlying Award. In addition, the Committee may provide that any Dividend Equivalent Rights permitted by an applicable Award Agreement shall be deemed to have been reinvested in additional Shares or otherwise reinvested. 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; provided , further , that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participants Purchase Price or Exercise Price, as the case may be, pursuant to Section 15.2. The Committee, in its discretion, may provide in the Award Agreement evidencing any Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Shares underlying an Award during the period beginning on the date the Award is granted and ending, with respect to each Share subject to the Award, on the earlier of the date on which the Award is exercised or settled or the date on which it is forfeited. Such Dividend Equivalent Rights, if any, shall be credited to the Participant in the form of additional whole Shares as of the date of payment of such cash dividends on Shares.
15.2. Restrictions on Shares . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) a right to repurchase (a Right of Repurchase ) a portion of any or all Unvested Shares held by a Participant following such Participants termination of Service at any time within ninety (90) days (or such longer or shorter time determined by the Committee) after the later of the date Participants Service terminates and the date the Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participants Purchase Price or Exercise Price, as the case may be.
16. CERTIFICATES . All Shares or other securities whether or not certificated, 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 U.S. 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 and any non-U.S. exchange controls or securities law restrictions to which the Shares are subject.
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17. 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, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. 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 the 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, the 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.
18. REPRICING; EXCHANGE AND BUYOUT OF AWARDS . Without prior stockholder approval the Committee may (a) 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, notwithstanding any adverse tax consequences to them arising from the repricing), and (b) with the consent of the respective Participants (unless not required pursuant to Section 5.9 of the Plan), pay cash or issue new Awards in exchange for the surrender and cancellation of any, or all, outstanding Awards.
19. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE . An Award will not be effective unless such Award is in compliance with all applicable U.S. and foreign federal and state securities and exchange control 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) completion of any registration or other qualification of such Shares under any state or federal or foreign 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 registration, qualification or listing requirements of any foreign or state securities laws, exchange control laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.
20. 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, Subsidiary or Affiliate or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate to terminate Participants employment or other relationship at any time.
21. CORPORATE TRANSACTIONS .
21.1. Assumption or Replacement of Awards by Successor . In the event that the Company is subject to a Corporate Transaction, outstanding Awards acquired under the Plan shall be subject to the agreement evidencing the Corporate Transaction, which need not treat all outstanding Awards in an identical manner. Such agreement, without the Participants consent, may provide for one or more of the following with respect to all outstanding Awards as of the effective date of such Corporate Transaction:
(a) The continuation of an outstanding Award by the Company (if the Company is the successor entity).
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(b) The assumption of an outstanding Award by the successor or acquiring entity (if any) of such Corporate Transaction (or by its parents, if any), which assumption, will be binding on all selected 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) of the Code and/or Section 409A of the Code, as applicable.
(c) The substitution by the successor or acquiring entity in such Corporate Transaction (or by 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 and/or Section 409A of the Code, as applicable).
(d) The full or partial acceleration of exercisability or vesting and accelerated expiration of an outstanding Award and lapse of the Companys right to repurchase or re-acquire shares acquired under an Award or lapse of forfeiture rights with respect to shares acquired under an Award.
(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 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 the Award would have become exercisable or vested. Such payment may be subject to vesting based on the Participants continued service, provided that 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 21.1(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.
The Board shall have full power and authority to assign the Companys right to repurchase or re-acquire or forfeiture rights to such successor or acquiring corporation. In the event a successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, then notwithstanding any other provision in this Plan to the contrary, such Awards shall have their vesting accelerate as to all shares subject to such Awards (and any applicable right of repurchase fully lapse) immediately prior to the Corporate Transaction. In addition, in the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, the Committee will notify the Participant in writing or electronically that such Award will be exercisable for a period of time determined by the Committee in its sole discretion, and such Award will terminate upon the expiration of such period. Awards need not be treated similarly in a Corporate Transaction.
21.2. Assumption of Awards by the Company . The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other companys award; or (b) assuming 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
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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 company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged ( except that the Purchase Price or the Exercise Price, as the case may be, and the number and nature of Shares issuable upon exercise or settlement of any such Award will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option in substitution rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. Substitute Awards shall not reduce the number of Shares authorized for grant under the Plan or authorized for grant to a Participant in a calendar year.
21.3. Non-Employee Directors Awards . Notwithstanding any provision to the contrary herein, in the event of a Corporate Transaction, the vesting of all Awards granted to Non-Employee Directors shall accelerate and such Awards shall become exercisable (as applicable) in full prior to the consummation of such event at such times and on such conditions as the Committee determines.
22. ADOPTION AND STOCKHOLDER APPROVAL . This Plan shall be submitted for the approval of the Companys stockholders, consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board.
23. TERM OF PLAN/GOVERNING LAW . Unless earlier terminated as provided herein, this Plan will become effective on the Effective Date and will terminate ten (10) years from the date this Plan is adopted by the Board. This Plan and all Awards granted hereunder shall be governed by and construed in accordance with the laws of the State of Delaware (excluding its conflict of law rules).
24. AMENDMENT OR TERMINATION OF PLAN . The Board may at any time 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; 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; provided further , that a Participants Award shall be governed by the version of this Plan then in effect at the time such Award was granted. No termination or amendment of the Plan shall affect any then-outstanding Award unless expressly provided by the Committee. In any event, no termination or amendment of the Plan or any outstanding Award may adversely affect any then outstanding Award without the consent of the Participant, unless such termination or amendment is necessary to comply with applicable law, regulation or rule.
25. 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 awards and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
26. INSIDER TRADING POLICY . Each Participant who receives an Award shall comply with any policy adopted by the Company from time to time covering transactions in the Companys securities by Employees, officers and/or directors of the Company.
27. ALL AWARDS SUBJECT TO COMPANY CLAWBACK OR RECOUPMENT POLICY . All Awards, subject to applicable law, shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of Participants employment or other service with the Company that is applicable to executive officers, employees, directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law, may require the cancellation of outstanding Awards and the recoupment of any gains realized with respect to Awards.
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28. DEFINITIONS . As used in this Plan, and except as elsewhere defined herein, the following terms will have the following meanings:
28.1. Affiliate means (i) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Committee, whether now or hereafter existing.
28.2. Award means any award under the Plan, including any Option, Restricted Stock, Stock Bonus, Stock Appreciation Right, Restricted Stock Unit or award of Performance Shares.
28.3. Award Agreement means, with respect to each Award, the written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award, and country-specific appendix thereto for grants to non-U.S. Participants, which shall be in substantially a form (which need not be the same for each Participant) that the Committee (or in the case of Award agreements that are not used for Insiders, the Committees delegate(s)) has from time to time approved, and will comply with and be subject to the terms and conditions of this Plan.
28.4. Award Transfer Program means any program instituted by the Committee which would permit Participants the opportunity to transfer any outstanding Awards to a financial institution or other person or entity approved by the Committee.
28.5. Board means the Board of Directors of the Company.
28.6. Cause means Termination because of (a) Participants unauthorized misuse 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 (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 Companys reputation or business. The determination as to whether a Participant is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The foregoing definition does not in any way limit the Companys ability to terminate a Participants employment or consulting relationship at any time as provided in Section 20 above, and the term Company will be interpreted to include any Parent, Subsidiary or Affiliate, as appropriate. Notwithstanding the foregoing, the foregoing definition of Cause may, in part or in whole, be modified or replaced in each individual employment agreement or Award Agreement with any Participant, provided that such document supersedes the definition provided in this Section 28.6.
28.7. Code means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
28.8. Committee means the Compensation Committee of the Board or those persons to whom administration of the Plan, or part of the Plan, has been delegated as permitted by law.
28.9. Common Stock means the common stock of the Company.
28.10. Company means Audentes Therapeutics, Inc. or any successor corporation.
28.11. Consultant means any natural person, including an advisor or independent contractor, engaged by the Company or a Parent, Subsidiary or Affiliate to render services to such entity.
28.12. Corporate Transaction means the occurrence of any of the following events: (a) any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the
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Companys then-outstanding voting securities; provided, however, that for purposes of this subclause (a) the acquisition of additional securities by any one Person who is considered to own more than fifty percent (50%) of the total voting power of the securities of the Company will not be considered a Corporate Transaction; (b) the consummation of the sale or disposition by the Company of all or substantially all of the Companys assets; (c) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation; (d) any other transaction which qualifies as a corporate transaction under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company) or (e) a change in the effective control of the Company that occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by members of the Board whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purpose of this subclause (e), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Corporate Transaction. For purposes of this definition, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. Notwithstanding the foregoing, to the extent that any amount constituting deferred compensation (as defined in Section 409A of the Code) would become payable under this Plan by reason of a Corporate Transaction, such amount shall become payable only if the event constituting a Corporate Transaction would also qualify as a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company, each as defined within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and IRS guidance that has been promulgated or may be promulgated thereunder from time to time.
28.13. Director means a member of the Board.
28.14. Disability means in the case of incentive stock options, total and permanent disability as defined in Section 22(e)(3) of the Code and in the case of other Awards, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.
28.15. Dividend Equivalent Right means the right of a Participant, granted at the discretion of the Committee or as otherwise provided by the Plan, to receive a credit for the account of such Participant in an amount equal to the cash, stock or other property dividends in amounts equal equivalent to cash, stock or other property dividends for each Share represented by an Award held by such Participant.
28.16. Effective Date means the day immediately prior to the date of the underwritten initial public offering of the Companys Common Stock pursuant to a registration statement that is declared effective by the SEC.
28.17. Employee means any person, including Officers and Directors, providing services as an employee to the Company or any Parent, Subsidiary or Affiliate. Neither service as a Director nor payment of a directors fee by the Company will be sufficient to constitute employment by the Company.
28.18. Exchange Act means the United States Securities Exchange Act of 1934, as amended.
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28.19. Exchange Program means a program pursuant to which (a) outstanding Awards are surrendered, cancelled or exchanged for cash, the same type of Award or a different Award (or combination thereof) or (b) the exercise price of an outstanding Award is increased or reduced.
28.20. Exercise Price means, with respect to an Option, the price at which a holder may purchase the Shares issuable upon exercise of an Option and with respect to a SAR, the price at which the SAR is granted to the holder thereof.
28.21. 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 publicly traded and is then listed 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 or such other source as the Committee deems reliable;
(b) if such Common Stock is publicly traded but is neither listed nor admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Committee deems reliable;
(c) in the case of an Option or SAR grant made on the Effective Date, the price per share at which shares of the Companys Common Stock are initially offered for sale to the public by the Companys underwriters in the initial public offering of the Companys Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or
(d) if none of the foregoing is applicable, by the Board or the Committee in good faith.
28.22. Insider means an officer or director of the Company or any other person whose transactions in the Companys Common Stock are subject to Section 16 of the Exchange Act.
28.23. IRS means the United States Internal Revenue Service.
28.24. Non-Employee Director means a Director who is not an Employee of the Company or any Parent, Subsidiary or Affiliate.
28.25. Option means an award of an option to purchase Shares pursuant to Section 5.
28.26. Parent means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
28.27. Participant means a person who holds an Award under this Plan.
28.28. Performance Award means cash or Shares granted pursuant to Section 10 or Section 12 of the Plan.
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28.29. Performance Factors means any of the factors selected by the Committee and specified in an Award Agreement, from among the following objective measures, either individually, alternatively or in any combination, applied to the Company as a whole or any business unit or Subsidiary, either individually, alternatively, or in any combination, on a GAAP or non-GAAP basis, and measured, to the extent applicable on an absolute basis or relative to a pre-established target, to determine whether the performance goals established by the Committee with respect to applicable Awards have been satisfied:
(a) Profit Before Tax;
(b) Billings;
(c) Revenue;
(d) Net revenue;
(e) Earnings (which may include earnings before interest and taxes, earnings before taxes, net earnings, stock-based compensation expenses, depreciation and amortization);
(f) Operating income;
(g) Operating margin;
(h) Operating profit;
(i) Controllable operating profit, or net operating profit;
(j) Net Profit;
(k) Gross margin;
(l) Operating expenses or operating expenses as a percentage of revenue;
(m) Net income;
(n) Earnings per share;
(o) Total stockholder return;
(p) Market share;
(q) Return on assets or net assets;
(r) The Companys stock price;
(s) Growth in stockholder value relative to a pre-determined index;
(t) Return on equity;
(u) Return on invested capital;
(v) Cash Flow (including free cash flow or operating cash flows)
(w) Cash conversion cycle;
(x) Economic value added;
(y) Individual confidential business objectives;
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(z) Contract awards or backlog;
(aa) Overhead or other expense reduction;
(bb) Credit rating;
(cc) Strategic plan development and implementation;
(dd) Succession plan development and implementation;
(ee) Improvement in workforce diversity;
(ff) Customer indicators and/or satisfaction;
(gg) New product invention or innovation;
(hh) Attainment of research and development milestones;
(ii) Improvements in productivity;
(jj) Bookings;
(kk) Attainment of objective operating goals and employee metrics;
(ll) Sales;
(mm) Expenses;
(nn) Balance of cash, cash equivalents and marketable securities;
(oo) Completion of an identified special project;
(pp) Completion of a joint venture or other corporate transaction;
(qq) Employee satisfaction and/or retention;
(rr) Research and development expenses;
(ss) Working capital targets and changes in working capital; and
(tt) (Any other metric that is capable of measurement as determined by the Committee.
The Committee may, in recognition of unusual or non-recurring items such as acquisition-related activities or changes in applicable accounting rules, provide for one or more equitable adjustments (based on objective standards) to the Performance Factors to preserve the Committees original intent regarding the Performance Factors at the time of the initial award grant. It is within the sole discretion of the Committee to make or not make any such equitable adjustments.
28.30. Performance Period means one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Factors will be measured for the purpose of determining a Participants right to, and the payment of, a Performance Award.
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28.31. Performance Share means an Award granted pursuant to Section 10 or Section 12 of the Plan, the payment of which is contingent upon achieving certain performance goals established by the Committee.
28.32. Performance Unit means a right granted to a Participant pursuant to Section 10 or Section 12, to receive Shares, the payment of which is contingent upon achieving certain performance goals established by the Committee.
28.33. Permitted Transferee means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships) of the Employee, any person sharing the Employees household (other than a tenant or employee), a trust in which these persons (or the Employee) have more than 50% of the beneficial interest, a foundation in which these persons (or the Employee) control the management of assets, and any other entity in which these persons (or the Employee) own more than 50% of the voting interests.
28.34. Plan means this Audentes Therapeutics, Inc. 2016 Equity Incentive Plan.
28.35. Purchase Price means the price to be paid for Shares acquired under the Plan, other than Shares acquired upon exercise of an Option or SAR.
28.36. Restricted Stock Award means an award of Shares pursuant to Section 6 or Section 12 of the Plan, or issued pursuant to the early exercise of an Option.
28.37. Restricted Stock Unit means an Award granted pursuant to Section 9 or Section 12 of the Plan.
28.38. SEC means the United States Securities and Exchange Commission.
28.39. Securities Act means the United States Securities Act of 1933, as amended.
28.40. Service shall mean service as an Employee, Consultant, Director or Non-Employee Director, to the Company or a Parent, Subsidiary or Affiliate, subject to such further limitations as may be set forth in the Plan or the applicable Award Agreement. An Employee will not be deemed to have ceased to provide Service in the case of (a) sick leave, (b) military leave, or (c) any other leave of absence approved by the Company; provided , that such leave is for a period of not more than 90 days unless reemployment upon the expiration of such leave is guaranteed by contract or statute. Notwithstanding anything to the contrary, an Employee will not be deemed to have ceased to provide Service if a formal policy adopted from time to time by the Company and issued and promulgated to employees in writing provides otherwise. In the case of any Employee on an approved leave of absence or a reduction in hours worked (for illustrative purposes only, a change in schedule from that of full-time to part-time), the Committee may make such provisions respecting suspension or modification of vesting of the Award while on leave from the employ of the Company or a Parent, Subsidiary or Affiliate or during such change in working hours as it may deem appropriate, except that in no event may an Award be exercised after the expiration of the term set forth in the applicable Award Agreement. In the event of military or other protected leave, if required by applicable laws, vesting shall continue for the longest period that vesting continues under any other statutory or Company approved leave of absence and, upon a Participants returning from military leave, he or she shall be given vesting credit with respect to Awards to the same extent as would have applied had the Participant continued to provide Service to the Company throughout the leave on the same terms as he or she was providing Service immediately prior to such leave. An employee shall have terminated employment as of the date he or she ceases to provide
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Service (regardless of whether the termination is in breach of local employment laws or is later found to be invalid) and employment shall not be extended by any notice period or garden leave mandated by local law, provided however , that a change in status from an employee to a consultant or advisor shall not terminate the service providers Service, unless determined by the Committee, in its discretion. The Committee will have sole discretion to determine whether a Participant has ceased to provide Service and the effective date on which the Participant ceased to provide Service.
28.41. Shares means shares of Common Stock and the common stock of any successor entity.
28.42. Stock Appreciation Right means an Award granted pursuant to Section 8 or Section 12 of the Plan.
28.43. Stock Bonus means an Award granted pursuant to Section 7 or Section 12 of the Plan.
28.44. Subsidiary means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
28.45. Treasury Regulations means regulations promulgated by the United States Treasury Department.
28.46. Unvested Shares means Shares that have not yet vested or are subject to a right of repurchase in favor of the Company (or any successor thereto).
22
AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK UNIT AWARD
GRANT NUMBER:
Unless otherwise defined herein, the terms defined in the Audentes Therapeutics, Inc. 2016 Equity Incentive Plan (the Plan ) will have the same meanings in this Notice of Restricted Stock Unit Award and the electronic representation of this Notice of Restricted Stock Unit Award established and maintained by the Company or a third party designated by the Company (this Notice ).
Name:
Address:
You ( Participant ) have been granted an award of Restricted Stock Units ( RSUs ) under the Plan subject to the terms and conditions of the Plan, this Notice and the attached Restricted Stock Unit Award Agreement (hereinafter the Agreement ), including any applicable country-specific provisions in the appendix attached hereto (the Appendix ), which constitutes part of this Agreement.
Number of RSUs: | ||
Date of Grant: | ||
Vesting Commencement Date: | ||
Expiration Date: | The earlier to occur of: (a) the date on which settlement of all RSUs granted hereunder occurs and (b) the tenth anniversary of the Date of Grant. This RSU expires earlier if Participants Service terminates earlier, as described in the Agreement. | |
Vesting Schedule: | Subject to the limitations set forth in this Notice, the Plan and the Agreement, the RSUs will vest in accordance with the following schedule: [insert applicable vesting schedule] |
By accepting (whether in writing, electronically or otherwise) the RSUs, Participant acknowledges and agrees to the following:
Participant understands that Participants employment or consulting relationship or Service with the Company or a Parent or Subsidiary is for an unspecified duration, can be terminated at any time ( i.e. , is at-will), except where otherwise prohibited by applicable law and that nothing in this Notice, the Agreement or the Plan changes the nature of that relationship. Participant acknowledges that the vesting of the RSUs pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant. Participant agrees and acknowledges that the Vesting Schedule may change prospectively in the event that Participants service status changes between full- and part-time status in accordance with Company policies relating to work schedules and vesting of awards Participant also understands that this Notice is subject to the terms and conditions of both the Agreement and the Plan, both of which are incorporated herein by reference. Participant has read both the Agreement and the Plan. By accepting the RSUs, Participant consents to electronic delivery as set forth in the Agreement.
PARTICIPANT | ||
Signature: |
|
|
Print Name: |
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AUDENTES THERAPEUTICS, INC. |
By: |
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|
Its: |
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AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
Unless otherwise defined herein, the terms defined in the Audentes Therapeutics, Inc. 2016 Equity Incentive Plan (the Plan ) will have the same defined meanings in this Restricted Stock Unit Award Agreement (this Agreement ).
Participant has been granted Restricted Stock Units ( RSUs ) subject to the terms, restrictions and conditions of the Plan, the Notice of Restricted Stock Unit Award (the Notice ) and this Agreement, including any applicable country-specific provisions in the appendix attached hereto (the Appendix ), which constitutes part of this Agreement.
1. Settlement . Settlement of RSUs will be made within 30 days following the applicable date of vesting under the vesting schedule set forth in the Notice. Settlement of RSUs will be in Shares. No fractional RSUs or rights for fractional Shares shall be created pursuant to this Agreement.
2. No Stockholder Rights . Unless and until such time as Shares are issued in settlement of vested RSUs, Participant will have no ownership of the Shares allocated to the RSUs and will have no rights to dividends or to vote such Shares.
3. Dividend Equivalents . Dividends, if any (whether in cash or Shares), will not be credited to Participant.
4. Non-Transferability of RSUs . The RSUs and any interest therein will not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of in any manner other than by will or by the laws of descent or distribution or court order or unless otherwise permitted by the Committee on a case-by-case basis.
5. Termination . If Participants Service terminates for any reason, all unvested RSUs will be forfeited to the Company forthwith, and all rights of Participant to such RSUs will immediately terminate without payment of any consideration to Participant. Participants Service will be considered terminated as of the date Participant is no longer providing services (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participants employment agreement, if any) and will not, subject to the laws applicable to Participants Award, be extended by any notice period mandated under local laws (e.g., Service would not include a period of garden leave or similar period). Participant acknowledges and agrees that the Vesting Schedule may change prospectively in the event Participants service status changes between full- and part-time status and/or in the event Participant is on an approved leave of absence in accordance with Company policies relating to work schedules and vesting of awards or as determined by the Committee. Participant acknowledges that the vesting of the Shares pursuant to this Notice and Agreement is earned only by continued Service. In case of any dispute as to whether termination of Service has occurred, the Committee will have sole discretion to determine whether such termination of Service has occurred and the effective date of such termination (including whether Participant may still be considered to be providing services while on an approved leave of absence).
6. Withholding Taxes . Participant acknowledges that, regardless of any action taken by the Company or, if different, Participants employer (the Employer ) the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Participants participation in the Plan and legally applicable to Participant ( Tax-Related Items ), is and remains Participants responsibility and may exceed the amount actually withheld by the
24
Company or the Employer. Participant further acknowledges that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including, but not limited to, the grant, vesting or settlement of the RSUs and the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends; and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate Participants liability for Tax-Related Items or achieve any particular tax result. Further, if Participant is subject to Tax-Related Items in more than one jurisdiction between the date of grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, Participant authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:
(i) | withholding from Participants wages or other cash compensation paid to Participant by the Company and/or the Employer; or |
(ii) | withholding from proceeds of the sale of Shares acquired upon settlement of the RSUs either through a voluntary sale or through a mandatory sale arranged by the Company (on Participants behalf pursuant to this authorization); or |
(iii) | withholding in Shares to be issued upon settlement of the RSUs, provided the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amounts; |
(iv) | Participants payment of a cash amount (including by check representing readily available funds or a wire transfer); or |
(v) | any other arrangement approved by the Committee; |
all under such rules as may be established by the Committee and in compliance with the Companys Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if Participant is a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (i)-(v) above, and the Committee shall establish the method prior to the Tax-Related Items withholding event. Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case Participant will receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Participant is deemed to have been issued the full number of Shares subject to the vested RSUs, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items. The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the Tax-Related Items withholding.
25
Finally, Participant agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of Participants participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares, if Participant fails to comply with Participants obligations in connection with the Tax-Related Items.
7. Nature of Grant . By accepting the RSUs, Participant acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b) the grant of the RSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted in the past;
(c) all decisions with respect to future RSU or other grants, if any, will be at the sole discretion of the Company;
(d) the RSU grant and Participants participation in the Plan will not create a right to employment or be interpreted as forming an employment or services contract with the Company, the Employer or any Parent or Subsidiary;
(e) Participant is voluntarily participating in the Plan;
(f) the RSUs and the Shares subject to the RSUs are not intended to replace any pension rights or compensation;
(g) the RSUs and the Shares subject to the RSUs, and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(h) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(i) no claim or entitlement to compensation or damages will arise from forfeiture of the RSUs resulting from Participants termination of Service, and in consideration of the grant of the RSUs to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, or any Parent or Subsidiary or the Employer, waives his or her ability, if any, to bring any such claim, and releases the Company, any Parent or Subsidiary and the Employer from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant will be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(j) unless otherwise provided in the Plan or by the Company in its discretion, the RSUs and the benefits evidenced by this Agreement do not create any entitlement to have the RSUs or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any Corporate Transaction affecting the Shares; and
26
(k) the following provisions apply only if Participant is providing services outside the United States:
(i) | the RSUs and the Shares subject to the RSUs are not part of normal or expected compensation or salary for any purpose; |
(ii) | Participant acknowledges and agrees that neither the Company, the Employer nor any Parent or Subsidiary will be liable for any foreign exchange rate fluctuation between Participants local currency and the United States Dollar that may affect the value of the RSUs or of any amounts due to Participant pursuant to the settlement of the RSUs or the subsequent sale of any Shares acquired upon settlement. |
8. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participants participation in the Plan, or Participants acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
9. Data Privacy . Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participants personal data as described in this Agreement and any other RSU grant materials by and among, as applicable, the Employer, the Company and any Parent or Subsidiary for the exclusive purpose of implementing, administering and managing Participants participation in the Plan.
Participant understands that the Company and the Employer may hold certain personal information about Participant, including, but not limited to, Participants name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all RSUs or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Participants favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to the stock plan service provider as may be designated by the Company from time to time, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients country (e.g., the United States) may have different data privacy laws and protections than Participants country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company, the stock plan service provider as may be designated by the Company from time to time, and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participants participation in the Plan. Participant understands if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a
27
purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing Participants consent is that the Company would not be able to grant Participant RSUs or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participants ability to participate in the Plan. For more information on the consequences of Participants refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
10. Language . If Participant has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
11. Appendix . Notwithstanding any provisions in this Agreement, the RSU grant will be subject to any special terms and conditions set forth in any appendix to this Agreement for Participants country. Moreover, if Participant relocates to one of the countries included in the Appendix, the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Agreement.
12. Imposition of Other Requirements . The Company reserves the right to impose other requirements on Participants participation in the Plan, on the RSUs and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
13. Acknowledgement . The Company and Participant agree that the RSUs are granted under and governed by the Notice, this Agreement and the provisions of the Plan. Participant: (a) acknowledges receipt of a copy of the Plan and the Plan prospectus, (b) represents that Participant has carefully read and is familiar with their provisions, and (c) hereby accepts the RSUs subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.
14. Entire Agreement; Enforcement of Rights . This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement will not be construed as a waiver of any rights of such party.
15. Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant 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. Participant understands that the Company is under no obligation to register or qualify the Common Stock with any state, federal or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. Further, Participant agrees that the Company shall have unilateral authority to amend the Plan and this RSU Agreement without Participants consent to the extent necessary to comply with securities or other laws applicable to issuance of Shares. Finally, the Shares issued pursuant to this RSU Agreement shall be endorsed with appropriate legends, if any, determined by the Company.
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16. Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision will be excluded from this Agreement, (b) the balance of this Agreement will be interpreted as if such provision were so excluded and (c) the balance of this Agreement will be enforceable in accordance with its terms.
17. Governing Law and Venue . This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto will be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
Any and all disputes relating to, concerning or arising from this Agreement, or relating to, concerning or arising from the relationship between the parties evidenced by the Plan or this Agreement, will be brought and heard exclusively in the United States District Court for the District of Northern California or the Superior Court of California, County of San Francisco. Each of the parties hereby represents and agrees that such party is subject to the personal jurisdiction of said courts; hereby irrevocably consents to the jurisdiction of such courts in any legal or equitable proceedings related to, concerning or arising from such dispute, and waives, to the fullest extent permitted by law, any objection which such party may now or hereafter have that the laying of the venue of any legal or equitable proceedings related to, concerning or arising from such dispute which is brought in such courts is improper or that such proceedings have been brought in an inconvenient forum.
18. No Rights as Employee, Director or Consultant . Nothing in this Agreement will affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participants Service, for any reason, with or without Cause.
19. Consent to Electronic Delivery of All Plan Documents and Disclosures . By Participants acceptance (whether in writing, electronically or otherwise) of the Notice, Participant and the Company agree that the RSUs are granted under and governed by the terms and conditions of the Plan, the Notice and this Agreement. Participant has reviewed the Plan, the Notice and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement, and fully understands all provisions of the Plan, the Notice and this Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice and this Agreement. Participant further agrees to notify the Company upon any change in Participants residence address. By acceptance of the RSUs, Participant agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company and consents to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the U.S. Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the RSUs and current or future participation in the Plan. Electronic delivery may include the delivery of a link to a the Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Companys discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail to Stock Administration. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participants consent may be revoked or changed, including any change in the electronic mail address to
29
which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail through Stock Administration. Finally, Participant understands that Participant is not required to consent to electronic delivery if local laws prohibit such consent.
20. Insider Trading Restrictions/Market Abuse Laws . Participant acknowledges that, depending on Participants country, Participant may be subject to insider trading restrictions and/or market abuse laws, which may affect Participants ability to acquire or sell the Shares or rights to Shares under the Plan during such times as Participant is considered to have inside information regarding the Company (as defined by the laws in Participants country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Participant acknowledges that it is Participants responsibility to comply with any applicable restrictions, and Participant is advised to speak to Participants personal advisor on this matter.
21. Code Section 409A . For purposes of this Agreement, a termination of employment will be determined consistent with the rules relating to a separation from service as defined in Section 409A of the Internal Revenue Code and the regulations thereunder ( Section 409A ). Notwithstanding anything else provided herein, to the extent any payments provided under this RSU Agreement in connection with Participants termination of employment constitute deferred compensation subject to Section 409A, and Participant is deemed at the time of such termination of employment to be a specified employee under Section 409A, then such payment shall not be made or commence until the earlier of (i) the expiration of the six-month period measured from Participants separation from service from the Company or (ii) the date of Participants death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Participant including, without limitation, the additional tax for which Participant would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. To the extent any payment under this RSU Agreement may be classified as a short-term deferral within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
22. Award Subject to Company Clawback or Recoupment . The RSUs shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of Participants employment or other Service that is applicable to executive officers, Employees, Directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law may require the cancellation of Participants RSUs (whether vested or unvested) and the recoupment of any gains realized with respect to Participants RSUs.
BY ACCEPTING THIS AWARD OF RSUS, PARTICIPANT AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
COUNTRY SPECIFIC PROVISIONS FOR EMPLOYEES OUTSIDE THE U.S.
Terms and Conditions
This Appendix includes additional terms and conditions that govern the RSUs granted to Participant under the Plan if Participant resides and/or works in one of the countries below. This Appendix forms part of the Agreement. Any capitalized term used in this Appendix without definition will have the meaning ascribed to it in the Notice, the Agreement or the Plan, as applicable.
If Participant is a citizen or resident of a country, or is considered resident of a country, other than the one in which Participant is currently working, or Participant transfers employment and/or residency between countries after the Date of Grant, the Company will, in its sole discretion, determine to what extent the additional terms and conditions included herein will apply to Participant under these circumstances.
Notifications
This Appendix also includes information relating to exchange control and other issues of which Participant should be aware with respect to Participants participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as January 2016, if applicable. Such laws are often complex and change frequently. As a result, the Company strongly recommends that Participant not rely on the information herein as the only source of information relating to the consequences of Participants participation in the Plan because the information may be out of date at the time that Participant vests in the RSUs or sells Shares acquired under the Plan.
In addition, the information is general in nature and may not apply to Participants particular situation, and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant is advised to seek appropriate professional advice as to how the relevant laws in Participants country may apply to Participants situation.
Finally, if Participant is a citizen or resident of a country, or is considered resident of a country, other than the one in which Participant is currently working, or Participant transfers employment and/or residency after the Date of Grant, the information contained herein may not apply to Participant in the same manner.
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AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
COUNTRY SPECIFIC PROVISIONS FOR EMPLOYEES OUTSIDE THE U.S.
[None.]
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AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT
Unless otherwise defined herein, the terms defined in the Audentes Therapeutics, Inc. (the Company ) 2016 Equity Incentive Plan (the Plan ) will have the same meanings in this Notice of Stock Option Grant and the electronic representation of this Notice of Global Stock Option Grant established and maintained by the Company or a third party designated by the Company (this Notice ).
Name:
Address:
You (the Participant ) have been granted an option to purchase shares of Common Stock of the Company under the Plan subject to the terms and conditions of the Plan, this Notice and the Stock Option Award Agreement (the Option Agreement ), including any applicable country-specific provisions in the appendix attached hereto (the Appendix ) which constitutes part of the Option Agreement.
Grant Number: | ||
Date of Grant: | ||
Vesting Commencement Date: | ||
Exercise Price per Share: | ||
Total Number of Shares: | ||
Type of Option: | Non-Qualified Stock Option | |
Incentive Stock Option | ||
Expiration Date: | , 20 ; This Option expires earlier if Participants Service terminates earlier, as described in the Option Agreement. | |
Vesting Schedule: | [Insert applicable vesting schedule] |
By accepting (whether in writing, electronically or otherwise) the Option, Participant acknowledges and agrees to the following:
Participant understands that Participants employment or consulting relationship or service with the Company or a Parent or Subsidiary is for an unspecified duration, can be terminated at any time ( i.e. , is at-will), except where otherwise prohibited by applicable law and that nothing in this Notice, the Option Agreement or the Plan changes the nature of that relationship. Participant acknowledges that the vesting of the Options pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant. Furthermore, the period during which Participant may exercise the Option after such termination of Service will commence on the date Participant ceases to actively provide Service and will not be extended by any notice period mandated under employment laws in the jurisdiction where Participant is employed or terms of Participants employment agreement. Participant also understands that this Notice is subject to the terms and conditions of both the Option Agreement and the Plan, both of which are incorporated herein by reference. Participant has read both the Option Agreement and the Plan. By accepting this Option, Participant consents to electronic delivery as set forth in the Option Agreement.
PARTICIPANT | ||
Signature: |
|
|
Print Name: |
|
AUDENTES THERAPEUTICS, INC. |
By: |
|
|
Its: |
|
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AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
Unless otherwise defined in this Stock Option Award Agreement (this Option Agreement ), any capitalized terms used herein will have the meaning ascribed to them in the Audentes Therapeutics, Inc. 2016 Equity Incentive Plan (the Plan ).
Participant has been granted an option to purchase Shares (the Option ) of Audentes Therapeutics, Inc. (the Company ), subject to the terms and conditions of the Plan, the Notice of Stock Option Grant (the Notice ) and this Option Agreement, including any applicable country-specific provisions in the appendix attached hereto (the Appendix ) which constitutes part of this Option Agreement.
1. Vesting Rights . Subject to the applicable provisions of the Plan and this Option Agreement, this Option may be exercised, in whole or in part, in accordance with the schedule set forth in the Notice. Participant acknowledges and agrees that the Vesting Schedule may change prospectively in the event Participants service status changes between full and part-time status and/or in the event Participant is on an approved leave of absence in accordance with Company policies relating to work schedules and vesting of awards or as determined by the Committee. Participant acknowledges that the vesting of the Shares pursuant to this Notice and Agreement is earned only by continued Service.
2. Grant of Option . Participant has been granted an Option for the number of Shares set forth in the Notice at the exercise price per Share in U.S. Dollars set forth in the Notice (the Exercise Price ). In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice as an Incentive Stock Option ( ISO ), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an ISO, to the extent that it exceeds the U.S. $100,000 rule of Code Section 422(d) it shall be treated as a Nonqualified Stock Option ( NSO ).
3. Termination Period .
(a) General Rule . If Participants Service terminates for any reason except death or Disability, and other than for Cause, then this Option will expire at the close of business at Company headquarters on the date three (3) months after Participants Termination Date (or such shorter time period not less than thirty (30) days or longer time period as may be determined by the Committee, with any exercise beyond three (3) months after the date Participants Service terminates deemed to be the exercise of an NSO). If Participants Service is terminated for Cause, this Option will expire upon the date of such termination. The Company determines when Participants Service terminates for all purposes under this Option Agreement.
(b) Death; Disability . If Participant dies before Participants Service terminates (or Participant dies within three months of Participants termination of Service other than for Cause (as defined in the Plan)), then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of death (or such shorter time period not less than six (6) months or longer time period as may be determined by the Committee, subject to the expiration details in Section 6). If Participants Service terminates because of Participants Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after Participants Termination Date (or such shorter time period not less than six (6) months or longer time period as may be determined by the Committee, subject to the expiration details in Section 6).
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(c) No Notice . Participant is responsible for keeping track of these exercise periods following Participants termination of Service for any reason. The Company will not provide further notice of such periods. In no event shall this Option be exercised later than the Expiration Date set forth in the Notice.
(d) Termination . For purposes of this Option, Participants Service will be considered terminated as of the date Participant is no longer providing Services to the Company, its Parent or one of its Subsidiaries (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participants employment agreement, if any) (the Termination Date ). The Committee shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of Participants Option (including whether Participant may still be considered to be providing services while on an approved leave of absence). Unless otherwise provided in this Option Agreement or determined by the Company, Participants right to vest in this Option under the Plan, if any, will terminate as of the Termination Date and will not be extended by any notice period ( e.g. , Participants period of services would not include any contractual notice period or any period of garden leave or similar period mandated under employment laws in the jurisdiction where Participant is employed or the terms of Participants employment agreement, if any). Following the Termination Date, Participant may exercise the Option only as set forth in the Notice and this Section, provided that the period (if any) during which Participant may exercise the Option after the Termination Date, if any, will commence on the date Participant ceases to provide services and will not be extended by any notice period mandated under employment laws in the jurisdiction where Participant is employed or terms of Participants employment agreement, if any. If Participant does not exercise this Option within the termination period set forth in the Notice or the termination periods set forth above, the Option shall terminate in its entirety. In no event, may any Option be exercised after the Expiration Date of the Option as set forth in the Notice.
4. Exercise of Option .
(a) Right to Exercise . This Option is exercisable during its term in accordance with the Vesting Schedule set forth in the Notice and the applicable provisions of the Plan and this Option Agreement. In the event of Participants death, Disability, termination for Cause or other cessation of Service, the exercisability of the Option is governed by the applicable provisions of the Plan, the Notice and this Option Agreement. This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise . This Option is exercisable by delivery of an exercise notice in a form specified by the Company (the Exercise Notice ), which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the Exercised Shares ), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice will be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares together with any Tax-Related Items (as defined in Section 8 below). This Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price and payment of any Tax-Related Items. No Shares will be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to Participant on the date the Option is exercised with respect to such Exercised Shares.
(c) Exercise by Another . If another person wants to exercise this Option after it has been transferred to him or her in compliance with this Agreement, that person must prove to the Companys satisfaction that he or she is entitled to exercise this Option. That person must also complete the proper Exercise Notice form (as described above) and pay the Exercise Price (as described below) and any applicable tax withholding due upon exercise of the Option (as described below).
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5. Method of Payment . Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant:
(a) Participants personal check (or readily available funds), wire transfer, or a cashiers check;
(b) certificates for shares of Company stock that Participant owns, along with any forms needed to effect a transfer of those shares to the Company; the value of the shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price. Instead of surrendering shares of Company stock, Participant may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to Participant. However, Participant may not surrender, or attest to the ownership of, shares of Company stock in payment of the exercise price of Participants Option if Participants action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes;
(c) cashless exercise through irrevocable directions to a securities broker approved by the Company to sell all or part of the Shares covered by this Option and to deliver to the Company from the sale proceeds an amount sufficient to pay the Option exercise price and any withholding taxes. The balance of the sale proceeds, if any, will be delivered to Participant. The directions must be given by signing a special notice of exercise form provided by the Company; or
(d) other method authorized by the Company.
6. Non-Transferability of Option . This Option may not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of other than by will or by the laws of descent or distribution or court order and may be exercised during the lifetime of Participant only by Participant or unless otherwise permitted by the Committee on a case-by-case basis. The terms of the Plan and this Option Agreement will be binding upon the executors, administrators, heirs, successors and assigns of Participant.
7. Term of Option . This Option will in any event expire on the expiration date set forth in the Notice, which date is 10 years after the Date of Grant (five years after the Date of Grant if this option is designated as an ISO in the Notice of Stock Option Grant and Section 5.3 of the Plan applies).
8. Tax Consequences .
(a) Exercising the Option . Participant acknowledges that, regardless of any action taken by the Company or a Parent or Subsidiary employing or retaining Participant (the Employer ), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to Participants participation in the Plan and legally applicable to Participant ( Tax-Related Items ) is and remains Participants responsibility and may exceed the amount actually withheld by the Company or the Employer. Participant further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Option, including, but not limited to, the grant, vesting or exercise of this Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Option to reduce or eliminate Participants liability for Tax-Related Items or achieve any particular tax result. Further, if Participant is subject to Tax-Related Items in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Employer (or former
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employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction. PARTICIPANT SHOULD CONSULT A TAX ADVISER APPROPRIATELY QUALIFIED IN THE COUNTRY OR COUNTRIES IN WHICH PARTICIPANT RESIDES OR IS SUBJECT TO TAXATION BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
Prior to the relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, Participant authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:
(i) | withholding from Participants wages or other cash compensation paid to Participant by the Company and/or the Employer; or |
(ii) | withholding from proceeds of the sale of Shares acquired at exercise of this Option either through a voluntary sale or through a mandatory sale arranged by the Company (on Participants behalf pursuant to this authorization) without further consent; or |
(iii) | withholding in Shares to be issued upon exercise of the Option, provided the Company only withholds from the amount of Shares necessary to satisfy the minimum statutory withholding amount; |
(iv) | Participants payment of a cash amount (including by check representing readily available funds or a wire transfer); or |
(v) | any other arrangement approved by the Committee; |
all under such rules as may be established by the Committee and in compliance with the Companys Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if Participant is a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (i)-(v) above, and the Committee shall establish the method prior to the Tax-Related Items withholding event.
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case Participant will receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Participant is deemed to have been issued the full member of Shares issued upon exercise of the Options; notwithstanding that a member of the Shares are held back solely for the purpose of paying the Tax-Related Items. The Fair Market Value of these Shares, determined as of the effective date of the Option exercise, will be applied as a credit against the Tax-Related Items withholding.
Finally, Participant agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of Participants participation in the Plan that cannot be satisfied by the means previously described. the Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares, if Participant fails to comply with his or her obligations in connection with the Tax-Related Items.
(b) Notice of Disqualifying Disposition of ISO Shares . For U.S. taxpayers, if Participant sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, Participant will
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immediately notify the Company in writing of such disposition. Participant agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to Participant.
9. Nature of Grant . By accepting the Option, Participant acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b) the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted in the past;
(c) all decisions with respect to future Option or other grants, if any, will be at the sole discretion of the Company;
(d) the Option grant and Participants participation in the Plan will not create a right to employment or be interpreted as forming an employment or service contract with the Company, the Employer or any Parent or Subsidiary;
(e) Participant is voluntarily participating in the Plan;
(f) the Option and any Shares acquired under the Plan are not intended to replace any pension rights or compensation;
(g) the Option and any Shares acquired under the Plan and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(h) the future value of the Shares underlying the Option is unknown, indeterminable, and cannot be predicted with certainty;
(i) if the underlying Shares do not increase in value, the Option will have no value;
(j) if Participant exercises the Option and acquires Shares, the value of such Shares may increase or decrease in value, even below the Exercise Price;
(k) no claim or entitlement to compensation or damages will arise from forfeiture of the Option resulting from Participant ceasing to provide employment or other services to the Company or the Employer (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participants employment agreement, if any), and in consideration of the grant of the Option to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, any Parent or Subsidiary or the Employer, waives his or her ability, if any, to bring any such claim, and releases the Company, any Parent or Subsidiary and the Employer from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant will be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(l) unless otherwise provided in the Plan or by the Company in its discretion, the Option and the benefits evidenced by this Option Agreement do not create any entitlement to have the Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
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(m) the following provisions apply only if Participant is providing services outside the United States:
(i) | the Option and the Shares subject to the Option are not part of normal or expected compensation or salary for any purpose; |
(ii) | Participant acknowledges and agrees that neither the Company, the Employer nor any Parent or Subsidiary will be liable for any foreign exchange rate fluctuation between Participants local currency and the United States Dollar that may affect the value of the Option or of any amounts due to Participant pursuant to the exercise of the Option or the subsequent sale of any Shares acquired upon exercise. |
10. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participants participation in the Plan, or Participants acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
11. Data Privacy . Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participants personal data as described in this Option Agreement and any other Option grant materials by and among, as applicable, the Employer, the Company and any Parent or Subsidiary of for the exclusive purpose of implementing, administering and managing Participants participation in the Plan.
Participant understands that the Company and the Employer may hold certain personal information about Participant, including, but not limited to, Participants name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in Participants favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to the stock plan service provider as may be designated by the Company from time to time or its affiliates or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients country (e.g., the United States) may have different data privacy laws and protections than Participants country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company, the stock plan service provider as may be designated by the Company from time to time, and its affiliates, and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Participants participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participants participation in the Plan. Participant understands that if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting
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in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing Participants consent is that the Company would not be able to grant Participant options or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participants ability to participate in the Plan. For more information on the consequences of Participants refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
12. Language . If Participant has received this Option Agreement, or any other document related to the Option and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
13. Appendix . Notwithstanding any provisions in this Option Agreement, the Option grant will be subject to any special terms and conditions set forth in any appendix to this Option Agreement for Participants country. Moreover, if Participant relocates to one of the countries included in the Appendix, the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Option Agreement.
14. Imposition of Other Requirements . The Company reserves the right to impose other requirements on Participants participation in the Plan, on the Option and on any Shares purchased upon exercise of the Option, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
15. Acknowledgement . The Company and Participant agree that the Option is granted under and governed by the Notice, this Option Agreement and by the provisions of the Plan (incorporated herein by reference). Participant: (a) acknowledges receipt of a copy of the Plan and the Plan prospectus, (b) represents that Participant has carefully read and is familiar with their provisions, and (c) hereby accepts the Option subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.
16. Entire Agreement; Enforcement of Rights . This Option Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Option Agreement, nor any waiver of any rights under this Option Agreement, will be effective unless in writing and signed by the parties to this Option Agreement. The failure by either party to enforce any rights under this Option Agreement will not be construed as a waiver of any rights of such party.
17. Compliance with Laws and Regulations . The issuance of Shares and any restriction on the sale of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state, federal and local laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Companys Shares may be listed or quoted at the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Common Stock with any state, federal or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. Further, Participant agrees that the Company shall have unilateral authority to amend the Plan and this Option Agreement without Participants consent to the extent necessary to comply with securities or other laws applicable to issuance of Shares. Finally, the Shares issued pursuant to this Option Agreement shall be endorsed with appropriate legends, if any, determined by the Company.
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18. Severability . If one or more provisions of this Option Agreement are held to be unenforceable, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision will be excluded from this Option Agreement, (b) the balance of this Option Agreement will be interpreted as if such provision were so excluded and (c) the balance of this Option Agreement will be enforceable in accordance with its terms.
19. Governing Law and Venue . This Option Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto will be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
Any and all disputes relating to, concerning or arising from this Option Agreement, or relating to, concerning or arising from the relationship between the parties evidenced by the Plan or this Option Agreement, will be brought and heard exclusively in the United States District Court for the District of Northern California or the Superior Court of California, County of San Francisco. Each of the parties hereby represents and agrees that such party is subject to the personal jurisdiction of said courts; hereby irrevocably consents to the jurisdiction of such courts in any legal or equitable proceedings related to, concerning or arising from such dispute, and waives, to the fullest extent permitted by law, any objection which such party may now or hereafter have that the laying of the venue of any legal or equitable proceedings related to, concerning or arising from such dispute which is brought in such courts is improper or that such proceedings have been brought in an inconvenient forum.
20. No Rights as Employee, Director or Consultant . Nothing in this Option Agreement will affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary, to terminate Participants service, for any reason, with or without Cause.
21. Consent to Electronic Delivery of all Plan Documents and Disclosures . By Participants signature and the signature of the Companys representative on the Notice, Participant and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan, the Notice and this Option Agreement. Participant has reviewed the Plan, the Notice and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Notice, and fully understands all provisions of the Plan, the Notice and this Option Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice and the Option Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated on the Notice. By acceptance of this Option, Participant agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company and consents to the electronic delivery of the Notice, this Option Agreement, the Plan, account statements, Plan prospectuses required by the U.S. Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Option and current or future participation in the Plan. Electronic delivery may include the delivery of a link to the Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Companys discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail to Stock Administration. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any
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documents delivered electronically if electronic delivery fails. Also, Participant understands that Participants consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail through Stock Administration. Finally, Participant understands that Participant is not required to consent to electronic delivery if local laws prohibit such consent.
22. Insider Trading Restrictions/Market Abuse Laws . Participant acknowledges that, depending on Participants country, Participant may be subject to insider trading restrictions and/or market abuse laws, which may affect Participants ability to acquire or sell the Shares or rights to Shares under the Plan during such times as Participant is considered to have inside information regarding the Company (as defined by the laws in Participants country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Participant acknowledges that it is Participants responsibility to comply with any applicable restrictions, and Participant is advised to speak to Participants personal advisor on this matter.
23. Award Subject to Company Clawback or Recoupment . To the extent permitted by applicable law, the Option shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of Participants employment or other Service that is applicable to Participant. In addition to any other remedies available under such policy, applicable law may require the cancellation of Participants Option (whether vested or unvested) and the recoupment of any gains realized with respect to Participants Option.
BY ACCEPTING THIS OPTION, PARTICIPANT AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THIS PLAN.
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APPENDIX
AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
COUNTRY SPECIFIC PROVISIONS FOR EMPLOYEES OUTSIDE THE U.S.
Terms and Conditions
This Appendix includes additional terms and conditions that govern the Option granted to Participant under the Plan if Participant resides and/or works in one of the countries below. This Appendix forms part of the Option Agreement. Any capitalized term used in this Appendix without definition will have the meaning ascribed to it in the Notice, the Option Agreement or the Plan, as applicable.
If Participant is a citizen or resident of a country, or is considered resident of a country, other than the one in which Participant is currently working, or Participant transfers employment and/or residency between countries after the Date of Grant, the Company will, in its sole discretion, determine to what extent the additional terms and conditions included herein will apply to Participant under these circumstances.
Notifications
This Appendix also includes information relating to exchange control and other issues of which Participant should be aware with respect to Participants participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of January 2016, if applicable. Such laws are often complex and change frequently. As a result, the Company strongly recommends that Participant not rely on the information herein as the only source of information relating to the consequences of Participants participation in the Plan because the information may be out of date at the time that Participant exercises the Option or sells Shares acquired under the Plan.
In addition, the information is general in nature and may not apply to Participants particular situation, and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant is advised to seek appropriate professional advice as to how the relevant laws in Participants country may apply to Participants situation.
Finally, if Participant is a citizen or resident of a country, or is considered resident of a country, other than the one in which Participant is currently working, or Participant transfers employment and/or residency after the Date of Grant, the information contained herein may not apply to Participant in the same manner.
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AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
COUNTRY SPECIFIC PROVISIONS FOR EMPLOYEES OUTSIDE THE U.S.
[None.]
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AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK AWARD
GRANT NUMBER:
Unless otherwise defined herein, the terms defined in the Audentes Therapeutics, Inc. (the Company ) 2016 Equity Incentive Plan (the Plan ) will have the same meanings in this Notice of Restricted Stock Award and the electronic representation of this Notice of Restricted Stock Award established and maintained by the Company or a third party designated by the Company (this Notice ).
Name:
Address:
You ( Participant ) have been granted an the opportunity to purchase Shares of Common Stock of the Company that are subject to restrictions (the Restricted Shares ) and the terms and conditions of the Plan, this Notice and the attached Restricted Stock Purchase Agreement (the Restricted Stock Purchase Agreement ).
By accepting (whether in writing, electronically or otherwise) the opportunity to purchase the Restricted Shares, Participant acknowledges and agrees to the following:
Participant understands that Participants employment or consulting relationship or service with the Company or a Parent or Subsidiary is for an unspecified duration, can be terminated at any time (i.e., is at-will), and that nothing in this Notice, the Restricted Stock Purchase Agreement or the Plan changes the at-will nature of that relationship. Participant acknowledges that the vesting of the Restricted Shares pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant. Participant acknowledges and agrees that the Vesting Schedule may change prospectively in the event Participants service status changes between full and part-time status and/or in the event Participant is on an approved leave of absence in accordance with Company policies relating to work schedules and vesting of awards or as determined by the Committee. Participant also understands that this Notice is subject to the terms and conditions of both the Restricted Stock Purchase Agreement and the Plan, both of which are incorporated herein by reference. Participant has read both the Restricted Stock Purchase Agreement and the Plan. By acceptance of this opportunity to purchase the Restricted Shares, Participant consents to the electronic delivery of the Notice, the Restricted Stock Purchase Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Restricted Shares. Electronic delivery may include the delivery of a link to the Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Companys discretion. If the Restricted Stock Purchase Agreement is not executed by Participant within thirty (30) days of the Date of Grant above, then this grant will be void.
PARTICIPANT | ||
Signature: |
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Printed Name: |
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AUDENTES THERAPEUTICS, INC. |
By: |
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Its: |
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AUDENTES THERAPEUTICS, INC.
2016 EQUITY INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this Agreement ) is made by and between Audentes Therapeutics, Inc., a Delaware corporation (the Company ), and Participant pursuant to the Companys 2016 Equity Incentive Plan (the Plan ). Unless otherwise defined herein, the terms defined in the Plan will have the same meanings in this Agreement.
1. Sale of Stock . Subject to the terms and conditions of this Agreement, on the Purchase Date (as defined below) the Company will issue and sell to Participant, and Participant agrees to purchase from the Company the number of Shares shown on the Notice of Restricted Stock Award (the Notice ) at the purchase price per Share set forth in the Notice. The term Shares refers to the purchased Shares and all securities received in replacement of or in connection with the Shares pursuant to stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Participant is entitled by reason of Participants ownership of the Shares.
2. Time and Place of Purchase . The purchase and sale of the Shares under this Agreement will occur at the principal office of the Company simultaneously with the execution of this Agreement by the parties, or on such other date as the Company and Participant will agree (the Purchase Date ). On the Purchase Date (or as soon as reasonably practicable thereafter), the Company will issue a stock certificate registered in Participants name, or uncertificated shares designated for the Participant in book entry form on the records of the Companys transfer agent, representing the Shares to be purchased by Participant against payment of the purchase price therefor by Participant by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Participant, (c) Participants personal services that the Committee has determined have already been rendered to the Company and have a value not less than aggregate par value of the Shares to be issued Participant, or (d) a combination of the foregoing.
3. Restrictions on Resale . By signing this Agreement, Participant agrees not to sell any Shares acquired pursuant to the Plan and this Agreement at a time when applicable laws, regulations or the Company or underwriter trading policies prohibit exercise or sale.
3.1 Repurchase Right on Termination . For the purposes of this Agreement, a Repurchase Event will mean an occurrence of one of the following:
(i) termination of Participants service, whether voluntary or involuntary and with or without cause;
(ii) resignation, retirement or death of Participant; or
(iii) any attempted transfer by Participant of the Shares, or any interest therein, in violation of this Agreement.
Upon the occurrence of a Repurchase Event, the Company will have the right (but not an obligation) to purchase the Unvested Shares (as defined below) of Participant at a price equal to the Purchase Price per Share (the Repurchase Right ). The Repurchase Right will lapse in accordance with the vesting schedule set forth in the Notice. For purposes of this Agreement, Unvested Shares means Stock pursuant to which the Companys Repurchase Right has not lapsed.
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3.2 Termination of Service . Participant acknowledges and agrees that the Vesting Schedule may change prospectively in the event Participants service status changes between full and part-time status and/or in the event Participant is on an approved leave of absence in accordance with Company policies relating to work schedules and vesting of awards or as determined by the Committee. Participant acknowledges that the vesting of the Shares pursuant to this Notice and Agreement is earned only by continued Service. In case of any dispute as to whether termination of Service has occurred, the Committee will have sole discretion to determine whether such termination of Service has occurred and the effective date of such termination (including whether Participant may still be considered to be providing services while on an approved leave of absence).
3.3 Exercise of Repurchase Right . Unless the Company provides written notice to Participant within 90 days from the date of termination of Participants service to the Company that the Company does not intend to exercise its Repurchase Right with respect to some or all of the Unvested Shares, the Repurchase Right will be deemed automatically exercised by the Company as of the 90th day following such termination, provided that the Company may notify Participant that it is exercising its Repurchase Right as of a date prior to such 90th day. Unless Participant is otherwise notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Right as to some or all of the Unvested Shares, execution of this Agreement by Participant constitutes written notice to Participant of the Companys intention to exercise its Repurchase Right with respect to all Unvested Shares to which such Repurchase Right applies at the time of termination of Participants Service. The Company, at its choice, may satisfy its payment obligation to Participant with respect to exercise of the Repurchase Right by (i) delivering a check to Participant in the amount of the purchase price for the Unvested Shares being repurchased, (ii) in the event Participant is indebted to the Company, canceling an amount of such indebtedness equal to the purchase price for the Unvested Shares being repurchased (if and to the extent permitted by applicable law), (iii) in the event Participant purchased Unvested Shares pursuant to Section 2(c), at the time of termination of Participants Service, Participant will forfeit all of Participants Unvested Shares or (iv) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such purchase price. In the event of any deemed automatic exercise of the Repurchase Right by canceling an amount of such indebtedness equal to the purchase price for the Unvested Shares being repurchased, such cancellation of indebtedness will be deemed automatically to occur as of the 90th day following termination of Participants employment or consulting relationship unless the Company otherwise satisfies its payment obligations. As a result of any repurchase of Unvested Shares pursuant to the Repurchase Right, the Company will become the legal and beneficial owner of the Unvested Shares being repurchased and will have all rights and interest therein or related thereto, and the Company will have the right to transfer to its own name the number of Unvested Shares being repurchased by the Company, without further action by Participant.
3.4 Acceptance of Restrictions . Acceptance of the Shares will constitute Participants agreement to such restrictions and the legending of his or her certificates or the notation in the Companys direct registration system for stock issuance and transfer of such restrictions and accompanying legends set forth in Section 4.1 with respect thereto. Notwithstanding such restrictions, however, so long as Participant is the holder of the Shares, or any portion thereof, he or she will be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a stockholder with respect thereto.
3.5 Non-Transferability of Unvested Shares . In addition to any other limitation on transfer created by applicable securities laws or any other agreement between the Company and Participant, Participant may not transfer any Unvested Shares, or any interest therein, unless consented to in writing by a duly authorized representative of the Company. Any purported transfer is void and of no effect, and no purported transferee thereof will be recognized as a holder of the Unvested Shares for any purpose whatsoever. Should such a transfer purport to occur, the Company may refuse to carry out the
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transfer on its books, set aside the transfer, or exercise any other legal or equitable remedy. In the event the Company consents to a transfer of Unvested Shares, all transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Right. In the event of any purchase by the Company hereunder where the Shares or interest are held by a transferee, the transferee will be obligated, if requested by the Company, to transfer the Shares or interest to the Participant for consideration equal to the amount to be paid by the Company hereunder. In the event the Repurchase Right is deemed exercised by the Company, the Company may deem any transferee to have transferred the Shares or interest to Participant prior to their purchase by the Company, and payment of the purchase price by the Company to such transferee will be deemed to satisfy Participants obligation to pay such transferee for such Shares or interest, and also to satisfy the Companys obligation to pay Participant for such Shares or interest.
3.6 Assignment . The Repurchase Right may be assigned by the Company in whole or in part to any persons or organization.
4. Restrictive Legends and Stop Transfer Orders .
4.1 Legends . The certificate or certificates or book entry or book entries representing the Shares will bear or be noted by the Companys transfer agent with the following legend (as well as any legends required by applicable state and federal corporate and securities laws):
THE SHARES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
4.2 Stop-Transfer Notices . Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate stop transfer instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
4.3 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 the owner or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares will have been so transferred.
5. No Rights as Employee, Director or Consultant . Nothing in this Agreement will affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participant s service, for any reason, with or without cause.
6. Section 83(b) Election . Participant hereby acknowledges that he or she has been informed that, with respect to the purchase of the Shares, an election may be filed by the Participant with the Internal Revenue Service, within 30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase (the Election ). Making the Election will result in recognition of taxable income to the Participant on the date of purchase, measured by the excess, if any, of the Fair Market Value of the Shares over the purchase price for the Shares. Absent such an Election, taxable income will be measured and recognized by Participant at the time or times on which the Companys Repurchase Right lapses. Participant is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the
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Election. PARTICIPANT ACKNOWLEDGES THAT IT IS SOLELY PARTICIPANTS RESPONSIBILITY, AND NOT THE COMPANYS RESPONSIBILITY, TO TIMELY FILE THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF PARTICIPANT REQUESTS THE COMPANY, OR ITS REPRESENTATIVE, TO MAKE THIS FILING ON PARTICIPANTS BEHALF.
7. Miscellaneous .
7.1 Acknowledgement . The Company and Participant agree that the Restricted Shares are granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference). Participant: (i) acknowledges receipt of a copy of the Plan and the Plan prospectus, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the Restricted Shares subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.
7.2 Notices . Any notice to be given under the terms of the Plan will be addressed to the Company in care of its principal office, and any notice to be given to the Participant will be addressed to such Participant at the address maintained by the Company for such person or at such other address as the Participant may specify in writing to the Company.
7.3 U.S. Tax Consequences . Unless an Election (defined above) is made, upon vesting of Shares, Participant will include in taxable income the difference between the fair market value of the vesting Shares, as determined on the date of their vesting, and the price paid for the Shares. This will be treated as ordinary income by Participant and will be subject to withholding by the Company when required by applicable law. In the absence of an Election (defined below), the Company will withhold a number of vesting Shares with a fair market value (determined on the date of their vesting) equal to the minimum amount the Company is required to withhold for income and employment taxes. If Participant makes an Election, then Participant must, prior to making the Election, pay in cash (or check) to the Company an amount equal to the amount the Company is required to withhold for income and employment taxes.
7.4 Withholding Taxes and Stock Withholding . Regardless of any action the Company or Participants actual employer (the Employer ) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding ( Tax-Related Items ), Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by Participant is and remains Participants responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Shares received under this award, including the award or vesting of such Shares, the subsequent sale of Shares under this award and the receipt of any dividends; and (2) do not commit to structure the terms of the award or any aspect of the Restricted Shares to reduce or eliminate Participants liability for Tax-Related Items. Participant acknowledges that if Participant is subject to Tax-Related Items in more than one jurisdiction, the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
The Company will only recognize Participant as a record holder of Shares if Participant has paid or made adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, Participant authorizes the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by Participant from Participants wages or other cash compensation paid to Participant by the Company and/or the Employer. With the Companys consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be released from the Repurchase Right when they vest, provided that the Company only withholds the amount of Shares
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necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on Participants behalf and Participant hereby authorizes such sales by this authorization), (c) Participants payment of a cash amount (including by check representing readily available funds or a wire transfer), or (d) any other arrangement approved by the Company; all under such rules as may be established by the Committee and in compliance with the Companys Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if Participant is a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (a)-(d) above, and the Committee shall establish the method prior to the Tax-Related Items withholding event. The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. Participant shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of Participants participation in the Plan or Participants purchase of Shares that cannot be satisfied by the means previously described. Finally, Participant acknowledges that the Company has no obligation to deliver Shares to Participant until Participant has satisfied the obligations in connection with the Tax-Related Items as described in this Section.
7.5 Consent to Electronic Delivery of All Plan Documents and Disclosures . By Participants acceptance (whether in writing, electronically or otherwise) of the Notice, Participant and the Company agree that this opportunity to purchase Restricted Shares is granted under and governed by the terms and conditions of the Plan, the Notice and this Agreement. Participant has reviewed the Plan, the Notice and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement, and fully understands all provisions of the Plan, the Notice and this Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice and this Agreement. Participant further agrees to notify the Company upon any change in Participants residence address. By acceptance of this opportunity to purchase Restricted Shares, Participant agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company and consents to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the U.S. Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Restricted Shares and current or future participation in the Plan. Electronic delivery may include the delivery of a link to the Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Companys discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail to Stock Administration. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participants consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail through Stock Administration. Finally, Participant understands that Participant is not required to consent to electronic delivery if local laws prohibit such consent.
7.6 Counterparts . This Agreement may be executed in two or more counterparts, each of which will he deemed an original and all of which together will constitute one instrument.
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7.7 Entire Agreement; Enforcement of Rights . This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement will not be construed as a waiver of any rights of such party.
7.8 Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant 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.
7.9 Governing Law and Venue; Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision will be excluded from this Agreement, (ii) the balance of this Agreement will be interpreted as if such provision were so excluded and (iii) the balance of this Agreement will be enforceable in accordance with its terms. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto will be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. Any and all disputes relating to, concerning or arising from this Agreement, or relating to, concerning or arising from the relationship between the parties evidenced by the Plan or this Agreement, will be brought and heard exclusively in the United States District Court for the District of Northern California or the Superior Court of California, County of San Francisco. Each of the parties hereby represents and agrees that such party is subject to the personal jurisdiction of said courts; hereby irrevocably consents to the jurisdiction of such courts in any legal or equitable proceedings related to, concerning or arising from such dispute, and waives, to the fullest extent permitted by law, any objection which such party may now or hereafter have that the laying of the venue of any legal or equitable proceedings related to, concerning or arising from such dispute which is brought in such courts is improper or that such proceedings have been brought in an inconvenient forum.
7.10 Construction . This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement will be deemed to be the product of all of the parties hereto, and no ambiguity will be construed in favor of or against any one of the parties hereto.
8. Award Subject to Company Clawback or Recoupment . To the extent permitted by applicable law, the Shares shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of Participants employment or other Service with the Company that is applicable to Participant. In addition to any other remedies available under such policy, applicable law may require the cancellation of Participants Shares (whether vested or unvested) and the recoupment of any gains realized with respect to Participants Shares.
BY ACCEPTING THIS RESTRICTED STOCK AWARD, PARTICIPANT AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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RECEIPT
Audentes Therapeutics, Inc. hereby acknowledges receipt of (check as applicable):
¨ A check or wire transfer in the amount of $
¨ The cancellation of indebtedness in the amount of $
¨ Given by as consideration for the book entry in Participants name or Certificate No. - for shares of Common Stock of Audentes Therapeutics, Inc.
¨ Other method as permitted by the Plan and specifically approved by the Board or Committee, and described here:
Dated: |
AUDENTES THERAPEUTICS, INC. | ||
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RECEIPT AND CONSENT
The undersigned hereby acknowledges the book entry in his or her name or receipt of a photocopy of Certificate No. - for shares of Common Stock of Audentes Therapeutics, Inc. (the Company ).
The undersigned further acknowledges that the Secretary of the Company, or his or her designee, is acting as escrow holder pursuant to the Restricted Stock Agreement that he or she has previously entered into with the Company. As escrow holder, the Secretary of the Company, or his or her designee, holds the original of the aforementioned certificate issued in the undersigneds name. To facilitate any transfer of Shares to the Company pursuant to the Restricted Stock Agreement, the undersigned has executed the attached Assignment Separate from Certificate.
Dated: , 20 | ||
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STOCK POWER AND ASSIGNMENT
SEPARATE FROM STOCK CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Agreement dated as of , , [ COMPLETE AT THE TIME OF PURCHASE ] (the Agreement ), the undersigned hereby sells, assigns and transfers unto , shares of the Common Stock of Audentes Therapeutics, Inc., a Delaware corporation (the Company ), standing in the undersigneds name on the books of the Company represented hereby by book entry or by Certificate No(s). [ COMPLETE AT THE TIME OF PURCHASE ] delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigneds attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.
Dated: ,
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Instructions : Please do not fill in any blanks other than the signature line. The purpose of this document is to enable the Company and/or its assignee(s) to acquire the shares upon exercise of its Repurchase Right set forth in the Agreement without requiring additional action.
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Exhibit 10.4
AUDENTES THERAPEUTICS, INC.
2016 EMPLOYEE STOCK PURCHASE PLAN
1. Establishment of Plan . Audentes Therapeutics, Inc., a Delaware corporation (the Company ) proposes to grant options to purchase shares of Common Stock to eligible employees of the Company and its Participating Corporations pursuant to this Plan. The Company intends this Plan to qualify as an employee stock purchase plan under Code Section 423 (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Code Section 423 shall have the same definition herein. However, with regard to offers of options for purchase of the Common Stock under the Plan to employees outside the United States working for a Subsidiary or an Affiliate of the Company, the Board may offer a subplan or an option that is not intended to meet the Code Section 423 requirements, provided, if necessary under Code Section 423, that the other terms and conditions of the Plan are met. Subject to Section 14, a total of Two Hundred Ten Thousand (210,000) shares of Common Stock is reserved for issuance under this Plan. In addition, on each January 1 for the first ten (10) calendar years after the first Offering Date, the aggregate number of shares of Common Stock reserved for issuance under the Plan shall be increased automatically by the number of shares equal to one percent (1%) of the total number of outstanding shares of the Company Common Stock on the immediately preceding December 31 (rounded down to the nearest whole share); provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year; and, provided further , that the aggregate number of shares issued over the term of this Plan shall not exceed Two Million One Hundred Thousand (2,100,000) shares of Common Stock. The number of shares reserved for issuance under this Plan and the maximum number of shares that may be issued under this Plan shall be subject to adjustments effected in accordance with Section 14 of this Plan. Capitalized terms not defined elsewhere in the text are defined in Section 27.
2. Purpose . The purpose of this Plan is to provide eligible employees of the Company and Participating Corporations with a means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees sense of participation in the affairs of the Company and Participating Corporations, and to provide an incentive for continued employment.
3. Administration . The Plan will be administered by the Compensation Committee of the Board or by the Board (either referred to herein as the Committee ). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all Participants. The Committee will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and decide upon any and all claims filed under the Plan. Every finding, decision and determination made by the Committee will, to the full extent permitted by law, be final and binding upon all parties. Notwithstanding any provision to the contrary in this Plan, the Committee may adopt rules and/or procedures relating to the operation and administration of the Plan to accommodate requirements of local law and procedures outside of the United States. The Committee will have the authority to determine the Fair Market Value of the Common Stock (which determination shall be final, binding and conclusive for all purposes) in accordance with Section 8 below and to interpret Section 8 of the Plan in connection with circumstances that impact the Fair Market Value. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on the Board or its committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. For purposes of this Plan, the Committee may designate separate offerings under the Plan (the terms of which need not be identical) in which eligible employees of one or more Participating Corporations will participate, even if the dates of the applicable Offering Periods of each such offering are identical.
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4. Eligibility . Any employee of the Company or the Participating Corporations is eligible to participate in an Offering Period under this Plan except the following (other than where prohibited by applicable law):
(a) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Corporations or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Corporations;
(b) employees who do not meet any other eligibility requirements that the Committee may choose to impose (within the limits permitted by the Code); and
(c) individuals who provide services to the Company or any of its Participating Corporations as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes.
The foregoing notwithstanding, an individual shall not be eligible if his or her participation in the Plan is prohibited by the law of any country that has jurisdiction over him or her, if complying with the laws of the applicable country would cause the Plan to violate Section 423 of the Code, or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan.
5. Offering Dates .
(a) While the Plan is in effect, the Committee shall determine the duration and commencement date of each Offering Period, provided that an Offering Period shall in no event be longer than twenty-seven (27) months, except as otherwise provided by an applicable subplan. Offering Periods may be consecutive or overlapping. Each Offering Period may consist of one or more Purchase Periods during which payroll deductions of Participants are accumulated under this Plan. While the Plan is in effect, the Committee shall determine the duration and commencement date of each Offering Period and Purchase Period, provided that a Purchase Period shall in no event end later than the close of the Offering Period in which it begins. Purchase Periods shall be consecutive.
(b) The time and duration of the Offering Periods and the Purchase Periods and shall be determined by the Committee; provided that any Offering Period shall in no event be longer than twenty-seven (27) months; and provided, further, that a single Offering Period may consist of one or more Purchase Periods.
6. Participation in this Plan .
(a) An eligible employee determined in accordance with Section 4 may elect to become a Participant in an Offering Period by submitting a subscription agreement, or electronic representation thereof, to the Company and/or via an authorized third party administrators (the Third Party Administrator ) standard process, prior to the commencement of the Offering Period to which such agreement relates in accordance with such rules as the Committee may determine.
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(b) Once an employee becomes a Participant in an Offering Period, then such Participant will automatically participate in each subsequent Offering Period commencing immediately following the last day of such prior Offering Period at the same contribution level unless the Participant withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 11 below or otherwise notifies the Company of a change in the Participants contribution letter by filing an additional subscription agreement or electronic representation thereof with the Company and/or the Third Party Administrator, prior to the next Offering Period. A Participant that is automatically enrolled in a subsequent Offering Period pursuant to this section is not required to file any additional subscription agreement in order to continue participation in this Plan.
7. Grant of Option on Enrollment . Becoming a Participant with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such Participant of an option to purchase on the Purchase Date up to that number of shares of Common Stock determined by a fraction, the numerator of which is the amount of the contribution level for such Participant multiplied by such Participants Compensation (as defined in Section 9 below) during such Purchase Period and the denominator of which is the lower of (i) eighty-five percent (85%) of the Fair Market Value of a share of the Common Stock on the Offering Date (but in no event less than the par value of a share of the Companys Common Stock), or (ii) eighty-five percent (85%) of the Fair Market Value of a share of the Common Stock on the Purchase Date (but in no event less than the par value of a share of the Common Stock); provided, however , that the number of shares of Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(b) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(a) below with respect to the applicable Purchase Date.
8. Purchase Price . The Purchase Price in any Offering Period shall be eighty-five percent (85%) of the lesser of:
(a) The Fair Market Value on the Offering Date; or
(b) The Fair Market Value on the Purchase Date.
9. Payment of Purchase Price; Payroll Deduction Changes; Share Issuances .
(a) The Purchase Price of the shares is accumulated by regular payroll deductions made during each Offering Period, unless the Committee determines that contributions may be made in another form (including payment by check at the end of a Purchase Period or, due to local law requirements, in another form with respect to categories of Participants outside the United States). The deductions are made as a percentage of the Participants compensation in one percent (1%) increments not less than one percent (1%), nor greater than fifteen percent (15%) or such lower limit set by the Committee. Compensation shall mean base salary and regular hourly wages (or in foreign jurisdictions, equivalent cash compensation); however, the Committee may at any time prior to the beginning of an Offering Period determine that for that and future Offering Periods, Compensation shall mean all cash compensation reported on the employees form W-2 or corresponding local country tax return, including without limitation base salary or regular hourly wages, bonuses, incentive compensation, commissions, overtime, shift premiums, plus draws against commissions (or in foreign jurisdictions, equivalent cash compensation). For purposes of determining a Participants Compensation, any election by such Participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code (or in foreign jurisdictions, equivalent salary deductions) shall be treated as if the Participant did not make such election. Payroll deductions shall commence on the first payday following the last Purchase Date (or the
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first payday following the commencement of the initial Offering Period) and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. Notwithstanding the foregoing, the terms of any subplan may permit matching shares without the payment of any purchase price.
(b) Subject to Section 25 below and to the rules of the Committee, a Participant may decrease the rate of payroll deductions during an Offering Period by filing with the Company or a third party designated by the Company a new authorization for payroll deductions, with the new rate to become effective as soon as reasonably practicable and continuing for the remainder of the Offering Period unless changed as described below. A decrease in the rate of payroll deductions may be made once during an Offering Period or more or less frequently under rules determined by the Committee. A Participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Company or a third party designated by the Company a new authorization for payroll deductions prior to the beginning of such Offering Period, or such other time period as specified by the Committee.
(c) Subject to Section 25 below and to the rules of the Committee, a Participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Company a request for cessation of payroll deductions, and after such reduction becomes effective no further payroll deductions will be made for the duration of the Offering Period. Payroll deductions credited to the Participants account prior to the effective date of the request shall be used to purchase shares of Common Stock in accordance with Section (e) below. A reduction of the payroll deduction percentage to zero shall be treated as such Participants withdrawal from such Offering Period, and the Plan, effective as of the day after the next Purchase Date following the filing date of such request with the Company.
(d) All payroll deductions made for a Participant are credited to his or her account under this Plan and are deposited with the general funds of the Company, and the Company shall not be obligated to segregate such payroll deductions, except to the extent required to be segregated due to local legal restrictions outside the United States. No interest accrues on the payroll deductions except to the extent required due to local legal requirements outside the United States. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, except to the extent necessary to comply with local legal requirements outside the United States.
(e) On each Purchase Date, so long as this Plan remains in effect and provided that the Participant has not submitted a signed and completed withdrawal form before that date which notifies the Company and/or the Third Party Administrator that the Participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the Participant as of that date returned to the Participant, the Company shall apply the funds then in the Participants account to the purchase of whole shares of Common Stock reserved under the option granted to such Participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The Purchase Price shall be as specified in Section 8 of this Plan. Any amount remaining in a Participants account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock shall be carried forward into the next Purchase Period or Offering Period, as the case may be (except to the extent required due to local legal requirements outside the United States), as otherwise determined by the Committee. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the Participant, without interest (except to the extent required due to local legal requirements outside the United States). No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date (except to the extent required due to local legal requirements outside the United States).
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(f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the Participants benefit representing the shares purchased upon exercise of his or her option.
(g) During a Participants lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The Participant will have no interest or voting right in shares covered by his or her option until such option has been exercised.
(h) To the extent required by applicable federal, state, local or foreign law, a Participant shall make arrangements satisfactory to the Company and the Participating Corporation employing the Participant for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company or any Subsidiary or Affiliate, as applicable, may withhold, by any method permissible under applicable law, the amount necessary for the Company or any Subsidiary or Affiliate, as applicable, to meet applicable withholding obligations, including any withholding required to make available to the Company or any Subsidiary or Affiliate, as applicable, any tax deductions or benefits attributable to the sale or early disposition of shares of Common Stock by a Participant. The Company shall not be required to issue any shares of Common Stock under the Plan until such obligations are satisfied.
10. Limitations on Shares to be Purchased .
(a) No Participant shall be entitled to purchase stock under any Offering Period at a rate which, when aggregated with such Participants rights to purchase stock under all other employee stock purchase plans of a Participating Company intended to meet the requirements of Section 423 of the Code that are also outstanding in the same calendar year(s) (whether under other Offering Periods or other employee stock purchase plans of the Company, its Parent and its Subsidiaries), exceeds $25,000 in Fair Market Value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which such Offering Period is in effect (hereinafter the Maximum Share Amount ). The Company may automatically suspend the payroll deductions of any Participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension.
(b) The Committee may, in its sole discretion, set a lower maximum number of shares which may be purchased by any Participant during any Offering Period than that determined under Section 10(a) above, which shall then be the Maximum Share Amount for subsequent Offering Periods; provided, however, in no event shall a Participant be permitted to purchase more than Two Thousand One Hundred (2,100) Shares during any one Purchase Period or such lesser number as the Committee may determine, irrespective of the Maximum Share Amount set forth in (a) and (b) hereof. If a new Maximum Share Amount is set, then all Participants will be notified of such Maximum Share Amount prior to the commencement of the next Offering Period for which it is to be effective. The Maximum Share Amount shall continue to apply with respect to all succeeding Offering Periods unless revised by the Committee as set forth above.
(c) If the number of shares to be purchased on a Purchase Date by all Participants exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company will give written notice of such reduction of the number of shares to be purchased under a Participants option to each Participant affected.
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(d) Any payroll deductions accumulated in a Participants account which are not used to purchase stock due to the limitations in this Section 10, and not covered by Section 9(e), shall be returned to the Participant as soon as administratively practicable after the end of the applicable Purchase Period, without interest (except to the extent required due to local legal requirements outside the United States).
11. Withdrawal .
(a) Each Participant may withdraw from an Offering Period under this Plan pursuant to a method specified by the Company. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn Participant, without interest (except to the extent required due to local legal requirements outside the United States), and his or her interest in this Plan shall terminate. In the event a Participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan.
(c) To the extent applicable, if the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participants account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any.
12. Termination of Employment . Termination of a Participants employment for any reason, including retirement, death, disability, or the failure of a Participant to remain an eligible employee of the Company or of a Participating Corporation, immediately terminates his or her participation in this Plan (except to the extent required due to local legal requirements outside the United States). In such event, accumulated payroll deductions credited to the Participants account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest (except to the extent required due to local legal requirements outside the United States). For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Corporation in the case of sick leave, military leave, or any other leave of absence approved by the Company; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. The Company will have sole discretion to determine whether a Participant has terminated employment and the effective date on which the Participant terminated employment, regardless of any notice period or garden leave required under local law.
13. Return of Payroll Deductions . In the event a Participants interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the Participant all accumulated payroll deductions credited to such Participants account. No interest shall accrue on the payroll deductions of a Participant in this Plan (except to the extent required due to local legal requirements outside the United States).
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14. Capital Changes . If the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then the Committee shall adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised, and the numerical limits of Sections 1 and 10 shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with applicable securities laws; provided that fractions of a Share will not be issued.
15. Nonassignability . Neither payroll deductions credited to a Participants account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect.
16. Use of Participant Funds and Reports . The Company may use all payroll deductions received or held by it under the Plan for any corporate purpose, and the Company will not be required to segregate Participant payroll deductions (except to the extent required due to local legal requirements outside the United States). Until Shares are issued, Participants will only have the rights of an unsecured creditor (except to the extent required due to local legal requirements outside the United States). Each Participant shall receive, or have access to, promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the Purchase Price thereof and the remaining cash balance, if any, carried forward or refunded, as determined by the Committee, to the next Purchase Period or Offering Period, as the case may be.
17. Notice of Disposition . Each U.S. taxpayer Participant shall notify the Company in writing if the Participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the Notice Period ). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Companys transfer agent to notify the Company of any transfer of the shares. The obligation of the Participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates.
18. No Rights to Continued Employment . Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Corporation, or restrict the right of the Company or any Participating Corporation to terminate such employees employment.
19. Equal Rights And Privileges . All eligible employees granted an option under this Plan that is intended to meet the Code Section 423 requirements shall have equal rights and privileges with respect to this Plan or within any separate offering under the Plan so that this Plan qualifies as an employee stock purchase plan within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company or the Committee, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan.
20. Notices . All notices or other communications by a Participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
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21. Term; Stockholder Approval . This Plan will become effective on the date on which the Registration Statement covering the initial public offering of the shares of Common Stock is declared effective by the U.S. Securities and Exchange Commission (the Effective Date ). This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares that are subject to such stockholder approval before becoming available under this Plan shall occur prior to stockholder approval of such shares and the Committee may delay any Purchase Date and postpone the commencement of any Offering Period subsequent to such Purchase Date as deemed necessary or desirable to obtain such approval (provided that if a Purchase Date would occur more than twenty-four (24) months after commencement of the Offering Period to which it relates, then such Purchase Date shall not occur and instead such Offering Period shall terminate without the purchase of such shares and Participants in such Offering Period shall be refunded their contributions without interest). This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time pursuant to Section 25 below), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) the tenth anniversary of the first Purchase Date under the Plan.
22. Designation of Beneficiary.
(a) If provided in the subscription agreement, a Participant may file a written or electronic designation of a beneficiary who is to receive any shares and cash, if any, from the Participants account under this Plan in the event of such Participants death subsequent to the end of a Purchase Period but prior to delivery to him of such shares and cash. In addition, a Participant may file a written or electronic designation of a beneficiary who is to receive any cash from the Participants account under this Plan in the event of such Participants death prior to a Purchase Date. Such form shall be valid only if it was filed with the Company and/or the Third Party Administrator at the prescribed location before the Participants death.
(b) Such designation of beneficiary may be changed by the Participant at any time by written notice filed with the Company at the prescribed location before the Participants death. In the event of the death of a Participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such Participants death, the Company shall deliver such cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or, if no spouse is known to the Company, then to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares . Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, exchange control restrictions and/or securities law restrictions outside the United States, and shall be further subject to the approval of counsel for the Company with respect to such compliance. Shares may be held in trust or subject to further restrictions as permitted by any subplan.
24. Applicable Law . The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of Delaware.
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25. Amendment or Termination . The Committee, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Committee, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Purchase Date (which may be sooner than originally scheduled, if determined by the Committee in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 14). If an Offering Period is terminated prior to its previously-scheduled expiration, all amounts then credited to Participants accounts for such Offering Period, which have not been used to purchase shares of Common Stock, shall be returned to those Participants (without interest thereon, except as otherwise required under local laws) as soon as administratively practicable. Further, the Committee will be entitled to establish rules to change the Purchase Periods and Offering Periods, limit the frequency and/or number of changes in the amount contributed during a Purchase Period or an Offering Period, establish the exchange ratio applicable to amounts contributed in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the administration of the Plan, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts contributed from the Participants base salary or regular hourly wages, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable which are consistent with the Plan. Such actions will not require stockholder approval or the consent of any Participants. However, no amendment shall be made without approval of the stockholders of the Company (obtained in accordance with Section 21 above) within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. In addition, in the event the Committee determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Committee may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequences including, but not limited to: (i) amending the definition of compensation, including with respect to an Offering Period underway at the time; (ii) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (iii) shortening any Offering Period by setting a Purchase Date, including an Offering Period underway at the time of the Committee action; (iv) reducing the maximum percentage of compensation a participant may elect to set aside as payroll deductions; and (v) reducing the maximum number of shares of Common Stock a Participant may purchase during any Offering Period. Such modifications or amendments will not require approval of the stockholders of the Company or the consent of any Participants.
26. Corporate Transactions . In the event of a Corporate Transaction (as defined below), each outstanding right to purchase Common Stock will be assumed or an equivalent option substituted by the successor corporation or a parent or a subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the purchase right, the Offering Period with respect to which such purchase right relates will be shortened by setting a new Purchase Date (the New Purchase Date ) and will end on the New Purchase Date. The New Purchase Date shall occur on or prior to the consummation of the Corporate Transaction, and the Plan shall terminate on the consummation of the Corporate Transaction.
27. Definitions.
(a) Affiliate means any entity, other than a Subsidiary or Parent, (i) that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) in which the Company has a significant equity interest, in either case as determined by the Committee, whether now or hereafter existing.
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(b) Board shall mean the Board of Directors of the Company.
(c) Code shall mean the Internal Revenue Code of 1986, as amended.
(d) Common Stock shall mean the common stock of the Company.
(e) Corporate Transaction means the occurrence of any of the following events: (i) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Companys then outstanding voting securities; or (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Companys assets; or (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.
(f) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(g) Fair Market Value shall mean, as of any date, the value of a share of Common Stock determined as follows:
(i) if such Common Stock is publicly traded and is then listed 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 or such other source as the Committee deems reliable; or
(ii) if such Common Stock is publicly traded but is neither listed nor admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Committee deems reliable; or
(iii) if such Common Stock is publicly traded but is neither quoted on the Nasdaq Market nor 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 in The Wall Street Journal or such other source as the Committee deems reliable; and
(iv) if none of the foregoing is applicable, by the Committee in good faith.
(h) Offering Date shall mean the first business day of each Offering Period.
(i) Offering Period shall mean a period with respect to which the right to purchase Common Stock may be granted under the Plan, as determined by the Committee pursuant to Section 5(a).
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(j) Parent shall have the same meaning as parent corporation in Sections 424(e) and 424(f) of the Code.
(k) Participant shall mean an eligible employee who meets the eligibility requirements set forth in Section 4 and who elects to participate in this Plan pursuant to Section 6(a).
(l) Participating Corporation shall mean any Parent, Subsidiary or Affiliate that the Board designates from time to time as a corporation that shall participate in this Plan.
(m) Plan shall mean this Audentes Therapeutics, Inc. 2016 Employee Stock Purchase Plan.
(n) Purchase Date shall mean the last U.S. business day of each Purchase Period.
(o) Purchase Period shall mean a period during which contributions may be made toward the purchase of Common Stock under the Plan, as determined by the Committee pursuant to Section 5(b).
(p) Purchase Price shall mean the price at which Participants may purchase a share of Common Stock under the Plan, as determined pursuant to Section 8.
(q) Securities Act shall mean the Securities Act of 1933, as amended.
(r) Subsidiary shall have the same meaning as subsidiary corporation in Sections 424(e) and 424(f) of the Code.
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A UDENTES T HERAPEUTICS , I NC . ( THE C OMPANY ) 2016 E MPLOYEE S TOCK P URCHASE P LAN |
E NROLLMENT /C HANGE F ORM |
S ECTION 1:
A CTIONS |
C HECK D ESIRED A CTION :
¨ Enroll in the ESPP ¨ Elect / Change Contribution Percentage ¨ Withdraw from Plan |
AND C OMPLETE S ECTIONS :
2 + 3 + 4 + 16 2 + 4 + 16 2 + 5 + 16 |
S ECTION 2:
P ERSONAL D ATA |
Name:
Home Address: |
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Employee ID:
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Work Email: |
S ECTION 3:
E NROLL |
¨ I hereby elect to participate in the 2016 Employee Stock Purchase Plan, together with any sub-plan thereto for my country of residence (if any) (together, the ESPP), effective at the beginning of the next Offering Period (as defined in the ESPP). I elect to purchase shares of Common Stock of the Company pursuant to the ESPP, this Enrollment/Change Form and any appendix to this Enrollment/Change Form for my country (if any) (the Appendix). I understand that the shares purchased on my behalf will be issued in street name and deposited directly into my brokerage account at the Companys captive broker. I hereby agree to take all steps, and sign all forms, required to establish an account with the Companys captive broker for this purpose.
My participation will continue as long as I remain eligible, unless I withdraw from the ESPP by filing a new Enrollment/Change Form with the Company or the Third Party Administrator (as defined in the ESPP). I understand that, if I am subject to tax in the U.S., I must notify the Company of any disposition of shares purchased under the ESPP. |
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S ECTION 4:
E LECT /C HANGE C ONTRIBUTION P ERCENTAGE |
I hereby authorize the Company or the Parent, Subsidiary or Affiliate employing me (the Employer) to withhold from each of my paychecks such amount as is necessary to equal at the end of the applicable Offering Period the percentage of my Compensation (as defined in the ESPP) paid to me during such Offering Period as indicated below, so long as I continue to participate in the ESPP. The percentage must be a whole number (from 1%, up to a maximum of 15%, with respect to enrollment or an increase in contribution percentage; and from 0%, up to a maximum of 14%, for a decrease in contribution percentage).
Designated contribution percentage: %
If this is a change to my current enrollment, this represents an ¨ increase ¨ decrease to my contribution percentage.
Note: You may not increase your contributions at any time within an on-going Offering Period. An increase in your contribution percentage can only take effect with the next Offering Period. You may decrease your previously elected contribution percentage only once within an on-going Offering Period to be effective during that Offering Period. If you decrease your percentage to 0%, any previously accumulated contributions will be used to purchase shares on the next Purchase Date pursuant to Section 9 of the ESPP. A change will become effective as soon as reasonably practicable after the form is received by the Company. |
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S ECTION 5:
W ITHDRAW FROM P LAN |
¨ I hereby elect to withdraw from, and discontinue my participation in, the ESPP , effective as soon as reasonably practicable after this form is received by the Company. Accumulated contributions will be returned to me without interest (except to the extent required due to local legal requirements outside the United States), pursuant to Section 11 of the ESPP. |
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S ECTION 6:
N ATURE OF G RANT |
By enrolling in the ESPP, I understand, acknowledge and agree that (a) the ESPP is established voluntarily by the Company, it is discretionary in nature and it may be amended, terminated or modified at any time, to the extent permitted by the ESPP; (b) the grant of the right to purchase shares of Common Stock under the ESPP is voluntary and does not create any contractual or |
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other right to receive future rights to purchase shares of Common Stock, or benefits in lieu of rights to purchase shares, even if rights to purchase shares have been granted in the past; (c) all decisions with respect to future grants of rights to purchase shares of Common Stock under the ESPP, if any, will be at the sole discretion of the Company; (d) the grant of rights to purchase shares of Common Stock under the ESPP and my participation in the ESPP shall not create a right to employment or be interpreted as forming an employment or service agreement with the Company; (e) the grant of rights to purchase shares of Common Stock under the ESPP and my participation in the ESPP shall not interfere with the ability of the Employer to terminate my employment relationship at any time with or without cause; (f) I am voluntarily participating in the ESPP; (g) the rights to purchase shares of Common Stock and the shares purchased under the ESPP, and the income and value of same, are not intended to replace any pension rights or compensation; (h) the rights to purchase shares of Common Stock and the shares purchased under the ESPP, and the income and value of same, are not part of normal or expected compensation for purposes of, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (i) unless otherwise agreed with the Company, the rights to purchase shares of Common Stock and the shares purchased under the ESPP, and the income and value of same, are not granted as consideration for, or in connection with, any service I may provide as a director of the Subsidiary or Affiliate; (j) the future value of the underlying shares purchased or to be purchased under the ESPP is unknown, indeterminable and cannot be predicted with certainty, and the value of the shares of Common Stock purchased under the ESPP may increase or decrease in the future, even below the Purchase Price; (k) no claim or entitlement to compensation or damages shall arise from termination of the right to purchase shares of Common Stock under the ESPP resulting from termination of my employment (for any reason whatsoever and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any) and in consideration of the grant of rights to purchase shares of Common Stock under the ESPP, I irrevocably agree never to institute any claim against the Company, the Parent, the Employer or any other Subsidiary or Affiliate, I hereby waive my ability, if any, to bring any such claim, and I release the Company, the Parent, the Employer or any other Subsidiary or Affiliate from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by enrolling in the ESPP, I shall be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claims; (l) in the event of termination of my employment (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any), my right to participate in the ESPP and my right to purchase shares of Common Stock, if any, will terminate effective as of the date I cease to actively provide services and will not be extended by any notice period ( e.g ., employment would not include any contractual notice or any period of garden leave or similar period mandated under employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any); the Committee shall have exclusive discretion to determine when I am no longer actively employed for purposes of my participation in the ESPP (including whether I may still be considered to be providing services while on a leave of absence); (m) unless otherwise provided in the ESPP or by the Company in its discretion, the right to purchase shares of Common Stock and the benefits evidenced by this Enrollment/Change Form do not create any entitlement to have the ESPP or any such benefits granted thereunder transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any Corporate Transaction affecting the Common Stock; and (n) if I am providing services outside the United States: (1) the rights to purchase shares of Common Stock and the shares purchased under the ESPP, and the income and value of same, are not part of normal or expected compensation or salary for any purpose, and (2) neither the Company, the Parent, the Employer nor any other Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between my local currency and the United States Dollar that may affect the value of the rights to purchase shares of Common Stock, the shares purchased under the ESPP or any amounts due to me pursuant to the sale of any shares of Common Stock acquired under the ESPP. | ||
S ECTION 7:
D ATA P RIVACY |
I hereby explicitly, voluntarily and unambiguously consent to the collection, use and transfer, in electronic or other form, of my personal data as described in this Enrollment/Change Form and any other ESPP grant materials by and among, as applicable, the Employer, the Company, the Parent and any of its other Subsidiaries or Affiliates or any third parties assisting in the implementation, administration and management of my participation in the ESPP. |
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I understand that the Company and the Employer may hold certain personal information about me, including, but not limited to, my name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, the fact and conditions of my participation in the ESPP, details of all rights to purchase shares or any other entitlement to shares of Common Stock awarded, cancelled, exercised, vested, unvested or outstanding in my favor (Data), for the exclusive purpose of implementing, administering and managing the ESPP.
I also authorize any transfer of Data, as may be required, to the stock plan service provider that may be designated by the Company from time to time, which is assisting the Company with the implementation, administration and management of the ESPP and/or with whom any shares of Common Stock acquired under the ESPP are deposited. I acknowledge that these recipients may be located in my country or elsewhere, and that the recipients country ( e.g. , the United States) may have different data privacy laws and protections to my country, which may not give the same level of protection to Data. I understand that, if I reside outside the United States, I may request a list with the names and addresses of any potential recipients of Data by contacting my local human resources representative. I authorize the Company, the designated broker and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing my participation in the ESPP to receive, possess, use, retain and transfer Data, in electronic or other form, for the sole purpose of implementing, administering and managing my participation in the ESPP. I understand that Data will be held only as long as is necessary to implement, administer and manage my participation in the ESPP. I understand that, if I reside outside the United States, I may at any time view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case, without cost, by contacting in writing my local human resources representative. Further, I understand that I am providing the consents herein on a purely voluntary basis. If I do not consent, or if I later seek to revoke my consent, my employment status or service and career with the Company and/or the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing my consent is that the Company would not be able to grant future rights to purchase shares of Common Stock or other equity awards to me or administer or maintain such awards. Therefore, I understand that refusing or withdrawing my consent may affect my ability to participate in the ESPP. For more information on the consequences of my refusal to consent or withdrawal of consent, I understand that I may contact my local human resources representative. |
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S ECTION 8:
R ESPONSIBILITY FOR T AXES |
I acknowledge that, regardless of any action taken by the Company or the Employer, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to my participation in the ESPP and legally applicable to me (Tax-Related Items) is and remains my responsibility and may exceed the amount actually withheld by the Company or the Employer. I further acknowledge that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the ESPP, including, but not limited to, my enrollment in the ESPP, the grant of rights to purchase shares of Common Stock, the purchase of shares of Common Stock, the issuance of Common Stock purchased, the sale of shares of Common Stock purchased under the ESPP or the receipt of any dividends; and (2) do not commit to and are under no obligation to structure the terms of the ESPP to reduce or eliminate my liability for Tax-Related Items or achieve any particular tax result. Further, if I am subject to Tax-Related Items in more than one jurisdiction, I acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, I agree to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, I authorize the Company and/or the Employer to satisfy their withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (a) withholding from my wages or other cash compensation payable to me by the Company and/or the Employer, (b) withholding from proceeds of the sale of shares of Common Stock purchased |
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under the ESPP, either through a voluntary sale or through a mandatory sale arranged by the Company (on my behalf pursuant to this authorization without further consent), and (c) withholding in shares to be issued upon purchase under the ESPP.
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case I will receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in shares of Common Stock, for tax purposes, I am deemed to have been issued the full number of shares of Common Stock, notwithstanding that a number of the shares of Common Stock are held back solely for the purpose of paying the Tax-Related Items.
Finally, I agree to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of my participation in the ESPP that cannot be satisfied by the means previously described. The Company may refuse to purchase or deliver the shares or the proceeds from the sale of shares of Common Stock, if I fail to comply with my obligations in connection with the Tax-Related Items. |
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S ECTION 9:
G OVERNING L AW & L ANGUAGE |
The rights to purchase shares and the provisions of this Enrollment/Change Form are governed by, and subject to, the laws of the State of Delaware, without regard to any conflict of law provisions.
If I have received this or any other document related to the ESPP translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control. |
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S ECTION 10:
A PPENDIX & I MPOSITION OF O THER R EQUIREMENTS |
Notwithstanding any provision herein, my participation in the ESPP shall be subject to any special terms and conditions as set forth in the Appendix for my country, if any. Moreover, if I relocate to one of the countries included in the Appendix, the special terms and conditions for such country will apply to me, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Enrollment/Change Form.
The Company reserves the right to impose other requirements on my participation in the ESPP or on any shares of Common Stock purchased under the ESPP, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require me to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. |
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S ECTION 11:
E LECTRONIC D ELIVERY AND A CCEPTANCE |
The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the ESPP by electronic means. I hereby consent to receive such documents by electronic delivery and agree to participate in the ESPP through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. | |
S ECTION 12:
S EVERABILITY & W AIVER |
The provisions of this Enrollment/Change Form are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. I acknowledge that a waiver by the Company of breach of any provision of this Enrollment/Change Form shall not operate or be construed as a waiver of any other provision herein, or of any subsequent breach by me or any other Participant. | |
S ECTION 13:
I NSIDER T RADING R ESTRICTIONS /M ARKET A BUSE L AWS |
I acknowledge that I may be subject to insider trading restrictions and/or market abuse laws, which may affect my ability to acquire or sell shares of Common Stock or my rights to purchase shares under the ESPP during such times as I am considered to have inside information regarding the Company (as defined by or determined under the laws in my country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. I acknowledge that it is my responsibility to comply with any applicable restrictions, and that I am advised to speak to my personal advisor on this matter. |
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16
A PPENDIX
A UDENTES T HERAPEUTICS , I NC .
2016 E MPLOYEE S TOCK P URCHASE P LAN
G LOBAL E NROLLMENT /C HANGE F ORM
Capitalized terms used but not defined herein shall have the meanings ascribed to them in the ESPP or the Enrollment/Change Form.
T ERMS AND C ONDITIONS
This Appendix includes additional terms and conditions that govern your participation in the Audentes Therapeutics, Inc. 2016 Employee Stock Purchase Plan if you reside and/or work in one of the countries listed below. If you are a citizen or resident (or are considered as such for local law purposes) of a country other than the country in which you are currently residing and/or working, or if you transfer to another country after enrolling in the ESPP, the Company shall, in its discretion, determine to what extent the special terms and conditions contained herein shall be applicable to you.
N OTIFICATIONS
This Appendix also includes information regarding securities, exchange controls, tax and certain other issues of which you should be aware with respect to your participation in the ESPP. The information is based on the securities, exchange control, tax and other laws in effect in your country as of [January] 2016. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the information in this Appendix as the only source of information relating to the consequences of your participation in the ESPP because the information may be out of date at the time you exercise your right to purchase shares or sell shares of Common Stock purchased under the ESPP.
In addition, the information contained herein is general in nature and may not apply to your particular situation, and the Company is not in a position to assure you of any particular result. Accordingly, you are advised to seek appropriate professional advice as to how the relevant laws in your country may apply to your situation.
Finally, if you are a citizen or resident of a country, or are considered resident of a country, other than the one in which you are currently residing and/or working, or you transfer employment and/or residency after you enroll in the ESPP, the information contained herein may not be applicable to you.
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U NITED S TATES
There are no country-specific provisions.
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Exhibit 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the Agreement ) is entered into between Audentes Therapeutics, Inc. ( Company ) and Matthew Patterson ( Employee ). This Agreement is effective as of July 16, 2013 ( Effective Date ).
In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree as follows:
1. Position and Duties . As of the Effective Date, Employee will serve as Chief Executive Officer of the Company and will report to the Companys Board of Directors (the Board ). Employee will render such business and professional services in the performance of his duties, consistent with Employees position, as shall reasonably be assigned to him by the Company.
2. Board Seat . Employee may be removed from the Board in accordance with applicable law and the Companys bylaws. If Employee ceases to be employed by the Company, Employee will resign from all Board positions at the request of the Company.
3. Exclusive Service . Employee will be expected to devote his full working time and attention to the business of the Company, and will not render services to any other business without the prior approval of the Board or, directly or indirectly, engage or participate in any business that is competitive in any manner with the business of the Company. Employee will also be expected to comply with and be bound by the Companys operating policies, procedures and practices that are from time to time in effect during the term of his employment.
4. At-Will Employment . Employee and the Company understand and acknowledge that Employees employment with the Company constitutes at-will employment, and the employment relationship may be terminated at any time, with or without cause and with or without notice.
5. Compensation and Benefits .
5.1. Base Salary . While employed by the Company pursuant to this Agreement, the Company shall pay the Employee an annual base salary of $325,000 payable in accordance with the Companys normal payroll practices. The Company shall periodically review (at least annually) Employees compensation and benefits, provided that any changes thereto shall be determined by the Company in its sole and absolute discretion. The Employees base salary in effect from time to time is referred to herein as the Base Salary .
5.2. Target Bonus . Employee will be eligible to receive an annual cash bonus in a target amount equal to 30% of the Employees Base Salary (the Target Bonus ). To receive payment of any Target Bonus, Employee must be employed by the Company at the time the bonus is paid, such date to be not later than March 15 of the year following the year in which the applicable performance objectives are to be measured. Employee will be eligible to receive the Target Bonus in such amount and upon such terms as shall be determined by the Board. Notwithstanding the foregoing, Employees Target Bonus for the 2013 year shall be earned upon the achievement of performance objectives mutually agreed upon between Employee and the Board within Ninety (90) days following the Effective Date.
5.3. Employee Benefits . Employee shall be eligible to participate in all employee benefit plans and arrangements, including, but not limited to, medical, dental, vision and long-term disability insurance benefits and arrangements, as are made available by the Company to its other senior executives, subject to the terms and conditions thereof, on terms not less favorable than are made available to the Companys other senior executives.
5.4. Vacation . Employee will be entitled to paid vacation and holidays pursuant to the terms of the Companys vacation policy as may exist from time to time.
6. Stock Options . The Company will grant Employee an option under the Companys 2012 Equity Incentive Plan (the Plan ) to purchase Six Hundred Thirty-Nine Thousand Nine Hundred Ninety-Four (639,994) shares of the Companys Common Stock (the Option ). The Option will have an exercise price per share equal to the fair market value of a share of the Companys common stock on the date of grant and will vest over four (4) years, with 25% of the total number of shares subject to the Option vesting on the one-year anniversary of the date of grant and the remainder vesting quarterly thereafter in equal installments. Vesting will depend on Employees continued service with the Company and will be subject to the terms and conditions of the Plan and the written Stock Option Agreement governing the Option. Notwithstanding the foregoing, in the event of certain separations from service from the Company, the vesting of the Option will be accelerated as set forth in Section 11.3. The Board may, in its sole discretion, provide Employee with equity grants in addition to the Option set forth above, and the vesting of any such equity grant will be accelerated as set forth in Section 11.3.
7. Founders Restricted Stock . Employee and the Company hereby agree that contemporaneously with and contingent and effective upon the Initial Closing, as such term is defined in that certain Series A Preferred Stock Purchase Agreement, dated on or about the date hereof, by and between the Company and the parties listed on Exhibit A thereto, Employee and the Company will enter into an amendment to the Founders Restricted Stock Purchase Agreement, dated as of December 21, 2012, by and between Employee and the Company (the Purchase Agreement ), in substantially the form attached hereto as Exhibit A.
8. Expenses . The Company will, in accordance with applicable Company policies and guidelines, reimburse Employee for all reasonable and necessary expenses incurred by Employee in connection with his performance of services on behalf of the Company.
9. Inventions and Proprietary Information . Employee hereby acknowledges and agrees that he has executed the Employee Invention Assignment and Confidentiality Agreement, effective as of November 13, 2012, by and between Employee and the Company, a copy of which is attached hereto as Exhibit B , and that such agreement remains in full force and effect.
10. Definitions .
10.1. Cause . For purposes of this Agreement, Cause means (i) Employees failure to satisfactorily perform Employees duties after there has been delivered to Employee a
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written demand for performance which describes the specific deficiencies in Employees performance and the specific manner in which Employees performance must be improved, and which provides thirty (30) business days from the date of notice to remedy such performance deficiencies; (ii) Employees conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude which the Board believes has had or will have a detrimental effect on the Companys reputation or business, (iii) Employee engaging in an act of gross negligence or willful misconduct in the performance of his employment obligations and duties, (iv) Employees committing an act of fraud against, material misconduct or willful misappropriation of property belonging to the Company; (v) Employee engaging in any other misconduct that has had or will have a material adverse effect on the Companys reputation or business; or (vi) Employees breach of the Employee Invention Assignment and Confidentiality Agreement or other unauthorized misuse of the Companys trade secrets or proprietary information.
10.2. Change in Control . For purposes of this Agreement Change in Control means (i) a sale, conveyance, exchange or transfer (excluding any venture-backed or similar investments in the Company) in which any person or entity, other than persons or entities who as of immediately prior to such sale, conveyance, exchange or transfer own securities in the Company, either directly or indirectly, becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of the total voting power of all its then outstanding voting securities; (ii) a merger or consolidation of the Company in which its voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving entity immediately after the merger or consolidation; or (iii) a sale of substantially all of the assets of the Company or a liquidation or dissolution of the Company.
10.3. Disability shall have that meaning set forth in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the Code ).
10.4. Good Reason . For purposes of this Agreement, Good Reason means any of the following taken without the Employees written consent and provided (a) the Company receives, within thirty (30) days following the occurrence of any of the events set forth in clauses (i) through (iv) below, written notice from the Employee specifying the specific basis for Employees belief that Employee is entitled to terminate employment for Good Reason, (b) the Company fails to cure the event constituting Good Reason within thirty (30) days after receipt of such written notice thereof, and (c) the Employee terminates employment within the earlier of ten days (10) days following expiration of such cure period or receipt from the Company that such deficiencies will not be cured: (i) a material change, adverse to Employee, in Employees position, titles, offices or duties; (ii) an assignment of any significant duties to Employee that are inconsistent with Employees positions or offices held under this Agreement; (iii) a decrease in Employees Base Salary by more than 10% (other than in connection with a general decrease in the base salary of all other executive officers); or (iv) the relocation of the Employee to a facility or a location more than fifty (50) miles from Employees then current location.
11. Effect of Separation from Service . For purposes of this Agreement, no payment will be made to Employee upon termination of Employees employment unless such termination constitutes a separation from service within the meaning of Section 409A of the Code, and Section 1.409A-1(h) of the regulations promulgated thereunder.
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11.1. Separation for Cause, Death, Disability or Voluntary Separation from Service . In the event of any separation from service of Employees employment by the Company for Cause or in the event of the Employees death, Disability or voluntary separation from service at any time and for any reason, the Employee will be paid only (i) any earned but unpaid Base Salary, and (ii) other unpaid vested amounts or benefits under the compensation, incentive and benefit plans of the Company in which Employee participates, and (iii) reimbursement for all reasonable and necessary expenses incurred by Employee in connection with his performance of services on behalf of the Company in accordance with applicable Company policies and guidelines, in each case as of the effective date of such separation from service (the Accrued Compensation ). Employee will be allowed to exercise his vested stock options to purchase Company common stock, if any, during the time period set forth in, and in accordance with, the Plan and governing stock option agreement(s).
11.2. Separation from Service without Cause or for Good Reason Prior to a Change in Control . In the event of the Employees separation from service from the Company without Cause or for Good Reason, and provided that Employee delivers to the Company a signed settlement agreement and general release of claims in favor of the Company in a form reasonably specified by the Company (the Release ), and satisfies all conditions to make the Release effective, within sixty (60) days following Employees separation from service, then, in addition to the Accrued Compensation, Employee shall be entitled to the following:
(a) A lump sum cash payment in an amount equal to Six (6) months of Employees Base Salary, payable on the Ninetieth (90th) day following the date of Employees separation from service; and
(b) Provided Employee timely elects to continue health coverage under COBRA, for Employee and/or Employees eligible dependents, the Company shall reimburse Employee for any monthly COBRA premium payments made by Employee to continue such coverage for the Twelve (12) month period measured from the first month following the month in which Employees separation from service occurs.
11.3. Separation from Service Following a Change in Control . In the event of the Employees separation from service from the Company without Cause or for Good Reason, in each case during the period of time commencing ninety (90) days prior to the execution of a definitive agreement providing for the consummation of a Change in Control and ending on the first anniversary of the consummation of such Change in Control, and provided that Employee delivers to the Company the signed Release, and satisfies all conditions to make the Release effective, within sixty (60) days following Employees separation from service, then, in addition to the Accrued Compensation, Employee shall be entitled to the benefits as set forth below:
(a) The payments set forth above in Sections 11.2(a) and (b);
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(b) Acceleration as to 100% of the unvested shares subject to the Option;
(c) Acceleration as to 100% of the unvested shares issued to Employee pursuant to the Purchase Agreement; and
(d) Acceleration as to 100% of the unvested portion of any other equity award granted to the Employee following the Effective Date.
For the avoidance of doubt, the severance payments and benefits payable pursuant to Section 11.2 or Section 11.3 above are not cumulative.
11.4. Parachute Payments . In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (i) constitute parachute payments within the meaning of Section 280G of the Code and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then, Employees severance and other benefits under this Agreement shall be payable either (i) in full, or (ii) as to such lesser amount which would result in no portion of such severance and other benefits being subject to the excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Employee on an after-tax basis, of the greatest amount of severance benefits under this Agreement, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Any reduction shall be made in the following manner: first a pro rata reduction of (i) cash payments subject to Section 409A of the Code as deferred compensation and (ii) cash payments not subject to Section 409A of the Code, and second a pro rata cancellation of (i) equity-based compensation subject to Section 409A of the Code as deferred compensation and (ii) equity-based compensation not subject to Section 409A of the Code. Reduction in either cash payments or equity compensation benefits shall be made prorata between and among benefits which are subject to Section 409A of the Code and benefits which are exempt from Section 409A of the Code. Unless the Company and Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Companys independent public accountants (the Accountants ), whose determination shall be conclusive and binding upon Employee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section.
12. Miscellaneous .
12.1. Arbitration . Employee and the Company agree to submit to mandatory binding arbitration, in Santa Clara County, California, any and all claims arising out of or related to this agreement and Employees employment with the Company and the termination thereof, except that each party may, at its or his option, seek injunctive relief in court related to the
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improper use, disclosure or misappropriation of a partys proprietary, confidential or trade secret information. EMPLOYEE AND THE COMPANY HEREBY WAIVE ANY RIGHTS TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This agreement to arbitrate does not restrict Employees right to file administrative claims Employee may bring before any government agency where, as a matter of law, the parties may not restrict the employees ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, Employee and the Company agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.
12.2. Indemnification . The Company shall indemnify Employee with respect to activities in connection with his employment hereunder to the fullest extent provided in the Companys bylaws. Employee will be named as an insured on the director and officer liability insurance policy currently maintained, or as may be maintained by the Company from time to time, and, in addition, Employee will enter into the form of indemnification agreement provided to other similarly situated executive officers and directors of the Company.
12.3. Section 409A .
(a) To the extent (a) any payments or benefits to which Employee becomes entitled under this Agreement, or under any agreement or plan referenced herein, in connection with Employees termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code and (b) Employee is deemed at the time of such termination of employment to be a specified employee under Section 409A of the Code, then such payments shall not be made or commence until the earliest of (i) the expiration of the six (6)-month period measured from the date of Employees separation from service (as such term is at the time defined in Treasury Regulations under Section 409A of the Code) from the Company; or (ii) the date of Employees death following such separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Employee, including (without limitation) the additional twenty percent (20%) tax for which Employee would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this paragraph shall be paid to Employee or Employees beneficiary in one lump sum (without interest).
(b) Any termination of Employees employment is intended to constitute a separation from service and will be determined consistent with the rules relating to a separation from service as such term is defined in Treasury Regulation Section 1.409A-1.
(c) It is intended that each installment of the payments provided hereunder constitute separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is further intended that payments hereunder satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code (and any state law of similar
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effect) provided under Treasury Regulation Section 1.409A-1(b)(4) (as a short-term deferral) and/or Treasury Regulation Section 1.409A-1(b)(9) (iii) (as involuntary separation pay). To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision will be read in such a manner so that all payments hereunder comply with Section 409A of the Code.
(d) Notwithstanding anything to the contrary set forth in this Agreement, if any payment under this Agreement subject to execution of a release is subject to the requirements of Section 409A of the Code, in no event will the timing of the execution of the release, directly or indirectly, result in Employee designating the calendar year of payment, and if a payment that is subject to execution of the release could be made in more than one taxable year, payment will be made in the later taxable year.
(e) Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this Agreement is determined to be subject to Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.
12.4. Severability . If any provision of this Agreement shall be found by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent of its invalidity or unenforceability, and agree that all other provisions in this Agreement shall continue in full force and effect.
12.5. No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.
12.6. Assignment . This Agreement and all rights hereunder are personal to Employee and may not be transferred or assigned by Employee at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes the Companys obligations hereunder.
12.7. Withholding . All sums payable to Employee hereunder shall be in United States Dollars and shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law.
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12.8. Entire Agreement . This Agreement (and the exhibit(s) hereto) and the Purchase Agreement constitutes the entire and only agreement and understanding between the parties relating to Employees employment with Company. This Agreement supersedes and cancels any and all previous contracts, arrangements or understandings other than the exhibits hereto and the Purchase Agreement with respect to Employees employment.
12.9. Amendment . The parties understand and agree that this Agreement may not be amended, modified or waived, in whole or in part, except in a writing executed by (i) Employee and (ii) either (A) an authorized executive officer of the Company or (B) an authorized independent member of the Board, in each case, other than Employee.
12.10. Notices . All notices, if any, and all other communications, if any, required or permitted under this Agreement shall be in writing and hand delivered, sent via facsimile, sent by registered first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications shall be effective upon receipt if hand delivered or sent via facsimile, five (5) days after mailing if sent by mail, and one (1) day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party shall notify the other parties:
If to the Company: |
Audentes Therapeutics, Inc. | |
Attention: |
Matthew Patterson | |
If to Employee: |
Matthew Patterson | |
Facsimile: |
12.11. Binding Nature . This Agreement shall be binding upon, and inure to the benefit of, the successors and personal representatives of the respective parties hereto.
12.12. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement.
12.13. Governing Law . This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws.
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IN WITNESS WHEREOF, the Company and Employee have executed this Agreement as of the date first above written.
AUDENTES THERAPEUTICS, INC. | MATTHEW PATTERSON | |||||
By: | /s/Jonathan Silverstein | /s/ Matthew Patterson | ||||
Name: | Jonathan Silverstein | |||||
Title: | Director |
EXHIBIT A
Amendment No. 1 to Founders Restricted Stock Purchase Agreement
AUDENTES THERAPEUTICS, INC.
AMENDMENT NO. 1 TO FOUNDERS
RESTRICTED STOCK PURCHASE AGREEMENT
This Amendment No. 1 to Founders Restricted Stock Purchase Agreement (this Amendment ) is entered into as of July 16, 2013, by and between Audentes Therapeutics, Inc., a Delaware corporation (the Company ) and Matthew Patterson (the Founder ) and amends that certain Founders Restricted Stock Purchase Agreement dated as of December 21, 2012 by and between the Company and the Founder (the Purchase Agreement ).
WHEREAS, the Company and certain investors (the Investors ) are parties to the Series A Preferred Stock Purchase Agreement, of even date herewith, pursuant to which the Investors have agreed to purchase shares of the Companys Series A Preferred Stock (the Preferred Stock ); and
WHEREAS, the Company and the Founder desire to amend the Purchase Agreement to induce the Investors to purchase the Preferred Stock; and
WHEREAS, Section 13.7 of the Purchase Agreement provides that the terms of the Purchase Agreement may be amended only by a written agreement executed by the Company and the Founder.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned consent to this Amendment as follows:
1. | AMENDMENT OF AGREEMENT. |
Sections 7.2.1 and 7.2.2 of the Purchase Agreement are hereby amended and restated in their entirety to read in their entirety as follows:
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. On the Effective Date all of the Shares will be Unvested Shares. If Purchaser has continuously been employed by the Company or any Affiliate, at all times from the Effective Date until January 1, 2013 (the First Vesting Date ), then on the First Vesting Date 1/24 th of the Shares will become Vested Shares; and thereafter, for so long (and only for so long) as Purchaser remains continuously employed by the Company or any Affiliate or successor (referred to collectively with the Company in this Section 7.2 as the Company ) at all times after the First Vesting Date, on the same day of each succeeding calendar month after the First Vesting Date (or if there is no such day in any month, then the last day of such calendar month) an additional 1/24th of the Shares will become Vested Shares. No Unvested Shares will become Vested Shares after the Termination Date. If the application of the vesting percentage results in a fractional share, such share shall be rounded down to the nearest whole share for each month except for the last month in such vesting period, at the end of which last month the balance of Unvested Shares shall become fully Vested Shares.
7.2.2 Acceleration of Vesting Following Change of Control . In addition to any Shares that have become Vested Shares pursuant to Section 7.2.1 hereof, if there is a Change of Control and if, during the period of time commencing ninety (90) days prior to the execution of a definitive agreement providing for the consummation of such Change of Control and ending on the first anniversary of the consummation of such Change of Control, Purchasers employment by the Company is terminated by the Company, other than for Cause, or is terminated by Purchaser for Good Reason, then, effective as of such termination, 100% of the Shares will become Vested Shares at the time of such termination.
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As used in this Section 7.2.2:
Cause means (a) the Purchasers failure to satisfactorily perform the Purchasers duties after there has been delivered to the Purchaser a written demand for performance which describes the specific deficiencies in the Purchasers performance and the specific manner in which the Purchasers performance must be improved, and which provides thirty (30) business days from the date of notice to remedy such performance deficiencies; (b) the Purchasers conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude which the Companys Board of Directors believes has had or will have a detrimental effect on the Companys reputation or business, (c) the Purchaser engaging in an act of gross negligence or willful misconduct in the performance of his employment obligations and duties, (d) the Purchaser committing an act of fraud against, material misconduct or willful misappropriation of property belonging to the Company; (e) the Purchaser engaging in any other misconduct that has had or will have a material adverse effect on the Companys reputation or business; or (f) the Purchasers breach of the Purchasers Employee Invention Assignment and Confidentiality Agreement or other unauthorized misuse of the Companys trade secrets or proprietary information.
Change of Control means (a) a sale, conveyance, exchange or transfer (excluding any venture-backed or similar investments in the Company) in which any person or entity, other than persons or entities who as of immediately prior to such sale, conveyance, exchange or transfer own securities in the Company, either directly or indirectly, becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of the total voting power of all its then outstanding voting securities; (b) a merger or consolidation of the Company in which its voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving entity immediately after the merger or consolidation; or (c) a sale of substantially all of the assets of the Company or a liquidation or dissolution of the Company.
Good Reason means any of the following taken without the Purchasers written consent and provided (a) the Company receives, within thirty (30) days following the occurrence of any of the events set forth in clauses (i) through (iv) below, written notice from the Purchaser specifying the specific basis for the Purchasers belief that the Purchaser is entitled to terminate employment for Good Reason, (b) the Company fails to cure the event constituting Good Reason within thirty (30) days after receipt of such written notice thereof, and (c) the Purchaser terminates employment within the earlier of ten days (10) days following expiration of such cure period or receipt from the Company that such deficiencies will not be cured: (i) a material change, adverse to the Purchaser, in the Purchasers position, titles, offices or duties; (ii) an assignment of any significant duties to the Purchaser that are inconsistent with the Purchasers positions or offices then held; (iii) a decrease in the Purchasers then current annual base salary by more than 10% (other than in connection with a general decrease in the salary of all other executive officers); or (iv) the relocation of the Purchaser to a facility or a location more than fifty (50) miles from the Purchasers then current location.
2. | MISCELLANEOUS. |
2.1 The terms and provisions of the Purchase Agreement shall remain in full force and effect except as specifically modified by this Amendment. On and after the date hereof, each reference in the Purchase Agreement to this Agreement, hereof, herein, hereto, herewith, hereunder and any other words of similar import shall, unless otherwise stated, be construed to refer to the Purchase Agreement as amended by this Amendment.
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2.2 This Amendment may be executed in counterparts and delivered by facsimile or any similar electronic transmission device, all of which shall be considered one and the same agreement.
2.3 This Amendment and all acts and transactions pursuant hereto and the rights and obligations of the parties to the Purchase Agreement, as amended hereby, will be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
2.4 This Amendment, together with the Purchase Agreement, as amended, and all exhibits hereto and thereto represent the entire agreement of the parties with respect to the subject matter herein.
(Signature Page Follows)
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IN WITNESS WHEREOF , the parties hereto have executed this Amendment as of the date first written above.
COMPANY : | ||
AUDENTES THERAPEUTICS, INC. | ||
By: |
/s/ Matthew Patterson |
|
Matthew Patterson | ||
Chief Executive Officer |
[Signature Page to Amendment No. 1 to Founders Restricted Stock Purchase Agreement]
IN WITNESS WHEREOF , the parties hereto have executed this Amendment as of the date first written above.
FOUNDER:
/s/ Matthew Patterson |
Matthew Patterson |
[Signature Page to Amendment No. 1 to Founders Restricted Stock Purchase Agreement]
EXHIBIT B
Employee Invention Assignment and Confidentiality Agreement
EMPLOYEE INVENTION ASSIGNMENT AND
CONFIDENTIALITY AGREEMENT
In consideration of, and as a condition of my employment with Audentes Therapeutics, Inc., a Delaware corporation with its principal offices in the State of California (the Company ), I, as the Employee signing this Employee Invention Assignment and Confidentiality Agreement (this Agreement ), hereby represent to the Company, and the Company and I hereby agree as follows:
1. Purpose of Agreement . I understand that the Company is engaged in a continuous program of research, development, production and/or marketing in connection with its current and projected business and that it is critical for the Company to preserve and protect its proprietary information, its rights in certain inventions and works and in related intellectual property rights. Accordingly, I am entering into this Agreement, whether or not I am expected to create inventions or other works of value for the Company. As used in this Agreement, Inventions means inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, confidential information and trade secrets.
2. Disclosure of Inventions . I will promptly disclose in confidence to the Company, or to any person designated by it, all Inventions that I make, create, conceive or first reduce to practice, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment, and whether or not patentable, copyrightable or protectable as trade secrets.
3. Work for Hire; Assigned Inventions . I acknowledge and agree that any copyrightable works prepared by me within the scope of my employment will be works made for hire under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works. I agree that all Inventions that I make, create, conceive or first reduce to practice during the period of my employment, whether or not in the course of my employment, and whether or not patentable, copyrightable or protectable as trade secrets, and that (i) are developed using equipment, supplies, facilities or trade secrets of the Company; (ii) result from work performed by me for the Company; or (iii) relate to the Companys business or actual or demonstrably anticipated research or development (the Assigned Inventions ), will be the sole and exclusive property of the Company.
4. Excluded Inventions and Other Inventions . Attached hereto as Exhibit A is a list describing all existing Inventions, if any, that may relate to the Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the Effective Date (as defined in Section 25, below), and which are not to be assigned to the Company ( Excluded Inventions ). If no such list is attached, I represent and agree that it is because I have no rights in any existing Inventions that may relate to the Companys business or actual or demonstrably anticipated research or development. For purposes of this Agreement, Other Inventions means Inventions in which I have or may have an interest, as of the Effective Date or thereafter, other than Assigned Inventions and Excluded Inventions. I acknowledge and agree that if, in the scope of my employment, I use any Excluded Inventions or any Other Inventions, or if I include any Excluded Inventions or Other Inventions in any product
or service of the Company or if my rights in any Excluded Inventions or Other Inventions may block or interfere with, or may otherwise be required for, the exercise by the Company of any rights assigned to the Company under this Agreement, I will immediately so notify the Company in writing. Unless the Company and I agree otherwise in writing as to particular Excluded Inventions or Other Inventions, I hereby grant to the Company, in such circumstances (whether or not I give the Company notice as required above), a perpetual, irrevocable, nonexclusive, transferable, world-wide, royalty-free license to use, disclose, make, sell, offer for sale, import, copy, distribute, modify and create works based on, perform, and display such Excluded Inventions and Other Inventions, and to sublicense third parties in one or more tiers of sublicensees with the same rights.
5. Exception to Assignment . I understand that the Assigned Inventions will not include, and the provisions of this Agreement requiring assignment of inventions to the Company do not apply to, any invention that qualifies fully for exclusion under the provisions of Section 2870 of the California Labor Code, which are attached hereto as Exhibit B .
6. Assignment of Rights . I agree to assign, and do hereby irrevocably transfer and assign, to the Company: (i) all of my rights, title and interests in and with respect to any Assigned Inventions; (ii) all patents, patent applications, copyrights, mask works, rights in databases, trade secrets, and other intellectual property rights, worldwide, in any Assigned Inventions, along with any registrations of or applications to register such rights; and (iii) to the extent assignable, any and all Moral Rights (as defined below) that I may have in or with respect to any Assigned Inventions. I also hereby forever waive and agree never to assert any Moral Rights I may have in or with respect to any Assigned Inventions and any Excluded Inventions or Other Inventions licensed to the Company under Section 4, even after termination of my employment with the Company. Moral Rights means any rights to claim authorship of a work, to object to or prevent the modification or destruction of a work, to withdraw from circulation or control the publication or distribution of a work, and any similar right, regardless of whether or not such right is denominated or generally referred to as a moral right.
7. Assistance . I will assist the Company in every proper way to obtain and enforce for the Company all patents, copyrights, mask work rights, trade secret rights and other legal protections for the Assigned Inventions, worldwide. I will execute and deliver any documents that the Company may reasonably request from me in connection with providing such assistance. My obligations under this section will continue beyond the termination of my employment with the Company; provided that the Company agrees to compensate me at a reasonable rate after such termination for time and expenses actually spent by me at the Companys request in providing such assistance. I hereby appoint the Secretary of the Company as my attorney-in-fact to execute documents on my behalf for this purpose. I agree that this appointment is coupled with an interest and will not be revocable.
8. Proprietary Information . I understand that my employment by the Company creates a relationship of confidence and trust with respect to any information or materials of a confidential or secret nature that may be made, created or discovered by me or that may be disclosed to me by the Company or a third party in relation to the business of the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company, or any other party with whom the Company agrees to hold such information or materials in confidence
(the Proprietary Information ). Without limitation as to the forms that Proprietary Information may take, I acknowledge that Proprietary Information may be contained in tangible material such as writings, drawings, samples, electronic media, or computer programs, or may be in the nature of unwritten knowledge or know-how. Proprietary Information includes, but is not limited to, Assigned Inventions, marketing plans, product plans, designs, data, prototypes, specimens, test protocols, laboratory notebooks, business strategies, financial information, forecasts, personnel information, contract information, customer and supplier lists, and the non-public names and addresses of the Companys customers and suppliers, their buying and selling habits and special needs.
9. Confidentiality . At all times, both during my employment and after its termination, I will keep and hold all Proprietary Information in strict confidence and trust. I will not use or disclose any Proprietary Information without the prior written consent of the Company in each instance, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company. Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me or retain in any form any documents or materials or copies containing any Proprietary Information.
10. Physical Property . All documents, supplies, equipment and other physical property furnished to me by the Company or produced by me or others in connection with my employment will be and remain the sole property of the Company. I will return to the Company all such items when requested by the Company, excepting only my personal copies of records relating to my employment or compensation and any personal property I bring with me to the Company and designate as such. Even if the Company does not so request, I will upon termination of my employment return to the Company all Company property, and I will not take with me or retain any such items.
11. No Breach of Prior Agreements . I represent that my performance of all the terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, confidentiality, non-competition, or other agreement with any former employer or other party. I represent that I will not bring with me to the Company or use in the performance of my duties for the Company any documents or materials or intangibles of my own or of a former employer or third party that are not generally available for use by the public or have not been legally transferred to the Company.
12. At Will Employment . I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time. I understand that I am an at will employee of the Company and that my employment can be terminated at any time, with or without notice and with or without cause, for any reason or for no reason, by either the Company or by me. I acknowledge that any statements or representations to the contrary are ineffective, unless put into a writing signed by the Company. I further acknowledge that my participation in any stock option or benefit program is not to be construed as any assurance of continuing employment for any particular period of time.
13. Company Opportunities; Duty Not to Compete . During the period of my employment, I will at all times devote my best efforts to the interests of the Company, and I will
not, without the prior written consent of the Company, engage in, or encourage or assist others to engage in, any other employment or activity that: (i) would divert from the Company any business opportunity in which the Company can reasonably be expected to have an interest; (ii) would directly compete with, or involve preparation to compete with, the current or future business of the Company; or (iii) would otherwise conflict with the Companys interests or could cause a disruption of its operations or prospects.
14. Non-Solicitation of Employees/Consultants . During my employment with the Company and for a one (1) year period thereafter, I will not directly or indirectly solicit away employees or consultants of the Company for my own benefit or for the benefit of any other person or entity, nor will I encourage or assist others to do so.
15. Use of Name & Likeness . I hereby authorize the Company to use, reuse, and to grant others the right to use and reuse, my name, photograph, likeness (including caricature), voice, and biographical information, and any reproduction or simulation thereof, in any form of media or technology now known or hereafter developed, both during and after my employment, for any purposes related to the Companys business, such as marketing, advertising, credits, and presentations.
16. Notification . I hereby authorize the Company, during and after the termination of my employment with the Company, to notify third parties, including, but not limited to, actual or potential customers or employers, of the terms of this Agreement and my responsibilities hereunder.
17. Injunctive Relief . I understand that a breach or threatened breach of this Agreement by me may cause the Company to suffer irreparable harm and that the Company will therefore be entitled to injunctive relief to enforce this Agreement.
18. Governing Law; Severability . This Agreement is intended to supplement, and not to supersede, any rights the Company may have in law or equity with respect to the duties of its employees and the protection of its trade secrets. This Agreement will be governed by and construed in accordance with the laws of the State of California without giving effect to any principles of conflict of laws that would lead to the application of the laws of another jurisdiction. If any provision of this Agreement is invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible, given the fundamental intentions of the parties when entering into this Agreement. To the extent such provision cannot be so enforced, it will be stricken from this Agreement and the remainder of this Agreement will be enforced as if such invalid, illegal or unenforceable provision had never been contained in this Agreement.
19. 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 will constitute one and the same agreement.
20. 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 the parties hereto with respect to such subject matter.
21. Amendment and Waiver. This Agreement may be amended only by a written agreement executed by each of the parties to this Agreement. No amendment or waiver of, or modification of any obligation under, this Agreement will be enforceable unless specifically set forth in a writing signed by the party against which enforcement is sought. A waiver by either party of any of the terms and conditions of this Agreement in any instance will not be deemed or construed to be a waiver of such term or condition with respect to any other instance, whether prior, concurrent or subsequent.
22. Successors and Assigns; Assignment . Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties hereunder, will bind and benefit the parties and their respective successors, assigns, heirs, executors, administrators, and legal representatives. The Company may assign any of its rights and obligations under this Agreement. I understand that I will not be entitled to assign or delegate this Agreement or any of my rights or obligations hereunder, whether voluntarily or by operation of law, except with the prior written consent of the Company.
23. Further Assurances . The parties will execute such further documents and instruments and take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement. Upon termination of my employment with the Company, I will execute and deliver a document or documents in a form reasonably requested by the Company confirming my agreement to comply with the post-employment obligations contained in this Agreement.
24. Acknowledgement . I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with this Agreement.
25. Effective Date of Agreement . This Agreement is and will be effective on and after the first day of my employment by the Company, which is December 21 , 2012 (the Effective Date ).
AUDENTES THERAPEUTICS, INC.: | Employee: MATTHEW PATTERSON | |||||
By: |
/s/ Matthew Patterson |
/s/ Matthew Patterson |
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Signature | ||||||
Name: |
Matthew Patterson |
|
||||
Name (Please Print) | ||||||
Title: |
Chief Executive Officer |
[Signature Page to Employee Invention Assignment and Confidentiality Agreement]
Exhibit A
LIST OF EXCLUDED INVENTIONS UNDER SECTION 4
Identifying Number | ||||
Title |
Date |
or Brief Description |
||
No inventions, improvements, or original works of authorship
Additional sheets attached
Signature of Employee: /s/ Matthew Patterson
Print Name of Employee: Matthew Patterson
Date: 12/21/12
Exhibit B
CALFORNIA LABOR CODE 2870 NOTICE :
California Labor Code Section 2870 provides as follows:
Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employers equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of the invention to the employers business, or actual or demonstrably anticipated research or development of the employer; or (2) result from any work performed by the employee for the employer. To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under California Labor Code Section 2870(a), the provision is against the public policy of this state and is unenforceable.
Exhibit 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the Agreement ) is entered into between Audentes Therapeutics, Inc. ( Company ) and Suyash Prasad ( Employee ). This Agreement is effective as of February 18, 2014 ( Effective Date ).
In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree as follows:
1. Position and Duties . As of the Effective Date, Employee will serve as Senior Vice President and Chief Medical Officer of the Company and will report to the Companys Chief Executive Officer (the CEO ). Employee will render such business and professional services in the performance of his duties, consistent with Employees position, as shall reasonably be assigned to him by the Company.
2. Exclusive Service . Employee will be expected to devote his full working time and attention to the business of the Company, and will not render services to any other business without the prior approval of the CEO or, directly or indirectly, engage or participate in any business that is competitive in any manner with the business of the Company. Employee will also be expected to comply with and be bound by the Companys operating policies, procedures and practices that are from time to time in effect during the term of his employment.
3. At-Will Employment . Employee and the Company understand and acknowledge that Employees employment with the Company constitutes at-will employment, and the employment relationship may be terminated at any time, with or without cause and with or without notice. The Company may modify your position, duties, goals, reporting relationship, work location, and compensation based on your performance and Company needs.
4. Compensation and Benefits .
4.1. Base Salary . While employed by the Company pursuant to this Agreement, the Company shall pay the Employee an annual base salary of $320,000 payable in accordance with the Companys normal payroll practices. The Company shall periodically review (at least annually) Employees compensation and benefits, provided that any changes thereto shall be determined by the Company in its sole and absolute discretion. The Employees base salary in effect from time to time is referred to herein as the Base Salary .
4.2. Target Bonus . Employee will be eligible to receive an annual cash bonus in a target amount equal to 25% of the Employees Base Salary based on achievement of corporate performance (including financial) objectives to be established from time to time by the Board of Directors (the Board and such bonus, the Target Bonus ) as well as achievement of annual personal performance objectives to be mutually agreed upon in writing between Employee and the Chief Executive Officer. To receive payment of any Target Bonus, Employee must be employed by the Company at the time the bonus is paid, such date to be not later than March 15 of the year following the year in which the applicable performance objectives are to be measured. Employee will be eligible to receive the Target Bonus in such amount and upon such terms as shall be determined by the Board at its sole discretion.
4.3. Sign-On Bonus . Employee will receive a one-time payment of $90,000 as a sign-on bonus. The payment is subject to normal payroll practices and will be paid coincidental with the completion of the Employees second payroll cycle as an employee of the Company. Should Employee voluntarily resign from the Company prior to August 18, 2014, the Employee will repay this entire sign-on bonus to the Company within ten (10) business days of the termination date.
4.4. Employee Benefits . Employee shall be eligible to participate in all employee benefit plans and arrangements, including, but not limited to, medical, dental, vision and long-term disability insurance benefits and arrangements, as are made available by the Company to its other senior executives, subject to the terms and conditions thereof, on terms not less favorable than are made available to the Companys other senior executives. The Company reserves the right to modify benefits, contribution, and reimbursement levels from time to time, as it deems necessary.
4.5. Vacation . Employee will be entitled to paid vacation and holidays pursuant to the terms of the Companys vacation policy as may exist from time to time but such paid vacation will not be less than fifteen (15) work days per year, prorated for the first year of employment.
5. Stock Options . Based upon the approval of the Board, the Company will grant Employee an option under the Companys 2012 Equity Incentive Plan (the Plan ) to purchase Two Hundred and Sixteen Thousand (216,000) shares of the Companys Common Stock (the Option ). The Option will have an exercise price per share equal to the fair market value of a share of the Companys common stock on the date of grant and will vest over four (4) years, with 25% of the total number of shares subject to the Option vesting on the one-year anniversary of the date of grant and the remainder vesting quarterly thereafter in equal installments. Vesting will depend on Employees continued service with the Company and will be subject to the terms and conditions of the Plan and the written Stock Option Agreement governing the Option. Notwithstanding the foregoing, in the event of certain separations from service from the Company, the vesting of the Option will be accelerated as set forth in Section 9.3. The Board may, in its sole discretion, provide Employee with equity grants in addition to the Option set forth above, and the vesting of any such equity grant will be accelerated as set forth in Section 9.3.
6. Expenses . The Company will, in accordance with applicable Company policies and guidelines, reimburse Employee for all reasonable and necessary expenses incurred by Employee in connection with his performance of services on behalf of the Company.
6.1. Named Expenses for Reimbursement . The Company will reimburse Employee for the following expenses:
(a) On-going costs associated with Employees reasonable and ordinary expenses incurred in the maintenance of Employees license to practice medicine and other associated regulatory bodies licensing requirements;
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(b) Membership fees in professional associations typically joined by physicians; however, the Companys CEO may limit from time to time the number of such membership fees the Company reimburses; and
(c) Fees and related expenses typically paid by employers in the maintenance of residence or work permits issued by the United States Immigration and Naturalization Service to citizens of foreign countries living and working in the United States, as required by Employee. The Company will also reimburse Employee for any costs incurred by Employee as a result of Employees previous employer requesting reimbursement for its expenses as set out in this Subsection 6.1(c).
7. Inventions and Proprietary Information . Employee hereby acknowledges and agrees that he has executed the Employee Invention Assignment and Confidentiality Agreement, effective as of January 14, 2014, by and between Employee and the Company, a copy of which is attached hereto as Exhibit B , and that such agreement remains in full force and effect.
8. Definitions .
8.1. Cause . For purposes of this Agreement, Cause means (i) Employees failure to satisfactorily perform Employees duties after there has been delivered to Employee a written demand for performance which describes the specific deficiencies in Employees performance and the specific manner in which Employees performance must be improved, and which provides thirty (30) business days from the date of notice to remedy such performance deficiencies; (ii) Employees conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude which the Board believes has had or will have a detrimental effect on the Companys reputation or business, (iii) Employee engaging in an act of gross negligence or willful misconduct in the performance of his employment obligations and duties, (iv) Employees committing an act of fraud against, material misconduct or willful misappropriation of property belonging to the Company; (v) Employee engaging in any other misconduct that has had or will have a material adverse effect on the Companys reputation or business; or (vi) Employees breach of the Employee Invention Assignment and Confidentiality Agreement or other unauthorized misuse of the Companys trade secrets or proprietary information.
8.2. Change in Control . For purposes of this Agreement Change in Control means (i) a sale, conveyance, exchange or transfer (excluding any venture-backed or similar investments in the Company) in which any person or entity, other than persons or entities who as of immediately prior to such sale, conveyance, exchange or transfer own securities in the Company, either directly or indirectly, becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of the total voting power of all its then outstanding voting securities; (ii) a merger or consolidation of the Company in which its voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving entity immediately after the merger or consolidation; or (iii) a sale of substantially all of the assets of the Company or a liquidation or dissolution of the Company.
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8.3. Disability shall have that meaning set forth in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the Code ).
8.4. Good Reason . For purposes of this Agreement, Good Reason means any of the following taken without the Employees written consent and provided (a) the Company receives, within thirty (30) days following the occurrence of any of the events set forth in clauses (i) through (iv) below, written notice from the Employee specifying the specific basis for Employees belief that Employee is entitled to terminate employment for Good Reason, (b) the Company fails to cure the event constituting Good Reason within thirty (30) days after receipt of such written notice thereof, and (c) the Employee terminates employment within the earlier of ten days (10) days following expiration of such cure period or receipt from the Company that such deficiencies will not be cured: (i) a material change, adverse to Employee, in Employees position, titles, offices or duties; (ii) an assignment of any significant duties to Employee that are inconsistent with Employees positions or offices held under this Agreement; (iii) a decrease in Employees Base Salary by more than 10% (other than in connection with a general decrease in the base salary of all other executive officers); or (iv) the relocation of the Employee to a facility or a location more than fifty (50) miles from Employees then current location.
9. Effect of Separation from Service . For purposes of this Agreement, no payment will be made to Employee upon termination of Employees employment unless such termination constitutes a separation from service within the meaning of Section 409A of the Code, and Section 1.409A-1(h) of the regulations promulgated thereunder.
9.1. Separation for Cause, Death, Disability or Voluntary Separation from Service . In the event of any separation from service of Employees employment by the Company for Cause or in the event of the Employees death, Disability or voluntary separation from service at any time and for any reason, the Employee will be paid only (i) any earned but unpaid Base Salary, and (ii) other unpaid vested amounts or benefits under the compensation, incentive and benefit plans of the Company in which Employee participates, and (iii) reimbursement for all reasonable and necessary expenses incurred by Employee in connection with his performance of services on behalf of the Company in accordance with applicable Company policies and guidelines, in each case as of the effective date of such separation from service (the Accrued Compensation ). Employee will be allowed to exercise his vested stock options to purchase Company common stock, if any, during the time period set forth in, and in accordance with, the Plan and governing stock option agreement(s).
9.2. Separation from Service without Cause or for Good Reason Prior to a Change in Control . In the event of the Employees separation from service from the Company without Cause or for Good Reason, and provided that Employee delivers to the Company a signed settlement agreement and general release of claims in favor of the Company in a form reasonably specified by the Company (the Release ), and satisfies all conditions to make the Release effective, within sixty (60) days following Employees separation from service, then, in addition to the Accrued Compensation, Employee shall be entitled to the following:
(a) A lump sum cash payment in an amount equal to Six (6) months of Employees Base Salary, payable on the Ninetieth (90th) day following the date of Employees separation from service; and
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(b) Provided Employee timely elects to continue health coverage under COBRA, for Employee and/or Employees eligible dependents, the Company shall reimburse Employee for any monthly COBRA premium payments made by Employee to continue such coverage for the Twelve (12) month period measured from the first month following the month in which Employees separation from service occurs.
9.3. Separation from Service Following a Change in Control . In the event of the Employees separation from service from the Company without Cause or for Good Reason, in each case during the period of time commencing ninety (90) days prior to the execution of a definitive agreement providing for the consummation of a Change in Control and ending on the first anniversary of the consummation of such Change in Control, and provided that Employee delivers to the Company the signed Release, and satisfies all conditions to make the Release effective, within sixty (60) days following Employees separation from service, then, in addition to the Accrued Compensation, Employee shall be entitled to the benefits as set forth below:
(a) The payments set forth above in Sections 9.2(a) and (b);
(b) Acceleration as to 100% of the unvested shares subject to the Option; and
(c) Acceleration as to 100% of the unvested portion of any other equity award granted to the Employee following the Effective Date.
For the avoidance of doubt, the severance payments and benefits payable pursuant to Section 9.2 or Section 9.3 above are not cumulative.
9.4. Parachute Payments . In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (i) constitute parachute payments within the meaning of Section 280G of the Code and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then, Employees severance and other benefits under this Agreement shall be payable either (i) in full, or (ii) as to such lesser amount which would result in no portion of such severance and other benefits being subject to the excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Employee on an after-tax basis, of the greatest amount of severance benefits under this Agreement, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Any reduction shall be made in the following manner: first a pro rata reduction of (i) cash payments subject to Section 409A of the Code as deferred compensation and (ii) cash payments not subject to Section 409A of the Code, and second a pro rata cancellation of (i) equity-based compensation subject to Section 409A of the Code as deferred compensation and (ii) equity-based compensation not subject to Section 409A of the Code. Reduction in either cash payments or equity compensation benefits
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shall be made prorata between and among benefits which are subject to Section 409A of the Code and benefits which are exempt from Section 409A of the Code. Unless the Company and Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Companys independent public accountants (the Accountants ), whose determination shall be conclusive and binding upon Employee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section.
10. Miscellaneous .
10.1. Arbitration . Employee and the Company agree to submit to mandatory binding arbitration, in Santa Clara County, California, any and all claims arising out of or related to this agreement and Employees employment with the Company and the termination thereof, except that each party may, at its or his option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a partys proprietary, confidential or trade secret information. EMPLOYEE AND THE COMPANY HEREBY WAIVE ANY RIGHTS TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This agreement to arbitrate does not restrict Employees right to file administrative claims. Employee may bring before any government agency where, as a matter of law, the parties may not restrict the employees ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, Employee and the Company agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.
10.2. Indemnification . Employee will be named as an insured on the director and officer liability insurance policy currently maintained, or as may be maintained by the Company from time to time, and, in addition, Employee will enter into the form of indemnification agreement provided to other similarly situated executive officers and directors of the Company.
10.3. Section 409A .
(a) To the extent (a) any payments or benefits to which Employee becomes entitled under this Agreement, or under any agreement or plan referenced herein, in connection with Employees termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code and (b) Employee is deemed at the time of such termination of employment to be a specified employee under Section 409A of the Code, then such payments shall not be made or commence until the earliest of (i) the expiration of the six (6)-month period measured from the date of Employees separation from service (as such
6
term is at the time defined in Treasury Regulations under Section 409A of the Code) from the Company; or (ii) the date of Employees death following such separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Employee, including (without limitation) the additional twenty percent (20%) tax for which Employee would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this paragraph shall be paid to Employee or Employees beneficiary in one lump sum (without interest).
(b) Any termination of Employees employment is intended to constitute a separation from service and will be determined consistent with the rules relating to a separation from service as such term is defined in Treasury Regulation Section 1.409A-1.
(c) It is intended that each installment of the payments provided hereunder constitute separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is further intended that payments hereunder satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code (and any state law of similar effect) provided under Treasury Regulation Section 1.409A-1(b)(4) (as a short-term deferral) and/or Treasury Regulation Section 1.409A-1(b)(9) (iii) (as involuntary separation pay). To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision will be read in such a manner so that all payments hereunder comply with Section 409A of the Code.
(d) Notwithstanding anything to the contrary set forth in this Agreement, if any payment under this Agreement subject to execution of a release is subject to the requirements of Section 409A of the Code, in no event will the timing of the execution of the release, directly or indirectly, result in Employee designating the calendar year of payment, and if a payment that is subject to execution of the release could be made in more than one taxable year, payment will be made in the later taxable year.
(e) Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this Agreement is determined to be subject to Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.
10.4. Outside Professional Activities . Employee may be called upon from time to time to participate in professional activities related to Employees expertise and standing in his profession, including but not limited to, participation in profit or not-for-profit boards of directors, scientific advisory boards, data monitoring committees, or expert industry panels. Employee may also have an interest in participating in similar outside activities in furtherance of his general knowledge that might benefit the Company. Employee may participate in such
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outside activities as long as: 1) such outside activity does not conflict with the interests of the Company; 2) Employee does not simultaneously sit on more than two outside boards, panels, committees or the like; and, 3) the CEO is informed of Employees potential participation in such outside activity prior to Employees commitment to participate.
10.5. Authorship of Publications . Inherent in Employees professional activities is the authorship of scientific and clinical articles related to the Companys research and development. Prior to becoming an employee of the Company, Employee may have also authored such articles on behalf of his previous employer. Should employee find it necessary to complete work on such articles on behalf of his previous employer, the Company will permit this to occur without attribution to the Company. Future publications, related to the Companys research and development, may be authored and published by Employee as long as they are in accord with the Company policies and objectives at that time, and are prior approved by the CEO or his designee.
10.6. Severability . If any provision of this Agreement shall be found by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent of its invalidity or unenforceability, and agree that all other provisions in this Agreement shall continue in full force and effect.
10.7. No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.
10.8. Assignment . This Agreement and all rights hereunder are personal to Employee and may not be transferred or assigned by Employee at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes the Companys obligations hereunder.
10.9. Withholding . All sums payable to Employee hereunder shall be in United States Dollars and shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law.
10.10. Entire Agreement . This Agreement (and the exhibit(s) hereto) constitutes the entire and only agreement and understanding between the parties relating to Employees employment with Company. This Agreement supersedes and cancels any and all previous contracts, arrangements or understandings other than the exhibits hereto with respect to Employees employment.
10.11. Amendment . The parties understand and agree that this Agreement may not be amended, modified or waived, in whole or in part, except in a writing executed by (i) Employee and (ii) either (A) an authorized executive officer of the Company or (B) an authorized independent member of the Board, in each case, other than Employee.
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10.12. Notices . All notices, if any, and all other communications, if any, required or permitted under this Agreement shall be in writing and hand delivered, sent via facsimile, sent by registered first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications shall be effective upon receipt if hand delivered or sent via facsimile, five (5) days after mailing if sent by mail, and one (1) day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party shall notify the other parties:
If to the Company: |
Audentes Therapeutics, Inc. | |
101 Montgomery Street, Suite 2650 | ||
San Francisco, CA 94104 | ||
Attention: |
Matthew Patterson | |
If to Employee: |
Suyash Prasad | |
Facsimile: |
10.13. Binding Nature . This Agreement shall be binding upon, and inure to the benefit of, the successors and personal representatives of the respective parties hereto.
10.14. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement.
10.15. Governing Law . This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws.
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IN WITNESS WHEREOF, the Company and Employee have executed this Agreement as of the date first above written.
AUDENTES THERAPEUTICS, INC. | SUYASH PRASAD | |||||
By: | /s/ Matthew Patterson | /s/ Suyash Prasad | ||||
Name: | Matthew Patterson | |||||
Title: | President and Chief Executive Officer |
EXHIBIT A
Employee Invention Assignment and Confidentiality Agreement
Exhibit A
EMPLOYEE INVENTION ASSIGNMENT AND
CONFIDENTIALITY AGREEMENT
In consideration of, and as a condition of my employment with Audentes Therapeutics, Inc., a Delaware corporation with its principal offices in the State of California (the Company ), I, as the Employee signing this Employee Invention Assignment and Confidentiality Agreement (this Agreement ), hereby represent to the Company, and the Company and I hereby agree as follows:
1. Purpose of Agreement . I understand that the Company is engaged in a continuous program of research, development, production and/or marketing in connection with its current and projected business and that it is critical for the Company to preserve and protect its proprietary information, its rights in certain inventions and works and in related intellectual property rights. Accordingly, I am entering into this Agreement, whether or not I am expected to create inventions or other works of value for the Company. As used in this Agreement, Inventions means inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, confidential information and trade secrets.
2. Disclosure of Inventions . I will promptly disclose in confidence to the Company, or to any person designated by it, all Inventions that I make, create, conceive or first reduce to practice, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment, and whether or not patentable, copyrightable or protectable as trade secrets.
3. Work for Hire; Assigned Inventions . I acknowledge and agree that any copyrightable works prepared by me within the scope of my employment will be works made for hire under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works. I agree that all Inventions that I make, create, conceive or first reduce to practice during the period of my employment, whether or not in the course of my employment, and whether or not patentable, copyrightable or protectable as trade secrets, and that (i) are developed using equipment, supplies, facilities or trade secrets of the Company; (ii) result from work performed by me for the Company; or (iii) relate to the Companys business or actual or demonstrably anticipated research or development (the Assigned Inventions ), will be the sole and exclusive property of the Company.
4. Excluded Inventions and Other Inventions . Attached hereto as Attachment A is a list describing all existing Inventions, if any, that may relate to the Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the Effective Date (as defined in
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Section 25, below), and which are not to be assigned to the Company ( Excluded Inventions ). If no such list is attached, I represent and agree that it is because I have no rights in any existing Inventions that may relate to the Companys business or actual or demonstrably anticipated research or development. For purposes of this Agreement, Other Inventions means Inventions in which I have or may have an interest, as of the Effective Date or thereafter, other than Assigned Inventions and Excluded Inventions. I acknowledge and agree that if, in the scope of my employment, I use any Excluded Inventions or any Other Inventions, or if I include any Excluded Inventions or Other Inventions in any product or service of the Company or if my rights in any Excluded Inventions or Other Inventions may block or interfere with, or may otherwise be required for, the exercise by the Company of any rights assigned to the Company under this Agreement, I will immediately so notify the Company in writing. Unless the Company and I agree otherwise in writing as to particular Excluded Inventions or Other Inventions, I hereby grant to the Company, in such circumstances (whether or not I give the Company notice as required above), a perpetual, irrevocable, nonexclusive, transferable, world-wide, royalty-free license to use, disclose, make, sell, offer for sale, import, copy, distribute, modify and create works based on, perform, and display such Excluded Inventions and Other Inventions, and to sublicense third parties in one or more tiers of sublicensees with the same rights.
5. Exception to Assignment . I understand that the Assigned Inventions will not include, and the provisions of this Agreement requiring assignment of inventions to the Company do not apply to, any invention that qualifies fully for exclusion under the provisions of Section 2870 of the California Labor Code, which are attached hereto as Attachment B .
6. Assignment of Rights . I agree to assign, and do hereby irrevocably transfer and assign, to the Company: (i) all of my rights, title and interests in and with respect to any Assigned Inventions; (ii) all patents, patent applications, copyrights, mask works, rights in databases, trade secrets, and other intellectual property rights, worldwide, in any Assigned Inventions, along with any registrations of or applications to register such rights; and (iii) to the extent assignable, any and all Moral Rights (as defined below) that I may have in or with respect to any Assigned Inventions. I also hereby forever waive and agree never to assert any Moral Rights I may have in or with respect to any Assigned Inventions and any Excluded Inventions or Other Inventions licensed to the Company under Section 4, even after termination of my employment with the Company. Moral Rights means any rights to claim authorship of a work, to object to or prevent the modification or destruction of a work, to withdraw from circulation or control the publication or distribution of a work, and any similar right, regardless of whether or not such right is denominated or generally referred to as a moral right.
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7. Assistance . I will assist the Company in every proper way to obtain and enforce for the Company all patents, copyrights, mask work rights, trade secret rights and other legal protections for the Assigned Inventions, worldwide. I will execute and deliver any documents that the Company may reasonably request from me in connection with providing such assistance. My obligations under this section will continue beyond the termination of my employment with the Company; provided that the Company agrees to compensate me at a reasonable rate after such termination for time and expenses actually spent by me at the Companys request in providing such assistance. I hereby appoint the Secretary of the Company as my attorney-in-fact to execute documents on my behalf for this purpose. I agree that this appointment is coupled with an interest and will not be revocable.
8. Proprietary Information . I understand that my employment by the Company creates a relationship of confidence and trust with respect to any information or materials of a confidential or secret nature that may be made, created or discovered by me or that may be disclosed to me by the Company or a third party in relation to the business of the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company, or any other party with whom the Company agrees to hold such information or materials in confidence (the Proprietary Information ). Without limitation as to the forms that Proprietary Information may take, I acknowledge that Proprietary Information may be contained in tangible material such as writings, drawings, samples, electronic media, or computer programs, or may be in the nature of unwritten knowledge or know-how. Proprietary Information includes, but is not limited to, Assigned Inventions, marketing plans, product plans, designs, data, prototypes, specimens, test protocols, laboratory notebooks, business strategies, financial information, forecasts, personnel information, contract information, customer and supplier lists, and the non-public names and addresses of the Companys customers and suppliers, their buying and selling habits and special needs.
9. Confidentiality . At all times, both during my employment and after its termination, I will keep and hold all Proprietary Information in strict confidence and trust. I will not use or disclose any Proprietary Information without the prior written consent of the Company in each instance, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company. Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me or retain in any form any documents or materials or copies containing any Proprietary Information.
10. Physical Property . All documents, supplies, equipment and other physical property furnished to me by the Company or produced by me or others in connection with my employment will be and remain the sole property of the Company. I will return to the
101 Montgomery Street Suite 2650 San Francisco CA 94104 USA
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Company all such items when requested by the Company, excepting only my personal copies of records relating to my employment or compensation and any personal property I bring with me to the Company and designate as such. Even if the Company does not so request, I will upon termination of my employment return to the Company all Company property, and I will not take with me or retain any such items.
11. No Breach of Prior Agreements . I represent that my performance of all the terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, confidentiality, non-competition, or other agreement with any former employer or other party. I represent that I will not bring with me to the Company or use in the performance of my duties for the Company any documents or materials or intangibles of my own or of a former employer or third party that are not generally available for use by the public or have not been legally transferred to the Company.
12. At Will Employment . I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time. I understand that I am an at will employee of the Company and that my employment can be terminated at any time, with or without notice and with or without cause, for any reason or for no reason, by either the Company or by me. I acknowledge that any statements or representations to the contrary are ineffective, unless put into a writing signed by the Company. I further acknowledge that my participation in any stock option or benefit program is not to be construed as any assurance of continuing employment for any particular period of time.
13. Company Opportunities; Duty Not to Compete . During the period of my employment, I will at all times devote my best efforts to the interests of the Company, and I will not, without the prior written consent of the Company, engage in, or encourage or assist others to engage in, any other employment or activity that: (i) would divert from the Company any business opportunity in which the Company can reasonably be expected to have an interest; (ii) would directly compete with, or involve preparation to compete with, the current or future business of the Company; or (iii) would otherwise conflict with the Companys interests or could cause a disruption of its operations or prospects.
14. Non-Solicitation of Employees/Consultants . During my employment with the Company and for a one (1) year period thereafter, I will not directly or indirectly solicit away employees or consultants of the Company for my own benefit or for the benefit of any other person or entity, nor will I encourage or assist others to do so.
15. Use of Name & Likeness . I hereby authorize the Company to use, reuse, and to grant others the right to use and reuse, my name, photograph, likeness (including caricature), voice, and biographical information, and any reproduction or simulation thereof, in any form of media or technology now known or hereafter developed, both during and after my employment, for any purposes related to the Companys business, such as marketing, advertising, credits, and presentations.
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16. Notification . I hereby authorize the Company, during and after the termination of my employment with the Company, to notify third parties, including, but not limited to, actual or potential customers or employers, of the terms of this Agreement and my responsibilities hereunder.
17. Injunctive Relief . I understand that a breach or threatened breach of this Agreement by me may cause the Company to suffer irreparable harm and that the Company will therefore be entitled to injunctive relief to enforce this Agreement.
18. Governing Law; Severability . This Agreement is intended to supplement, and not to supersede, any rights the Company may have in law or equity with respect to the duties of its employees and the protection of its trade secrets. This Agreement will be governed by and construed in accordance with the laws of the State of California without giving effect to any principles of conflict of laws that would lead to the application of the laws of another jurisdiction. If any provision of this Agreement is invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible, given the fundamental intentions of the parties when entering into this Agreement. To the extent such provision cannot be so enforced, it will be stricken from this Agreement and the remainder of this Agreement will be enforced as if such invalid, illegal or unenforceable provision had never been contained in this Agreement.
19. 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 will constitute one and the same agreement.
20. 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 the parties hereto with respect to such subject matter.
21. Amendment and Waiver . This Agreement may be amended only by a written agreement executed by each of the parties to this Agreement. No amendment or waiver of, or modification of any obligation under, this Agreement will be enforceable unless specifically set forth in a writing signed by the party against which enforcement is sought. A waiver by either party of any of the terms and conditions of this Agreement in any instance will not be deemed or construed to be a waiver of such term or condition with respect to any other instance, whether prior, concurrent or subsequent.
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22. Successors and Assigns; Assignment . Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties hereunder, will bind and benefit the parties and their respective successors, assigns, heirs, executors, administrators, and legal representatives. The Company may assign any of its rights and obligations under this Agreement. I understand that I will not be entitled to assign or delegate this Agreement or any of my rights or obligations hereunder, whether voluntarily or by operation of law, except with the prior written consent of the Company.
23. Further Assurances . The parties will execute such further documents and instruments and take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement. Upon termination of my employment with the Company, I will execute and deliver a document or documents in a form reasonably requested by the Company confirming my agreement to comply with the post-employment obligations contained in this Agreement.
24. Acknowledgement . I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with this Agreement.
25. Effective Date of Agreement . This Agreement is and will be effective on and after the first day of my employment by the Company, which is , (the Effective Date ).
AUDENTES THERAPEUTICS, INC. | Employee: | |||||
By: | /s/ Matthew Patterson | /s/ Suyash Prasad | ||||
Name: | Matthew Patterson | Suyash Prasad | ||||
Title: | President and Chief Executive Officer | Name Please Print) |
101 Montgomery Street Suite 2650 San Francisco CA 94104 USA
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Exhibit 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the Agreement ) is entered into between Audentes Therapeutics, Inc. ( Company ) and John Gray ( Employee ). This Agreement is effective as of December 18, 2015 ( Effective Date ).
In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree as follows:
1. Position and Duties . As of the Effective Date, Employee will serve as Senior Vice President, Research and Development of the Company and will report to the Companys Chief Executive Officer (the CEO ). Employee will render such business and professional services in the performance of his duties, consistent with Employees position, as shall reasonably be assigned to him by the Company.
2. Exclusive Service . During the term of his employment, Employee (i) will be expected to devote his full working time and attention to the business of the Company, (ii) will not render services to any other business without the prior approval of the CEO and (iii) will not directly or indirectly, engage or participate in any business that is competitive in any manner with the business of the Company. Employee will also be expected to comply with and be bound by the Companys operating policies, procedures and practices that are from time to time in effect during the term of his employment.
3. At-Will Employment . Employee and the Company understand and acknowledge that Employees employment with the Company constitutes at-will employment, and the employment relationship may be terminated at any time, with or without Cause (as defined below) and with or without notice. The Company may modify your position, duties, goals, reporting relationship, work location, and compensation based on your performance and Company needs.
4. Compensation and Benefits .
4.1. Base Salary . While employed by the Company pursuant to this Agreement, the Company shall pay the Employee an annual base salary of $302,500 payable in accordance with the Companys normal payroll practices. The Company shall periodically review (at least annually) Employees compensation and benefits, provided that any changes thereto shall be determined by the Company in its sole and absolute discretion. The Employees base salary in effect from time to time is referred to herein as the Base Salary .
4.2. Target Bonus . Employee will be eligible to receive an annual cash bonus in a target amount equal to 30% of the Employees Base Salary based on achievement of corporate performance (including financial) objectives to be established from time to time by the Board of Directors (the Board and such bonus, the Target Bonus ) as well as achievement of annual personal performance objectives to be mutually agreed upon in writing between Employee and the Chief Executive Officer. To receive payment of any Target Bonus, Employee must be employed by the Company at the time the bonus is paid. Employee will be eligible to receive the Target Bonus in such amount and upon such terms as shall be determined by the Board at its sole discretion.
4.3. Employee Benefits . Employee shall be eligible to participate in all employee benefit plans and arrangements, including, but not limited to, medical, dental, vision and long-term disability insurance benefits and arrangements, as are made available by the Company to its other senior executives, subject to the terms and conditions thereof, on terms not less favorable than are made available to the Companys other senior executives. The Company reserves the right to modify benefits, contribution, and reimbursement levels from time to time, as it deems necessary.
4.4. Vacation . Employee will be entitled to paid vacation and holidays pursuant to the terms of the Companys vacation policy as may exist from time to time.
5. Expenses . The Company will, in accordance with applicable Company policies and guidelines, reimburse Employee for all reasonable and necessary expenses incurred by Employee in connection with his performance of services on behalf of the Company.
6. Inventions and Proprietary Information . Employee hereby acknowledges and agrees that he has executed the Employee Invention Assignment and Confidentiality Agreement, effective as of July 14, 2014, by and between Employee and the Company, a copy of which is attached hereto as Exhibit A , and that such agreement remains in full force and effect.
7. Definitions .
7.1. Cause . For purposes of this Agreement, Cause means (i) Employees failure to satisfactorily perform Employees duties after there has been delivered to Employee a written demand for performance which describes the specific deficiencies in Employees performance and the specific manner in which Employees performance must be improved, and which provides thirty (30) business days from the date of notice to remedy such performance deficiencies; (ii) Employees conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude which the Board believes has had or will have a detrimental effect on the Companys reputation or business, (iii) Employee engaging in an act of gross negligence or willful misconduct in the performance of his employment obligations and duties, (iv) Employees committing an act of fraud against, material misconduct or willful misappropriation of property belonging to the Company; (v) Employee engaging in any other misconduct that has had or will have a material adverse effect on the Companys reputation or business; or (vi) Employees breach of the Employee Invention Assignment and Confidentiality Agreement or other unauthorized misuse of the Companys trade secrets or proprietary information.
7.2. Change in Control . For purposes of this Agreement Change in Control means (i) a sale, conveyance, exchange or transfer (excluding any venture-backed or similar investments in the Company) in which any person or entity, other than persons or entities who as of immediately prior to such sale, conveyance, exchange or transfer own securities in the Company, either directly or indirectly, becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of the total voting power of all its then outstanding voting securities; (ii) a merger or consolidation of the Company in which its voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting
2
securities of the surviving entity immediately after the merger or consolidation; or (iii) a sale of substantially all of the assets of the Company or a liquidation or dissolution of the Company. Notwithstanding the foregoing, a transaction that does not constitute a change in control event under U.S. Treasury Regulation 1.409A-3(i)(5)(v) or (vii) will not be considered a Change in Control for purposes of this Agreement.
7.3. Disability shall have that meaning set forth in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the Code ).
7.4. Good Reason . For purposes of this Agreement, Good Reason means any of the following taken without the Employees written consent and provided (a) the Company receives, within thirty (30) days following the occurrence of any of the events set forth in clauses (i) through (iv) below, written notice from the Employee specifying the specific basis for Employees belief that Employee is entitled to terminate employment for Good Reason, (b) the Company fails to cure the event constituting Good Reason within thirty (30) days after receipt of such written notice thereof, and (c) the Employee terminates employment within the earlier of ten days (10) days following expiration of such cure period or receipt from the Company that such deficiencies will not be cured: (i) a material change, adverse to Employee, in Employees position, titles, offices or duties; (ii) an assignment of any significant duties to Employee that are inconsistent with Employees positions or offices held under this Agreement; (iii) a decrease in Employees Base Salary by more than 10% (other than in connection with a general decrease in the base salary of all other executive officers); or (iv) the relocation of the Employee to a facility or a location more than fifty (50) miles from Employees then current location.
8. Effect of Separation from Service . For purposes of this Agreement, no payment will be made to Employee upon termination of Employees employment unless such termination constitutes a separation from service within the meaning of Section 409A of the Code, and Section 1.409A-1(h) of the regulations promulgated thereunder.
8.1. Separation for Cause, Death, Disability or Voluntary Separation from Service . In the event of any separation from service of Employees employment by the Company for Cause or in the event of the Employees death, Disability or voluntary separation from service at any time and for any reason, the Employee will be paid only (i) any earned but unpaid Base Salary, and (ii) other unpaid vested amounts or benefits under the compensation, incentive and benefit plans of the Company in which Employee participates, and (iii) reimbursement for all reasonable and necessary expenses incurred by Employee in connection with his performance of services on behalf of the Company in accordance with applicable Company policies and guidelines, in each case as of the effective date of such separation from service (the Accrued Compensation ). Employee will be allowed to exercise his vested stock options to purchase Company common stock, if any, during the time period set forth in, and in accordance with, the Plan and governing stock option agreement(s).
8.2. Separation from Service without Cause or for Good Reason Prior to a Change in Control . In the event of the Employees separation from service from the Company without Cause or for Good Reason, and provided that Employee delivers to the Company a signed settlement agreement and general release of claims in favor of the Company in a form
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reasonably specified by the Company (the Release ), and satisfies all conditions to make the Release effective, within sixty (60) days following Employees separation from service, then, in addition to the Accrued Compensation, Employee shall be entitled to the following:
(a) A lump sum cash payment in an amount equal to Six (6) months of Employees Base Salary, payable on the Ninetieth (90th) day following the date of Employees separation from service; and
(b) Provided Employee timely elects to continue health coverage under COBRA, for Employee and/or Employees eligible dependents, the Company shall reimburse Employee for any monthly COBRA premium payments made by Employee to continue such coverage for the Twelve (12) month period measured from the first month following the month in which Employees separation from service occurs, until the earlier of: (1) twelve months after the date of Employees separation from service, (2) the date Employee becomes eligible for group health insurance coverage through a new employer, or (3) the date Employee ceases to be eligible for COBRA coverage for any reason, including plan termination. Notwithstanding the foregoing, if Employee is eligible for, and the Company determines, in its sole discretion, that it cannot pay, the COBRA premiums without a substantial risk of violating applicable law (including Section 2716 of the Public Health Service Act), the Company instead shall pay to Employee, on the first day of each calendar month, a fully taxable cash payment equal to the applicable COBRA premiums for that month (including premiums for Employees and Employees eligible dependents who have elected and remain enrolled in such COBRA coverage), subject to applicable tax withholdings (such amount, the Special Cash Payment ), for the remainder of the period Employee remains eligible for the benefit under the foregoing sentence. Employee may, but is not obligated to, use such Special Cash Payments toward the cost of COBRA premiums. In the event the Company opts for the Special Cash Payments, then on the ninetieth (90 th ) day following the separation of service, the Company will make the first payment to Employee under this Section 8.2(b), in a lump sum, equal to the aggregate Special Cash Payments that the Company would have paid through such date had the Special Cash Payments commenced on the first day of the first month following the separation of service through such ninetieth (90 th ) day, with the balance of the Special Cash Payments paid monthly thereafter.
8.3. Separation from Service Following a Change in Control . In the event of the Employees separation from service from the Company without Cause or for Good Reason, in each case during the period of time commencing ninety (90) days prior to the execution of a definitive agreement providing for the consummation of a Change in Control and ending on the first anniversary of the consummation of such Change in Control, and provided that Employee delivers to the Company the signed Release, and satisfies all conditions to make the Release effective, within sixty (60) days following Employees separation from service, then, in addition to the Accrued Compensation, Employee shall be entitled to the benefits as set forth below:
(a) The payments set forth above in Sections 8.2(a) and 8(b); and
(b) Acceleration as to 100% of the unvested portion of any equity award granted to the Employee following the Effective Date.
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For the avoidance of doubt, the severance payments and benefits payable pursuant to Section 8.2 or Section 8.3 above are not cumulative.
8.4. Parachute Payments . In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (i) constitute parachute payments within the meaning of Section 280G of the Code and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then, Employees severance and other benefits under this Agreement shall be payable either (i) in full, or (ii) as to such lesser amount which would result in no portion of such severance and other benefits being subject to the excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Employee on an after-tax basis, of the greatest amount of severance benefits under this Agreement, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Any reduction shall be made in the following manner: first a pro rata reduction of (i) cash payments subject to Section 409A of the Code as deferred compensation and (ii) cash payments not subject to Section 409A of the Code, and second a pro rata cancellation of (i) equity-based compensation subject to Section 409A of the Code as deferred compensation and (ii) equity-based compensation not subject to Section 409A of the Code. Reduction in either cash payments or equity compensation benefits shall be made prorata between and among benefits which are subject to Section 409A of the Code and benefits which are exempt from Section 409A of the Code. Unless the Company and Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Companys independent public accountants (the Accountants ), whose determination shall be conclusive and binding upon Employee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section.
9. Miscellaneous .
9.1. Arbitration . Employee and the Company agree to submit to mandatory binding arbitration, in Santa Clara County, California, any and all claims arising out of or related to this agreement and Employees employment with the Company and the termination thereof, except that each party may, at its or his option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a partys proprietary, confidential or trade secret information. EMPLOYEE AND THE COMPANY HEREBY WAIVE ANY RIGHTS TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This agreement to arbitrate does not restrict Employees right to file administrative claims. Employee may bring before any government agency where, as a matter of law, the parties may not restrict the employees ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, Employee and the Company agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted
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through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.
9.2. Indemnification . Employee will be named as an insured on the director and officer liability insurance policy currently maintained, or as may be maintained by the Company from time to time, and, in addition, Employee will enter into the form of indemnification agreement provided to other similarly situated executive officers and directors of the Company.
9.3. Section 409A .
(a) To the extent (a) any payments or benefits to which Employee becomes entitled under this Agreement, or under any agreement or plan referenced herein, in connection with Employees termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code and (b) Employee is deemed at the time of such termination of employment to be a specified employee under Section 409A of the Code, then such payments shall not be made or commence until the earliest of (i) the expiration of the six (6)-month period measured from the date of Employees separation from service (as such term is at the time defined in Treasury Regulations under Section 409A of the Code) from the Company; or (ii) the date of Employees death following such separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Employee, including (without limitation) the additional twenty percent (20%) tax for which Employee would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this paragraph shall be paid to Employee or Employees beneficiary in one lump sum (without interest).
(b) Any termination of Employees employment is intended to constitute a separation from service and will be determined consistent with the rules relating to a separation from service as such term is defined in Treasury Regulation Section 1.409A-1.
(c) It is intended that each installment of the payments provided hereunder constitute separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is further intended that payments hereunder satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code (and any state law of similar effect) provided under Treasury Regulation Section 1.409A-1(b)(4) (as a short-term deferral) and/or Treasury Regulation Section 1.409A-1(b)(9) (iii) (as involuntary separation pay). To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision will be read in such a manner so that all payments hereunder comply with Section 409A of the Code.
(d) Notwithstanding anything to the contrary set forth in this Agreement, if any payment under this Agreement subject to execution of a release is subject to the requirements of Section 409A of the Code, in no event will the timing of the execution of the release, directly or indirectly, result in Employee designating the calendar year of payment, and if a payment that is subject to execution of the release could be made in more than one taxable year, payment will be made in the later taxable year.
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(e) Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this Agreement is determined to be subject to Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.
9.4 Outside Professional Activities . Employee may be called upon from time to time participate in professional activities related to Employees expertise and standing in his profession, including but not limited to, participation in not-for-profit board of directors or expert industry panels. Employee may also have an interest in participating in similar outside activities in furtherance of his general knowledge that might benefit the Company. Employee may participate in such outside activities as long as: 1) such outside activity does not conflict with the interests of the Company; 2) Employee does not simultaneously sit on more than two outside boards, panels, committees or the like; and 3) the CEO is informed of Employees potential participation in such outside activity prior to Employees commitment to participate.
9.5 Authorship of Publications . Inherent in Employees professional activities is the authorship of scientific and clinical articles related to the Companys research and development. Prior to becoming an employee of the Company, Employee may have also authored such articles on behalf of his previous employer. Should Employee find it necessary to complete work on such articles on behalf of this previous employer, the Company will permit this to occur without attribution to the Company. Future publications, related to the Companys research and development, may be authored and published by Employee as long as they are in accord with Company policies and objectives at that time, and are prior approved by the CEO or his designee.
9.6. Severability . If any provision of this Agreement shall be found by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent of its invalidity or unenforceability, and agree that all other provisions in this Agreement shall continue in full force and effect.
9.7. No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.
9.8. Assignment . This Agreement and all rights hereunder are personal to Employee and may not be transferred or assigned by Employee at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes the Companys obligations hereunder.
9.9. Withholding . All sums payable to Employee hereunder shall be in United States Dollars and shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law.
9.10. Entire Agreement . This Agreement (and the exhibit(s) hereto) constitutes the entire and only agreement and understanding between the parties relating to Employees employment with Company. This Agreement supersedes and cancels any and all previous contracts, arrangements or understandings other than the exhibits hereto with respect to Employees employment.
9.11. Amendment . The parties understand and agree that this Agreement may not be amended, modified or waived, in whole or in part, except in a writing executed by (i) Employee and (ii) either (A) an authorized executive officer of the Company or (B) an authorized independent member of the Board, in each case, other than Employee.
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9.12. Notices . All notices, if any, and all other communications, if any, required or permitted under this Agreement shall be in writing and hand delivered, sent via facsimile, sent by registered first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications shall be effective upon receipt if hand delivered or sent via facsimile, five (5) days after mailing if sent by mail, and one (1) day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party shall notify the other parties:
If to the Company: | Audentes Therapeutics, Inc. | |||||
101 Montgomery Street, Suite 2650 | ||||||
San Francisco, CA 94104 | ||||||
Attention: | David Nagler | |||||
If to Employee: | John Gray |
9.13. Binding Nature . This Agreement shall be binding upon, and inure to the benefit of, the successors and personal representatives of the respective parties hereto.
9.14. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement.
9.15. Governing Law . This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws.
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IN WITNESS WHEREOF, the Company and Employee have executed this Agreement as of the date first above written.
AUDENTES THERAPEUTICS, INC. | JOHN GRAY | |||
By: |
/s/ Matthew Patterson |
/s/ John Gray |
||
Name: |
Matthew Patterson |
John Gray |
||
Title: |
President and Chief Executive Officer |
Senior Vice President, Research & Development |
Exhibit A
EMPLOYEE INVENTION ASSIGNMENT AND
CONFIDENTIALITY AGREEMENT
In consideration of, and as a condition of my employment with Audentes Therapeutics, Inc., a Delaware corporation with its principal offices in the State of California (the Company ), I, as the Employee signing this Employee Invention Assignment and Confidentiality Agreement (this Agreement ), hereby represent to the Company, and the Company and I hereby agree as follows:
1. Purpose of Agreement . I understand that the Company is engaged in a continuous program of research, development, production and/or marketing in connection with its current and projected business and that it is critical for the Company to preserve and protect its proprietary information, its rights in certain inventions and works and in related intellectual property rights. Accordingly, I am entering into this Agreement, whether or not I am expected to create inventions or other works of value for the Company. As used in this Agreement, Inventions means inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, confidential information and trade secrets.
2. Disclosure of Inventions . I will promptly disclose in confidence to the Company, or to any person designated by it, all Inventions that I make, create, conceive or first reduce to practice, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment, and whether or not patentable, copyrightable or protectable as trade secrets.
3. Work for Hire; Assigned Inventions . I acknowledge and agree that any copyrightable works prepared by me within the scope of my employment will be works made for hire under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works. I agree that all Inventions that I make, create, conceive or first reduce to practice during the period of my employment, whether or not in the course of my employment, and whether or not patentable, copyrightable or protectable as trade secrets, and that (i) are developed using equipment, supplies, facilities or trade secrets of the Company; (ii) result from work performed by me for the Company; or (iii) relate to the Companys business or actual or demonstrably anticipated research or development (the Assigned Inventions ), will be the sole and exclusive property of the Company.
4. Excluded Inventions and Other Inventions . Attached hereto as Attachment A is a list describing all existing Inventions, if any, that may relate to the Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the Effective Date (as defined in Section 25, below), and which are not to be assigned to the Company ( Excluded Inventions ). If no such list is attached, I represent and agree that it is because I have no rights in any existing Inventions that may relate to the
Companys business or actual or demonstrably anticipated research or development. For purposes of this Agreement, Other Inventions means Inventions in which I have or may have an interest, as of the Effective Date or thereafter, other than Assigned Inventions and Excluded Inventions. I acknowledge and agree that if, in the scope of my employment, I use any Excluded Inventions or any Other Inventions, or if I include any Excluded Inventions or Other Inventions in any product or service of the Company or if my rights in any Excluded Inventions or Other Inventions may block or interfere with, or may otherwise be required for, the exercise by the Company of any rights assigned to the Company under this Agreement, I will immediately so notify the Company in writing. Unless the Company and I agree otherwise in writing as to particular Excluded Inventions or Other Inventions, I hereby grant to the Company, in such circumstances (whether or not I give the Company notice as required above), a perpetual, irrevocable, nonexclusive, transferable, world-wide, royalty-free license to use, disclose, make, sell, offer for sale, import, copy, distribute, modify and create works based on, perform, and display such Excluded Inventions and Other Inventions, and to sublicense third parties in one or more tiers of sublicensees with the same rights.
5. Exception to Assignment . I understand that the Assigned Inventions will not include, and the provisions of this Agreement requiring assignment of inventions to the Company do not apply to, any invention that qualifies fully for exclusion under the provisions of Section 2870 of the California Labor Code, which are attached hereto as Attachment B .
6. Assignment of Rights . I agree to assign, and do hereby irrevocably transfer and assign, to the Company: (i) all of my rights, title and interests in and with respect to any Assigned Inventions; (ii) all patents, patent applications, copyrights, mask works, rights in databases, trade secrets, and other intellectual property rights, worldwide, in any Assigned Inventions, along with any registrations of or applications to register such rights; and (iii) to the extent assignable, any and all Moral Rights (as defined below) that I may have in or with respect to any Assigned Inventions. I also hereby forever waive and agree never to assert any Moral Rights I may have in or with respect to any Assigned Inventions and any Excluded Inventions or Other Inventions licensed to the Company under Section 4, even after termination of my employment with the Company. Moral Rights means any rights to claim authorship of a work, to object to or prevent the modification or destruction of a work, to withdraw from circulation or control the publication or distribution of a work, and any similar right, regardless of whether or not such right is denominated or generally referred to as a moral right.
7. Assistance . I will assist the Company in every proper way to obtain and enforce for the Company all patents, copyrights, mask work rights, trade secret rights and other legal protections for the Assigned Inventions, worldwide. I will execute and deliver any documents that the Company may reasonably request from me in connection with providing such assistance. My obligations under this section will continue beyond the termination of my employment with the Company; provided that the Company agrees to compensate me at a reasonable rate after such termination for time and expenses actually spent by me at the Companys request in providing such assistance. I hereby appoint the Secretary of the Company as my attorney-in-fact to execute documents on my behalf for this purpose. I agree that this appointment is coupled with an interest and will not be revocable.
8. Proprietary Information . I understand that my employment by the Company creates a relationship of confidence and trust with respect to any information or materials of a confidential or secret nature that may be made, created or discovered by me or that may be disclosed to me by the Company or a third party in relation to the business of the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company, or any other party with whom the Company agrees to hold such information or materials in confidence (the Proprietary Information ). Without limitation as to the forms that Proprietary Information may take, I acknowledge that Proprietary Information may be contained in tangible material such as writings, drawings, samples, electronic media, or computer programs, or may be in the nature of unwritten knowledge or know-how. Proprietary Information includes, but is not limited to, Assigned Inventions, marketing plans, product plans, designs, data, prototypes, specimens, test protocols, laboratory notebooks, business strategies, financial information, forecasts, personnel information, contract information, customer and supplier lists, and the non-public names and addresses of the Companys customers and suppliers, their buying and selling habits and special needs.
9. Confidentiality . At all times, both during my employment and after its termination, I will keep and hold all Proprietary Information in strict confidence and trust. I will not use or disclose any Proprietary Information without the prior written consent of the Company in each instance, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company. Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me or retain in any form any documents or materials or copies containing any Proprietary Information.
10. Physical Property . All documents, supplies, equipment and other physical property furnished to me by the Company or produced by me or others in connection with my employment will be and remain the sole property of the Company. I will return to the Company all such items when requested by the Company, excepting only my personal copies of records relating to my employment or compensation and any personal property I bring with me to the Company and designate as such. Even if the Company does not so request, I will upon termination of my employment return to the Company all Company property, and I will not take with me or retain any such items.
11. No Breach of Prior Agreements . I represent that my performance of all the terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, confidentiality, non-competition, or other agreement with any former employer or other party. I represent that I will not bring with me to
the Company or use in the performance of my duties for the Company any documents or materials or intangibles of my own or of a former employer or third party that are not generally available for use by the public or have not been legally transferred to the Company.
12. At Will Employment . I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time. I understand that I am an at will employee of the Company and that my employment can be terminated at any time, with or without notice and with or without cause, for any reason or for no reason, by either the Company or by me. I acknowledge that any statements or representations to the contrary are ineffective, unless put into a writing signed by the Company. I further acknowledge that my participation in any stock option or benefit program is not to be construed as any assurance of continuing employment for any particular period of time.
13. Company Opportunities; Duty Not to Compete . During the period of my employment, I will at all times devote my best efforts to the interests of the Company, and I will not, without the prior written consent of the Company, engage in, or encourage or assist others to engage in, any other employment or activity that: (i) would divert from the Company any business opportunity in which the Company can reasonably be expected to have an interest; (ii) would directly compete with, or involve preparation to compete with, the current or future business of the Company; or (iii) would otherwise conflict with the Companys interests or could cause a disruption of its operations or prospects.
14. Non-Solicitation of Employees/Consultants . During my employment with the Company and for a one (1) year period thereafter, I will not directly or indirectly solicit away employees or consultants of the Company for my own benefit or for the benefit of any other person or entity, nor will I encourage or assist others to do so.
15. Use of Name & Likeness . I hereby authorize the Company to use, reuse, and to grant others the right to use and reuse, my name, photograph, likeness (including caricature), voice, and biographical information, and any reproduction or simulation thereof, in any form of media or technology now known or hereafter developed, both during and after my employment, for any purposes related to the Companys business, such as marketing, advertising, credits, and presentations.
16. Notification . I hereby authorize the Company, during and after the termination of my employment with the Company, to notify third parties, including, but not limited to, actual or potential customers or employers, of the terms of this Agreement and my responsibilities hereunder.
17. Injunctive Relief . I understand that a breach or threatened breach of this Agreement by me may cause the Company to suffer irreparable harm and that the Company will therefore be entitled to injunctive relief to enforce this Agreement.
18. Governing Law; Severability . This Agreement is intended to supplement, and not to supersede, any rights the Company may have in law or equity with respect to the duties of its employees and the protection of its trade secrets. This Agreement will be governed by and construed in accordance with the laws of the State of California without giving effect to any principles of conflict of laws that would lead to the application of the laws of another jurisdiction. If any provision of this Agreement is invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible, given the fundamental intentions of the parties when entering into this Agreement. To the extent such provision cannot be so enforced, it will be stricken from this Agreement and the remainder of this Agreement will be enforced as if such invalid, illegal or unenforceable provision had never been contained in this Agreement.
19. 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 will constitute one and the same agreement.
20. 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 the parties hereto with respect to such subject matter.
21. Amendment and Waiver . This Agreement may be amended only by a written agreement executed by each of the parties to this Agreement. No amendment or waiver of, or modification of any obligation under, this Agreement will be enforceable unless specifically set forth in a writing signed by the party against which enforcement is sought. A waiver by either party of any of the terms and conditions of this Agreement in any instance will not be deemed or construed to be a waiver of such term or condition with respect to any other instance, whether prior, concurrent or subsequent.
22. Successors and Assigns; Assignment . Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties hereunder, will bind and benefit the parties and their respective successors, assigns, heirs, executors, administrators, and legal representatives. The Company may assign any of its rights and obligations under this Agreement. I understand that I will not be entitled to assign or delegate this Agreement or any of my rights or obligations hereunder, whether voluntarily or by operation of law, except with the prior written consent of the Company.
23. Further Assurances . The parties will execute such further documents and instruments and take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement. Upon termination of my employment with the Company, I will execute and deliver a document or documents in a form reasonably requested by the Company confirming my agreement to comply with the post-employment obligations contained in this Agreement.
24. Acknowledgement . I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with this Agreement.
25. Effective Date of Agreement . This Agreement is and will be effective on and after the first day of my employment by the Company, which is July 14 , 2014 (the Effective Date ).
AUDENTES THERAPEUTICS, INC. | Employee: | |||||
By: | /s/ Matthew Patterson | /s/ John T. Gray | ||||
Name: | Matthew Patterson | John T. Gray | ||||
Name (Please Print) | ||||||
Title: | President and Chief Executive Officer |
ATTACHMENT A
LIST OF EXCLUDED INVENTIONS UNDER SECTION 4
Title |
Date |
Identifying Number
or Brief Description |
No inventions, improvements, or original works of authorship
X | Additional sheets attached |
Signature of Employee: |
Print Name of Employee: |
Date: |
Exhibit B
CALIFORNIA LABOR CODE 2870 NOTICE:
California Labor Code Section 2870 provides as follows:
Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employers equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of the invention to the employers business, or actual or demonstrably anticipated research or development of the employer; or (2) result from any work performed by the employee for the employer. To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under California Labor Code Section 2870(a), the provision is against the public policy of this state and is unenforceable.
Attachment A
Pre-existing patents:
LP1 promoter and modified human Factor IX cDNA owned by and licensed from St. Jude if needed.
Pre-existing inventions, with invention disclosure filed with St. Jude:
Alternative structures for plasmids used during transient transfection to produce AAV. No patent was filed yet, as the project is still in process by Dr. Davidoffs group. Dr. Davidoff wishes for this work to continue and I think it may be broadly useful. Only some of the ideas that I had for improving the structure of the plasmids were included in the invention disclosure.
Pre-existing inventions, without invention disclosure or patent filed anywhere:
Software utilities/computer files:
The vast majority have very close to zero market value (are they really inventions, then?), and are only useful to me as tools for the way I like to work. The software was written piecemeal over the past 17 years at both Harvard and St. Jude. If Audentes wished to have tools like these as integral to its business, I am certain they would have to be re-written.
Pre-existing vector designs and natural sequence maps. I have a library of DNA sequence maps which were generated over many years and which are useful for me to review what has worked and what has not. Again the designs themselves probably have zero market value but help me to understand the origins of various different vectors that others are using.
One script which may have some market value was written when I was a Harvard employee. It is used for designing synthetic coding sequences, and was used to derive the St. Jude human Factor IX vector.
Pre-existing ideas, without invention disclosure or any work to reduce them to practice
Ideas for developing software that could be used in combination with the synthetic gene design software mentioned above to further enhance the expression of the designed gene. Highly speculative but also potentially very valuable.
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
July 7, 2016