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As filed with the Securities and Exchange Commission on August 18, 2017

Registration No. 333-219386

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Genprex, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   2834   90-0772347

(State or Other Jurisdiction of

Incorporation or Organization

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

100 Congress Avenue, Suite 2000

Austin, Texas, 78701

(512) 370-4081

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

J. Rodney Varner

Chief Executive Officer

Genprex, Inc.

100 Congress Avenue, Suite 2000

Austin, Texas 78701

(512) 370-4081

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

Copies to:

 

Christopher J. Ozburn

Streusand Landon & Ozburn, LLP

811 Barton Springs Road, Suite 811

Austin, TX 78704

Telephone: (512) 236-9908

Fax: (512) 236-9904

 

Philip Magri

Magri Law LLC

2642 NE 9 th Ave

Ft. Lauderdale, FL 33334

Telephone: (646) 502-5900

Fax: (646) 836-9200

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☒

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer:     Accelerated filer  
Non-accelerated filer:   ☐  (Do not check if a smaller reporting company)   Smaller reporting company  
    Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.  ☒

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

Securities to be registered

 

Proposed

maximum

aggregate offering

price(1)

 

Amount of

registration fee

Common Stock, par value $0.001 per share

  $22,500,000   $2,607.75

Underwriters Warrants(2)(3)

  —     —  

Common Stock issuable upon exercise of Underwriters Warrants

  $1,968,750   $228.18

Total

      $2,835.93(4)

 

 

 

(1) Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
(3) No separate fee is required pursuant to Rule 457(g) under the Securities Act of 1933.
(4) Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell, nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion Dated August 18, 2017

Up to                 Shares

Genprex, Inc.

Common Stock

 

 

This is an initial public offering of Genprex, Inc.

We are offering a minimum of                  and a maximum of                  shares of common stock in this offering.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . We have applied to list the common stock on the Nasdaq Capital Market under the symbol “GNPX”. If the application is approved, trading of our common stock on the Nasdaq Capital Market is expected to begin within five days after the initial issuance of the common stock. If our common stock is not approved for listing on the Nasdaq Capital Market, we will not consummate this offering.

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and we have elected to comply with certain reduced public company reporting requirements.

 

 

An investment in our common stock involves significant risks. You should carefully consider the risk factors beginning on page 12 of this prospectus before you make your decision to invest in our shares of common stock.

 

 

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

 

     Public Offering
Price
     Underwriting
Commissions(1)
     Proceeds to Us,
Before Expenses
 

Per share

   $               $               $           

Total minimum offering

   $      $      $  

Total maximum offering

   $      $      $  

 

(1) See “Underwriting” for more information on this offering and the underwriter arrangements.
(2) We estimate the total expenses of this offering, excluding the underwriting commissions, will be approximately $         if all shares are sold in this offering. Because this is a best efforts offering, the actual public offering amount, underwriting commissions and proceeds to us are not presently determinable and may be substantially less than the total maximum offering set forth above.

 

 

Network 1 Financial Securities, Inc. is acting as the sole representative of the underwriters. The underwriters are selling shares of our common stock in this offering on a best efforts basis. We do not intend to close this offering unless we sell at least a minimum number of [*] shares of common stock, at the price per share set forth in the table above, and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market. This offering will terminate on [*], 2017 (60 days after the date of this prospectus), unless we sell the maximum number of shares of common stock set forth above before that date or we decide to terminate this offering prior to that date. The gross proceeds of this offering will be deposited at [*] Bank in an escrow account established by us, until we have sold a minimum of [*] shares of common stock and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market. Once we satisfy the minimum stock sale and Nasdaq listing conditions, the funds will be released to us. In the event we do not sell a minimum of [*] shares of common stock and raise minimum gross proceeds of $[*] by [*], 2017, all funds received will be promptly returned to investors without interest or offset. See “Prospectus Summary—The Offering”.

Delivery of the shares of our common stock is expected to be made on or about [*], 2017.

 

LOGO

The date of this prospectus is [                ], 2017


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TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     12  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     52  

USE OF PROCEEDS

     53  

DIVIDEND POLICY

     54  

CAPITALIZATION

     55  

DILUTION

     56  

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

     58  

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

     59  

BUSINESS

     65  

MANAGEMENT

     114  

EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

     121  

RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     134  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     137  

DESCRIPTION OF CAPITAL STOCK

     140  

SHARES ELIGIBLE FOR FUTURE SALE

     145  

UNDERWRITING

     147  

VALIDITY OF COMMON STOCK

     150  

EXPERTS

     150  

WHERE YOU CAN FIND MORE INFORMATION

     150  

INDEX TO FINANCIAL STATEMENTS

     F-1  

Through and including                 , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.


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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the “Risk Factors” section, our historical financial statements and the notes thereto, and unaudited pro forma financial information, each included elsewhere in this prospectus. The terms “Genprex,” the “Company,” “our,” or “we” refer to Genprex, Inc. and, unless the context otherwise requires, its predecessors.

Overview

Genprex™ is a clinical stage gene therapy company developing a new approach to treating cancer, based upon our novel proprietary technology platform, including our initial product candidate, Oncoprex™ immunogene therapy, or Oncoprex. Our platform technologies are designed to administer cancer fighting genes by encapsulating them into nanoscale hollow spheres called nanovesicles, which are then administered intravenously and taken up by tumor cells where they express proteins that are missing or found in low quantities. Oncoprex has a multimodal mechanism of action whereby it interrupts cell signaling pathways that cause replication and proliferation of cancer cells, re-establishes pathways for apoptosis, or programmed cell death, in cancer cells, and modulates the immune response against cancer cells. Oncoprex has also been shown to block mechanisms that create drug resistance.

We hold an exclusive worldwide license from The University of Texas MD Anderson Cancer Center, or MD Anderson, to patents covering the therapeutic use of a series of genes that have been shown in preclinical and clinical research to have cancer fighting properties.

With Oncoprex, we are initially targeting non-small cell lung cancer, or NSCLC. Researchers at MD Anderson have conducted two Phase I clinical trials and are currently conducting an ongoing Phase II clinical trial of Oncoprex in NSCLC. According to the World Health Organization, lung cancer is the leading cause of cancer deaths worldwide, killing more people than breast, colon, kidney, liver, prostate and skin cancers combined, and is the second most common type of cancer. Each year, there are over 1.8 million new lung cancer cases and 1.6 million deaths from lung cancer worldwide, and in the United States there are over 225,000 new cases and more than 150,000 deaths from lung cancer per year. NSCLC represents 80% of all lung cancers. According to a 2016 American Cancer Society report, the five-year survival rate for Stage IV (metastatic) NSCLC is about 1%, and overall survival for lung cancer has not improved appreciably in the last 25 years. We believe that there is a significant unmet medical need for new treatments for NSCLC in the United States and globally, and we believe that Oncoprex may be suitable for a majority of NSCLC patients.

We believe that our platform technologies could allow delivery of a number of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. Our research and development pipeline, shown in “Our Pipeline” below, demonstrates our clinical and preclinical progress to date.

Cancer results from genetic mutations. Mutations that lead to cancer are usually present in two major classes of genes: oncogenes, which are involved in functions such as signal transduction and transcription; and tumor suppressor genes, which play a role in governing cell proliferation by regulating transcription. Transduction is the process by which chemical and physical signals are transmitted through cells. Transcription is the process by which a cell’s DNA sequence is copied to make RNA molecules, which then play a role in protein expression. In normal cells, mutations in oncogenes are discovered and targeted for elimination by tumor suppressor genes. In cancer cells, the oncogene mutations may overwhelm the natural tumor suppression processes, or those tumor suppression processes may be impaired or absent. Functional alterations due to mutations in oncogenes or tumor suppressor genes may result in the abnormal and uncontrolled growth patterns characteristic of cancer. These

 



 

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genetic alterations facilitate such malignant growth by affecting signal transduction pathways and transcription, thus inhibiting normal growth signaling in the cell, circumventing the natural process of apoptosis, evading the immune system’s response to cancer, and inducing angiogenesis, which is the formation of new blood vessels that supply cancer cells.

The most common genetic alterations present in NSCLC are in tumor suppressor genes, against which few targeted small molecule drugs have been developed. Each of the two sets of chromosomes in the cell nucleus includes two copies of each gene, called alleles, which may be identical or may show differences. In most situations, tumor suppressor genes require both alleles of a gene to be deleted or inactivated to impair tumor suppression activity and lead to tumor growth. The replacement of just one functional allele may therefore be enough to restore the normal cellular functions of growth regulation and apoptosis.

Among the genetic conditions associated with lung cancer are the overexpression of epidermal growth factor receptors, or EGFRs, and mutations of kinases. Kinases are enzymes that play an important role in signal transduction through the modification of proteins by adding or taking away phosphate groups, a process called (de-)phosphorylation, to change the proteins’ function. When two EGFR transmembrane proteins are brought to proximity on the cell membrane surface, or dimerize, either through a ligand, or binding molecule, that binds to the extracellular receptor, or through some other process, the intracellular protein-kinase domains can auto-phosphorylate, and activate downstream processes, including cell signaling pathways that can lead to either cell cycle arrest or cell growth and proliferation. EGFRs and kinases can act similarly to a switch that turns “on” and “off” when phosphate groups are either added or taken away. Mutated kinases can have a malfunctioning on/off switch, causing the switch to be stuck in the “on” position or failing to turn the switch “off,” leading to the loss of cell control.

A subset of NSCLC patients (approximately 10% of NSCLC patients of North American and European descent and approximately 30% to 50% of NSCLC patients of Asian descent) carry an EGFR mutation that makes their tumors sensitive to TKIs, such as erlotinib. However, even for these patients, tumor resistance to TKIs frequently develops within two years, resulting in eventual disease progression. Erlotinib generally does not benefit NSCLC patients who do not have this activating EGFR mutation. However, our clinical and preclinical data have shown that the combination of Oncoprex and erlotinib can increase anti-tumor activity even in cancers without the EGFR mutations, as well as in cancers that have become resistant to erlotinib. For this reason, we believe Oncoprex may be suitable for the majority of NSCLC patients.

Cancer can spread when cells’ natural cancer suppression functions are impaired. The tumor suppressor gene called Tumor Suppressor Candidate 2, or TUSC2 (which was formerly known as FUS1) has been shown to affect both cell proliferation and apoptosis. TUSC2 is a pan-kinase inhibitor, which means that it has the ability to inhibit multiple kinase receptors, such as EGFR and platelet-derived growth factor receptor, or PDGFR. TUSC2 is frequently inactivated early in the development of lung cancer, and loss of TUSC2 expression in NSCLC is associated with significantly worse overall survival compared to patients with normal TUSC2 expression. Many types of cancer cells, including approximately 85% of NSCLC cells, lack expression of TUSC2.

Cancer can also spread when the body’s natural immune functions are impaired, including by the cancer cells themselves. PD-1, or Programmed Death-1, is a receptor expressed on the surface of activated T cells, which are part of the body’s immune system. PD-L1, or Programmed Death Ligand-1, is a protein/receptor expressed on the surface of cancer and other cells. The binding of PD-1 to PD-L1 has been speculated to contribute to cancer cells’ ability to evade the body’s immune response. PD-1 and molecules like it are called immune checkpoints, because they can impede the normal immune response, for example by blocking the T cells from attacking the cancer cells. In many cancers, PD-L1 receptors are up-regulated, and substantial research is now being performed in the emerging field of immuno-oncology to discover drugs or antibodies that could block

 



 

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PD-L1 and similar receptors. It is believed that blocking the PD-1/PD-L1 interaction pathway and other similar checkpoints, such as cytotoxic T-lymphocyte-associated protein 4, or CTLA-4, with drugs called checkpoint inhibitors can prevent cancer cells from inactivating T cells.

Our Oncoprex immunogene therapy is designed to interrupt cell signaling pathways that cause replication and proliferation of cancer cells, and to target and kill cancer cells via receptor pathways, and also to stimulate the natural immune responses against cancer. Oncoprex combines features of gene therapy and immunotherapy in that it up-regulates TUSC2 expression in the cell, and also increases the anti-tumor immune cell population and down-regulates PD-L1 receptors, thereby boosting the immune response to cancer.

Oncoprex consists of a TUSC2 gene encapsulated in a positively charged nanovesicle made from lipid molecules with a positive electrical charge. Oncoprex is injected intravenously and can specifically target cancer cells, which generally have a negative electrical charge. Once Oncoprex is taken up into a cancer cell, the TUSC2 gene is expressed into a protein that is capable of restoring certain defective functions arising in the cancer cell. Oncoprex nanovesicles are designed to deliver the functioning TUSC2 gene to cancer cells while minimizing their uptake by normal tissue. Tumor biopsy studies conducted at MD Anderson show that the uptake of TUSC2 in tumor cells after Oncoprex treatment is 10 to 25 times the uptake in normal cells. We believe that Oncoprex, unlike other gene therapies, which either need to be delivered directly into tumors or require cells to be removed from the body, re-engineered and then reinserted into the body, is the first systemic gene therapy to be used for cancer in humans.

Clinical data from the evaluation of 24 patients in our Phase I/II clinical trial, as well as our preclinical data, indicate that Oncoprex can be combined with the widely used anti-cancer drug erlotinib (marketed as Tarceva ® by Genentech, Inc.) in humans. Erlotinib is a tyrosine kinase inhibitor, or TKI, which uses a mechanism of action similar to that of pan-kinase inhibitors to block the action of tyrosine kinases, which are a type of kinase involved in many cell functions, including cell signaling, growth and division. In addition, MD Anderson researchers have conducted preclinical studies combining Oncoprex with:

 

    the TKI gefitinib (marketed as Iressa ® by AstraZeneca Pharmaceuticals) in animals and in human NSCLC cells;

 

    MK2206 in animals (MK2206 is an inhibitor of AKT kinases, which affect cell signaling pathways downstream from tyrosine kinases);

 

    an anti-PD-1 antibody equivalent to the checkpoint inhibitor nivolumab (marketed as Opdivo ® by Bristol-Myers Squibb Company) in animals; and

 

    an anti-CTLA4 antibody equivalent to ipilimumab (marketed as Yervoy ® by Bristol-Myers Squibb Company) in animals.

The manufacturers of the marketed drugs were not involved in any of our clinical or preclinical studies. In studies involving marketed drugs, the drugs were administered concurrently with Oncoprex without being modified in any way, and the antibodies used in our preclinical studies that did not use the marketed drugs were the non-humanized equivalent to marketed drugs.

Data from these clinical and preclinical studies indicate that combining Oncoprex with these other therapies yields results more favorable than either these therapies or Oncoprex alone, with minimal side effects relative to other lung cancer drugs, thereby potentially making Oncoprex a therapy complementary to these cancer treatments. In addition, based on our clinical and preclinical studies and on preclinical studies conducted by others, we believe that Oncoprex could be combined with other lung cancer drugs that have similar mechanisms of action to the drugs mentioned above, such as pembrolizumab (marketed as Keytruda ® by Merck & Co.), nivolumab (marketed as Opdivo ® by Bristol-Myers Squibb Company) and atezolizumab (marketed as Tecentriq ®

 



 

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by Genentech/Roche). We have not conducted any preclinical or clinical studies combining Oncoprex with pembrolizumab or atezolizumab.

Researchers at MD Anderson have collaborated with other researchers to identify other genes, such as those in the 3p21.3 chromosomal region, that may act as tumor suppressors or have other cancer fighting functions. We hold rights to certain of these genes under license agreements with MD Anderson. Data from preclinical studies performed by others suggest that product candidates that could be derived from our technology platform could be effective against other types of cancer, including breast, head and neck, renal cell (kidney), and soft tissue cancer, as well as NSCLC. Therefore, our platform technologies may allow delivery of a number of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer.

MD Anderson researchers have completed the first phase of a Phase I/II clinical trial of Oncoprex in combination with erlotinib in patients with Stage IV (metastatic) or recurrent NSCLC that is not potentially curable by radiotherapy or surgery, whether or not they have received prior chemotherapy, and whether or not they have an activating EGFR mutation. The Phase I portion of the trial was a dose-escalating study with primary endpoints of establishing the safety and tolerability of the combination of Oncoprex and erlotinib, and establishing the Maximum Tolerated Dose, or MTD. The secondary endpoint of the Phase I portion of the trial was to assess the toxicity of the combination of Oncoprex with erlotinib. In the Phase I portion of the trial, which began in 2014, 18 subjects were treated, and the MTD was determined to be the highest tested dose: 0.6 mg/kg of Oncoprex administered every 21 days and 150 mg of erlotinib per day. Toxicities were found to compare favorably with those of other lung cancer drugs.

The Phase II portion of the trial is designed to include subjects treated with the combination of Oncoprex and erlotinib at the MTD with the primary goal of measuring the response rate, and secondary endpoints of stable disease, time to progression and overall survival. The response rate for cancer therapies is defined under the Response Evaluation Criteria in Solid Tumors, or RECIST, as Complete Response (CR) + Partial Response (PR); disease control rate is defined under the RECIST criteria as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD)>8weeks.

Enrollment criteria for the second phase of the Phase I/II clinical trial are identical to those in the first phase. The Phase II portion of the trial began in June 2015 and is ongoing at MD Anderson. Of the 39 patients allowed in the protocol for the Phase II portion of the trial, 10 have been enrolled and nine are evaluable for response under the trial protocol, because they have received 2 or more cycles of treatment. Interim results show that four of the patients had tumor regression and one patient had a Complete Response, or CR under the RECIST criteria. The patient with the CR had disappearance of the lung primary tumor, as well as lung, liver, and lymph node metastases. The median response duration for all patients, which is defined as the median time between when response is first noted to the time when cancer progression is observed, was three months. The response rate for the nine patients evaluated to date was 11% and the disease control rate for the nine patients was 78%.

The response rate and disease control rate to date in the Phase II portion of our Phase I/II clinical trial substantially exceeds the response rate of 7% (with no CRs) and disease control rate of 58% reported for a clinical trial of the TKI afatinib (marketed as Gilotrif ® by Boehringer Ingelheim Pharmaceuticals, Inc.) in a study referred to as the LUX-Lung 1 clinical trial. A total of 585 patients were enrolled in that Phase IIB/III clinical trial, whose primary endpoint was overall survival and whose secondary endpoints were progression-free survival, RECIST response, quality of life and safety. The LUX-Lung 1 clinical trial was a randomized, double blinded Phase IIB/III clinical trial treating subjects with Stage IIIB or IV adenocarcinoma, a type of NSCLC. The Phase II portion of our Phase I/II trial is not blinded, and is designed to treat NSCLC subjects regardless of EGFR status.

Preliminary analysis of the early data from the Phase II portion of our Phase I/II trial supports our belief that Oncoprex may provide medical benefit in several subpopulations of NSCLC patients for which there is an unmet

 



 

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medical need, and may provide pathways for accelerated approval by the US Food and Drug Administration, of FDA. As a result of these initial findings, in April 2016, we suspended enrollment of new patients in the Phase II portion of the trial to collect additional trial data and have it analyzed in order to seek FDA guidance as to whether the protocol for this clinical trial could be modified to expand enrollment and also to divide the patients into cohorts with a view toward seeking accelerated approval in one or more of these cohort populations. We have completed the collection and analysis of the additional preliminary data and expect to present our findings to the FDA within the next several months. Although this clinical trial is currently closed to new patient enrollment, it is not terminated, and is considered “ongoing” because activities such as patient follow-up and further data collection and analysis continue.

If we reach an agreement with the FDA regarding expanded patient enrollment and defined patient cohorts, then we plan to amend the trial protocol accordingly and proceed with the amended protocol at MD Anderson and several additional clinical trial sites. Amendments to the Phase II clinical trial protocol will require approval of the Investigational Review Board, or IRB, of each site where the amended trial is conducted. If we do not reach an agreement with the FDA on these changes, then we plan to reopen enrollment in the current version of the Phase II portion of the trial at MD Anderson and at additional clinical trial sites. In that event, we will need to provide MD Anderson with plans and funding to move ahead with the trial. Whether under the original protocol or a revised protocol, we intend to use a portion of the proceeds of this offering to add additional clinical trial sites.

In 2012, MD Anderson researchers completed a Phase I clinical trial of Oncoprex as a monotherapy. The primary objective of this Phase I trial was to assess the toxicity of Oncoprex administered intravenously and to determine the MTD and recommended Phase II dose of Oncoprex alone. Secondary objectives were to assess the expression of TUSC2 following intravenous delivery of Oncoprex in tumor biopsies and also to assess the anti-cancer activity of Oncoprex. This trial demonstrated that Oncoprex was well tolerated and established the MTD and the therapeutic dosage for Oncoprex at 0.06 mg/kg administered every 21 days. Although this trial was not designed to show changes in outcomes, a halt in cancer growth was observed in a number of patients, and tumor regressions occurred in primary lung tumors and metastatic cancers in the liver, pancreas, and lymph nodes. In addition, pre- and post-treatment patient biopsies demonstrated that intravenous Oncoprex selectively and preferentially targeted patients’ cancer cells, and suggested that clinical anti-cancer activity was mediated by TUSC2.

We believe that Oncoprex’ combination of pan-kinase inhibition, direct induction of apoptosis, anti-cancer immune modulation and complementary action with targeted drugs and immunotherapies is unique, and positions Oncoprex to provide treatment for patients with NSCLC and possibly other cancers, who are not benefitting from currently offered therapies.

Our Oncoprex immunogene therapy technology was discovered through a lung cancer research consortium from MD Anderson and The University of Texas Southwestern Medical Center, or UTSWMC, along with the National Cancer Institute, or NCI. The TUSC2 discovery teams included Jack A. Roth, MD, FACS, chairman of our Scientific and Medical Advisory Board. We have assembled a team of experts in clinical and translational research, including laboratory scientists, medical oncologists and biostatisticians, to pursue the development and commercialization of Oncoprex and other potential product candidates.

Our technology discoveries and research and development programs have been the subjects of numerous peer-reviewed publications and have been supported by Small Business Innovation Research, or SBIR, grants and grants from the National Institutes of Health, the United States Department of Treasury, and the State of Texas. We hold a worldwide, exclusive license from MD Anderson to patents covering the therapeutic use of TUSC2 and other genes that have been shown to have cancer fighting properties, as well as a number of related technologies, including 30 issued patents, and two pending patent applications.

 



 

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Our Pipeline

We are developing Oncoprex, our lead product candidate, to be administered with erlotinib for NSCLC. We are also conducting preclinical research with the goal of developing Oncoprex to be administered with immunotherapies in NSCLC. In addition, we conducted research into other tumor suppressor genes associated with chromosome 3p21.3. Our research and development pipeline is shown below:

 

LOGO

Our Strategy

We intend to develop and commercialize treatments for cancer based on our proprietary gene therapy platform, alone or in combination with other cancer therapies. Key elements of our strategy include:

 

    Conduct Ongoing and New Clinical Trials . We plan to continue clinical trials of Oncoprex immunogene therapy in combination with erlotinib for treatment of NSCLC, while exploring pathways to accelerated FDA approval of this combination in subpopulations of NSCLC patients for whom there is currently no approved therapy. We also plan to pursue a clinical trial of the combination of Oncoprex with anti-PD-1 immunotherapy. We may also pursue additional clinical trials of the combination of Oncoprex plus an immunotherapy called CTLA-4 immunotherapy, as well as possible multi-drug combinations of Oncoprex with additional targeted therapies and immunotherapies.

 

    Investigate the Effectiveness of Oncoprex in Other Cancers . We may also explore the combination of Oncoprex and erlotinib in other cancers such as soft tissue, kidney, head and neck, and/or breast cancer, and we may pursue development of additional proprietary genes, including genes associated with chromosome 3p21.3, alone or in combination with EGFR TKIs such as erlotinib and/or with immunotherapies.

 

    Prepare to Commercialize Oncoprex . We plan to continue to develop the manufacturing, process development and other capabilities needed to commercialize Oncoprex.

 

   

Pursue Strategic Partnerships . As we gather additional clinical data, we plan to pursue strategic partnerships with other developers and providers of anti-cancer drugs to investigate possible therapeutic combinations of Oncoprex with drugs manufactured by others, to accelerate the

 



 

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development of our current and potential product candidates through co-development and to increase the commercial opportunities for our current and potential product candidates.

 

    Develop Our Platform Technology . We plan to investigate the applicability of our platform technology with additional anti-cancer drugs.

Risks Relating to Our Business

Our business and our ability to implement our business strategy are subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in our common stock. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, risks associated with our business include the following:

 

    We have incurred significant losses since our inception, including an accumulated deficit of approximately $16.1 million as of June 30, 2017, and anticipate that we will continue to incur significant losses for the foreseeable future. We will require substantial additional financing to achieve our goals.

 

    Our independent registered public accounting firm has indicated that our financial condition raises substantial doubt as to our ability to continue as a going concern, in that if we are unable to raise additional capital in a timely manner, our clinical trials and other operations will be negatively affected.

 

    Immunotherapy, gene therapy and biopharmaceutical product development are highly speculative undertakings that involve a substantial degree of uncertainty. Because our current and potential gene therapy product candidates are based on novel technologies, it is difficult to predict whether they will show consistently favorable results and to predict the time and cost of their development. We have never generated any revenue from product sales, and we may never be profitable.

 

    The Phase II portion of our Phase I/II clinical trial is at an early stage, with a limited number of patients enrolled, and the favorable results observed so far may not continue in the current clinical trial or be replicated in other clinical trials, especially those involving larger numbers of patients. Before our Phase I/II clinical trial, Oncoprex had previously been tested in only one prior Phase I trial, which involved 31 patients and tested Oncoprex as a monotherapy.

 

    The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our current and potential product candidates.

 

    The FDA may disagree with our plans for pursuing regulatory approval, and we may fail to obtain regulatory approval of our current and potential product candidates.

 

    We rely, and expect to continue to rely, in part, on third parties to conduct, supervise, monitor and maintain data concerning our clinical trials and to manufacture our nanovesicles, product candidates and other key materials. If these third parties encounter difficulties or perform in an unsatisfactory manner, our business may be harmed.

 

    We face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our current and potential product candidates.

 

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

 



 

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    If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.

 

    The concentration of our common stock ownership by our current management may limit your ability to influence our corporate matters.

Corporate Information

We were incorporated in Delaware in April 2009. Our principal executive offices are located at 100 Congress Avenue, Suite 2000, Austin, TX 78701, and our telephone number is (512) 370-4081. Our corporate website address is www.genprex.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

We have proprietary rights to a number of trademarks used in this prospectus which are important to our business, including Oncoprex™. Solely for convenience, the trademarks and trade names in this prospectus are generally referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

Implications of Being an Emerging Growth Company

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

 

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

 

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

 

    reduced disclosure obligations regarding executive compensation; and

 

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

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available benefits of the JOBS Act. We have taken advantage of some of the reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 



 

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The Offering

 

Issuer

Genprex, Inc., a Delaware corporation

 

Securities being offered

Minimum of [*] shares of common stock to maximum of [*] shares of common stock

 

Offering price

$[*] per share

 

Common stock outstanding immediately before this offering

[*] shares, [*] shares on a fully-diluted basis

 

Common stock outstanding immediately after this offering

[*] shares (minimum) to [*] shares (maximum), [*] shares (minimum) to [*] shares (maximum) on a fully-diluted basis

 

Best efforts offering

The underwriters are selling the shares of our common stock offered in this prospectus on a “best efforts” basis and are not required to sell any specific number or dollar amount of the shares offered by this prospectus, but will use their best efforts to sell such shares. However, one of the conditions to our obligation to sell any of the shares through the underwriters is that, upon the closing of the offering, our common stock would qualify for listing on the Nasdaq Capital Market. In order to list, the Nasdaq Capital Market requires that, among other criteria, at least 1,000,000 publicly-held shares of our common stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our common stock be at least $15.0 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $5.0 million, the bid price per share of our common stock be $4.00 or more, and there be at least three registered and active market makers for our common stock. We do not intend to close this offering unless we sell a minimum of 1,000,000 shares of common stock and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market.

 

Use of proceeds

Based on an estimated initial public offering price of $[*] per share, which is the midpoint of the offering price range, we estimate that the net proceeds to us from this offering, assuming we sell a minimum of [*] shares, will be approximately $[*] million and, assuming we sell all [*] shares, will be approximately $[*] million, after payment of underwriting commissions and our estimated offering expenses. However, this is a best efforts offering, and there is no assurance that we will sell any shares or receive any proceeds.

 

  We intend to use the proceeds from this offering to complete our ongoing clinical trial, to commence additional clinical trials, to conduct preclinical research, including biomarker studies, to prepare submissions to the FDA and for research and development and working capital and general corporate purposes. See “Use of Proceeds” for more information.

 



 

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Risk Factors

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

 

Lock-up

We, our directors, executive officers, and certain stockholders have agreed not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities, with certain exceptions, for a period of 180 days following the closing of the offering of the shares. See “Shares Eligible for Future Sale” for more information.

 

Escrow

The gross proceeds of this offering will be deposited at [*], in an escrow account established by us. Purchasers are to make payment for the shares they purchase by (i) delivering to the escrow agent, [*], at [*], checks made payable to the order of “[*], as Escrow Agent for Genprex, Inc.,” or (ii) wire transfer to [*], ABA No. [*], [*], for credit to [*], as Escrow Agent for Genprex, Inc., Account No. [*]. All checks received by the underwriter will be delivered to [*] for deposit into the escrow account not later than 12:00 p.m. on the business day immediately following receipt. The funds will be held in escrow until we receive a minimum of $[*] million (assuming the offering price is at the low end of the price range) and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market, at which time the funds will be released to us. Any funds received in excess of the foregoing minimum amount and following the satisfaction of the Nasdaq listing requirements will immediately be available to us. If we do not receive the minimum amount by [*], 2017 (60 days after the date of this prospectus), all funds will be returned to purchasers in this offering on the next business day after the offering’s termination, without charge, deduction or interest. Prior to [*], 2017, in no event will funds be returned to you. You will only be entitled to receive a refund of your subscription if we do not raise the minimum amount set forth above and satisfy the Nasdaq listing conditions by [*], 2017 (10 days after the date of this prospectus).

 

Proposed NASDAQ listing symbol

“GNPX”

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

 

    the conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 1,378,961 shares of voting common stock (before giving effect to the forward split described below) in connection with the completion of this offering;

 

    the conversion of all of our outstanding shares of non-voting common stock into an aggregate of 25,611 shares of voting common stock (before giving effect to the forward split described below) in connection with the completion of this offering;

 

    a [*]-for-1 forward split of our common stock, to be effected in connection with the completion of this offering;

 

    no exercise of outstanding options after [*];

 



 

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    the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws immediately prior to and upon the completion of this offering;

 

    the issuance of [*] shares of common stock in this offering; and

 

    no purchase of shares in this offering by our officers, directors and existing stockholders.

Summary Financial Data

The following tables summarize our historical financial data as of, and for the periods ended on, the dates indicated. We have derived the summary statement of operations data for the years ended December 31, 2015 and 2016 from our audited financial statements included elsewhere in this prospectus. We have derived the summary statement of operations data for the six months ended June 30, 2016 and 2017 and balance sheet data as of June 30, 2017 from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of June 30, 2017 and results of operations for the six months ended June 30, 2016 and 2017. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period. The summary financial data set forth below should be read together with the financial statements and the related notes to those statements, as well as the sections of this prospectus entitled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Year Ended December 31,     Six Months Ended June 30,  
     2016     2015     2017     2016  

Statement of Operations Data:

        

Revenues

   $ —       $ —       $ —       $ —    

Depreciation

     862       2,064       1,405       432  

Research and development expense

     354,883       201,962       173,344       135,650  

General and administrative expense

     3,776,414       865,696       1,757,760       2,277,157  

Net loss

   $ (4,132,159   $ (1,069,722   $ (1,932,478   $ (2,413,239
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share—basic and diluted

   $ (13.13   $ (3.83   $ (5.67   $ (7.66

Weighted average number of common shares—basic and diluted

     314,802       279,211       340,676       315,176  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     As of December 31,     As of June 30,  
     2016     2015     2017  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 1,602,295     $ 234,220     $ 467,944  

Working capital

     1,353,167       233,696       286,318  

Total assets

     1,910,529       410,091       1,008,065  

Accumulated deficit

     (14,138,195     (10,006,036     (16,070,673

Total stockholders’ equity

     1,624,868       393,737       798,060  

 



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider each of the following risks, together with all other information set forth in this prospectus, including the financial statements and the related notes, before making a decision to buy our common stock. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce or cease our operations.

We intend to use the proceeds from this offering to advance Oncoprex through clinical development, as well as for other purposes. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We will require substantial additional future capital in order to complete clinical development and commercialize Oncoprex. If the FDA requires that we perform additional preclinical studies or clinical trials, our expenses will further increase beyond what we currently expect and the anticipated timing of any potential approval of Oncoprex would likely be delayed. Further, there can be no assurance that the costs we will need to incur to obtain regulatory approval of Oncoprex will not increase.

We will continue to require substantial additional capital to continue our clinical development and commercialization activities. Because successful development of our current and potential product candidates is uncertain, we are unable to estimate the actual amount of funding we will require to complete research and development and commercialize our products under development.

The amount and timing of our future funding requirements will depend on many factors, including but not limited to:

 

    the progress, costs, results and timing of our clinical trials for Oncoprex;

 

    the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;

 

    the ability of third parties to deliver materials and provide services for us;

 

    the costs associated with securing and establishing commercialization and manufacturing capabilities;

 

    market acceptance of our current and potential product candidates;

 

    the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;

 

    our ability to maintain, expand and enforce the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

 

    our need and ability to hire additional management and scientific and medical personnel;

 

    the effect of competing drug candidates and new product approvals;

 

    our need to implement additional internal systems and infrastructure, including financial and reporting systems; and

 

    the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing or other arrangements into which we may enter in the future.

Some of these factors are outside of our control. Based upon our currently expected level of operating expenditures, if we receive the maximum offering amount, we believe that we will be able to fund our operations

 

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through [*], and if we receive the minimum offering amount, we believe that we will be able to fund our operations only through [*]. This period could be shortened if there are any significant increases in planned spending on development programs or more rapid progress of development programs than anticipated. We cannot assure you that the maximum offering amount will be raised. In the event that less than the maximum offering amount is raised, we may not have sufficient capital to execute on our business strategy the way we have intended. We do not believe that our existing capital resources and the proceeds of this offering will be sufficient to enable us to complete the development and commercialization of Oncoprex, Accordingly, we expect that we will need to raise additional funds in the future.

We may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. Any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our existing capital stock. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and we could be forced to halt operations. Accordingly, our business may fail, in which case you would lose the entire amount of your investment in our common stock

We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us.

Our independent registered public accounting firm has indicated that our financial condition raises substantial doubt as to our ability to continue as a going concern.

Our financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, our independent registered public accounting firm has included in its audit opinion for the year ended December 31, 2016 a statement that there is substantial doubt as to our ability to continue as a going concern as a result of our recurring losses and financial condition on December 31, 2016, unless we are able to obtain additional financing, enter into strategic alliances and/or sell assets. The reaction of investors to the inclusion of a going concern statement by our auditors, our current lack of cash resources and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital or enter into strategic alliances. If we become unable to obtain additional capital and to continue as a going concern, we may have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

We have never been profitable, we have no products approved for commercial sale, and to date we have not generated any revenue from product sales. As a result, our ability to reduce our losses and reach profitability is unproven, and we may never achieve or sustain profitability.

We have never been profitable and do not expect to be profitable in the foreseeable future. We have not yet submitted any drug candidates for approval by regulatory authorities in the United States or elsewhere. From our inception on April 1, 2009, to June 30, 2017, we accumulated a deficit incurred of approximately $16.1 million. We incurred net losses of approximately $4.1 million and approximately $1.1 million for the years ended

 

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December 31, 2016 and 2015, respectively, and of approximately $2.0 million and approximately $2.4 million for the six-month periods ended June 30, 2017 and 2016, respectively.

To date, we have devoted most of our financial resources to our corporate overhead and research and development, including our preclinical development activities and clinical trials. We have not generated any revenues from product sales. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for our current and potential product candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support our continuing product development efforts. We anticipate that any such losses could be significant for the next several years. If Oncoprex or any of our other potential product candidates fails in clinical trials or does not gain regulatory approval, or if our drug candidates do not achieve market acceptance, we may never become profitable. As a result of the foregoing, we expect to continue to experience net losses and negative cash flows for the foreseeable future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses could increase if we are required by the FDA to perform studies or trials in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our drug candidates. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues.

We have a limited operating history and we expect a number of factors to cause our operating results to fluctuate on an annual basis, which may make it difficult to predict our future performance.

We are a clinical stage gene therapy company with a limited operating history. Our operations to date have been limited to conducting clinical and preclinical research. We have not yet obtained any regulatory approvals for any of our drug candidates. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. Our operating results are expected to significantly fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include:

 

    any delays in regulatory review and approval of our current and potential product candidates in clinical development, including our ability to receive approval from the FDA for Oncoprex;

 

    delays in the commencement, enrollment and timing of clinical trials;

 

    the success of our clinical trials through all phases of clinical development;

 

    potential side effects of our current and potential product candidates that could delay or prevent approval or cause an approved drug to be taken off the market;

 

    our ability to obtain additional funding to develop product candidates;

 

    our ability to identify and develop additional drug candidates beyond Oncoprex;

 

    competition from existing products or new products that continue to emerge;

 

    the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;

 

    our ability to adhere to clinical trial requirements directly or with third parties such as contract research organizations, or CROs;

 

    our dependency on third-party manufacturers to manufacture our products and key ingredients;

 

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    our ability to establish or maintain collaborations, licensing or other arrangements, particularly with MD Anderson;

 

    our ability to defend against any challenges to our intellectual property including, claims of patent infringement;

 

    our ability to enforce our intellectual property rights against potential competitors;

 

    our ability to secure additional intellectual property protection for our drug candidates in development and associated technologies;

 

    our ability to attract and retain key personnel to manage our business effectively; and

 

    potential product liability claims.

Accordingly, the results of any historical quarterly or annual periods should not be relied upon as indications of future operating performance.

Risks Related to Development and Commercialization of Our Current and Potential Product Candidates

Our success depends greatly on the success of our development of Oncoprex for the treatment of non-small cell lung cancer, and our pipeline of product candidates beyond this lead indication is extremely early stage and limited.

At this time we are actively pursuing development of only one product candidate, Oncoprex for non-small cell lung cancer. Therefore, we are dependent on the success of Oncoprex in the near term. We cannot provide you any assurance that we will be able to successfully advance Oncoprex through the development process, or that any development problems we experience in the future will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, or developing or validating product release assays in a timely manner, which may prevent us from completing our clinical trials or commercializing our products on a timely or profitable basis, if at all. Immunotherapy, gene therapy and biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Because Oncoprex and our other potential product candidates are based upon novel technology, it is difficult to predict whether, either as stand-alone therapies or in combination with other drugs, they will show consistently favorable results and to predict the time and cost of their development and of subsequently obtaining regulatory approval. Few gene therapy products have been approved in the United States or Europe. We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our current and potential product candidates. We may encounter delays in our clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction of FDA and other regulatory authorities. We may not be successful in our efforts to identify or discover additional product candidates, or to develop product candidates that we have identified.

Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception of our current and potential product candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our current and potential product candidates.

Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians specializing in the treatment of those diseases that our current and potential product candidates target prescribing treatments that involve the use of our current and potential product candidates in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our current and

 

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potential product candidates or demand for any products we may develop. Adverse events in our clinical trials, even if not ultimately attributable to our current and potential product candidates, and the resulting publicity could lead to increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. Concern about the environmental spread of our product, whether real or anticipated, may hinder the commercialization of our products.

Delays in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our ability to obtain regulatory approval for Oncoprex and our other potential product candidates.

Oncoprex has been tested in only one prior Phase I clinical study, involving 31 patients. In that study, Oncoprex was tested as a monotherapy. We believe that the best path for development is to develop a combination therapy of Oncoprex in combination with erlotinib and possibly other drugs. We have an ongoing Phase I/II clinical trial testing Oncoprex in combination with erlotinib. Enrollment was completed in March 2015 for the Phase I portion of this clinical trial, in which 18 patients were enrolled. The Phase II portion of our Phase I/II clinical trial is at an early stage, with a limited number of patients enrolled, and the favorable results observed so far may not continue in the current clinical trial or be replicated in other clinical trials, especially those involving larger numbers of patients. Even if the Phase I/II trial is successful, success in early clinical studies may not be indicative of results obtained in later studies. The results from our Phase I/II trial may not demonstrate sufficient safety and efficacy to support the submission of marketing approval for Oncoprex. Before we request marketing approval, the FDA may require us to conduct additional clinical studies, or evaluate subjects for an additional follow-up. Unless an accelerated approval process is allowed by the FDA, one or more Phase III studies is normally required for approval.

Delays in the commencement, enrollment and/or completion of clinical trials could increase our product development costs or delay or limit the regulatory approval of our current and potential product candidates. We do not know whether any future trials or studies of our other potential product candidates will begin on time or will be completed on schedule, if at all. The start or end of a clinical study is often delayed or halted due to changing regulatory requirements, changes in the proposed regulatory approval pathway for a drug candidate, manufacturing challenges, including delays or shortages in available drug product, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of care, availability or prevalence of use of a comparative drug or required prior therapy, clinical outcomes or financial constraints. For instance, delays or difficulties in patient enrollment or difficulties in retaining trial participants can result in increased costs, longer development times or termination of a clinical trial. Clinical trials of a new product candidate require the enrollment of a sufficient number of patients, including patients who are suffering from the disease the product candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors, including the size of the patient population, the eligibility criteria for the clinical trial, that include the age and condition of the patients and the stage and severity of disease, the nature of the protocol, the proximity of patients to clinical sites and the availability of effective treatments and/or availability of other investigational treatment options for the relevant disease.

As the second phase of a Phase I/II clinical trial, MD Anderson researchers are conducting a Phase II clinical trial evaluating Oncoprex in combination with erlotinib in NSCLC. Enrollment eligibility criteria for this clinical trial are broad and include stage IV and recurrent NSCLC not potentially curable by radiotherapy or surgery, whether or not the patients have received prior chemotherapy, and whether or not they have an activating EGFR mutation. The Phase II trial began in June 2015 and is ongoing at MD Anderson. Ten patients have been entered and nine are evaluable for response under the trial protocol, because they have received 2 or more cycles of treatment. Preliminary analysis of the data from these patients further supported our belief that Oncoprex may provide medical benefit in several subpopulations of NSCLC patients for which there is an unmet medical need, and may provide pathways for accelerated approval.

 

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As a result of these initial findings, in April 2016, we suspended enrollment of new patients in this Phase II clinical trial to collect additional trial data and have it analyzed in order to seek FDA guidance as to whether the protocol for this clinical trial could be modified to expand enrollment and also to divide the patients into cohorts with a view toward seeking accelerated approval in one or more of these cohort populations. We have completed the collection and analysis of the additional preliminary data and expect to present our findings to the FDA within the next several months. Although the clinical trial is currently closed to new patient enrollment, it is not terminated, and is considered “ongoing” because activities such as patient follow-up and further data collection and analysis continue.

If we reach an agreement with the FDA regarding expanded patient enrollment and defined patient cohorts, then we plan to amend the trial protocol accordingly and proceed with the amended protocol at MD Anderson and several additional clinical trial sites. Amendments to the Phase II clinical trial protocol will require approval of the Investigational Review Board, or IRB, of each site where the amended trial is conducted. If we do not reach an agreement with the FDA on these changes, then we plan to reopen enrollment in the current version of the Phase II trial at MD Anderson and at additional clinical trial sites. In that event, we will need to provide MD Anderson with plans and funding to move ahead with the trial. Whether under the original protocol or a revised protocol, we intend to use a portion of the proceeds of this offering to add additional clinical trial sites

A product candidate can unexpectedly fail at any stage of preclinical and clinical development. The historical failure rate for product candidates is high due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. The results from preclinical testing or early clinical trials of a product candidate may not predict the results that will be obtained in later phase clinical trials of the product candidate. We, the FDA or other applicable regulatory authorities may suspend clinical trials of a product candidate at any time for various reasons, including, but not limited to, a belief that subjects participating in such trials are being exposed to unacceptable health risks or adverse side effects, or other adverse initial experiences or findings. We may not have the financial resources to continue development of, or to enter into collaborations for, a product candidate if we experience any problems or other unforeseen events that delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including:

 

    inability to obtain sufficient funds required for a clinical trial;

 

    inability to reach agreements on acceptable terms with current or prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

    negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program;

 

    serious and unexpected drug-related side effects experienced by subjects in our clinical trials or by individuals using drugs similar to our current and potential product candidates;

 

    conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

 

    delays in enrolling research subjects in clinical trials;

 

    high drop-out rates and high fail rates of research subjects;

 

    inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;

 

    greater than anticipated clinical trial costs;

 

    poor effectiveness of our current and potential product candidates during clinical trials; or

 

    unfavorable FDA or other regulatory agency inspection and review of a clinical trial site or vendor.

 

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We may have difficulty engaging or retaining clinical trial sites and/or enrolling patients in our clinical trials, which could delay or prevent development of our current and potential product candidates.

Identifying and qualifying patients to participate in clinical trials of our current and potential product candidates is critical to our success. The timing of our clinical trials depends on the speed at which we can engage and retain clinical trial sites and recruit patients to participate in testing our current and potential product candidates. We have experienced delays in some of our clinical trials in the past due to difficulties with enrollment and we may experience similar delays in the future. We have suspended enrollment of new patients in the Phase II portion of our Phase I/II clinical trial evaluating Oncoprex in combination with erlotinib in NSCLC, and we may experience difficulties with enrollment upon reopening enrollment for the trial under the current protocol or a modified protocol. If patients are unwilling to participate in our clinical trials because of negative publicity from adverse events in the industry or in the trials for other third party product candidates, or for other reasons, including competitive clinical trials for similar patient populations, the timeline for engaging sites, recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical trials altogether.

We or our clinical trial sites may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required or desired characteristics in a clinical trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by factors including:

 

    severity of the disease under investigation;

 

    design of the clinical trial protocol, including the fact that certain of our clinical trials are randomized to current treatments;

 

    size of the patient population;

 

    eligibility criteria for the clinical trial in question;

 

    perceived risks and benefits of the product candidate under study;

 

    general level of excitement for the treatment approach;

 

    comments on social media;

 

    proximity and availability of clinical trial sites for prospective patients;

 

    availability of competing therapies and clinical trials;

 

    efforts to facilitate timely enrollment in clinical trials;

 

    patient referral practices of physicians; and

 

    ability to monitor patients adequately during and after treatment.

We currently plan to seek initial marketing approval in the United States and subsequently in Europe. We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by the FDA or the European Medicines Agency, or EMA, or other regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:

 

    difficulty in establishing or managing relationships with CROs and physicians;

 

    different standards for the conduct of clinical trials;

 

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

 

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

 

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If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.

Any product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.

Clinical failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Thirty-one patients were treated in our first Phase I clinical trial of Oncoprex used as a monotherapy, and 28 patients have been enrolled to date (out of a possible total of 57) in our current Phase I/II clinical trial of Oncoprex in combination with erlotinib in NSCLC. Of the 28 patients, 18 were enrolled in the Phase I portion of the Phase I/II trial, and three of these 18 are also enrolled in the Phase II portion. Safety and efficacy results to date may not continue to be obtained as additional patients are treated, and may not be duplicated in future clinical trials. A number of companies in the pharmaceutical industry, including those with greater resources and experience than ours, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials.

In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts.

If Oncoprex is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our business would be harmed.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any clinical trials we or any of our potential future collaborators may conduct will demonstrate the consistent or adequate efficacy and safety that would be required to obtain regulatory approval and market any products. If we are unable to bring Oncoprex to market, or to acquire other products that are on the market or can be developed, our ability to create stockholder value will be limited.

Even if we obtain regulatory approval of our current and potential product candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centers, third-party payors and others in the medical community.

Ethical, social and legal concerns about gene therapy and genetic research could result in additional regulations restricting or prohibiting the products and processes we may use. Even with the requisite approvals, the commercial success of our current and potential product candidates will depend in part on the medical community, patients, and third-party payors accepting gene therapy products in general, and our current and potential product candidates in particular, as medically useful, cost-effective and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate

 

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significant product revenue and may not become profitable. The degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

    the clinical indications for which our current and potential product candidates are approved;

 

    physicians, hospitals, cancer treatment centers and patients considering our current and potential product candidates as a safe and effective treatment;

 

    the potential and perceived advantages of our current and potential product candidates over alternative treatments;

 

    the prevalence and severity of any side effects;

 

    product labeling or product insert requirements of the FDA or other regulatory authorities;

 

    limitations or warnings contained in the labeling approved by the FDA;

 

    the timing of market introduction of our current and potential product candidates as well as competitive products;

 

    the cost of treatment in relation to alternative treatments;

 

    the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;

 

    the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors, including government authorities;

 

    the willingness, ability and availability of healthcare providers that can comply with the transportation, handling, and temperature-controlled storage requirements associated with our current and potential product candidates;

 

    relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and

 

    the effectiveness of our sales and marketing efforts.

Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional technologies marketed by our competitors and may be restricted by the allowed label.

Our current and potential product candidates may have undesirable side effects that may delay or prevent marketing approval, or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.

In our Phase I clinical trial of Oncoprex as a monotherapy, the only serious adverse events, defined as grade 3, 4 or 5 events under the Common Terminology Criteria for Adverse Events, or CTCAE, published by the U.S. Department of Health and Human Services, were grade 3 fever and grade 3 hypotension, and the only dose-limiting toxicities were two episodes of transient grade 3 hypophosphatemia (abnormally low levels of phosphate in the blood)

The Phase I portion of our Phase I/II trial combining Oncoprex with erlotinib was a dose escalation study with the primary purpose of determining the MTD. Dose Limiting Toxicities were defined as grade 3, 4, or 5 events during the first cycle of treatment that were considered to be treatment related. At dose level 1 (Oncoprex .045 mg/kg plus erlotinib 100 mg), one subject had grade 3 adverse events of fatigue, muscle weakness, and hyponatremia (low sodium level) considered to be related to the study treatment (erlotinib); therefore, three

 

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additional subjects were treated at this dose level (six subjects total), none of whom suffered a Dose Limiting Toxicity. At dose level 2 (Oncoprex .06 mg/kg plus erlotinib 100 mg), there were no Dose Limiting Toxicities. At dose level 3 (Oncoprex .45 mg/kg plus erlotinib 150 mg), one subject had a grade 3 rash considered to be related to the study treatment (erlotinib); therefore, an additional three subjects were treated at this dose level (six subjects total). No additional subjects suffered a Dose Limiting Toxicity at dose level 3. At dose level 4 (Oncoprex .06 mg/kg plus erlotinib 150 mg), there were no Dose Limiting Toxicities; thus dose level 4 was determined to be the MTD. None of the 10 subjects treated to date in the Phase II portion of the Phase I/II trial suffered a Dose Limiting Toxicity.

Additional or unforeseen side effects from Oncoprex or any of our other potential product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. A showing that Oncoprex or any other product candidate causes undesirable or unacceptable side effects could interrupt, delay or halt clinical trials and result in the failure to obtain or suspension or termination of marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities only with restrictive label warnings.

If any of our current and potential product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products:

 

    regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

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

 

    we may be subject to limitations on how we may promote the product;

 

    sales of the product may decrease significantly;

 

    regulatory authorities may require us to take our approved product off the market;

 

    we may be subject to litigation or product liability claims; and

 

    our reputation may suffer.

Any of these events could prevent us or our potential future collaborators from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products.

We may face product liability claims.

In the event Oncoprex or any of our other potential product candidates is approved for marketing by the FDA and other regulatory authorities, we may face potential product liability. If successful claims are brought against us, we may incur substantial liability and costs. If the use of our current and potential product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our current and potential product candidates, our regulatory approvals could be revoked or otherwise negatively impacted, and we could be subject to costly and damaging product liability claims.

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

Despite the implementation of security measures, our internal computer systems and those of our CROs, contractors and consultants are vulnerable to damage from computer viruses and unauthorized access, as well as being vulnerable to other system difficulties, failures or disruptions. 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

 

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business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, and the further development and commercialization of our current and potential product candidates could be delayed.

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

Our operations, and those of our CROs, contractors and consultants, could be subject to power shortages, telecommunications failures, wildfires, water shortages, floods, earthquakes, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Our ability to obtain clinical supplies of our current and potential product candidates could be disrupted if the operations of our contract manufacturers are affected by a man-made or natural disaster or other business interruption. Unfavorable global economic conditions could adversely affect our business, financial condition, or results of operations.

We do not carry insurance for all categories of risk that our business may encounter. In particular, we do not carry product liability insurance covering any clinical trials liability that we may incur. Although we intend to obtain such insurance before we market any product, there can be no assurance that we will secure adequate insurance coverage or that any such insurance coverage will be sufficient to protect our operations to significant potential liability in the future. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations.

We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in the United States, Europe and elsewhere, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of our competitors have greater financial and other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing drugs for the cancer indications that we are targeting before we do or may develop drugs that are deemed to be more effective or gain greater market acceptance than ours. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. In addition, many universities and private and public research institutes may become active in our target disease areas. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than any product candidates that we are currently developing or that we may develop, which could render our products obsolete or noncompetitive.

There are a number of drugs approved and under development for treatment of lung cancer. Treatments competitive with our primary product candidates generally fall into the following categories: chemotherapies such as cisplatin, carboplatin, docetaxel and pemetrexed; targeted therapies such as erlotinib, gefitinib, afatinib

 

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and osimertinib (marketed as Tagrisso ® by AstraZeneca Pharmaceuticals), and immunotherapies such as checkpoint inhibitors and CAR and CAR T cells, and oncolytic virus-based technology. Data indicate that Oncoprex, when combined with certain targeted therapies and immunotherapies, may enhance the benefit of those therapies; therefore, we believe that Oncoprex could be administered in combination with targeted therapies and immunotherapies and thus may not be a direct competitor of those drugs. In addition, new drug candidates are constantly being conceived and developed. Any such competing therapy may be more effective and/or cost-effective than ours.

If our competitors market products that are more effective, safer or less expensive or that reach the market sooner than our future products, if any, we may not achieve commercial success. In addition, because of our limited resources, it may be difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.

Risks Related to Regulatory Approval and Marketing of Our Current and Potential Product Candidates and Other Legal Compliance Matters

We cannot be certain that Oncoprex will receive regulatory approval, and without regulatory approval we will not be able to market Oncoprex.

Our business currently depends largely on the successful development and commercialization of Oncoprex. Our ability to generate revenue related to product sales, if ever, will depend on the successful development and regulatory approval of Oncoprex for the treatment of cancer. Even if we complete the necessary clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a product candidate. Further, if we do obtain regulatory approval, it may only apply to a more narrow indication than we expect. Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.

We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. The development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the FDA in the United States and regulatory authorities in other countries, with regulations differing from country to country. We are not permitted to market our current and potential product candidates in the United States until we receive approval of a Biologics License Application, or BLA, from the FDA. We have not submitted any marketing applications for any of our current and potential product candidates.

BLAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. BLAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of a BLA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA review processes can take years to complete and approval is never guaranteed. If we submit a BLA to the FDA, the FDA must decide whether to accept or reject the submission for filing. We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators in other jurisdictions have their own procedures for approval of product candidates. Even if a product is approved, the FDA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of drug candidates with which we must comply with prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of new information

 

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regarding our current and potential product candidates or other products. Also, regulatory approval for any of our current and potential product candidates may be withdrawn.

If we are unable to obtain approval from the FDA, or other regulatory agencies, for Oncoprex, or if, subsequent to approval, we are unable to successfully commercialize Oncoprex or our other potential product candidates, we will not be able to generate sufficient revenue to become profitable or to continue our operations.

In addition, the clinical trial requirements of the FDA, the European Medicines Agency, or 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 pharmaceutical or other product candidates.

Regulatory requirements governing gene therapy products have changed frequently and may continue to change in the future. For example, in January 2017, the FDA Oncology Center of Excellence, or the Center of Excellence, was created to leverage the combined skills of regulatory scientists and reviewers with expertise in drugs, biologics, and devices (including diagnostics). While the Center of Excellence is designed to help expedite the development of oncology and malignant hematology-related medical products and support an integrated approach in the clinical evaluation of drugs, biologics and devices for the treatment of cancer, the new Center of Excellence may initially create confusion within the FDA and especially in the Center of Biologics and Research that is the primary review division for Oncoprex. Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research from the U.S. National Institutes of Health, or the NIH, are also subject to review by the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee, or the RAC. Although the FDA decides whether individual gene therapy protocols may proceed, the RAC review process can impede the initiation of a clinical trial, even if the FDA has reviewed the study and approved its initiation. Conversely, the FDA can put an Investigational New Drug application, or IND, on a partial or complete clinical hold even if the RAC has provided a favorable review. Also, before a clinical trial can begin at an NIH-funded institution, that institution’s institutional review board, or IRB, and its Institutional Biosafety Committee will have to review the proposed clinical trial to assess the safety of the study. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other regulatory bodies to change the requirements for performing studies or for obtaining approval of any of our current and potential product candidates.

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, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our current and potential product candidates or lead to significant post-approval limitations or restrictions. As we advance our current and potential product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient revenue to maintain our business.

If the FDA does not find the manufacturing facilities of our future contract manufacturers acceptable for commercial production, we may not be able to commercialize any of our current and potential product candidates.

We do not intend to manufacture the pharmaceutical products that we plan to sell. We are currently utilizing contract manufacturers for the production of the active pharmaceutical ingredients and the formulation of drug product for the trials of Oncoprex currently being conducted or will need to be conducted prior to seeking regulatory approval. However, we do not have agreements for supplies of Oncoprex or any of our other potential product candidates and we may not be able to reach agreements with these or other contract manufacturers for

 

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sufficient supplies to commercialize Oncoprex if it is approved. Additionally, the facilities used by any contract manufacturer to manufacture Oncoprex or any of our other potential product candidates must be the subject of a satisfactory inspection before the FDA approves the product candidate manufactured at that facility. We are completely dependent on these third-party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers cannot successfully manufacture materials that conform to our specifications and the FDA’s current good manufacturing practices, or cGMP, standards and other requirements of any governmental agency to whose jurisdiction we are subject, our current and potential product candidates will not be approved or, if already approved, may be subject to recalls. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our current and potential product candidates, including:

 

    the possibility that we are unable to enter into a manufacturing agreement with a third party to manufacture our current and potential product candidates;

 

    the possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and

 

    the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement third-party manufacturer.

Any of these factors could cause the delay of approval or commercialization of our current and potential product candidates, cause us to incur higher costs or prevent us from commercializing our current and potential product candidates successfully. Furthermore, if any of our current and potential product candidates are approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an alternative source of supply for our current and potential product candidates and to have any such new source approved by the government agencies that regulate our products.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and other federal and state healthcare laws, and the failure to comply with such laws could result in substantial penalties. Our employees, independent contractors, consultants, principal investigators, CROs, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, independent contractors, consultants, principal investigators, CROs, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the laws of the FDA and similar foreign regulatory bodies; provide true, complete and accurate information to the FDA and similar foreign regulatory bodies; comply with manufacturing standards we have established; comply with federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval for any of our current and potential product candidates and begin commercializing those products in the United States, our potential exposure under such laws would increase significantly, and our costs associated with compliance with such laws would likely also increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain 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, including off-label uses of our products, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also

 

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involve the improper use or misrepresentation of information obtained in the course of patient recruitment for clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, 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. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. 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 fines or other sanctions. The laws that may affect our ability to operate include, but are not limited to:

 

    the Federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

    federal civil and criminal false claims laws and civil monetary penalty laws, including the civil False Claims Act, which impose criminal and civil penalties, through government, civil whistleblower or qui tam actions, on individuals and entities for, among other things, knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other third-party payors that are false, fictitious or fraudulent, or knowingly making, using or causing to be made or used, a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

 

    the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that perform services for them that involve the creation, use, maintenance or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization;

 

   

the federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act,” created under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care Act, and its

 

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implementing regulations, which require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

 

    the U.S. Federal Food, Drug and Cosmetic Act, or FDCA, which prohibits, among other things, the adulteration or misbranding of drugs and medical devices; and

 

    federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers. Additionally, we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and may apply regardless of the payor.

It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Efforts to ensure that our business arrangements will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our current and potential product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

Coverage and reimbursement may be limited or unavailable in certain market segments for our current and potential product candidates, if approved, which could make it difficult for us to sell our current and potential product candidates profitably.

The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, insurance companies and other third party payors, and others in the medical community. Even if we obtain approval to commercialize our current and potential product candidates outside of the United States, a variety of risks associated with international operations could materially affect our business. Due to the novel nature of our technology, we face uncertainty related to pricing and reimbursement for our current and potential product candidates. The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue. If market opportunities for our current and potential product candidates are smaller than we believe they are, our revenues may be adversely affected and our business may suffer.

Successful sales of our products, if our current and potential product candidates are approved, depend on the availability of coverage and adequate reimbursement from third-party payors. In addition, because our current and potential product candidates represent new approaches to the treatment of cancer, we cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from, our current and potential product candidates. Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Coverage and adequate

 

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reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.

Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s determination that use of a product is:

 

    a covered benefit under its health plan;

 

    safe, effective and medically necessary;

 

    appropriate for the specific patient;

 

    cost-effective; and

 

    neither experimental nor investigational.

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors, and coverage and reimbursement for products can differ significantly from payor to payor. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products and to justify the level of coverage and reimbursement relative to other therapies, with no assurance that coverage and adequate reimbursement will be obtained. Third party payors may also have difficulty in determining the appropriate coverage of Oncoprex and our other potential product candidates that are combination products, if approved, due to the fact that they are combination products that include another drug. To the extent there are any delays in determining such coverage or inadequate coverage and reimbursement for all aspects of our combination therapies, it would adversely affect the market acceptance, demand and use of our current and potential product candidates. Any denial in coverage or reduction in reimbursement from Medicare or other government programs may result in a similar denial or reduction in payments from private payors, which may adversely affect our future profitability.

We intend to seek approval to market our current and potential product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our current and potential product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricing of biologics is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our current and potential product candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our current and potential product candidates will depend significantly on the availability of coverage and adequate reimbursement from third-party payors for our current and potential product candidates and may be affected by existing and future health care reform measures.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could affect our ability to sell our products profitably. In particular, in 2010, the Affordable Care Act was enacted in the United States. The Affordable Care Act and its implementing regulations, among other things, subjected biological products to potential competition by lower-cost biosimilars, revised the methodology by which rebates owed by manufacturers to the state and federal government for covered outpatient drugs and certain biologics, including our current and potential product candidates, under the Medicaid Drug Rebate Program are calculated,

 

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increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription drugs, and provided incentives to programs that increase the federal government’s comparative effectiveness research. The current Presidential Administration and U.S. Congress may seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. There have been judicial and Congressional challenges to certain aspects of the Affordable Care Act. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the Affordable Care Act. While the extent to which any such changes may affect our business is uncertain, steps have been taken to repeal and replace certain aspects of the Affordable Care Act.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

 

    the demand for our current and potential product candidates, if we obtain regulatory approval;

 

    our ability to set a price that we believe is fair for our products;

 

    our ability to generate revenue and achieve or maintain profitability;

 

    the level of taxes that we are required to pay; and

 

    the availability of capital.

We and our contract manufacturers are subject to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.

We are currently utilizing contract manufacturers for the production of the active pharmaceutical ingredients and the formulation of drug product for our trials of Oncoprex. However, we do not have agreements for supplies of Oncoprex or any of our other potential product candidates. Each supplier may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain and we may be unable to transfer or sublicense the intellectual property rights we may have or later obtain with respect to such activities.

All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for Oncoprex, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants, or to inadvertent changes in the properties or stability of our current and potential product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA’s good laboratory practices, or GLP, and cGMP regulations enforced by the FDA through its facilities inspection program. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our current and potential product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our current and potential product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, FDA approval of the products may not be granted.

 

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The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be materially harmed.

Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative manufacturer would need to be qualified through a BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our current and potential product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

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

We may become subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and certain waste products, including numerous environmental, health and safety laws and regulations, such as those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations may in the future involve the use of hazardous materials, including chemicals and biological materials. Our operations may also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Risks Related to Our Dependence on Third Parties

We may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely affect our ability to develop certain of our current and potential product candidates and our financial condition and operating results.

Because developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products are expensive, we may enter into collaborations with companies that have the required expertise. Additionally, if any of our current and potential

 

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product candidates receives marketing approval, we may enter into sales and marketing arrangements with third parties. If we are unable to enter into arrangements on acceptable terms, if at all, we may be unable to effectively market and sell our products in our target markets. We expect to face competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements for the development of our current and potential product candidates.

When we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party.

One or more of our collaboration partners may not devote sufficient resources to the commercialization of our current and potential product candidates or may otherwise fail in their commercialization. The terms of any collaboration or other arrangement that we establish may contain provisions that are not favorable to us. In addition, any collaboration that we enter into may be unsuccessful in the development and commercialization of our current and potential product candidates. In some cases, we may be responsible for continuing preclinical and initial clinical development of a product candidate or research program under a collaboration arrangement, and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development. If we are unable to reach agreements with suitable collaborators for our current and potential product candidates, we would face increased costs, we may be forced to limit the number of our current and potential product candidates we can commercially develop or the territories in which we commercialize them. As a result, we might fail to commercialize products or programs for which a suitable collaborator cannot be found. If we fail to achieve successful collaborations, our operating results and financial condition could be materially and adversely affected.

We rely, and expect to continue to rely, on third parties to conduct, supervise and monitor our clinical trials, and if these third parties perform in an unsatisfactory manner, it may harm our business.

We rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we have agreements governing their activities, we may have limited influence over their actual performance. We control only certain aspects of our CROs’ activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities.

We and our CROs are required to comply with the GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA enforces these GCPs through periodic inspections of study sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable, and the FDA may require us to perform additional clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our ongoing and future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of our current and potential product candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.

Our CROs are not our employees, and we are not able to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of

 

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the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our current and potential product candidates. As a result, our financial results and the commercial prospects for our current and potential product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

We rely, and expect to continue to rely, on third parties to distribute, manufacture and perform release testing for our current and potential product candidates and other key materials and if such third parties do not carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approvals for our current and potential product candidates.

We intend to continue to rely on third-party contract manufacturing organizations, or CMOs, to produce our current and potential product candidates and other key materials and on third-party contract testing organizations, or CTOs, for the establishment and performance of validated product release assays, but we have not entered into binding agreements with any such CMOs or CTOs to support commercialization. Additionally, any CMO may not have experience producing our current and potential product candidates at commercial levels and may not achieve the necessary regulatory approvals or produce our products at the quality, quantities, locations and timing needed to support commercialization. We may change our manufacturing process, and there can be no guarantee that the regulatory authorities will approve any new process in a timely manner or ever. Also, as a consequence of the manufacturing change, there may be a requirement to do more preclinical safety or efficacy studies, develop new manufacturing and release assays and/or repeat all or part of the ascending dose safety study in animals or humans. Regulatory requirements ultimately imposed could adversely affect our ability to test, manufacture or market products.

Although we intend to rely on third-party manufacturers for commercialization, we currently utilize a sole-source manufacturer to support our clinical trials. We may be unable to negotiate binding agreements with this manufacturer or additional manufacturers to support our commercialization activities at commercially reasonable terms.

No manufacturer we know of currently has the experience or ability to produce our current and potential product candidates at reasonable commercial levels or under full commercial requirements. We may encounter technical or scientific issues related to manufacturing or development that we may be unable to resolve in a timely manner or with available funds. Further, we have not completed the characterization and validation activities necessary for commercial and regulatory approvals. If our manufacturing and testing partners do not obtain such regulatory approvals, our commercialization efforts may be harmed.

Even if we timely develop a manufacturing process for Oncoprex and successfully transfer it to third-party manufacturers, if such third-party manufacturers are unable to produce our current and potential product candidates in the necessary quantities, or in compliance with current Good Manufacturing Practices, or cGMP, or in compliance with pertinent regulatory requirements, and within our planned time frame and cost parameters, the development and sales of our products, if approved, may be materially harmed. The facilities used by our contract manufacturers to manufacture our current and potential product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our BLA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs for the manufacture of our current and potential product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our current and potential product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly affect our ability to develop, obtain regulatory approval for or market our

 

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current and potential product candidates, if approved. In addition, any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our current and potential product candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation.

In addition, any significant disruption in our supplier relationships could harm our business. We source key materials, devices and equipment from third parties, either directly through agreements with suppliers or indirectly through our manufacturers who have agreements with suppliers. There is a small number of suppliers for certain key materials and components that are used to manufacture our current and potential product candidates. Such suppliers may not sell these key materials to our manufacturers at the times or quantities we need them or on commercially reasonable terms. We may not have any control over the process or timing of the acquisition of these key materials by our manufacturers.

We also expect to rely on other third parties to store and distribute our products for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our current and potential product candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential product revenue.

We have completed and may in the future complete related party transactions that were not and may not be conducted on an arm’s length basis.

Our leading drug candidate, Oncoprex, is based upon patents and related technology covered by a patent and technology license agreement between The University of Texas MD Anderson Cancer Center, or MD Anderson, and Introgen Therapeutics, Inc. (such technology license agreement is referred to as the “MD Anderson License Agreement”), under which we have rights to patents covering use of various genes, including the TUSC2 gene, for treatment of cancer, as well as know-how and related intellectual property. In 2007, the MD Anderson License Agreement was sublicensed by Introgen Therapeutics, Inc. to Introgen Research Institute, Inc., a Texas corporation (IRI) and in 2009 this sublicense was assigned by IRI to us, and we granted back to IRI a non-exclusive, royalty-free license to use and practice the licensed technology for non-commercial research purposes. As consideration for this assignment, we agreed to assume all of IRI’s obligations to MD Anderson under the MD Anderson License Agreement, including ongoing patent related expenses and royalty obligations. IRI also agreed in 2011 to provide additional technology licensing opportunities and services to us in return for monthly payments and our obligation to pay to IRI a royalty of one percent (1%) on sales of products licensed to us under the MD Anderson License Agreement. We also granted a non-exclusive, royalty-free sublicense to IRI in 2011 for non-commercial research purposes. IRI’s obligations to provide additional technology licensing opportunities and services to us, and our obligation to make monthly payments to IRI, were terminated in 2012; however, our obligation to pay the one percent (1%) royalty to IRI upon sales of products licensed to us under the MD Anderson License Agreement is ongoing. This royalty obligation continues for 21 years after the later of the termination of the MD Anderson License Agreement and the termination of the sublicense assigned by IRI to us. IRI is controlled by Rodney Varner and his immediate family members. Mr. Varner is currently Chairman of our board of directors, having joined our board of directors on August 15, 2012, and has been our President and Chief Executive Officer since August 29, 2012; accordingly, in 2009 and 2011, when the above referenced agreements between IRI and Genprex were entered into, Mr. Varner was neither a member of our board of directors nor an executive officer of Genprex. When the 2011 agreement was entered into, Mr. Varner was deemed to be an “affiliate of the Company due to his beneficial ownership of approximately 39% of our issued and outstanding shares. Although we believe that these transactions were conducted on an arm’s length basis, it is possible that the terms were less favorable to us than they might have been in a transaction with an unrelated party. We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration and oversight of related-person transactions.

 

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Risks Related to Our Intellectual Property

If we fail to obtain or protect our intellectual property, our business will be impaired.

If we are unable to obtain or protect intellectual property rights related to our current and potential product candidates, we may not be able to compete effectively in our markets. Third party claims of intellectual property infringement may prevent or delay our development and commercialization efforts. We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and end licenses.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business. We may be involved in lawsuits to protect or enforce our patents or the patents or our licensors, which could be expensive, time-consuming, and/or unsuccessful.

Obtaining and maintaining patent protection depends upon 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 noncompliance with these requirements. Issued patents covering our current and potential product candidates could be found invalid or unenforceable if challenged in court, or could expire before we obtain product approval. The scope of our issued patents could be found to be narrower and provide less protection than we anticipate.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from MD Anderson, or otherwise experience disruptions to our business relationships with MD Anderson or other future licensors, we could lose license rights that are important to our business.

Under our license agreement with MD Anderson, we hold a worldwide, exclusive license to, among other things, manufacture and market products utilizing certain inventions that are critical to our business. We expect to enter into additional license agreements in the future. Our existing license agreement imposes various diligence, royalty and other obligations on us, and we expect that future license agreements will impose various diligence, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license. See “Business—License and Collaboration Agreements” for a description of our license agreements with MD Anderson, which includes a description of the termination provisions of these agreements.

We may need to obtain licenses from third parties to advance our research or allow commercialization of our current and potential product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current product candidates or future products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.

In certain cases, patent prosecution of our licensed technology may be controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific

 

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issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

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

 

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

 

    the sublicensing of patent and other rights under our collaborative development relationships;

 

    our diligence obligations under the license agreement 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

 

    the priority of invention of patented technology.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

The intellectual property rights we have licensed from MD Anderson are subject to the rights of the U.S. government.

The rights we have obtained pursuant to our license agreement with MD Anderson are made subject to the rights of the U.S. government to the extent that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government. Additionally, to the extent there is any conflict between our license agreement with MD Anderson and applicable laws or regulations, applicable laws and regulations will prevail. Similarly, to the extent there is any conflict between our license agreement with MD Anderson and MD Anderson’s funding agreement with the US government, the terms of the funding agreement will prevail. Some, and possibly all, of our licensed intellectual property rights from MD Anderson have been developed in the course of research funded by the U.S. government. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future products pursuant to the Bayh-Dole Act of 1980. 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, or an assignee or exclusive licensee to such inventions, to grant licenses to any of these inventions to a third party if the U.S. government determines that adequate steps have not been taken to commercialize the invention, that government action is necessary to meet public health or safety needs, that government action is necessary to meet requirements for public use under federal regulations, or that the right to use or sell such inventions is exclusively licensed to an entity within the U.S. and substantially manufactured outside the U.S. without the U.S. government’s prior approval. Additionally, we may be restricted from granting exclusive licenses for the right to use or sell our inventions created pursuant to such agreements unless the licensee agrees to additional restrictions (e.g., manufacturing substantially all of the invention in the U.S.). The U.S. government also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the U.S. government may acquire title in any country in which a patent application is not filed within specified time limits. Additionally, certain inventions are subject to transfer restrictions during the term of these agreements and for a period thereafter, including sales of products or components, transfers to foreign subsidiaries for the purpose of the relevant agreements, and transfers to certain foreign third parties. If any of our intellectual property becomes subject to any of the rights or remedies available to the U.S. government or third parties pursuant to the Bayh-Dole Act of 1980, this could impair the value of our intellectual property and could adversely affect our business. The U.S. government has not exercised any of these rights or provided us with any notice of its intent to exercise any of these rights with respect to any of the intellectual property licensed to us by MD Anderson. We are not aware of any instance in which the U.S.

 

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government has ever exercised any such rights with respect to any technologies or other intellectual property developed under funding agreements with the U.S. government.

If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.

Our commercial success will depend in part on our ability and the ability of our licensors to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our novel technologies and products that are important to our business.

The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside of the United States. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those licensed to us and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them. It is also possible that as research and development progresses, the direction of our intellectual property strategy and patent portfolio will change, resulting in strategic business decisions to allow certain patents or patent applications to be abandoned or lapse.

With respect to patent rights, we do not know whether any of the pending patent applications relating to any of our current and potential product candidates will result in the issuance of patents that effectively protect our technology or products, or if any of our licensors’ issued patents will effectively prevent others from commercializing competitive technologies and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.

Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we have licensed from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our or our licensor’s patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

 

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Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the US Patent and Trademark Office, or US PTO, and corresponding foreign patent offices. Numerous US and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our current and potential product candidates may be subject to claims of infringement of the patent rights of third parties.

Third parties may in the future assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our current and potential product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our current and potential product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our current and potential product candidates, or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire.

Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our current and potential product candidates. Defense of these claims, regardless of their merit, may involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses.

Presently we believe that we have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop our current and potential product candidates. Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our current and potential product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights 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.

 

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In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

We may from time to time seek to enforce our intellectual property rights against infringers when we determine that a successful outcome is probable and may lead to an increase in the value of the intellectual property. If we choose to enforce our patent rights against a party, then that individual or company has the right to ask the court to rule that such patents are invalid or should not be enforced. Additionally, the validity of our patents and the patents we have licensed may be challenged if a petition for post grant proceedings such as inter partes review and post grant review is filed within the statutorily applicable time with the US PTO. These lawsuits and proceedings are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if we were successful in stopping the infringement of such patents. In addition, there is a risk that the court will decide that such patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of such patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe our intellectual property rights. In addition, in recent years the U.S. Supreme Court modified some tests used by the US PTO in granting patents over the past 20 years, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood of a challenge of any patents we obtain or license.

If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.

We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

Our reliance on third parties may require us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to manufacture our current and potential product candidates, and because we collaborate with various organizations and academic institutions on the advancement of our current and potential product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our manufacturers, collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, are used inappropriately to create new inventions or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

 

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In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. We may also conduct joint research and development programs that may require us to share trade secrets under the terms of research and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets through breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets may impair our competitive position and have an adverse impact on our business.

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

Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. 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 our common stock.

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

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the US PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We employ an outside firm and rely on our outside counsel to pay these fees due to non-US patent agencies. The US PTO and various non-US governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

 

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Issued patents covering our current and potential product candidates could be found invalid or unenforceable if challenged in court.

If we, MD Anderson or one of our future licensing partners initiated legal proceedings against a third party to enforce a patent covering one of our current and potential product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the US PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our current and potential product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our current and potential product candidates. Such a loss of patent protection would have a material adverse impact on our business.

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

We may in the future employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. 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, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may have potential ownership disputes arising, for example, from conflicting obligations of consultants, collaborators or others who are involved in developing our current and potential product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

The United States has enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and

 

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weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the U.S. PTO, 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 have not yet registered the trademark for Oncoprex, and failure to secure such registration could adversely affect our business.

We have applied for, but have not yet received approval of a registered trademark for Oncoprex. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the US PTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use with our current and potential product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

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 can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to 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. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

 

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Risks Related to Employee Matters and Managing Growth

We have no sales, marketing or distribution experience and we will have to invest significant resources to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.

We have no sales, marketing or distribution experience. To develop sales, distribution and marketing capabilities, we will have to invest significant amounts of financial and management resources, some of which will need to be committed prior to any confirmation that Oncoprex or any of our other potential product candidates will be approved by the FDA. For product candidates for which we decide to perform sales, marketing and distribution functions ourselves or through third parties, we could face a number of additional risks, including that we or our third-party sales collaborators may not be able to build and maintain an effective marketing or sales force, and we may experience difficulty in managing the growth of our organization. If we use third parties to market and sell our products, we may have limited or no control over their sales, marketing and distribution activities on which our future revenues may depend.

We will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.

As of June 30, 2017, we had four full-time employees and one part-time employee. As we advance our current and potential product candidates through preclinical studies and clinical trials, we will need to increase our product development, scientific and administrative headcount to manage these programs. In addition, to meet our obligations as a public company, we may need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.

We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.

We may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our business strategy.

We are highly dependent on the development, regulatory, commercialization and business development expertise of our management team, key employees and consultants. Any of our executive officers or key employees or consultants may terminate their employment at any time. If we lose one or more of our executive officers or key employees or consultants, our ability to implement our business strategy successfully could be seriously harmed. Replacing executive officers, key employees and consultants 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 develop, gain regulatory approval of and commercialize products successfully. Competition to hire and retain employees and consultants from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel and consultants. Our failure to retain key personnel or consultants could materially harm our business.

In addition, we have scientific and clinical advisors and consultants who assist us in formulating our research, development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.

 

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We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs for product candidates 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 strategic 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, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

We may evaluate and enter into various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

 

    increased operating expenses and cash requirements;

 

    the assumption of additional indebtedness or contingent liabilities;

 

    the issuance of our equity securities;

 

    assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;

 

    the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;

 

    retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;

 

    risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and marketing approvals; and

 

    our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business

Risks Related to Our Common Stock and This Offering

There has been no public market for our common stock and an active market may not develop or be sustained, which could limit your ability to sell shares of our common stock.

There currently is no public market for our common stock, and our common stock will not be traded in the open market prior to this offering. Although we intend to list the common stock on the Nasdaq Capital Market in

 

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connection with this offering, an adequate trading market for the common stock may not develop or be sustained after this offering. The initial public offering price will be determined by negotiations between the underwriters and our board of directors and may not be representative of the market price at which our shares of common stock will trade after this offering. In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price.

The best efforts structure of this offering may yield insufficient gross proceeds to fully execute on our business plan.

The underwriters are offering shares of our common stock in this offering on a best efforts basis. The underwriters are not required to sell any specific number or dollar amount of common stock, but will use their best efforts to sell the shares offered by us. It is a condition to this offering that, upon the closing of the offering, our common stock would qualify for listing on the Nasdaq Capital Market. In order to list, the Nasdaq Capital Market requires that, among other criteria, at least 1,000,000 publicly-held shares of our common stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our common stock be at least $15.0 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $5.0 million, the bid price per share of our common stock be $4.00 or more, and there be at least three registered and active market makers for our common stock. As a “best efforts” offering, there can be no assurance that we will successfully raise this minimum amount, that the offering will satisfy the listing conditions required to trade our common stock on the Nasdaq Capital Market or that the offering will ultimately be completed or will result in any proceeds being made available to us. If we sell only the minimum number of shares yielding insufficient gross proceeds, we may be unable to sufficiently fund our operations or fully execute on our business plan. This could potentially result in a material adverse effect on our business, prospects, financial condition and results of operations.

Our management will have discretion over the use of the proceeds of the offering.

We intend to use the proceeds of this offering to complete our ongoing clinical trial, to commence additional clinical trials, to conduct biomarker studies, to prepare submissions to the FDA and for research and development and working capital and general corporate purposes. Our management, however, will have broad discretion in how we use these proceeds. The proceeds could be applied in ways that do not improve our operating results or otherwise increase the value of their investments.

The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.

The market price of our common stock is likely to be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:

 

    adverse results or delays in preclinical or clinical trials;

 

    reports of adverse events in other gene therapy products or clinical trials of such products;

 

    inability to obtain additional funding;

 

    any delay in filing an IND or BLA for any of our current and potential product candidates and any adverse development or perceived adverse development with respect to the FDA’s review of that IND or BLA;

 

    failure to develop successfully and commercialize our current and potential product candidates;

 

    failure to maintain our existing strategic collaboration or enter into new collaborations;

 

    failure by us or our licensors and strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights;

 

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    changes in laws or regulations applicable to future products;

 

    inability to obtain adequate product supply for our current and potential product candidates or inability to do so at acceptable prices;

 

    adverse regulatory decisions;

 

    introduction of new products, services or technologies by our competitors;

 

    failure to meet or exceed financial projections we may provide to the public;

 

    failure to meet or exceed the financial projections of the investment community;

 

    the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

 

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

 

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

 

    additions or departures of key scientific or management personnel;

 

    significant lawsuits, including patent or stockholder litigation;

 

    changes in the market valuations of similar companies;

 

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

 

    trading volume of our common stock.

In addition, companies trading in the stock market in general, and The Nasdaq Capital Market in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.

Nasdaq may delist our securities from its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

We have applied to list our common stock on The Nasdaq Capital Market. In order to make a final determination of compliance with their listing criteria, Nasdaq may look to the first trading day’s activity and, particularly, the last bid price on such day. In the event the trading price for our common stock drops below The Nasdaq Capital Market’s $1.00 minimum bid requirement, Nasdaq could rescind our initial listing approval. If that were to happen, the liquidity for our common stock would decrease, which may substantially decrease the trading price of our common stock.

In addition, we cannot assure you that, in the future, our securities will meet the continued listing requirements to be listed on The Nasdaq Capital Market. If The Nasdaq Capital Market delists our common stock, we could face significant material adverse consequences, including:

 

    a limited availability of market quotations for our securities;

 

    a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;

 

    a limited amount of news and analyst coverage for our company; and

 

    a decreased ability to issue additional securities or obtain additional financing in the future.

 

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

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

Purchasers in this offering will experience immediate and substantial dilution in net tangible book value.

The initial public offering price is substantially higher than the net tangible book value of each outstanding share of our common stock. Purchasers of common stock in this offering will experience immediate and substantial dilution on a book value basis. The dilution per share in the net tangible book value per share of common stock will be $[*] per share if the minimum number of shares are sold and $[*] per share if the maximum number of shares are sold, based on an estimated $[*] initial public offering price, which is the midpoint of the offering price range, and assuming, for purposes of the dilution calculations contained in this prospectus. If stock options and warrants to purchase shares of common stock are exercised, there would be further dilution. See “Dilution.”

We have no intention of declaring dividends in the foreseeable future.

The decision to pay cash dividends on our common stock rests with our board of directors and will depend on our earnings, unencumbered cash, capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to fund our operations. Investors in our common stock should not expect to receive dividend income on their investment, and investors will be dependent on the appreciation of our common stock to earn a return on their investment.

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

We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we complete this offering, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

 

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Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our 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.

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

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to existing and new compliance initiatives.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, which will require, among other things, that we file with the Securities and Exchange Commission, or the SEC, annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The Nasdaq Capital Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

 

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We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.

Pursuant to Sarbanes-Oxley Act of 2002, our management will be required to report on, and our independent registered public accounting firm may in the future be required to attest to, the effectiveness of our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States of America, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

Failure to continue improving our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we operate in a demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002, and the related rules and regulations of the SEC. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.

We may need to retain additional finance capabilities and build our financial infrastructure as a public company. Section 404(a) of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the SEC. However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we have and intend to continue to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We may continue to take advantage of these reporting exemptions until we are no longer an “emerging growth company.” If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

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

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a cumulative change in its equity ownership by “5-percent shareholders” of greater than 50 percentage points (by value) over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and certain other pre-change tax attributes (such as research tax credits) to offset its post-change taxable income and taxes, as applicable, may be limited. We have completed multiple rounds of financing since our inception which may have resulted in an ownership change or could result in an ownership change in the future. We have not completed a Section 382 and 383 analysis regarding any limitations on our NOLs and research and development credit carryforwards and such limitations could be significant. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, our ability to use our NOLs and research and development credit carryforwards to offset our U.S. federal taxable income and taxes, as applicable, may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, similar rules may apply and there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

 

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

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the market price of our common stock could decline. Based upon the number of shares of common stock, on an as-converted basis, outstanding as of June 30, 2017, upon the closing of this offering, we will have outstanding a total of [*] shares of common stock, assuming the maximum offering amount is raised in this offering. Of these shares, as of the date of this prospectus, approximately [*] shares of our common stock will be freely tradable, without restriction, in the public market immediately following this offering, assuming that current stockholders do not purchase shares in this offering. Network 1 Securities, however, may, in its sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. After the lock-up agreements expire, based upon the number of shares of common stock, on an as-converted basis, outstanding as of June 30, 2017, up to an additional [*] shares of common stock will be eligible for sale in the public market, subject to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.

In addition, as of June 30, 2017, 505,195 shares of common stock that are either subject to outstanding options, reserved for future issuance under our equity incentive plan or subject to outstanding warrants will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

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 intend to seek to raise additional funds, and we may finance acquisitions or develop strategic relationships, in each case by issuing equity or convertible debt securities in addition to the shares issued in this offering, which would reduce the percentage ownership of our existing stockholders. Our board of directors has the authority, in some instances without action or vote of the stockholders, to issue our authorized but unissued shares of common or preferred stock. Prior to the effective date of the registration statement of which this prospectus is a part, our certificate of incorporation will be amended to authorize us to issue up to 100,000,000 shares of voting common stock and 10,000,000 shares of preferred stock. Future issuances of common or preferred stock would reduce your influence over matters on which stockholders vote and would be dilutive to earnings per share. In addition, any newly issued preferred stock could have rights, preferences and privileges senior to those of the common stock. Those rights, preferences and privileges could include, among other things, the establishment of dividends that must be paid prior to declaring or paying dividends or other distributions to holders of our common stock or providing for preferential liquidation rights. These rights, preferences and privileges could negatively affect the rights of holders of our common stock, and the right to convert such preferred stock into shares of our common stock at a rate or price that would have a dilutive effect on the outstanding shares of our common stock.

Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under our 2017 Plan is [*] shares. Additionally, the number of shares of our common stock reserved for issuance under our 2017 Plan will automatically increase on January 1 of each year, beginning on January 1, 2018 and continuing through and including January 1, 2027, by [*]% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may experience additional dilution, which could cause our stock price to fall.

 

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If securities or industry analysts do not publish research or reports about us, or if they adversely change their recommendations regarding our common stock, then our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our industry and our market. If no analyst elects to cover us and publish research or reports about us, the market for our common stock could be severely limited and our stock price could be adversely affected. In addition, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts who elect to cover us issue negative reports or adversely change their recommendations regarding our common stock, our stock price could decline.

The concentration of our common stock ownership by our current management may limit your ability to influence corporate matters.

Upon completion of this offering, our directors and executive officers will beneficially own and will be able to vote in the aggregate approximately [*]% of our outstanding common stock if the minimum number of shares are sold and approximately [*]% of our outstanding common stock if the maximum number of shares offered are sold. As such, our directors and executive officers, as stockholders, will continue to have the ability to exert significant influence over all corporate activities, including the election or removal of directors and the outcome of tender offers, mergers, proxy contests or other purchases of common stock that could give our stockholders the opportunity to realize a premium over the then-prevailing market price for their shares of common stock. This concentrated control will limit your ability to influence corporate matters and, as a result, we may take actions that purchasers in this offering do not view as beneficial. In addition, such concentrated control could discourage others from initiating changes of control. In such cases, the perception of our prospects in the market may be adversely affected and the market price of our common stock may decline.

Certain provisions in our organizational documents could enable our board of directors to prevent or delay a change of control.

Our organizational documents contain provisions that may have the effect of discouraging, delaying or preventing a change of control of, or unsolicited acquisition proposals, that a stockholder might consider favorable. These include provisions:

 

    requiring a majority vote of the outstanding shares of common stock to amend the bylaws;

 

    provide that the authorized number of directors may be changed only by resolution of the board of directors;

 

    provide that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66-2/3% of the voting power of all of our then outstanding common stock;

 

    provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

 

    divide our board of directors into three classes;

 

    require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

 

    provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice;

 

    do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);

 

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    provide that special meetings of our stockholders may be called only by the chairman of the board, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and

 

    provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine. This exclusive forum provision may limit a stockholder’s ability to bring such an action in a judicial forum that it finds favorable for such actions and may discourage such actions.

Furthermore, our board of directors has the authority to issue shares of preferred stock in one or more series and to fix the rights and preferences of these shares without stockholder approval. Any series of preferred stock is likely to be senior to our common stock with respect to dividends, liquidation rights and, possibly, voting rights. The ability of our board of directors to issue preferred stock also could have the effect of discouraging unsolicited acquisition proposals, thus adversely affecting the market price of our common stock.

In addition, Delaware law makes it difficult for stockholders that recently have acquired a large interest in a corporation to cause the merger or acquisition of the corporation against the directors’ wishes. Under Section 203 of the Delaware General Corporation Law, a Delaware corporation may not engage in any merger or other business combination with an interested stockholder for a period of three years following the date that the stockholder became an interested stockholder except in limited circumstances, including by approval of the corporation’s board of directors.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make forward-looking statements under the “Summary,” “Risk Factors,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this prospectus. In some cases, you can identify these statements by forward -looking words such as “may,” “might,” “should,” “would,” “could,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties described under “Risk Factors.”

While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Other sections of this prospectus describe additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, 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.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward -looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations, and we do not intend to do so.

Forward-looking statements include, but are not limited to, statements about:

 

    our ability to obtain additional funding to develop our current and potential product candidates;

 

    the need to obtain regulatory approval of our current and potential product candidates;

 

    the success of our clinical trials through all phases of clinical development;

 

    compliance with obligations under intellectual property licenses with third parties;

 

    any delays in regulatory review and approval of product candidates in clinical development;

 

    our ability to commercialize our current and potential product candidates;

 

    market acceptance of our current and potential product candidates;

 

    competition from existing products or new products that may emerge;

 

    potential product liability claims;

 

    our dependency on third-party manufacturers to supply or manufacture our products;

 

    our ability to establish or maintain collaborations, licensing or other arrangements;

 

    our ability and third parties’ abilities to protect intellectual property rights;

 

    our ability to adequately support future growth; and

 

    our ability to attract and retain key personnel to manage our business effectively.

We caution you not to place undue reliance on the forward-looking statements contained in the prospectus, which speak only as of the date of this prospectus.

 

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USE OF PROCEEDS

Based on an estimated initial public offering price of $[*] per share, which is the midpoint of the offering price range, we estimate that the net proceeds from this offering, after deducting underwriting commissions and expenses payable by us and other offering expenses payable by us, will be approximately $[*] million if we sell a minimum of [*] shares, approximately $[*] million if we sell [*] shares, which is the midpoint between the minimum and maximum number of shares in the offering, and approximately $[*] million if we sell all [*] shares of our common stock in this offering. However, this is a best efforts offering and there is no assurance that we will sell any shares or receive any proceeds.

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

 

     Assuming
Minimum
Offering
     Assuming
Midpoint of

Minimum and
Maximum
Offering
     Assuming
Maximum
Offering
 

Costs to prepare filings with FDA

   $                       $                       $                   

Complete Phase II clinical trial for existing combination trial of Oncoprex with erlotinib

   $      $      $  

Commence a Phase I/II clinical trial of Oncoprex in combination with an immunotherapy (including third-party manufacturing of product candidate)

   $      $      $  

Preclinical research, including biomarker studies

   $      $      $  

Research and development costs

   $      $      $  

Working capital and general corporate purposes

   $      $      $  

Expenses associated with completing our existing Phase II clinical trial and commencing a planned Phase I/II clinical trial generally consist of our estimate of the costs charged to us by MD Anderson or other clinical trial sites to perform the clinical trials for us. Research and development costs generally consist of our estimate of the costs associated with contractors and advisors retained by us to assist us with development of clinical strategies, monitoring our clinical trials and sites, clinical data analysis and other similar functions related to our current and planned clinical trials. For this reason, certain estimated research and development costs, as well as certain estimated costs to prepare FDA filings, relate to the existing Phase II and planned Phase I/II trials.

Even if we complete only the minimum offering, we estimate that we will have sufficient funds to complete our existing Phase II clinical trial for Oncoprex combined with erlotinib and to complete the majority of a Phase I/II clinical trial for Oncoprex combined with an immunotherapy. Based on our estimate that the total cost of a Phase I/II trials for Oncoprex combined with an immunotherapy to be approximately $4 million, if we complete the minimum offering, we estimate that we will require additional financing of at least $[*] million to complete such a trial, plus an additional $[*] million for working capital to fund our operations during the pendency of the trial. The timing and costs of clinical trials are difficult to predict and as such the foregoing estimates may prove to be inaccurate.

We believe the net proceeds of this offering, together with our cash and cash equivalents, including the remaining proceeds from our recent private placements, will be sufficient to meet our cash, operational and liquidity requirements for at least [*] months if we sell a minimum of [*] shares and for at least [*] months if we sell all [*] shares of our common stock in this offering.

 

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As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. Accordingly, our management will have broad discretion in the application of these proceeds. Net offering proceeds not immediately applied to the uses summarized above will be invested in short-term investments such as money market funds, commercial paper, U.S. treasury bills and similar securities investments pending their use.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain earnings, if any, to finance the growth and development of our business. We do not expect to pay any cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any financing instruments, provisions of applicable law and other factors the board deems relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2017:

 

    on an actual basis; and

 

    on a pro forma basis to reflect the conversion of all outstanding shares of our convertible preferred stock into [*] shares of our voting common stock in connection with the completion of this offering and the filing of our amended and restated certificate of incorporation immediately prior to the completion of this offering;

 

    on a pro forma as adjusted basis after giving effect to the sale of a minimum of [*] shares of our common stock in this offering at an estimated initial public offering price of $[*] per share, which is the midpoint of the offering price range, and our receipt of the estimated $[*] million in net proceeds from this offering, after deducting underwriting commissions and estimated offering expenses payable by us; and

 

    on a pro forma as adjusted basis after giving effect to the sale of all [*] shares of our common stock in this offering at an estimated initial public offering price of $[*] per share, which is the midpoint of the offering price range, and our receipt of the estimated $[*] million in net proceeds from this offering, after deducting underwriting commissions and estimated offering expenses payable by us.

You should read this capitalization table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

 

     At June 30, 2017  
     Actual     Pro Forma     Pro Forma As
Adjusted—Minimum
     Pro Forma As
Adjusted—
Maximum
 
     (unaudited)  

Cash and cash equivalents

   $ 930,008     $ 930,008     $      $     

Preferred stock, $0.001 par value per share; 4,500,000 shares authorized and 1,378,961 shares issued and outstanding, actual; 10,000,000 shares authorized and no shares issued and outstanding, pro forma, pro forma as adjusted—minimum and pro forma as adjusted—maximum

     1,378       —         —             —    

Common stock, $0.001 par value per share; 5,500,000 shares authorized and 348,676 shares issued and outstanding, actual; 100,000,000 shares authorized and [*] shares issued and outstanding, pro forma; 100,000,000 shares authorized and [*] shares issued and outstanding, pro forma as adjusted—minimum; 100,000,000 shares authorized and [*] shares issued and outstanding, pro forma as adjusted—maximum

     350            

Additional paid-in capital

     16,867,005       16,867,005          

Accumulated deficit

     (16,070,673     (16,070,673        

Total stockholders’ equity

     798,060       798,060          

Total capitalization

   $ 798,060     $ 798,060          

 

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The number of shares of common stock to be outstanding after this offering is based on the number of shares of our common stock issued and outstanding on June 30, 2017, assuming:

 

    the conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 1,378,961 shares of voting common stock (before giving effect to the forward split described below) in connection with the completion of this offering;

 

    the conversion of all of our outstanding shares of non-voting common stock into an aggregate of 25,611 shares of voting common stock (before giving effect to the forward split described below) in connection with the completion of this offering; and

 

    a [*]-for-1 forward split of our common stock, to be effected in connection with the completion of this offering;

and excludes:

 

    393,280 shares of common stock issuable upon the exercise of outstanding options as of June 30, 2017, at a weighted average exercise price of $8.76 per share;

 

    a maximum of [*] shares of common stock reserved for future issuance under our 2017 Equity Incentive Plan, which number includes the 83,656 shares of common stock reserved for issuance under our 2009 Equity Incentive Plan as of June 30, 2017, that will be added to the shares reserved under the 2017 Plan upon its effectiveness;

 

    [*] shares of common stock reserved for issuance under our 2017 Employee Stock Purchase Plan;

 

    111,915 shares of common stock issuable upon the exercise of outstanding warrants as of June 30, 2017, at a weighted average exercise price of $34.56 per share; and

Between [*] shares (assuming the minimum offering is completed) and [*] shares (assuming the maximum offering is completed) of common stock issuable upon the exercise of the warrants issued to the representatives of the underwriters.

DILUTION

Purchasers of our common stock in this offering will experience an immediate dilution of net tangible book value per share from the initial public offering price. Dilution in net tangible book value per share represents the difference between the amount per share paid by the purchasers of shares of common stock and the net tangible book value per share immediately after this offering.

As of June 30, 2017, our net tangible book value was $520,679, or $[*] per share of common stock. Net tangible book value per share represents our total tangible assets, less our total liabilities, divided by the number of outstanding shares of our common stock.

Dilution represents the difference between the amount per share paid by purchasers in this offering and the pro forma net tangible book value per share of common stock after the offering. After giving effect to the sale of [*] shares of common stock (minimum) and [*] shares of common stock (maximum) in this offering at an estimated offering price of $[*] per share, which is the midpoint of the offering price range, and after deducting underwriting commissions and estimated offering expenses payable by us, our pro forma net tangible book value would have been $[*] (minimum) and $[*] (maximum) per share. This represents an immediate increase in pro forma net tangible book value of $[*] (minimum) and $[*] (maximum) per share to our existing stockholders and immediate dilution of $[*] (minimum) and $[*] (maximum) per share to new investors purchasing shares at the proposed public offering price.

 

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The following table illustrates the dilution in pro forma net tangible book value per share to new investors as of June 30, 2017:

 

     Minimum      Maximum  

Assumed initial public offering price per share

   $                   $                   

Net tangible book value per share at June 30, 2017

     

Increase in net tangible book value per share to the existing stockholders attributable to this offering

     

Adjusted net tangible book value per share after this offering

     

Dilution in net tangible book value per share to new investors

     

The following tables set forth, as of June 30, 2017, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by the existing holders of our common stock and the price to be paid by new investors at an estimated public offering price of $[*] per share, which is the midpoint of the offering price range.

 

Minimum Offering

   Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent        

Existing investors before this offering

               $                            $               

Investors purchasing shares in this offering

            

Total

            

 

Maximum Offering

   Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent        

Existing investors before this offering

               $                            $               

Investors purchasing shares in this offering

            

Total

            

 

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SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The following selected historical financial data should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, related notes and other financial information included elsewhere in this prospectus. The selected financial data in this section are not intended to replace the financial statements and are qualified in their entirety by the financial statements and related notes included elsewhere in this prospectus.

We have derived the selected statement of operations data for the years ended December 31, 2015 and 2016, and the selected balance sheet data as of December 31, 2015 and 2016 from our audited financial statements included elsewhere in this prospectus. We have derived the selected statement of operations data for the six months ended June 30, 2016 and 2017 and balance sheet data as of June 30, 2017 from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of June 30, 2017 and results of operations for the six months ended June 30, 2016 and 2017. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.

 

     Year Ended December 31,     Six Months Ended June 30,  
     2016     2015     2017     2016  

Statement of Operations Data:

        

Revenues

   $ —       $ —       $ —       $ —    

Depreciation

     862       2,064       1,405       432  

Research and development expense

     354,883       201,962       173,344       135,650  

General and administrative expense

     3,776,414       865,696       1,757,760       2,277,157  

Net loss

   $ (4,132,159   $ (1,069,722   $ (1,932,478   $ (2,413,239
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share—basic and diluted

   $ (13.13   $ (3.83   $ (5.67   $ (7.66

Weighted average number of common shares—basic and diluted

     314,802       279,211       340,676       315,176  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     As of December 31,     As of June 30,  
     2016     2015     2017  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 1,602,295     $ 234,220     $ 467,944  

Working capital

     1,353,167       233,696       286,318  

Total assets

     1,910,529       410,091       1,008,065  

Accumulated deficit

     (14,138,195     (10,006,036     (16,070,673

Total stockholders’ equity

     1,624,868       393,737       798,060  

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND

RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward- looking statements include, but are not limited to, those discussed in “Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

Overview

Genprex™ is a clinical stage gene therapy company developing a new approach to treating cancer, based upon our novel proprietary technology platform, including our initial product candidate, Oncoprex™ immunogene therapy, or Oncoprex. Our platform technologies are designed to encapsulate cancer fighting genes into nanoscale hollow spheres called nanovesicles, which are then administered intravenously and taken up by tumor cells where they express proteins that are missing or found in low quantities and modulate the immune environment to restore defective cancer fighting functions. We hold an exclusive worldwide license from The University of Texas MD Anderson Cancer Center, or MD Anderson, to patents covering the therapeutic use of a series of genes that have been shown in preclinical and clinical research to have cancer fighting properties. Researchers at MD Anderson have conducted a Phase I clinical trial and the Phase I portion of a Phase I/II clinical trial and are conducting the Phase II portion of that Phase I/II clinical trial in non-small cell lung cancer, or NSCLC. MD Anderson researchers have collaborated with other researchers to identify other genes, such as those in the 3p21.3 chromosomal region, that may act as tumor suppressors or have other cancer fighting functions. Data from preclinical studies performed by others suggest that product candidates that could be derived from our technology platform could be effective against other types of cancer, including breast, head and neck, renal cell (kidney), and soft tissue cancer, as well as NSCLC. Therefore, our platform technologies may allow delivery of a number of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer.

JOBS Act and Recent Accounting Pronouncements

The JOBS Act, enacted in 2012, provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We have implemented all new accounting pronouncements that are in effect and may affect our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that would have a material impact on our financial position or results of operations.

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and

 

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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 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 following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain .

Research and Development Costs

We record accrued expenses for costs invoiced from research and development activities conducted, on our behalf, by third-party service providers, which include the conduct of pre-clinical studies and clinical trials and contract manufacturing activities. We record the costs of research and development activities based upon the amount of services provided, and we include these costs in accrued liabilities in the balance sheets and within research and development expense in the statement of operations. These costs are a significant component of our research and development expenses.

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed, the number of patients enrolled and the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. To date, there have been no material differences from our accrued expenses to actual expenses.

Income Taxes

Deferred tax assets or liabilities are recorded for temporary differences between financial statement and tax basis of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized. We have provided a full valuation allowance on our deferred tax assets, which primarily consist of cumulative net operating losses from April 1, 2009 (inception) to June 30, 2017. Due to our history of operating losses since inception and losses expected to be incurred in the foreseeable future, a full valuation allowance was considered necessary.

Impairment of Long-Lived Assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying value to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value.

Components of our Results of Operations and Financial Condition

Operating expenses

We classify our operating expenses into three categories: research and development, general and administrative and depreciation.

 

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Research and development . Research and development expenses consist primarily of:

 

    costs incurred to conduct research, such as the discovery and development of our current and potential product candidates;

 

    costs related to production of clinical supplies, including fees paid to contract manufacturers;

 

    fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as patient screening fees, laboratory work and statistical compilation and analysis; and

 

    costs related to compliance with drug development regulatory requirements.

We recognize all research and development costs as they are incurred. Clinical trial costs, contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed.

We expect our research and development expenses to increase in the future as we advance our current and potential product candidates into and through clinical trials and pursue regulatory approval of our current and potential product candidates in the United States and Europe. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our current and potential product candidates may be affected by a variety of factors including the quality of our current and potential product candidates, early clinical data, investment in our clinical program, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our current and potential product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our current and potential product candidates.

General and administrative . General and administrative expense consists of personnel related costs, which include salaries, as well as the costs of professional services, such as accounting and legal, facilities, information technology and other administrative expenses. We expect our general and administrative expense to increase following the completion of this offering due to the anticipated growth of our business and related infrastructure as well as accounting, insurance, investor relations and other costs associated with becoming a public company.

Depreciation . Depreciation expense consists of depreciation on our property and equipment. We depreciate our assets over their estimated useful life. We estimate computer and office equipment to have a 5-year life.

Results of Operations

Comparison of the Six Months Ended June 30, 2016 and 2017

The following summarizes our results of operations for the six months ended June 30, 2016 and 2017.

Research and Development Expense. Research and development expense was $173,344 for the six months ended June 30, 2017. The expense is mainly related to clinical expertise to advance development of our Oncoprex treatment.

Research and development expense consists primarily of the discovery and development of our current and potential product candidates; costs related to production of clinical supplies, including fees paid to contract manufacturers, fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data; and costs related to compliance with drug development regulatory requirements.

 

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Research and development expense was $173,344 for the six months ended June 30, 2017 as compared to $135,650 for the six months ended June 30, 2016. This increase of $37,694 was driven primarily by the need for additional clinical and regulatory assistance to review and analysis interim data from our Phase I/II trial.

General and Administrative Expense. General and administrative expense was $1,757,760 for the six months ended June 30, 2017. The expense mainly included professional fees to our consultants, attorneys, accountants and other service providers, as well as equity-based compensation to recruit management and scientific advisors.

General and administrative expense primarily consists of personnel costs, travel, information technology, facilities, and professional service fees. Professional services fees primarily consist of legal, accounting and consulting costs.

General and administrative expense for the six months ended June 30, 2017 was $1,757,760 as compared to $2,277,157 for the six months ended June 30, 2016. The $519,397 decrease in general and administrative expense is related primarily to a larger than normal equity-based compensation amount in the first six months of 2016 to recruit and retain leadership and technical talent to our team. Withstanding this expense, an increase of 692,243 of the six months ended June 30, 2017 versus June 30, 2016 was primarily due to increased headcount, associated employee-related expenses, and additional service providers.

We expect general and administrative expense to increase in future periods due to additional legal, accounting, insurance, investor relations and other costs associated with being a public company.

Interest expense. Interest expense was $31 and $0 for each of the six month periods ended June 30, 2017 and 2016.

Depreciation Expense. Depreciation expense was $1,405 and $432 for the six months ended June 30, 2017 and 2016, respectively. Depreciation is generated from our fixed assets, which consist only of computer equipment at this time.

Comparison of the Years Ended December 31, 2015 and 2016

The following summarizes our results of operations for the years ended December 31, 2015 and 2016.

Research and Development Expense. Research and development expense was $354,883 for the year ended December 31, 2016. The expense is mainly related to clinical expertise to advance development of our Oncoprex treatment.

Research and development expense consists primarily of the discovery and development of our current and potential product candidates; costs related to production of clinical supplies, including fees paid to contract manufacturers, fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data; and costs related to compliance with drug development regulatory requirements.

Research and development expense was $354,883 for the year ended December 31, 2016 as compared to $201,962 for the year ended December 31, 2015. This increase of $152,921 was driven primarily by the need for additional clinical and regulatory assistance to review and analysis interim data from our Phase I/II trial.

General and Administrative Expense. General and administrative expense was $3,776,414 for the year ended December 31, 2016. The expense mainly included professional fees to our consultants, attorneys, accountants and other service providers, as well as equity-based compensation to recruit management and scientific advisors.

 

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General and administrative expense primarily consists of personnel costs, travel, information technology, facilities, and professional service fees. Professional services fees primarily consist of legal, accounting and consulting costs.

General and administrative expense for the year ended December 31, 2016 was $3,776,414 as compared to $865,696 for the year ended December 31, 2015. The $2,910,718 increase in general and administrative expense is related primarily to equity-based compensation granted to management, directors, advisors, and consultants in early 2016 for past services.

We expect general and administrative expense to increase in future periods due to additional legal, accounting, insurance, investor relations and other costs associated with being a public company.

Interest expense. Interest expense was $0 for each of the years ended December 31, 2016 and 2015.

Depreciation Expense. Depreciation expense was $862 and $2,064 for the years ended December 31, 2016 and 2015, respectively. Depreciation is generated from our fixed assets, which consist only of computer equipment at this time.

Liquidity and Capital Resources

From our inception through June 30, 2017, we have never generated revenue from product sales and have incurred net losses in each year since inception. As of June 30, 2017, we had an accumulated deficit of $16,070,673. We have funded our operations primarily through the sale and issuance of preferred stock. During 2016, we sold 76,577 shares of Series G preferred stock at $35.33 per share to various investment funds for a total of $2,705,465. In the first six months of 2017, we sold 6,481 shares of Series G preferred stock at $35.33 per share for a total of $228,974.

As of June 30, 2017, we had $467,944 in cash.

We believe the net proceeds of this offering, together with our cash and cash equivalents, including the remaining proceeds from our recent private placements, will be sufficient to meet our cash, operational and liquidity requirements for at least [*] months if we sell a minimum of [*] shares and for at least [*] months if we sell all [*] shares of our common stock in this offering.

We do not expect to generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for and begin to commercialize one or more of our current and potential product candidates, which we expect will take a number of years and which is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital to fund our future operations. Until such time as we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings and debt financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.

Our independent registered public accounting firm has indicated that our financial condition raises substantial doubt as to our ability to continue as a going concern.

 

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The following table sets forth the primary sources and uses of cash for the years ended December 31, 2015 and 2016 and the six months ended June 30, 2016 and 2017:

 

     Year ended December 31,      Six Months ended June 30,  
     2016      2015      2017      2016  

Net cash used in operating activities

   $ (1,248,263    $ (688,261    $ (1,321,092    $ (249,621

Net cash used in investing activities

     (89,534      (21,284      (42,233      (4,798

Net cash provided by financing activities

     2,705,872        724,912        228,974        44,975  

Net increase (decrease) in cash and cash equivalents

     1,368,075        15,367        (1,134,351      (209,444

Cash used in operating activities

Net cash used in operating activities was $1,321,092 and $249,621 for the six months ended June 30, 2017 and 2016, respectively. The $1,071,471 increase in net cash used in operating activities was primarily due to an increase in spending in research and development, specifically related to monitoring and review of sponsored research performed by MD Anderson, as well as increase in payments made to professionals and employees.

Net cash used in operating activities was $1,248,263 and $688,261 for the years ended December 31, 2016 and 2015, respectively. The $560,002 increase in net cash used in operating activities was primarily due to an increase in spending in research and development, specifically related to monitoring and review of sponsored research performed by MD Anderson, as well as increase in payments made to professionals and employees.

Cash used in investing activities

Net cash used in investing activities was $42,233 and $4,798 for the six months ended June 30, 2017 and 2016, respectively. The increase of $37,435 was primarily due to increased patent prosecution expenses and additional investment in computer equipment.

Net cash used in investing activities was $89,534 and $21,284 for the years ended December 31, 2016 and 2015, respectively. The increase of $68,250 was primarily due to increased patent prosecution expenses.

Cash provided by financing activities

Net cash provided by financing activities was $228,974 and $44,975 during the six months ended June 30, 2017 and, 2016, respectively. The $183,999 increase in net cash provided by financing activities was primarily due to cash provided by issuance of Series G Preferred Stock to support increased research and development and operational activities in 2017.

Net cash provided by financing activities was $2,705,872 and $724,912 for the years ended December 31, 2016 and 2015, respectively. The $1,980,960 increase in net cash provided by financing activities was primarily due to cash provided by issuance of Series G Preferred Stock in 2016 to support increased research and development activities and the hiring of additional management.

 

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BUSINESS

Overview

Genprex™ is a clinical stage gene therapy company developing a new approach to treating cancer, based upon our novel proprietary technology platform, including our initial product candidate, Oncoprex™ immunogene therapy, or Oncoprex. Our platform technologies are designed to administer cancer fighting genes by encapsulating them into nanoscale hollow spheres called nanovesicles, which are then administered intravenously and taken up by tumor cells where they express proteins that are missing or found in low quantities. Oncoprex has a multimodal mechanism of action whereby it interrupts cell signaling pathways that cause replication and proliferation of cancer cells, re-establishes pathways for apoptosis, or programmed cell death, in cancer cells, and modulates the immune response against cancer cells. Oncoprex has also been shown to block mechanisms that create drug resistance.

We hold an exclusive worldwide license from The University of Texas MD Anderson Cancer Center, or MD Anderson, to patents covering the therapeutic use of a series of genes that have been shown in preclinical and clinical research to have cancer fighting properties.

With Oncoprex, we are initially targeting non-small cell lung cancer, or NSCLC. Researchers at MD Anderson have conducted two Phase I clinical trials and are currently conducting an ongoing Phase II clinical trial of Oncoprex in NSCLC. According to the World Health Organization, lung cancer is the leading cause of cancer deaths worldwide, killing more people than breast, colon, kidney, liver, prostate and skin cancers combined, and is the second most common type of cancer. Each year, there are over 1.8 million new lung cancer cases and 1.6 million deaths from lung cancer worldwide, and in the United States there are over 225,000 new cases and more than 150,000 deaths from lung cancer per year. NSCLC represents 80% of all lung cancers. According to a 2016 American Cancer Society report, the five-year survival rate for Stage IV (metastatic) NSCLC is about 1%, and overall survival for lung cancer has not improved appreciably in the last 25 years. We believe that there is a significant unmet medical need for new treatments for NSCLC in the United States and globally, and we believe that Oncoprex may be suitable for a majority of NSCLC patients.

We believe that our platform technologies could allow delivery of a number of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. Our research and development pipeline, shown in “Our Pipeline” below, demonstrates our clinical and preclinical progress to date.

Cancer results from genetic mutations. Mutations that lead to cancer are usually present in two major classes of genes: oncogenes, which are involved in functions such as signal transduction and transcription; and tumor suppressor genes, which play a role in governing cell proliferation by regulating transcription. Transduction is the process by which chemical and physical signals are transmitted through cells. Transcription is the process by which a cell’s DNA sequence is copied to make RNA molecules, which then play a role in protein expression. In normal cells, mutations in oncogenes are discovered and targeted for elimination by tumor suppressor genes. In cancer cells, the oncogene mutations may overwhelm the natural tumor suppression processes, or those tumor suppression processes may be impaired or absent. Functional alterations due to mutations in oncogenes or tumor suppressor genes may result in the abnormal and uncontrolled growth patterns characteristic of cancer. These genetic alterations facilitate such malignant growth by affecting signal transduction pathways and transcription, thus inhibiting normal growth signaling in the cell, circumventing the natural process of apoptosis, evading the immune system’s response to cancer, and inducing angiogenesis, which is the formation of new blood vessels that supply cancer cells.

The most common genetic alterations present in NSCLC are in tumor suppressor genes, against which few targeted small molecule drugs have been developed. Each of the two sets of chromosomes in the cell nucleus includes two copies of each gene, called alleles, which may be identical or may show differences. In most situations, tumor suppressor genes require both alleles of a gene to be deleted or inactivated to impair tumor

 

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suppression activity and lead to tumor growth. The replacement of just one functional allele may therefore be enough to restore the normal cellular functions of growth regulation and apoptosis.

Among the genetic conditions associated with lung cancer are the overexpression of epidermal growth factor receptors, or EGFRs, and mutations of kinases. Kinases are enzymes that play an important role in signal transduction through the modification of proteins by adding or taking away phosphate groups, a process called (de-)phosphorylation, to change the proteins’ function. When two EGFR transmembrane proteins are brought to proximity on the cell membrane surface, or dimerize, either through a ligand, or binding molecule, that binds to the extracellular receptor, or through some other process, the intracellular protein-kinase domains can auto-phosphorylate, and activate downstream processes, including cell signaling pathways that can lead to either cell cycle arrest or cell growth and proliferation. EGFRs and kinases can act similarly to a switch that turns “on” and “off” when phosphate groups are either added or taken away. Mutated kinases can have a malfunctioning on/off switch, causing the switch to be stuck in the “on” position or failing to turn the switch “off,” leading to the loss of cell control.

A subset of NSCLC patients (approximately 10% of NSCLC patients of North American and European descent and approximately 30% to 50% of NSCLC patients of Asian descent) carry an EGFR mutation that makes their tumors sensitive to TKIs, such as erlotinib. However, even for these patients, tumor resistance to TKIs frequently develops within two years, resulting in eventual disease progression. Erlotinib generally does not benefit NSCLC patients who do not have this activating EGFR mutation. However, our clinical and preclinical data have shown that the combination of Oncoprex and erlotinib can increase anti-tumor activity even in cancers without the EGFR mutations, as well as in cancers that have become resistant to erlotinib. For this reason, we believe Oncoprex may be suitable for the majority of NSCLC patients.

Cancer can spread when cells’ natural cancer suppression functions are impaired. The tumor suppressor gene called Tumor Suppressor Candidate 2, or TUSC2 (which was formerly known as FUS1) has been shown to affect both cell proliferation and apoptosis. TUSC2 is a pan-kinase inhibitor, which means that it has the ability to inhibit multiple kinase receptors, such as EGFR and platelet-derived growth factor receptor, or PDGFR. TUSC2 is frequently inactivated early in the development of lung cancer, and loss of TUSC2 expression in NSCLC is associated with significantly worse overall survival compared to patients with normal TUSC2 expression. Many types of cancer cells, including approximately 85% of NSCLC cells, lack expression of TUSC2.

Cancer can also spread when the body’s natural immune functions are impaired, including by the cancer cells themselves. PD-1, or Programmed Death-1, is a receptor expressed on the surface of activated T cells, which are part of the body’s immune system. PD-L1, or Programmed Death Ligand-1, is a protein/receptor expressed on the surface of cancer and other cells. The binding of PD-1 to PD-L1 has been speculated to contribute to cancer cells’ ability to evade the body’s immune response. PD-1 and molecules like it are called immune checkpoints, because they can impede the normal immune response, for example by blocking the T cells from attacking the cancer cells. In many cancers, PD-L1 receptors are up-regulated, and substantial research is now being performed in the emerging field of immuno-oncology to discover drugs or antibodies that could block PD-L1 and similar receptors. It is believed that blocking the PD-1/PD-L1 interaction pathway and other similar checkpoints, such as cytotoxic T-lymphocyte-associated protein 4, or CTLA-4, with drugs called checkpoint inhibitors can prevent cancer cells from inactivating T cells.

Our Oncoprex immunogene therapy is designed to interrupt cell signaling pathways that cause replication and proliferation of cancer cells, and to target and kill cancer cells via receptor pathways, and also to stimulate the natural immune responses against cancer. Oncoprex combines features of gene therapy and immunotherapy in that it up-regulates TUSC2 expression in the cell, and also increases the anti-tumor immune cell population and down-regulates PD-L1 receptors, thereby boosting the immune response to cancer.

Oncoprex consists of a TUSC2 gene encapsulated in a positively charged nanovesicle made from lipid molecules with a positive electrical charge. Oncoprex is injected intravenously and can specifically target cancer

 

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cells, which generally have a negative electrical charge. Once Oncoprex is taken up into a cancer cell, the TUSC2 gene is expressed into a protein that is capable of restoring certain defective functions arising in the cancer cell. Oncoprex nanovesicles are designed to deliver the functioning TUSC2 gene to cancer cells while minimizing their uptake by normal tissue. Tumor biopsy studies conducted at MD Anderson show that the uptake of TUSC2 in tumor cells after Oncoprex treatment is 10 to 25 times the uptake in normal cells. We believe that Oncoprex, unlike other gene therapies, which either need to be delivered directly into tumors or require cells to be removed from the body, re-engineered and then reinserted into the body, is the first systemic gene therapy to be used for cancer in humans.

Clinical data from the evaluation of 24 patients in our Phase I/II clinical trial, as well as our preclinical data, indicate that Oncoprex can be combined with the widely used anti-cancer drug erlotinib (marketed as Tarceva ® by Genentech, Inc.) in humans. Erlotinib is a tyrosine kinase inhibitor, or TKI, which uses a mechanism of action similar to that of pan-kinase inhibitors to block the action of tyrosine kinases, which are a type of kinase involved in many cell functions, including cell signaling, growth and division. In addition, MD Anderson researchers have conducted preclinical studies combining Oncoprex with:

 

    the TKI gefitinib (marketed as Iressa ® by AstraZeneca Pharmaceuticals) in animals and in human NSCLC cells;

 

    MK2206 in animals (MK2206 is an inhibitor of AKT kinases, which affect cell signaling pathways downstream from tyrosine kinases);

 

    an anti-PD-1 antibody equivalent to the checkpoint inhibitor nivolumab (marketed as Opdivo ® by Bristol-Myers Squibb Company) in animals; and

 

    an anti-CTLA4 antibody equivalent to ipilimumab (marketed as Yervoy ® by Bristol-Myers Squibb Company) in animals.

The manufacturers of the marketed drugs were not involved in any of our clinical or preclinical studies. In studies involving marketed drugs, the drugs were administered concurrently with Oncoprex without being modified in any way, and the antibodies used in our preclinical studies that did not use the marketed drugs were the non-humanized equivalent to marketed drugs.

Data from these clinical and preclinical studies indicate that combining Oncoprex with these other therapies yields results more favorable than either these therapies or Oncoprex alone, with minimal side effects relative to other lung cancer drugs, thereby potentially making Oncoprex a therapy complementary to these cancer treatments. In addition, based on our clinical and preclinical studies and on preclinical studies conducted by others, we believe that Oncoprex could be combined with other lung cancer drugs that have similar mechanisms of action to the drugs mentioned above, such as pembrolizumab (marketed as Keytruda ® by Merck & Co.), nivolumab (marketed as Opdivo ® by Bristol-Myers Squibb Company) and atezolizumab (marketed as Tecentriq ® by Genentech/Roche). We have not conducted any preclinical or clinical studies combining Oncoprex with pembrolizumab or atezolizumab.

Researchers at MD Anderson have collaborated with other researchers to identify other genes, such as those in the 3p21.3 chromosomal region, that may act as tumor suppressors or have other cancer fighting functions. We hold rights to certain of these genes under license agreements with MD Anderson. Data from preclinical studies performed by others suggest that product candidates that could be derived from our technology platform could be effective against other types of cancer, including breast, head and neck, renal cell (kidney), and soft tissue cancer, as well as NSCLC. Therefore, our platform technologies may allow delivery of a number of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer.

MD Anderson researchers have completed the first phase of a Phase I/II clinical trial of Oncoprex in combination with erlotinib in patients with Stage IV (metastatic) or recurrent NSCLC that is not potentially curable by radiotherapy or surgery, whether or not they have received prior chemotherapy, and whether or not

 

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they have an activating EGFR mutation. The Phase I portion of the trial was a dose-escalating study with primary endpoints of establishing the safety and tolerability of the combination of Oncoprex and erlotinib, and establishing the Maximum Tolerated Dose, or MTD. The secondary endpoint of the Phase I portion of the trial was to assess the toxicity of the combination of Oncoprex with erlotinib. In the Phase I portion of the trial, which began in 2014, 18 subjects were treated, and the MTD was determined to be the highest tested dose: 0.6 mg/kg of Oncoprex administered every 21 days and 150 mg of erlotinib per day. Toxicities were found to compare favorably with those of other lung cancer drugs.

The Phase II portion of the trial is designed to include subjects treated with the combination of Oncoprex and erlotinib at the MTD with the primary goal of measuring the response rate, and secondary endpoints of stable disease, time to progression and overall survival. The response rate for cancer therapies is defined under the Response Evaluation Criteria in Solid Tumors, or RECIST, as Complete Response (CR) + Partial Response (PR); disease control rate is defined under the RECIST criteria as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD)>8weeks.

Enrollment criteria for the second phase of the Phase I/II clinical trial are identical to those in the first phase. The Phase II portion of the trial began in June 2015 and is ongoing at MD Anderson. Of the 39 patients allowed in the protocol for the Phase II portion of the trial, 10 have been enrolled and nine are evaluable for response under the trial protocol, because they have received 2 or more cycles of treatment. Interim results show that four of the patients had tumor regression and one patient had a Complete Response, or CR under the RECIST criteria. The patient with the CR had disappearance of the lung primary tumor, as well as lung, liver, and lymph node metastases. The median response duration for all patients, which is defined as the median time between when response is first noted to the time when cancer progression is observed, was three months. The response rate for the nine patients evaluated to date was 11% and the disease control rate for the nine patients was 78%.

The response rate and disease control rate to date in the Phase II portion of our Phase I/II clinical trial substantially exceeds the response rate of 7% (with no CRs) and disease control rate of 58% reported for a clinical trial of the TKI afatinib (marketed as Gilotrif ® by Boehringer Ingelheim Pharmaceuticals, Inc.) in a study referred to as the LUX-Lung 1 clinical trial. A total of 585 patients were enrolled in that Phase IIB/III clinical trial, whose primary endpoint was overall survival and whose secondary endpoints were progression-free survival, RECIST response, quality of life and safety. The LUX-Lung 1 clinical trial was a randomized, double blinded Phase IIB/III clinical trial treating subjects with Stage IIIB or IV adenocarcinoma, a type of NSCLC. The Phase II portion of our Phase I/II trial is not blinded, and is designed to treat NSCLC subjects regardless of EGFR status.

Preliminary analysis of the early data from the Phase II portion of our Phase I/II trial supports our belief that Oncoprex may provide medical benefit in several subpopulations of NSCLC patients for which there is an unmet medical need, and may provide pathways for accelerated approval by the US Food and Drug Administration, of FDA. As a result of these initial findings, in April 2016, we suspended enrollment of new patients in the Phase II portion of the trial to collect additional trial data and have it analyzed in order to seek FDA guidance as to whether the protocol for this clinical trial could be modified to expand enrollment and also to divide the patients into cohorts with a view toward seeking accelerated approval in one or more of these cohort populations. We have completed the collection and analysis of the additional preliminary data and expect to present our findings to the FDA within the next several months. Although this clinical trial is currently closed to new patient enrollment, it is not terminated, and is considered “ongoing” because activities such as patient follow-up and further data collection and analysis continue.

If we reach an agreement with the FDA regarding expanded patient enrollment and defined patient cohorts, then we plan to amend the trial protocol accordingly and proceed with the amended protocol at MD Anderson and several additional clinical trial sites. Amendments to the Phase II clinical trial protocol will require approval of the Investigational Review Board, or IRB, of each site where the amended trial is conducted. If we do not reach an agreement with the FDA on these changes, then we plan to reopen enrollment in the current version of

 

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the Phase II portion of the trial at MD Anderson and at additional clinical trial sites. In that event, we will need to provide MD Anderson with plans and funding to move ahead with the trial. Whether under the original protocol or a revised protocol, we intend to use a portion of the proceeds of this offering to add additional clinical trial sites.

In 2012, MD Anderson researchers completed a Phase I clinical trial of Oncoprex as a monotherapy. The primary objective of this Phase I trial was to assess the toxicity of Oncoprex administered intravenously and to determine the MTD and recommended Phase II dose of Oncoprex alone. Secondary objectives were to assess the expression of TUSC2 following intravenous delivery of Oncoprex in tumor biopsies and also to assess the anti-cancer activity of Oncoprex. This trial demonstrated that Oncoprex was well tolerated and established the MTD and the therapeutic dosage for Oncoprex at 0.06 mg/kg administered every 21 days. Although this trial was not designed to show changes in outcomes, a halt in cancer growth was observed in a number of patients, and tumor regressions occurred in primary lung tumors and metastatic cancers in the liver, pancreas, and lymph nodes. In addition, pre- and post-treatment patient biopsies demonstrated that intravenous Oncoprex selectively and preferentially targeted patients’ cancer cells, and suggested that clinical anti-cancer activity was mediated by TUSC2.

We believe that Oncoprex’ combination of pan-kinase inhibition, direct induction of apoptosis, anti-cancer immune modulation and complementary action with targeted drugs and immunotherapies is unique, and positions Oncoprex to provide treatment for patients with NSCLC and possibly other cancers, who are not benefitting from currently offered therapies.

Our Oncoprex immunogene therapy technology was discovered through a lung cancer research consortium from MD Anderson and The University of Texas Southwestern Medical Center, or UTSWMC, along with the National Cancer Institute, or NCI. The TUSC2 discovery teams included Jack A. Roth, MD, FACS, chairman of our Scientific and Medical Advisory Board. We have assembled a team of experts in clinical and translational research, including laboratory scientists, medical oncologists and biostatisticians, to pursue the development and commercialization of Oncoprex and other potential product candidates.

Our technology discoveries and research and development programs have been the subjects of numerous peer-reviewed publications and have been supported by Small Business Innovation Research, or SBIR, grants and grants from the National Institutes of Health, the United States Department of Treasury, and the State of Texas. We hold a worldwide, exclusive license from MD Anderson to patents covering the therapeutic use of TUSC2 and other genes that have been shown to have cancer fighting properties, as well as a number of related technologies, including 30 issued patents, and two pending patent applications.

 

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Our Pipeline

We are developing Oncoprex, our lead product candidate, to be administered with erlotinib for NSCLC. We are also conducting preclinical research with the goal of developing Oncoprex to be administered with immunotherapies in NSCLC. In addition, we conducted research into other tumor suppressor genes associated with chromosome 3p21.3. Our research and development pipeline is shown below:

 

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Our Strategy

We intend to develop and commercialize treatments for cancer based on our proprietary gene therapy platform, alone or in combination with other cancer therapies. Key elements of our strategy include:

 

    Conduct Ongoing and New Clinical Trials. We plan to continue clinical trials of Oncoprex immunogene therapy in combination with erlotinib for treatment of NSCLC, while exploring pathways to accelerated Food and Drug Administration, or FDA, approval of this combination in subpopulations of NSCLC patients for whom there is currently no approved therapy. We also plan to pursue a clinical trial of the combination of Oncoprex with anti-PD-1 immunotherapy. We may also pursue additional clinical trials of the combination of Oncoprex plus an immunotherapy called CTLA-4 immunotherapy, as well as possible multi-drug combinations of Oncoprex with additional targeted therapies and immunotherapies.

 

    Investigate the Effectiveness of Oncoprex in Other Cancers . We may also explore the combination of Oncoprex and erlotinib in other cancers such as soft tissue, kidney, head and neck, and/or breast cancer, and we may pursue development of additional proprietary genes alone or in combination with EGFR TKIs such as erlotinib and/or with immunotherapies.

 

    Prepare to Commercialize Oncoprex . We plan to continue to develop the manufacturing, process development and other capabilities needed to commercialize Oncoprex.

 

    Pursue Strategic Partnerships . As we gather additional clinical data, we plan to pursue strategic partnerships with other developers and providers of anti-cancer drugs to investigate possible therapeutic combinations of Oncoprex with drugs manufactured by others, to accelerate the development of our current and potential product candidates through co-development and to increase the commercial opportunities for our current and potential product candidates.

 

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    Develop Our Platform Technology . We plan to investigate the applicability of our platform technology with additional anti-cancer drugs.

Current Treatment of Cancer

Chemotherapy is the standard treatment for the majority of NSCLC patients, as it is for many cancer patients. Because it is a systemic, rather than a targeted, approach to treating cancer, chemotherapy also kills healthy cells and has a number of other side effects.

A subset of NSCLC patients carry one or both of two EGFR mutations, referred to as exon 19 deletion and exon 21 substitution, which make their tumors sensitive to TKIs. Because EGFR is frequently overexpressed in lung tumors, it has become a favored therapeutic target for pharmaceutical companies. Several pharmacological and biological approaches, including TKIs, have been developed specifically to block activated EGFR for cancer therapy. The class of drugs functioning as protein kinase inhibitors, or KIs, comprises the majority of targeted therapies for lung cancer, accounting for most sales and use. Of the KIs, the TKI drugs are the most common, with drugs targeting EGFR kinases leading the sector growth. Several EGFR TKI therapies are marketed commercially including market leader erlotinib, gefitinib, afatinib and osimertinib.

A leading small molecule EGFR TKI is erlotinib, which is approved in the U.S and Europe as a first-line therapy in metastatic NSCLC patients with an activating EGFR mutation. Erlotinib was previously approved as a second-line treatment in patients with metastatic NSCLC after failure of at least one prior chemotherapy regimen. Erlotinib has been used to treat more than 400,000 lung cancer patients.

However, while erlotinib is most effective in patients who have an activating EGFR mutation and are therefore described as “EGFR positive,” it is significantly less effective in overall NSCLC populations and is generally not effective in patients without an activating EGFR mutation. Approximately 10% of NSCLC patients of North American and European descent and approximately 30% to 50% of NSCLC patients of Asian descent have the activating EGFR mutations. This means that the majority of NSCLC patients do not have activating EGFR mutations and are therefore “EGFR negative” and not optimal candidates for erlotinib and other TKIs.

In addition, even among those patients who are EGFR positive and benefit from erlotinib therapy, most eventually become resistant to and ultimately no longer respond to erlotinib therapy, resulting in eventual disease progression. Furthermore, clinical trials have shown that combining EGFR TKIs with conventional chemotherapy does not increase survival for lung cancer patients.

While next generation TKIs show promise in targeting resistant EGFR positive tumors that carry a mutation known as T790M, only about one-half of EGFR positive patients (5% to 7.5% of all NSCLC patients of North American and European descent and 15% to 25% of NSCLC patients of Asian descent) carry the T790M mutation. This leaves a significant majority of NSCLC patients—those who are EGFR negative and those who are EGFR positive but have become resistant to erlotinib and do not have the T790M mutation—without a targeted therapy for their cancer.

Our clinical and preclinical data indicate that the combination of our lead product candidate, Oncoprex, with erlotinib and other EGFR TKIs may increase anti-tumor activity in cancers with or without the EGFR mutations and in cancers that have become resistant to erlotinib therapy, thus expanding the number of patients who could benefit from those drugs.

TUSC2, the Active Agent in Oncoprex

TUSC2, which is the active agent in Oncoprex, is a multifunctional gene that plays a vital role in cancer suppression and normal cell regulation. Key TUSC2 anti-cancer mechanisms of action include the inactivation of multiple oncogenic kinases, the induction of apoptosis, the control of cell signaling and inflammation, and

 

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modulation of the immune system to fight cancer. Oncoprex has also been shown to block mechanisms that create drug resistance. Our data indicate that Oncoprex in combination with both EGFR TKIs and with immunotherapies achieve results more favorable than results achieved with either Oncoprex or such other therapies alone, and may make those drugs effective for patients who would not otherwise benefit from them.

Normal TUSC2 function is inactivated at the early onset of cancer development, making TUSC2 a potential target for all stages of cancer, including metastatic disease. The TUSC2 protein is reduced or absent in approximately 85% of lung cancers. In patients with NSCLC, the loss of TUSC2 expression has been associated with significantly worse overall survival than when TUSC2 expression is not impaired.

Studies show TUSC2 protein functions as a key mediator in the Apaf1-mediated mitochondrial apoptosis pathway by recruiting and directing cytoplasmic Apaf1 protein to a critical cellular location and activating it in situ and by up-regulating activity of other proapoptotic effectors. Normal TUSC2 function mediates apoptosis in cancer cells through interaction with Apaf1 and down-regulates multiple tyrosine kinases including EGFR, AKT, PDGFR, c-Kit, and c-Abl. TUSC2 mediates apoptosis in cancer cells but not normal cells through its interaction with Apaf1 and down-regulates tyrosine kinases including EGFR, PDGFR, c-Kit, and c-Abl.

In normal cells, the proteins involved in the PI3K/AKT pathway (also called the mTOR pathway), in which PI3K, a kinase, generates messenger molecules required to translocate AKT, another protein kinase, to the cell’s plasma membrane where it is phosphorylated and activated, play an important role in cellular function and cellular trafficking. These proteins are often found to be aberrantly active in cancers, causing cells to lose their ability to control cell growth, proliferation, and differentiation. Thus, mutations in PI3K (overexpression) and its upstream receptors, EGFR, have been associated with many forms of cancers.

Similarly, proteins in the Ras/MAPK pathway, which is a signal transduction pathway that transduces signals to the cell nucleus where specific genes are activated for cell growth, division and differentiation, play a critical role in cellular responses to various stress stimuli, including osmotic stress, DNA damage, and pro-inflammatory factors. As shown in the figures below, the TUSC2 protein, a potent pan-kinase inhibitor, blocks multiple cell signaling pathways downstream of the receptor (EGFR in the figures), leading to cell cycle interruption and thereby preventing cancer cell proliferation and survival.

 

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Additionally, under stress conditions, such as oncogenic stress, cells go through a regulated process of programmed cell death, or cellular suicide, called apoptosis, in order to control cell development and replication. The TUSC2 protein interacts via various apoptotic signaling pathways to stimulate programmed cell death via the release of caspases, enzymes that play a significant role in apoptosis.

 

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Pan-Kinase Inhibition by TUSC2

 

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Stimulation of Apoptotic Signaling by TUSC2

Cancer and the Immune Response

When functioning normally, the body’s immune system recognizes and destroys cancer cells, as well as other mutated cells and foreign bodies. As cancer develops over time, some mutations in cancer cells enable

 

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them to inhibit immune mechanisms, thus allowing the cancer cells to escape detection and destruction by the immune system and leading to the cancer’s “immune tolerance.” Therapies are being developed to allow patients to overcome this immune tolerance, some by stimulating the natural immune response and others by removing the inhibitions on the immune response created by the cancer. For example, PD-1 is a protein found on certain types of T cells, which are part of the immune system. Because PD-1 prevents T cells from attacking other cells, including in some cases cancer cells, inhibiting PD-L1 receptors, a process called PD-1 checkpoint inhibition, can facilitate the immune response to cancer.

In addition to its pro-apoptotic cytotoxicity and tyrosine kinase inhibitory activity, TUSC2 enhances the immune response to cancer. Data from preclinical studies at MD Anderson have shown a therapeutic benefit from the combination of TUSC2 and anti-PD-1 antibody and a key role for TUSC2 in regulating immune cell subpopulations including cytokines, natural killer, or NK, cells, and T lymphocytes. In addition, TUSC2 has been found to down-regulate PD-L1 receptors on the surface of cancer cells.

NK cells, an important part of the innate immune system, have developed several mechanisms to distinguish healthy cells from target cells. These mechanisms allow NK cells to kill cells that are deemed dangerous to the host, including cancer cells. However, one of the consequences of malignant transformation is the ability of the cancer cell to evade the immune system. Cancer cells do so via the up-regulation and interplay of receptors, including checkpoint inhibitors such as PD-1 and PD-L1.

As shown in the illustration below, TUSC2 has been found to stimulate the release of interleukin-15, or IL-15, resulting in up-regulation of mature NK cells that circulate and target cancer cells.

 

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Modulation by TUSC2 of the Immune Response to Cancer

The Genprex Platform and Oncoprex

Genprex is developing a novel approach to cancer treatment, based on our immunogene therapy platform, which is designed to deliver any of a number of cancer fighting tumor-suppressor genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. The Genprex platform consists of anti-cancer genes encapsulated in nanovesicles that can be delivered intravenously.

Our lead product candidate, Oncoprex, is the TUSC2 gene, as the active anti-cancer agent, encapsulated into nanovesicles made from fat molecules with a positive electrical charge formulated for intravenous administration. In our ongoing Phase II clinical trial Oncoprex is injected intravenously approximately every 21 days for as long as the patient continues to benefit, which is defined as tumor size stabilization or shrinkage.

Oncoprex has a multimodal mechanism of action whereby it interrupts cell signaling pathways that cause replication and proliferation of cancer cells, re-establishes pathways for programmed cell death, or apoptosis, in cancer cells, and modulates the immune response against cancer cells. Oncoprex has also been shown to block mechanisms that create drug resistance

 

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Oncoprex is a pan-kinase inhibitor shown to simultaneously inhibit the EGFR and AKT oncogenic kinase pathways in vitro and in vivo . Once the cancer cell takes up the nanovesicle containing TUSC2, it is reprogrammed to die. Resistance to targeted drugs and checkpoint inhibitors develop through activation of alternate bypass pathways. For example, when PD-1 is blocked, the TIM-3 checkpoint is up-regulated. We believe that Oncoprex’ multimodal activity will block emerging bypass pathways, reducing the probability that drug resistance develops.

Our cancer gene therapy platform and its delivery system are highly targeted. While the TUSC2 gene induces apoptosis in cancer cells which have low or absent TUSC2 expression, TUSC2 delivered by nanovesicles to normal cells is not toxic. Moreover, the nanovesicles are taken up by tumor cells after Oncoprex treatment at 10 to 25 times the rate at which they are taken up by normal cells, because of selective endocytosis, or enveloping by the cell, of the nanovesicle lipid formulation and the enhanced permeability and retention, or EPR, characteristics of tumor vasculature, without the need for external ligands, or binding molecules. Pre- and post-treatment biopsies following intravenous injection of Oncoprex in a phase 1 clinical trial showed robust TUSC2 protein expression in cancer cells at both primary and metastatic tumor sites.

Our preclinical and clinical data indicate that Oncoprex is well tolerated and may be effective alone or in combination with targeted small molecule therapies, thereby facilitating the action of both drugs, allowing use in expanded populations of patients who may benefit from advanced therapy regimens.

Data have shown that when Oncoprex is combined with EGFR TKI therapy, such as erlotinib, in EGFR mutated resistant cancers, the combination therapy overcomes intrinsic and acquired therapeutic resistance by simultaneously inactivating the EGFR and the AKT signaling pathways to restore apoptotic signaling. Overcoming EGFR resistance in a clinical setting could provide a path for approval of Oncoprex for patients who do not have an activating EGFR mutation (90% of patients of American and European descent and 50% to 70% of those of Asian descent) and/or for patients who have an activating EGFR mutation but who have become resistant to erlotinib.

Clinical and preclinical data indicate that Oncoprex, when combined with EGFR TKIs such as erlotinib and gefitinib, provides a synergistic effect that could also benefit the larger population of NSCLC patients who are EGFR negative (which means they are not expected to benefit from EGFR TKI drugs alone). Further, our data show that Oncoprex may re-sensitize EGFR positive patients who become resistant to, and therefore no longer benefit from, EGFR TKIs alone. Thus, Oncoprex may both significantly expand the benefit of EGFR TKIs to the majority of patients (90% of those of American and European descent and 50% to 70% of those of Asian descent) who do not have EGFR activating mutations and would therefore not otherwise be expected to benefit from EGFR TKI drugs, and also extend the usefulness and benefit of EGFR TKIs for the population of NSCLC patients who are EGFR positive, but who do not have the T790 mutation and who have become refractory to erlotinib, for whom there is currently no well-accepted standard treatment other than chemotherapy.

Many currently approved cancer therapeutics target only single molecules or a single specific genetic abnormality related to driving the proliferation and survival of cancer cells. In contrast, Oncoprex works by targeting several molecules within the cancer cell to interrupt cell signaling pathways that cause replication and proliferation of cancer cells, to target and kill cancer cells, to block mechanisms that create drug resistance and to stimulate the natural immune response. Moreover, clinical and preclinical data show that Oncoprex works with other cancer drugs or their non-humanized equivalents, to produce more effective anti-cancer effects than either produces alone. In conjunction with these other drugs and equivalents, Oncoprex has been shown to mediate an anti-tumor response through up-regulation of NK cells, CD8+ T cells, and down-regulation of regulatory T cells, or Tregs, and PD-L1 receptors, activate alternative immune mechanisms with the potential to complement checkpoint inhibitors. Published data indicate that effectiveness of these kinase inhibitors and immunotherapy drugs is enhanced when they are combined with Oncoprex.

 

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Delivery System

The Genprex immunogene therapy platform consists of anti-cancer genes encapsulated in nanovesicles delivered intravenously. The Oncoprex TUSC2 gene is encapsulated in a positively charged nanovesicle that binds to actively replicating (and therefore negatively charged) cancer cells, and then enters the cancer cell through selective endocytosis. These nanoscale vesicles differ significantly from liposomes historically used for drug delivery in that they are true particles encapsulating the therapeutic payload within a bilamellar lipid coat. Our collaborators at MD Anderson have optimized the characteristics of lipids including N-(1-(2,3-Dioleoyloxy)propyl)-N,N,N-trimethylammonium methyl sulfate, or DOTAP:cholesterol and a DNA plasmid expressing the TUSC2 tumor suppressor gene which form a spherical particle with a hollow center, nanoscale in size, which encapsulates the TUSC2 gene for delivery as Oncoprex.

 

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Operation of the Oncoprex TUSC2 Nanovesicle Delivery System

The particle size is small enough to allow Oncoprex to cross tight barriers in the lung, but large enough to avoid accumulation or clearance in the liver, spleen and kidney. The cationic (positive) charge of the nanovesicle targets cancer cells, and direct nanovesicle fusion avoids target cell endocytosis. A Phase I clinical trial showed that intravenous Oncoprex therapy selectively and preferentially targeted primary and metastatic tumor cells, resulting in anticancer activity. The nanovesicles are non-immunogenic, allowing repetitive therapeutic dosing and providing extended half-life in the circulation.

We believe that the nanovesicles used in Oncoprex are applicable to delivery of a range of therapeutic and prophylactic plasmid DNAs and RNA interference constructs. The nanovesicle manufacturing methods we and our collaborators have developed have been optimized and we believe they may be useful for a wide array of disease treatments. Clinical outcomes demonstrated that the delivery system used in Oncoprex is well tolerated in humans and can deliver high therapeutic doses. The nanovesicle delivery system and safety database may be attractive to drug developers because it overcomes historical technological boundaries with lipid-based delivery systems.

Platform Technologies

We hold an exclusive worldwide license to patents covering the therapeutic use of a series of genes in the 3p21.3 region of the human chromosome, including TUSC2, that have been shown in preclinical and clinical research to have cancer fighting properties. While we are initially targeting NSCLC, data from preclinical studies conducted by others indicate that product candidates derived from our immunogene therapy platform may also be effective with respect to other types of cancer, including soft tissue, kidney, head and neck, and breast cancer. Preclinical and clinical data also indicate that our current and potential product candidates are complementary to other successful cancer drugs. Therefore, our platform technologies may allow delivery of any of a number of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. In addition, we plan to investigate biomarkers to predict response and additional immunotherapies to combine with Oncoprex.

 

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Preclinical and Clinical Development, Rationale and Strategy

Phase I Monotherapy Clinical Trial

In 2012, MD Anderson researchers completed a Phase I clinical trial of Oncoprex as a monotherapy. The primary objective of this Phase I trial was to assess the toxicity of Oncoprex administered intravenously and to determine the maximum tolerated dose, or MTD, and recommended Phase II dose, of Oncoprex alone. Secondary objectives were to assess the expression of TUSC2 following intravenous delivery of Oncoprex in tumor biopsies and also to assess the anti-cancer activity of Oncoprex, although the study was not designed to show changes in outcomes. This trial demonstrated that Oncoprex was well tolerated and established the MTD and the therapeutic dosage for Oncoprex at 0.06 mg/kg administered every 21 days. Although this trial was not designed to show changes in outcomes, a halt in cancer growth was observed in some patients. Tumor regressions occurred in primary lung tumors and metastatic cancers in the liver, pancreas, and lymph nodes. In addition, pre- and post-treatment patient biopsies demonstrated that intravenous Oncoprex selectively and preferentially targeted patients’ cancer cells, and suggested that clinical anti-cancer activity was mediated by TUSC2.

In the Phase I Monotherapy Trial, Oncoprex was injected intravenously in stage IV (metastatic) lung cancer patients who had received traditional platinum combination chemotherapy but still showed tumor progression at the time of entry into the study. Oncoprex was manufactured in GMP facilities to meet specifications of size, appearance, and transfection efficiency. During the trial, manufacturing was transferred from Baylor College of Medicine to MD Anderson, thus confirming reproducibility of the manufacturing process. Subjects received escalating doses ranging from 0.01 mg/kg to 0.09 mg/kg at three-week intervals for a maximum of six cycles of a dose every three weeks. Fever is a common reaction to intravenous drug administration; accordingly, dexamethasone, a steroid, and diphenhydramine, an antihistamine, were administered as a standard treatment to prevent fever and eliminated the only clinically significant toxicity of fever.

In the Phase I Monotherapy Trial, 31 subjects were treated at six dose levels ranging from 0.01 to 0.09 mg/kg. Seventy percent of subjects had received 2 or more prior chemotherapy regimens. Among 4 subjects treated without the fever-reducing premedications, all 4 subjects developed grade 2 or higher fevers within 24 hours of treatment. Among the 27 subjects premedicated with the fever-reducing premedications, the highest fever was grade 2, which occurred in two subjects. The only serious adverse events, defined as grade 3, 4 or 5 events under the Common Terminology Criteria for Adverse Events, or CTCAE, published by the U.S. Department of Health and Human Services, were grade 3 fever (experienced by three patients) and grade 3 hypotension (experienced by 1 patient). The only dose-limiting toxicities were two episodes of transient grade 3 hypophosphatemia (abnormally low levels of phosphate in the blood) resulting in an MTD of 0.06 mg/kg. Twenty-three subjects received 2 or more doses, of whom 5 subjects, or 22% of the 23 subjects, achieved disease control for periods ranging from 2.6 months to 10.8 months. The median disease control period for these subjects was 5.0 months (95% CI: 2.0 -7.6), while the other 18 subjects’ cancer progressed during the Phase I Monotherapy Trial. Disease control for cancer therapies is defined under the Response Evaluation Criteria in Solid Tumors, or RECIST, as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD)>8weeks). Median survival for all subjects in the Phase I Monotherapy Trial was 8.3 months (95% CI 6.0-10.5 months) and mean survival time was 13.2 months (95%CI 8.9 -7.5 months) with a range of two to 23+ months.

Two subjects had reductions in primary tumor size of 14% and 26%. One subject with stable disease, a 54-year-old female with a large cell neuroendocrine carcinoma who received 12 cycles of Oncoprex therapy, had evidence of a durable metabolic response, which is a lasting reduction of metabolic activity in the tumor, as shown by positron emission tomography, or PET, imaging. The response was documented with PET scans performed after the second, fourth and sixth doses, all showing decreased metabolic activity in the tumor with no changes in size or number of metastases by computed tomography, or CT, imaging. The illustration below is of the PET scan of this subject performed after the fourth dose. This subject had received 6 prior chemotherapy regimens. Prior to entry in the Phase I Monotherapy Trial, 2 hepatic metastases were progressing on gemcitabine. The subject also had a metastasis in the head of the pancreas and a peripancreatic lymph node, shown by the arrows in the illustration below. Illustration A shows the pretreatment PET scan. The dose of

 

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Fluorodeoxyglucose (18F) was 8.8mCi. Illustration B shows the post treatment PET scan performed 20 days following the fourth dose of Oncoprex. The dose of Fluorodeoxyglucose (18F) was 9.0mCi. All scans were performed within a 60 to 90 minute window after injection.

 

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Metabolic Tumor Response in a Metastatic Lung Cancer Subject

This subject remains alive after subsequent therapy more than seven years after the final treatment with Oncoprex, to our knowledge, without evidence of cancer progression in the responding sites.

To test whether the TUSC2 gene introduced by Oncoprex therapy was expressed following Oncoprex therapy in the Phase I Monotherapy Trial, pre-treatment and 24-hour post-treatment tumor biopsies were obtained from 7 subjects by percutaneous CT guidance from a central tumor location. A quantitative real time reverse transcriptase PCR, or RT-PCR, analysis using a plasmid TUSC2 sequence-specific probe was performed on samples blinded to time of biopsy. The RT-PCR analysis detected high levels of TUSC2 plasmid expression in 6 of 7 post-treatment tumor specimens but not in pretreatment specimens or negative controls.

In addition, an in situ proximity ligation assay, or PLA, performed on paired biopsies from 3 subjects, demonstrated no TUSC2 protein staining in pre-treatment tissues compared with intense TUSC2 protein staining in post-treatment tissues. For the PLA, anti-TUSC2 polyclonal antibodies were developed to detect the presence of TUSC2. Pre-treatment and post-treatment biopsies were obtained from 3 patients. The top panel for each patient in the illustration below represents the pre-treatment biopsy “controls” with DAPI, a type of blue stain. The bottom panel for each patient are post-treatment biopsies, and represent overlays of blue DAPI staining and red anti-TUSC2 antibody staining. The blue stains in the top panels indicate the absence of TUSC2 in the pre-treatment biopsies, and the red and purple (red overlaying blue) stains in the bottom panels indicate the presence

 

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of TUSC2 in robust quantities in the post-treatment biopsies, showing that TUSC2 was successfully introduced into the tumors in the Phase I Monotherapy Trial.

 

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Proximity Ligation Assay (PLA) for TUSC2 protein in tumor biopsies

An RT-PCR gene expression profiling analysis of apoptotic pathway genes in a paired specimen showing high post-treatment levels of TUSC2 mRNA and protein in one subject also showed up-regulation and down-regulation of certain genes involved in both the intrinsic and extrinsic apoptotic pathways. Antibodies to single and double stranded DNA were not detected 14 months after completion of 12 cycles of therapy in the subject, indicating that within that period no anti-DNA antibodies had developed. The conclusion from the Phase I Monotherapy Trial was that Oncoprex administered intravenously in lung cancer patients was well tolerated with demonstrable gene delivery to tumors with protein expression and evidence of antitumor activity. Although the number of biopsies was limited due to regulatory constraints, the consistent results across test platforms suggests that these observations are reliable.

Based on the positive results from the Phase I Monotherapy Trial and preclinical data from studies of the combination of Oncoprex plus EGFR TKI drugs, we are evaluating Oncoprex as a lung cancer therapeutic to be used in combination with the EGFR kinase inhibitor erlotinib in our ongoing Phase I/II Combination Therapy Trial.

Preclinical Studies

Investigators at MD Anderson conducted preclinical research showing that Oncoprex alone blocked the activation of the c-Abl tyrosine kinase. A number of other studies at MD Anderson have demonstrated the complementary effects of Oncoprex combined with a variety of targeted kinase inhibitory agents, both marketed and in various stages of clinical development, including erlotinib, gefitinib, MK2206 and others. Researchers investigated the use of Oncoprex combined with commercially available EGFR TKI drugs erlotinib and gefitinib, and conducted preclinical in vitro and in vivo studies combining Oncoprex with these drugs in a variety of human lung cancer cell lines, including cancers with activating EGFR mutations and EGFR mutation negative cancers. Lung cancers known to have intrinsic and acquired resistance to erlotinib therapy were also studied, as were K-ras-related and other cancers. Notably, studies in xenograft animal models demonstrated that Oncoprex and either erlotinib or gefitinib showed synergistic anti-cancer effects, superior to either agent used alone, in both EGFR mutation negative cancers (generally not candidates for erlotinib) and in EGFR mutation positive cancers (optimal candidates for erlotinib), including cancers known to be resistant to erlotinib therapy. The addition of Oncoprex to either erlotinib or gefitinib overcame drug-induced resistance by simultaneously inactivating EGFR and AKT signaling pathways and by inducing apoptosis in erlotinib- or gefitinib-resistant cancers with EGFR mutations and with EGFR mutation-negative cancers.

 

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In one study, MD Anderson researchers tested the combination of erlotinib and Oncoprex against five human NSCLC cell lines: H1299, H322, A549, H460, and H1975, the latter of which has the L858R and T790M EGFR mutations and is highly resistant to erlotinib. The results showed that the combination of Oncoprex and erlotinib significantly reduced NSCLC colony formation beyond the effect of erlotinib, Oncoprex or controls alone (p<0.01 at both 1 and 2.3 uM concentrations for all cell lines). The cooperative interaction between erlotinib and Oncoprex was confirmed in vivo using a lung colony formation metastases model in nu/nu mice with A549 human lung cancer cells injected in the tail vein. Mice were treated with the combination of Oncoprex and erlotinib and various controls including empty nanovesicles, erlotinib alone, Oncoprex alone, and other controls.

The greatest reduction in lung colonies occurred with the Oncoprex with erlotinib combination (90% reduction) which was reduced compared to all control groups (p<0.0005). In terms of total tumor nodules, the cooperative effect is greater than 0.9999. This means that there is less than a 1 in 10,000 chance that the low dose erlotinib with TUSC2 combination does not have a cooperative effect and greater than 9,999 in 10,000 chance that the cooperative effect exists. P-value is the probability that the difference between two data sets was due to chance. The smaller the p-value, the more likely the differences are not due to chance alone. In general, if the p-value is less than or equal to 0.05, the outcome is considered statistically significant. The FDA’s evidentiary standard of efficacy generally relies on a p-value of less than or equal to 0.05.

MD Anderson researchers also tested Oncoprex in TUSC2-deficient and erlotinib or gefitinib-resistant NSCLC cell lines. Treatment of the NSCLC EGFR mutation negative cell lines H1299, H322, H358 and H460 cancer cell line showed that the Oncoprex combination significantly sensitized (p<0.001) response of the cancer cell lines to both erlotinib or gefitinib treatment and synergistically induced apoptosis in vitro . The findings were confirmed in vivo in an H322 orthotopic lung cancer mouse model. These studies included the K-ras mutant cell line H460, which is significant because patients with K-ras mutant tumors are generally unresponsive to erlotinib or gefitinib. Synergistic induction of apoptosis was observed with the combination of Oncoprex and concentrations of erlotinib or gefitinib similar to steady-state serum concentrations achievable with oral dosing. The combination of Oncoprex and either erlotinib or gefitinib induced similar levels of tumor cell growth inhibition, apoptosis induction, and inactivation of oncogenic protein kinases.

Data from these and other MD Anderson studies suggest a combination of Oncoprex with gefitinib or erlotinib can promote synergistic tumor cell killing and overcome drug-induced resistance by simultaneously inactivating the EGFR and the AKT signaling pathways and by inducing apoptosis in resistant cells with non-mutated EGFR. These data suggest that NSCLC patients with an activating EGFR mutation, whose cancer progresses on erlotinib, may potentially benefit from Oncoprex with erlotinib combination therapy. These data also suggest that NSCLC patients without an activating EGFR mutation (generally unresponsive to erlotinib) may potentially benefit from Oncoprex with erlotinib combination therapy

In another study, MD Anderson researchers analyzed the effects of TUSC2 re-expression on the sensitivity of tumor cells to the AKT inhibitor MK2206 in vitro and in mice. The AKT pathway is an important intracellular, converging positive regulator of apoptosis. AKT stimulates apoptosis and is frequently dysregulated in cancers, and this has been associated with reduced sensitivity to anti-tumor drugs. The study showed that the combination of TUSC2 transfection with MK2206 treatment suppressed tumor cell viability in vitro and effectively inhibited xenograft tumor growth in vivo more effectively than either agent alone.

Preclinical Study Showing that the TUSC2-Erlotinib Combination Significantly Inhibits Tumor Cell Viability and Colony Formation in NSCLC Cells Without an Activating EGFR Mutation

Previous research has shown that NSCLC in cells that lack the activating EGFR mutations exon 19 deficiency and exon 21 substitution is not halted or inhibited by erlotinib at pharmacologically relevant doses. In one preclinical study, MD Anderson researchers tested a group of EGFR negative NSCLC lines for sensitivity to erlotinib after restoration of TUSC2 expression, both transiently and stably, and found a significant benefit

 

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resulting from the combination at micromolar ranges between 1uM and 2.3uM. These concentrations are achievable in patient serum with standard dosing regimens and are pharmacologically relevant. Cell viability was evaluated in 3 TUSC2 Tet-On stable clones that had been treated with doxycycline to induce TUSC2, and combined with erlotinib. As expected, the cells that had not had TUSC2 expression restored were not sensitive to erlotinib alone, and the viability of cells in the A549, H1299, and H175 cancer cell lines was 92%, 90%, and 98%, respectively. Induction of TUSC2 with doxycycline alone showed more cytoxicity than erlotinib alone, resulting in 16%, 22%, and 5% cell death, respectively. However, when cells were exposed to doxycycline and treated with 2.3 µM erlotinib for 48 hours, a growth inhibitory effect was observed for all three cell lines (p<0.05), with the relative survival of the A549, H1299, and H175 cancer cells being reduced by 48%, 42%, and 38%, respectively. Similarly, as shown in the graphs below, colony formation was significantly inhibited in cells transiently transfected with TUSC2 and treated with erlotinib. The ability of A549, H1299, H322, and H460 cells to form colonies was reduced by 90%, 80%, 93%, and 85%, respectively. In dose titration experiments erlotinib also mediated increased inhibition of colony formation at nanomolar concentrations. Taken together, the results clearly demonstrate the superiority of the TUSC2-erlotinib combination treatment over each agent alone, and indicate that the effect is independent of the technique of exogenous gene expression. For both viability and colony formation assays the probability of a cooperative effect was greater than 0.99, on a scale from 0 to 1. Zero means no probability of a true cooperative effect, and one means 100% probability of a cooperative effect given the observed data.

 

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Inhibition of Colony Formation by a Combination of TUSC2 and Erlotinib

In the graphs above, “EV” means DOTAP: cholesterol (DC)—empty vector (EV) complex (the Oncoprex nanovesicle without the TUSC2 gene), “PBS” means phosphate-buffered saline, and “EV + PBS” means EV and PBS, acting as a control; “ER” means erlotinib; “*” means p<0.05; and “**” means p<0.01.

TUSC2-Erlotinib Combination Significantly Inhibits Tumor Growth and Metastasis and Induces Apoptotic Activity

In another preclinical study, MD Anderson researchers analyzed the effect of the combination of TUSC2 and erlotinib on inhibiting tumor growth and metastasis in two NSCLC mouse xenograft models. Mice with established flank tumors of equal volumes were divided into different treatment groups: PBS, used as a control; DC-TUSC2 complex (Oncoprex), referred to in the graphs below as “Fus1” or “TUSC2”; erlotinib alone, referred to in the graphs as “Erlo” or “ER”; DOTAP:cholesterol (DC)—empty vector (EV) complex with erlotinib, referred to as “EV + Erlo” or “EV + ER”; and Oncoprex plus erlotinib, referred to as “Combo,”

 

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“TUSC2 + ER” or “TUSC2 + Erlo.” In the H322 subcutaneous xenograft model, the combination of intravenous Oncoprex and erlotinib was significantly superior (p<0.05) in reducing tumor volumes than either agent alone, as shown by graph A below. With adjustment for multiple comparisons, the tumor growth rate of Oncoprex and erlotinib combination was the only group significantly smaller than the PBS control group (p<0.01). The mean tumor volume was 421.25±89.27 mm3, compared with 1082.50±338.69 mm3, 801.25±144.60 mm3, 675.00±228.80 mm3, and 875.00±267.85 mm3, in their counterparts receiving PBS, Oncoprex, erlotinib, or EV + erlotinib, respectively. In terms of tumor size, the posterior probability of cooperative effect was 0.9928, which means that there were less than 100 in 10,000 chances that the effect of TUSC2-erlotinib combination was not cooperative.

MD Anderson researchers also developed a lung metastasis xenograft mouse model, using the human TUSC2-defective, EGFR negative A549 NSCLC cell line. Animals were treated with the same protocol as their subcutaneous counterparts. The number of tumor nodules on lung surfaces was reduced by 82% after TUSC2-erlotinib treatment, compared to 41% and 54%, for TUSC2 alone or erlotinib treatment alone, respectively, as shown in graph B below. The overall difference of the tumor nodule count among the five groups was significant (p<0.0001), as was the difference between the Oncoprex and erlotinib combination group compared to each of the other groups (p<0.01).

As shown in graph C below, in resected tumor tissues assayed by TUNEL, the average number of apoptotic cells in the TUSC2 + erlotinib group was many times higher than in any of the other groups, including the groups receiving erlotinib alone and TUSC2-nanovesicles alone.

 

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These results show that the growth inhibitory benefit of TUSC2-erlotinib in vitro could be reproduced in vivo and validate the effects of this combination.

 

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Inhibition of Tumor Growth and Metastasis, and Induction of Apoptotic Activity, by a Combination of TUSC2 and Erlotinib

In graphs B and C above, “*” means p<0.05; the values in graph C above represent percentages from at least 1000 counted cells.

Phase I/II Combination Clinical Trial: TUSC2 Nanovesicles with Erlotinib

Phase I Combination Trial

The Phase I Monotherapy Trial showed that Oncoprex is well tolerated, that high levels of TUSC2 expression are detected in the tumor post-treatment, and that there is evidence of tumor growth suppression. Based on the positive results from the Phase I Monotherapy Trial and substantial preclinical evidence that Oncoprex is complementary with EGFR TKIs, we obtained permission from FDA to begin a new Phase I/II trial at MD Anderson combining Oncoprex with erlotinib in patients with Stage IV (metastatic) or recurrent NSCLC that is not potentially curable by radiotherapy or surgery, whether or not they have received prior chemotherapy, and whether or not they have an activating EGFR mutation. This trial is referred to as the Phase I/II Combination

 

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Trial. Enrollment in the Phase I portion of the Phase I/II Combination Trial, referred to as the Phase I Combination Trial, commenced in 2014 at MD Anderson with Dr. Charles Lu as the Principal Investigator.

In the Phase 1 Combination Trial, 18 subjects were treated with the following dose levels:

 

Dose Level

  

Drug Doses

1

   erlotinib (100 mg/day) + Oncoprex (0.045mg/kg)

2

   erlotinib (100 mg/day) + Oncoprex (0.06mg/kg)

3

   erlotinib (150 mg/day) + Oncoprex (0.045mg/kg)

4

   erlotinib (150 mg/day) + Oncoprex (0.06mg/kg)

As in the Phase I Monotherapy Trial, subjects received a pre-treatment regimen of oral and intravenous dexamethasone and diphenhydramine to reduce fever, along with an infusion of Oncoprex every three weeks. Subjects received oral erlotinib daily during each three-week cycle during the treatment period.

The Phase I Combination Trial was also a dose escalation study with the primary purpose of determining the MTD. Dose Limiting Toxicities were defined as grade 3, 4, or 5 events during the first cycle of treatment that were considered to be treatment related. At dose level 1 (Oncoprex .045 mg/kg plus erlotinib 100 mg), one subject had grade 3 adverse events of fatigue, muscle weakness, and hyponatremia (low sodium level) considered to be related to the study treatment (erlotinib); therefore, three additional subjects were treated at this dose level (six subjects total), none of whom suffered a Dose Limiting Toxicity. At dose level 2 (Oncoprex .06 mg/kg plus erlotinib 100 mg), there were no Dose Limiting Toxicities. At dose level 3 (Oncoprex .45 mg/kg plus erlotinib 150 mg), one subject had a grade 3 rash considered to be related to the study treatment (erlotinib); therefore, an additional three subjects were treated at this dose level (six subjects total). No additional subjects suffered a Dose Limiting Toxicity at dose level 3. At dose level 4 (Oncoprex .06 mg/kg plus erlotinib 150 mg), there were no Dose Limiting Toxicities; thus dose level 4 was determined to be the MTD.

Once the MTD for the study treatment combination was determined in the Phase 1 Combination Trial to be Dose Level 4, accrual proceeded on the Phase II portion of the study. Since the eligibility criteria, drug administration details (other than dose) and evaluation details were identical for the Phase I Combination trial and the Phase II Combination trial, three subjects in the Phase I Combination Trial who were treated at the MTD were included in the Phase II Combination Trial.

Four patients in the Phase I Combination Trial had stable disease ranging from 12 weeks to 36 weeks. The following observations from our preclinical studies and from the Phase I Combination Trial provided the rationale for proceeding with the Phase II Combination Trial combining Oncoprex with erlotinib:

 

    TUSC2 inhibits a variety of tyrosine kinases including EGFR, PDGFR, c-kit, and c-abl;

 

    expression of TUSC2 in NSCLC cells combined with TKIs is complementary in vitro and in vivo ;

 

    intravenous administration of a nanoparticle encapsulated TUSC2 expression plasmid effectively delivers TUSC2 to distant tumor sites and mediates an anti-tumor effect in orthotopic human lung cancer xenograft models; and

 

    when the TUSC2-nanoparticle is combined with a TKI, the suppression of tumor growth in mouse xenograft models is synergistic.

Phase II Combination Trial

The Phase II Combination Trial is designed to include subjects treated with the combination of Oncoprex and erlotinib at the MTD with the primary goal of measuring the response rate, and secondary endpoints of stable disease, time to progression and overall survival. The response rate for cancer therapies is defined under the Response Evaluation Criteria in Solid Tumors, or RECIST, as Complete Response (CR) + Partial Response (PR); disease control rate is defined under the RECIST criteria as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD)>8weeks.

 

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Enrollment criteria for the second phase of the Phase I/II clinical trial are identical to those in the first phase. The Phase II portion of the trial began in June 2015 and is ongoing at MD Anderson. The first subject enrolled in the Phase II portion of the study began erlotinib on Day 8, and subsequently every other enrolled subject began erlotinib on Day 8. The rationale for delaying erlotinib was to allow exploratory analyses of potential differential effects of Oncoprex nanoparticles alone and in combination with erlotinib on downstream pathway activation and potential biomarkers of erlotinib resistance. In the Phase II Combination Trial, subjects will continue to receive three-week cycles of Oncoprex in combination with erlotinib until the occurrence of progressive disease (PD), unacceptable toxicity, withdrawal of consent, or study treatment discontinuation for other reasons, whichever occurs first.

Of the 39 patients allowed in the protocol for the Phase II portion of the trial, 10 have been enrolled (three of whom were also subjects of the Phase I Combination Trial) and nine are evaluable for response under the trial protocol, because they have received 2 or more cycles of treatment. None of the 10 subjects treated to date in the Phase II portion of the Phase I/II trial suffered a Dose Limiting Toxicity. Interim results show that four of the patients had tumor regression and one patient had a Complete Response, or CR under the RECIST criteria. The median response duration for all patients, which is defined as the median time between when response is first noted to the time when cancer progression is observed, was three months. The response rate for the nine patients evaluated to date was 11% and the disease control rate for the nine patients was 78%.

The patient with the CR, a 58 year old female, upon enrollment in the study had metastatic NSCLC status following 6 cycles of pemetrexed and carboplatin and 2 cycles of maintenance pemetrexed with cancer progression. The patient’s tumor has EGFR exon 18 and 20 missense mutations, which are not sensitive to erlotinib. As shown in the illustrations below, this patient had disappearance of both the lung primary tumor and the lung, liver and lymph node metastases.

 

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Subject with RECIST Complete Response

Preliminary analysis of these data further supported our belief that Oncoprex may provide medical benefit in several subpopulations of NSCLC patients for which there is an unmet medical need, and may provide pathways for accelerated FDA approval.

As a result of these initial findings, in April 2016, we suspended enrollment of new patients in the Phase II Combination Trial to collect additional trial data and have it analyzed in order to seek FDA guidance as to whether the protocol for this clinical trial could be modified to expand enrollment and also to divide the patients into cohorts with a view toward seeking accelerated approval in one or more of these cohort populations. We have completed the collection and analysis of the additional preliminary data and expect to present our findings to the FDA within the next several months. Although this clinical trial is currently closed to new patient enrollment, it is not terminated, and is considered “ongoing” because activities such as patient follow-up and further data collection and analysis continue.

 

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If we reach an agreement with the FDA regarding expanded patient enrollment and defined patient cohorts, then we plan to amend the trial protocol accordingly and proceed with the amended protocol at MD Anderson and several additional clinical trial sites. Amendments to the Phase II clinical trial protocol will require approval of the Investigational Review Board, or IRB, of each site where the amended trial is conducted. If we do not reach an agreement with the FDA on these changes, then we plan to reopen enrollment in the current version of the Phase II Combination Trial at MD Anderson and at additional clinical trial sites. Assuming enrollment of two or three patients per month, we estimate that enrollment of the remaining patients for the Phase II Combination Trial could take a year, but because enrollment in clinical trials is uncertain, that estimate is also subject to substantial uncertainty. Any estimate of the duration of the trial would also be subject to substantial uncertainty, because treatment generally continues under the clinical trial protocol until the patient dies, experiences a serious adverse event or withdraws from the trial, or until cancer progresses. Even after completion of treatment, patients continued to be monitored. If we reopen the trial, we will need to provide MD Anderson with plans and funding to move ahead with the trial. Whether under the original protocol or a revised protocol, we intend to use a portion of the proceeds of this offering to add additional clinical trial sites.

Preclinical Studies of TUSC2 in the Immune Response to Cancer

Previous research has shown that TUSC2 regulates cytokine expression in vitro . Cytokines are proteins that stimulate inflammation as part of the immune response. Stable expression of TUSC2 in H1299 NSCLC cells altered expression of a wide spectrum of cytokines including IL2, IL7, IL8 and 10, GM-CSF and PDGF-beta. TUSC2 is a positive regulator of innate immunity via regulation of IL-15 expression. IL-15 induces NK cell differentiation.

The systemic effect of the TUSC2 and anti-PD1 antibody combination was examined in 2 immune-competent, syngeneic mouse models of Kras and p53 mutant lung cancer. C57BL/6 mice were subcutaneously injected with murine adenocarcinoma lung carcinoma CMT/167-luc cells (KrasG12V mutation). CMT/167 cells do not express TUSC2. Tumors from untreated mice, isotype antibody control, or those treated with anti-PD1 were used as controls. 344SQ (KrasG12D allele and a knock-in Trp53R172H D G allele) adenocarcinomas which metastasize to the lung in 126S2 mice were also used. When tumors reached 50-100 mm3, mice were either injected intravenously with DOTAP:cholesterol (DC)-TUSC2 complex alone (at a dose of 25 µg of plasmid DNA and 10 nmol DC, every 48 hours for three injections), or (DC)-TUSC2 complex combined with anti-PD1 antibody (250 µg for four injections) alone or combined with anti-CTLA4 (100ug for three injections). Tumor growth and development was monitored by scoring ex-vivo luminescence using the IVIS Imaging System 200 Series. All tumor measurements were blinded to treatment and results were analyzed independently by biostatisticians.

 

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Preclinical Study Showing that the TUSC2 and Anti-PD1 Combination Cooperatively Inhibits Growth of CMT/167 Lung Adenocarcinomas

Mouse experiments showed combined treatment with TUSC2 and anti-PD1 antibody superior to anti-PD1 alone in five independent experiments in two different tumor models. Results of a representative experiment is shown in the graph below. By week 3 the reduction in tumor image intensity by the combination of TUSC2 and anti-PD1 and TUSC2, anti-PD1, plus anti-CTLA4 was greater than the reduction with TUSC2 alone, anti-PD1 combined with anti-CTLA4, or the isotype control. Spleens and blood were collected for immunological analysis profiling by multicolor flow cytometry. Immune profiling panels were designed to evaluate response and major changes of specific regulatory innate and adaptive immune cells to TUSC2 or anti-PD1 treatment in peripheral blood and spleen.

 

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12-Preclinical Study Showing Effect of TUSC2 Anti-PD1 Combo on T Lymphocytes

Preclinical Study Showing the Effect of the TUSC2 and Anti-PD1 Combination on T Lymphocytes

The population of natural killer cells (NK), cytotoxic lymphocytes critical to innate immune function, was assessed in peripheral blood mononuclear cells (PBMCs) in tumor bearing mice treated with anti-PD1, TUSC2 alone and the combination. As shown in the graph below, the NK cell population increased strongly in the TUSC2 alone and TUSC2+PD1 groups which correlated with tumor regression. Anti-PD1 alone had no effect on NK cell proliferation.

Tumor free mice without mutations that lead to metastasis were injected intravenously with TUSC2 which caused a threefold up-regulation of NK cells in the peripheral blood of TUSC2 injected mice as compared with non-injected mice. CD8 T cells, which are cytotoxic T cells (CTL) for tumor killing, act as a prognostic marker of tumor regression. Increased numbers of CTL were found in the TUSC2 and TUSC2+PD1 groups as compared with that of the control group which directly correlated with the anti-tumor effect, as shown in the graph below. Lower levels of CD62L expression on T lymphocytes in TUSC2 treated mice suggests that TUSC2 regulates T cell activation. Moreover, TUSC2 induced down-regulation of regulatory T cells (Treg, CD4+CD25+). TUSC2 was shown to down-regulate checkpoint markers such as PD-1, CTLA-4, Tim-3, and LAG-3.

 

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13-Effect of TUSC2 with Anti-PD1 on Immune Cell Populations in Peripheral Blood (Large)

Preclinical Study Showing that TUSC2 Immunogene Therapy is Synergistic with Anti-PD1 in Lung Cancer Syngeneic Mouse Models

Based on the prolonged responses that were observed in TUSC2 clinical trials, which suggest that TUSC2 may modulate the immune response, and on the fact that checkpoint blockade immunotherapy against PD1 and PD-L1 has yielded durable antitumor activity in a subset of NSCLC patients, MD Anderson researchers conducted a preclinical study to investigate the immune response to TUSC2 in immune cell populations and the synergistic antitumor effect of TUCS2 in combination with anti-PD1 checkpoint blockade in syngeneic mouse NSCLC models.

Two Kras-mutant syngeneic mouse models were used to explore the effect of TUSC2+anti-PD1 (+/- anti-CTLA-4) on immune cells infiltration into the tumor micro-environment. Activating Kras mutations are the most common driver mutations in lung adenocarcinomas. Lung cancer with mutant Kras has a poor prognosis, is often resistant to conventional therapy, and readily becomes resistant to targeted therapies with kinase inhibitors. Studies by researchers not at MD Anderson have found that PD1 expression was highly associated with the presence of Kras mutations and that PD-L1 expression was elevated in premalignant Kras-mutant cells, suggesting that Kras mutation may affect the function of the PD1/PD-L1 immune checkpoint pathway.

The first syngeneic mouse model used a murine lung carcinoma cell line CMT/167-luc with a Kras G12V mutation and a low level of TUSC2 expression, implanted subcutaneously in C57BL/6 mice. The second syngeneic mouse model optimized an aggressive experimental metastatic lung cancer model using 129SvE mice injected with SQ344 lung cancer cells, which contained KrasG12D allele. The SQ344 tumor model was found to be less sensitive to anti-PD1 single agent treatment.

The graph below shows the protocol for and results of this preclinical study, in which anti-PD-1, TUSC2 and anti-CTLA-4 treatments were administered in the SQ344 metastatic lung tumor mouse model. Figure A

 

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shows that SQ344 tumor cells have less expression of PD-L1 than in the CMT167 model, as determined by flow cytometry. The level of PD-L1 expression in SQ344 cells was only 4.5%, which was significantly lower than the level found in the CMT 167 mouse tumor model (23.7% vs. 4.5%, p < 0.0001), suggesting that SQ344 would respond less strongly to an anti-PD1 agent than the CMT167 model. Figure B shows the protocol for the experiment, in which treatments were administered every three or four days in the mouse tumor cells. Figure C shows the survival of the mice with the lung tumor cells treated with (a) no treatment, (b) a combination of anti-PD-1 and anti-CTLA-4, (c) TUSC2 alone, (d) a combination of TUSC2 and anti-PD-1, and (e) a combination of TUSC2, anti-PD-1 and anti-CTLA-4. Figure D shows samples of untreated lung tissue and lung tissue treated with TUSC2. Figure E shows tumor sizes after each of the treatments shown in Figure C after two weeks. Figures F, G and H shows the infiltration by NK cells, the concentration of T regulatory, or Treg, cells and the concentration of myeloid-derived suppressor, or MDSC, cells, a type of immune cells, in each case after treatment with (a) no treatment, (b) TUSC2 alone, (c) a combination of TUSC2 and anti-PD-1 and (d) a combination of anti-PD-1 and anti-CTLA-4.

The results of this preclinical study indicate that TUSC2-sensitization to anti-PD1 could be produced in both Kras-mutant lung cancer mouse models.

 

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14-Therapeutic Efficacy of TUSC2+Anti-PD1 in a Lung Metastasis Model (Large)

 

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Preclinical Studies of Additional 3p21.3 Genes with Cancer-Fighting Properties

We have licensed rights to a group of candidate tumor suppressor genes, including 101F6, NPRL2, CACNA2D2, PL6, BLU, RASSF1, HYAL 1 and HYAL2, in addition to TUSC2 (which is also referred to as FUS1), all of which are located in a sub-region of human chromosome 3 known as 3p21.3. Using a number of techniques, MD Anderson researchers and their collaborators have identified these genes as potentially having cancer-fighting characteristics. MD Anderson researchers have subsequently conducted a number of preclinical studies on certain of these genes, particularly 101F6 and NPRL2, as well as TUSC2, both alone and in combination with other compounds, in order to assess their actual effects on NSCLC. Three of these preclinical studies are described below. We plan to support continuing research into the cancer-fighting properties of these and other genes in the 3p21.3 sub-region as an important part of our strategy.

Preclinical Study Showing Expression of Several Genes in the Human Chromosome 3p21.3 Sub-region by an Adenovirus Vector Results in Tumor Suppressor Activities in Vitro and in Vivo

MD Anderson researchers conducted preclinical studies, both in vitro and in vivo, of several of the licensed genes located in the 3p21.3 sub-region, in order to assess their effects on tumor cell proliferation and apoptosis in human lung cancer cells. The researchers used adenoviral vectors to introduce individual wild-type genes into 3p-deficient tumor xenografts and tumor cell lines. This “forced expression” of the wild-type forms of TUSC2, 101F6, and NPRL2 resulted in inhibition of tumor cell growth by induction of apoptosis and/or alteration of cell cycle pathways in vitro, compared to control. Intratumoral injection of 101F6, TUSC2 and NPRL2 with adenoviral vectors, as well as systemic administration of these genes in an experimental mouse model, suppressed the growth of tumor xenografts (in this case, human tissue grafted onto the mouse model) and inhibited lung metastases. The results of these studies showed that the genes 101F6, NPRL2 and TUSC2 had the most significant anti-cancer effects of the tested genes and were therefore the most promising genes for further study.

Preclinical Study Showing that Tumor Suppressor 101F6 and Ascorbate Inhibit Non–Small Cell Lung Cancer Growth

One of the promising tumor suppressor gene candidates, 101F6, expresses a protein found in normal lung bronchial epithelial cells and fibroblasts but whose function is impaired in most lung cancers. This protein is involved in the regeneration of ascorbate, a well-known antioxidant that has been tested as a supplemental therapeutic agent for human cancer prevention and therapy. MD Anderson researchers studied the effect of 101F6 in combination with ascorbate on human lung cancer tissue, both in vitro and in vivo. In the in vitro portion of the study, 101F6 was transferred via nanoparticles similar to our Oncoprex nanovesicles, and in combination with ascorbate, selectively targeted cancer cells and inhibited lung cancer cell growth to a greater extent than either 101F6 or ascorbate alone. In vivo, the systemic injection of 101F6 nanoparticles in mouse tail veins, together with the intra-abdominal injection of ascorbate, inhibited both tumor formation and growth in human NSCLC H322 lung cancer xenograft mouse models (P < 0.001) with greater effect than either 101F6 or ascorbate administered alone.

Preclinical Study Showing NPRL2 Sensitizes Human Non-Small Cell Lung Cancer (NSCLC) Cells to Cisplatin Treatment by Regulating Key Components in the DNA Repair Pathway

Another of the promising tumor suppressor gene candidates, NPRL2, interacts with a kinase that is activated by cisplatin, an anti-cancer drug, leading to downstream activation of apoptosis in response to the presence of intracellular high-molecular weight DNA fragments, which themselves result from the breakup of DNA molecules induced by exposure to cisplatin. Mutations in the NPRL2 gene are associated with resistance to this cisplatin-mediated apoptosis. MD Anderson researchers have conducted preclinical studies of NPRL2 with cisplatin in vitro in lung cancer cell cultures and in vivo in an experimental mouse model of chest cavity cancer dissemination. Data from these studies suggest that the systemic introduction of the NPRL2 gene and the

 

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resulting expression of the NPRL2 protein in cancer cells activates the DNA damage checkpoint pathway in cisplatin-resistant and NPRL2-negative cells. These studies suggest that the combination of NPRL2 and cisplatin could resensitize cisplatin nonresponders to cisplatin treatment, helping to overcome resistance to cisplatin.

Process Development and Manufacturing

Through years of Oncoprex process development, including production of multiple clinical material batches in compliance with current Good Manufacturing Practices, or cGMP, we have developed a robust manufacturing system for Oncoprex. Unlike gene therapy agents in the past, which needed to be prepared individually for each patient or required viral vectors for gene delivery, we believe that our nanovesicle delivery system is scalable for commercial production, and the final product can be stored for later use. Manufacturing advances have resulted in improvements in scale, quality and formulation for cGMP clinical materials. We have worked with multiple contract manufacturing organizations, or CMOs, to use our proprietary processes and protocols to supply our clinical materials. We anticipate that our commercial product will continue to be manufactured for us by CMOs or pharmaceutical partners. Our management is experienced in securing, producing and releasing GMP materials.

The production process for Oncoprex utilizes well-defined steps of fermentation using master cell bank, or MCB, stocks, purification, and DOTAP:cholesterol (DC) nanovesicle production to incorporate the TUSC2 plasmid into nanovesicles for final formulation, packaging and storage. We have produced Chemistry, Manufacturing and Control, or CMC, documentation to the satisfaction of the FDA for our Phase I and Phase I/II clinical trials, and we have produced and tested and released MCB stocks for use. We intend to continue to improve our process development, formulation, packaging, storage, long-term stability, and distribution as part of our ongoing technical programs to coincide with our pivotal clinical and commercialization goals.

Our CMOs have demonstrated the ability to scale sufficiently both in timeliness and quantity required for clinical application, and based on our experience with those CMOs, we believe they will be able to scale production of Oncoprex in the future, both with respect to capacity and technology. Production by outside CMOs requires advance planning to schedule their production lines in coordination with other manufacturing orders they may have, as well as cost negotiation. Production costs may vary due to competition for production lines.

Currently, a CMO completes production of the TUSC2 DNA plasmids and transports them in a climate-controlled setting to our clinical test site at MD Anderson, where they are stored in cold storage until needed. Pursuant to our research agreements with MD Anderson, MD Anderson has developed thorough standard operating procedures for thawing, stabilizing, final formulation required for application, and short-term storage prior to administering Oncoprex. This standardized process is both transferable and replicable at other clinical pharmacies, and we plan to scale this process for expanded clinical and commercial use outside of MD Anderson.

MD Anderson is currently testing the shelf life of the final formulation of Oncoprex. A shelf life of at least one year has been established to date, and testing is ongoing.

Intellectual Property

We hold a worldwide, exclusive license to 30 issued and two pending patents for technologies developed at MD Anderson and UTSWMC. These patents comprise various therapeutic, diagnostic, technical and processing claims.

 

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The following table shows our families of issued patents and patent applications, together with information about the type of patent protection, the jurisdiction and the patent expiration dates.

 

Patent

Family

  

Title and (Description)

  

Type of Patent Protection

  

Jurisdiction

  

Patent Expiration Dates

1

  

Chromosome 3p21.3 genes are tumor suppressors

(Use of our platform genes, including TUSC2, and use of our non-viral nanovesicle delivery system)

   The patents in this family have claims directed to compositions of matter, uses of the compositions and processes for preparing the compositions   

United States (2 issued)

United States (1 pending)

Australia (2 issued)

Japan (1 issued)

Canada (1 issued)

Europe (1 issued; validated in Switzerland,

Germany, Denmark, Finland, France,

United Kingdom, Ireland, Sweden, Netherlands)

   7/10/2021, except for the issued US patents, which expire on 5/15/2024 and 7/29/2022

2

  

Bioactive FUS1 Peptides and Nanoparticle-Polypeptide Complexes

(Pharmaceutical formulation of TUSC2 (also referred to as FUS1) nanoparticles, method of delivering TUSC2 to cancer cells, and method of treating cancer patients with TUSC2 nanoparticles)

   The patents in this family have claims directed to compositions of matter, uses of the compositions and processes for preparing the compositions   

United States (2 issued)

Korea (1 issued)

  

1/23/2030, 3/14/2026

7/29/2022

3

  

Methods and Compositions of Non-Viral Gene Therapy for Treatment of Hyperproliferative Diseases

(Methods of delivery, including our nanovesicle delivery system, of a series of genes that are licensed to us, including TUSC2, and genes that are not licensed to us)

   The patents in this family have claims directed to compositions of matter, uses of the compositions and processes for preparing the compositions   

United States (1 pending)

Canada (1 issued)

Europe (1 issued)

Belgium (1 issued)

France (1 issued)

Germany (1 issued)

Italy (1 issued)

Liechtenstein (1 issued)

Spain (1 issued)

Sweden (1 issued)

Switzerland (1 issued)

United Kingdom (1 issued)

   5/24/2020

4

  

Methods and Compositions Related to Novel hTMC Promoter and Vectors for Tumor-Selective and High-Efficient Expression of Therapeutic Genes

(A genetic technology to improve the effectiveness of gene therapy, relating to our platform genes and other genes)

   The patents in this family have claims directed to compositions of matter, uses of the compositions and processes for preparing the compositions    United States (1 issued)    8/24/2029

 

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Because the use of our platform genes, including TUSC2, and the use of our non-viral delivery system to deliver them, are covered by Family No. 1, we believe that expiration of the patents in Family 3 will not affect our intellectual property protection for use of the genes which are licensed to us and are part of our platform.

We also hold a non-exclusive license from the National Institutes of Health to 15 patents that expired on August 1, 2017. We are aware that others have also licensed these technologies from the NIH. These patents relate to the DOTAP:cholesterol liposomes for delivery of therapeutic DNA, which is the basic delivery system embodied in our nanovesicles. Through our license from MD Anderson, we have separate patent protection for the combination of our nanovesicles with the genes we have licensed from MD Anderson, as well as for improvements that MD Anderson has made to the nanovesicle delivery system. Because the license from the NIH is non-exclusive, we do not expect the expiration of the underlying patents to have a material effect on our business. We have an ongoing obligation to pay the NIH a total of $240,000 (together with an additional $20,000 each year starting in 2018) upon our receipt of regulatory approval for our current or potential product candidates.

In addition to the current licensed patents, Genprex is currently evaluating additional patent licenses from MD Anderson to add to the patent portfolio and expand our commercial potential. We expect to evaluate technology transfer opportunities to leverage the commercial potential of our platform delivery system and also seek complementary oncology therapies.

We have filed a trademark application for our company name and for the drug name “Oncoprex” for added protection of future product branding.

Licenses and Research Collaborations

Agreements with MD Anderson

We hold our Oncoprex technologies under a Patent and Technology License Agreement, referred to as the MD Anderson License Agreement, with MD Anderson and The Board of Regents of the University of Texas System. The MD Anderson License Agreement was originally entered into as of July 20, 1994 between the Board of Regents of The University of Texas System, MD Anderson and Intron Therapeutics, Inc. (which later changed its name to Introgen Therapeutics, Inc.), or Introgen.

The MD Anderson License Agreement originally covered a number of patents and technologies unrelated to TUSC2, but the TUSC2 technologies were added by Amendment No. 3 to the MD Anderson License Agreement dated October 4, 2001. Under the MD Anderson License Agreement, we have rights to patents covering use of various genes, including the TUSC2 gene, for treatment of cancer, as well as know-how and related intellectual property.

The exclusive licenses under the MD Anderson License Agreement, as amended, extend to the end of the term or terms for which patent rights under the agreement have not expired, and expire on the expiration of all patents covered by the agreement. The last licensed patent under the MD Anderson License Agreement will expire in January 2030. Upon the expiration of the exclusive licenses, the licensee will have a non-exclusive, fully paid-up right and license to use and otherwise exploit the technology rights licensed under the agreement. MD Anderson may terminate the agreement in the event of the licensee’s voluntary or involuntary bankruptcy or if the licensee’s business is placed in the hands of a receiver, assignee or trustee. In addition, MD Anderson may terminate the agreement in the event of the licensee’s uncured breach.

Pursuant to a Technology Sublicense Agreement dated March 7, 2007, referred to as the Sublicense Agreement, Introgen sublicensed its rights under the MD Anderson License Agreement to Introgen Research Institute, Inc. or IRI, a company formed and owned by Rodney Varner, our current President, CEO and Chairman of the board of directors.

 

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Pursuant to an Assignment and Collaboration Agreement dated April 13, 2009, referred to as the 2009 IRI Collaboration Agreement, IRI assigned its rights under the Sublicense Agreement to us, and we granted back to IRI a non-exclusive, royalty-free license to use and practice the licensed technology for non-commercial research purposes. As consideration for this assignment, we agreed to assume all of IRI’s obligations to MD Anderson under the MD Anderson License Agreement, including ongoing patent related expenses and royalty obligations.

The 2009 IRI Collaboration Agreement was amended by an Amended Collaboration and Assignment Agreement dated July 1, 2011, referred to as the 2011 IRI Collaboration Agreement. The 2011 Collaboration Agreement provided that IRI would provide additional licensing opportunities and services to us, in return for monthly payments and our obligation to pay to IRI a royalty of one percent (1%) on sales of products licensed to us under the MD Anderson License Agreement. In 2012, IRI’s obligation to provide those opportunities and services, and our obligation to make monthly payments to IRI, were terminated. The 2011 IRI Collaboration Agreement had an initial term of two years and renews automatically for additional consecutive periods of one year each unless either we or IRI gives prior written notice of termination to the other party. In addition, either we or IRI may terminate the agreement in the event of the other party’s voluntary or involuntary bankruptcy or uncured default.

Pursuant to a Technology Sublicense Agreement dated June 1, 2011, we granted to IRI a non-exclusive sublicense, for non-commercial purposes, to the rights under the Sublicense Agreement.

At the time that we entered into the 2011 IRI Collaboration Agreement, Mr. Varner was not an officer or director of Genprex, but he was deemed to be an “affiliate of the Company due to his beneficial ownership of approximately 39% of our issued and outstanding shares. At the time we acquired the Oncoprex technologies under the 2009 IRI Collaboration Agreement, they were the subject of the Phase I Monotherapy Trial. We completed the Phase I Monotherapy Trial and did substantial process development, manufacturing and regulatory work necessary to bring the technologies into the currently ongoing Phase I/II Combination Trial.

Under the MD Anderson License Agreement, the Sublicense Agreement and the 2009 IRI Collaboration Agreement, we are obligated to pay all fees, patent related expenses, royalties, and other amounts that become due with respect to the licensed patents, patent application and other technologies. We are also obligated to pay to MD Anderson royalties of 1.5% of net sales attributed to sales of the licensed products, as well as 1.5% of advance payments received by us (excluding amounts paid to us in reimbursement of development or other costs) from third parties pursuant to sublicense, marketing, distribution or franchise arrangements. Under the 2011 IRI Collaboration Agreement, we are obligated to pay to IRI a royalty of 1.0% of net sales of licensed products and 1.0% of certain other payments received by us. This royalty obligation continues for 21 years after the later of the termination of the MD Anderson License Agreement and the termination of the Sublicense Agreement. We have no other payment obligations to IRI under the 2009 IRI Collaboration Agreement or the 2011 IRI Collaboration Agreement. We were not required to make any up-front payments to MD Anderson or IRI when we entered into the MD Anderson License Agreement, the Sublicense Agreement or the 2009 IRI Collaboration Agreement. Under the 2011 IRI Collaboration Agreement, we were required to make payments of $30,000 per month to IRI. We made 14 of these monthly payments, totaling $420,000, to IRI in 2011 and 2012, and our obligation to make such monthly payments was terminated in 2012.

Our rights under the MD Anderson License Agreement are made subject to the rights of the U.S. government to the extent that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government. Additionally, to the extent there is any conflict between the MD Anderson License Agreement and applicable laws or regulations, applicable laws and regulations will prevail. Similarly, to the extent there is any conflict between the MD Anderson License Agreement and MD Anderson’s funding agreement with the US government, the terms of the funding agreement will prevail. Some, and possibly all, of our licensed intellectual property rights from MD Anderson have been developed in the course of research funded by the U.S. government. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future products pursuant to the Bayh-Dole Act

 

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of 1980. 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, or an assignee or exclusive licensee to such inventions, to grant licenses to any of these inventions to a third party if the U.S. government determines that adequate steps have not been taken to commercialize the invention, that government action is necessary to meet public health or safety needs, that government action is necessary to meet requirements for public use under federal regulations, or that the right to use or sell such inventions is exclusively licensed to an entity within the U.S. and substantially manufactured outside the U.S. without the U.S. government’s prior approval. Additionally, we may be restricted from granting exclusive licenses for the right to use or sell our inventions created pursuant to such agreements unless the licensee agrees to additional restrictions (e.g., manufacturing substantially all of the invention in the U.S.). The U.S. government also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the U.S. government may acquire title in any country in which a patent application is not filed within specified time limits. Additionally, certain inventions are subject to transfer restrictions during the term of these agreements and for a period thereafter, including sales of products or components, transfers to foreign subsidiaries for the purpose of the relevant agreements, and transfers to certain foreign third parties. If any of our intellectual property becomes subject to any of the rights or remedies available to the U.S. government or third parties pursuant to the Bayh-Dole Act of 1980, this could impair the value of our intellectual property and could adversely affect our business. The U.S. government has not exercised any of these rights or provided us with any notice of its intent to exercise any of these rights with respect to any of the intellectual property licensed to us by MD Anderson. We are not aware of any instance in which the U.S. government has ever exercised any such rights with respect to any technologies or other intellectual property developed under funding agreements with the U.S. government.

Our current Phase I/II Combination Trial is being conducted at MD Anderson pursuant to a Clinical Study Agreement between Genprex and MD Anderson dated February 10, 2014. Under this agreement, MD Anderson agreed to conduct the Phase I/II Combination Trial under the study protocol, which includes treatment of up to 57 patients, and Genprex agreed to pay up to $1,738,818 to MD Anderson for conducting the clinical trial. As of June 30, 2017, we have paid approximately $492,000 to MD Anderson pursuant to this agreement, and a total of 28 patients have been enrolled in the Phase I/II Combination Trial. This Clinical Study Agreement has a term of five years and may be terminated earlier by us upon thirty days’ notice, with due regard for the health and safety of the study subjects. In addition, we and MD Anderson may terminate the Clinical Study Agreement immediately by written agreement, MD Anderson may terminate the agreement immediately if the principal investigator of the Phase I/II Combination Trial is unable to continue to serve and we and MD Anderson cannot agree on an acceptable successor, and either we or MD Anderson may terminate the agreement if necessary for the safety, health or welfare of the clinical trial subjects.

In January 2015, we entered into an option agreement with MD Anderson. This option agreement grants exclusive rights to us to negotiate, until December 31, 2017, an exclusive license agreement related to patents covering both a method for treating cancer and biomarker technology that would allow us to identify patients who might benefit from this treatment. We paid MD Anderson $10,000 for this option agreement.

In February 2017, we entered into a second option agreement with MD Anderson. This option agreement grants exclusive rights to us to negotiate, until December 31, 2017, an exclusive license agreement related to technology that would provide patent protection for the use of TUSC2 with checkpoint inhibitors. We paid MD Anderson $12,803 for this option agreement.

License Agreement with P53, Inc.

On February 26, 2010, IRI and P53, Inc. entered into a Technology License Agreement, referred to as the P53 License Agreement, pursuant to which IRI granted to P53, Inc., or P53, a worldwide, exclusive license under certain patents related to the nanovesicle delivery system that we are now using for the delivery of TUSC2, but

 

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only for P53’s use in gene therapy products in which the sole active genes are p53 and MDA-7. As a result of the 2009 IRI Collaboration Agreement, we are the licensor under the P53 License Agreement.

The P53 License Agreement authorizes P53 to develop, make and have made, use, offer for sale, sell, import and otherwise distribute the licensed products. P53 agreed to submit quarterly reports of activities to IRI including at least such information as would allow IRI to calculate the amount owing to IRI on account of such activities, as well as P53’s calculation of such amounts. As consideration for the P53 License Agreement, P53 agreed to pay IRI one-half of all amounts invoiced by MD Anderson to IRI, up to a maximum of $15,000 to be paid by P53, for patent prosecution expenses incurred prior to the effective date of the P53 License Agreement, as well as two-thirds (2/3) of IRI’s ongoing patent prosecution expenses, in each case with respect to the licensed patents. Additionally, P53 agreed to pay all amounts that become due to IRI as a result of the P53 License Agreement or the sales, licensing, or other activities of P53 under the P53 License Agreement. Pursuant to the P53 License Agreement, P53 has granted to IRI a fully-paid license with respect to improvements made by P53 to the technology licensed to P53 under the P53 License Agreement. The P53 License Agreement remains in effect until the expiration of the last of the patents licensed under the agreement. The last licensed patent under the P53 License Agreement will expire in May 2020. We may terminate the agreement in the event of P53’s voluntary or involuntary bankruptcy or dissolution, assignment for the benefit of creditors or if a receiver or trustee is appointed over P53’s business or properties. In addition, we may terminate the agreement in the event of P53’s breach of the agreement or if P53 challenges the validity or enforceability of any of the licensed patents. P53 may terminate the agreement upon 90 days’ written notice.

Grants

We have received grants from the following entities: Texas Emerging Technology Fund, SBA—Small Business Innovation Research, or SBIR, program, the National Institutes of Health and the United States Department of the Treasury.

Competition

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in the United States, Europe and elsewhere, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The unmet medical need for more effective cancer therapies is such that anticancer drugs are, by a significant margin, the leading class of drugs in development. These include a wide array of products against cancer targeting many of the same indications as our drug candidates. There are a number of drugs approved and under development for treatment of lung cancer. Treatments competitive with our primary product candidates generally fall into the following categories: chemotherapies such as cisplatin, carboplatin, docetaxel and pemetrexed; targeted therapies such as erlotinib, gefitinib, afatinib and osimertinib, and immunotherapies such as checkpoint inhibitors and CAR and CAR T cells, and oncolytic virus-based technology. Data indicate that Oncoprex, when combined with targeted therapies and immunotherapies, may enhance the benefit of those therapies; therefore, we believe that Oncoprex could be administered in combination with targeted therapies and immunotherapies and thus may not be a direct competitor of those drugs. In addition, new drug candidates are constantly being conceived and developed. Any such competing therapy may be more effective and/or cost-effective than ours.

Many of our competitors have greater financial and other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory

 

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approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing drugs for the cancer indications that we are targeting before we do or may develop drugs that are deemed to be more effective or gain greater market acceptance than ours. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. In addition, many universities and private and public research institutes may become active in our target disease areas. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than any product candidates that we are currently developing or that we may develop, which could render our products obsolete or noncompetitive. Any product candidates that we successfully develop and commercialize may compete with existing and new therapies that may become available in the future. The availability of reimbursement from government and other third-party payers will also significantly affect the pricing and competitiveness of our products.

Our commercial opportunities could be substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, less toxic, more convenient or less expensive than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of our product’s entry. We believe the competitive factors that will determine the success of our programs will be the efficacy, safety, pricing and reimbursement, and convenience of our current and potential product candidates.

Government Regulation

Government authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. The pharmaceutical drug product candidates that we develop must be approved by the FDA before they may be legally marketed.

In the United States, the Food and Drug Administration, or FDA, regulates pharmaceutical products under the Federal Food, Drug and Cosmetic Act and implementing regulations. Pharmaceutical products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, the approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

Within the FDA, the Center for Biologics Evaluation and Research, or CBER, regulates gene therapy products. CBER works closely with the National Institutes of Health, or NIH, and its Recombinant DNA Advisory Committee, or RAC, which makes recommendations to the NIH on gene therapy issues and engages in a public discussion of scientific, safety, ethical and societal issues related to proposed and ongoing gene therapy protocols. The FDA and the NIH have published guidance documents with respect to the development and submission of gene therapy protocols, including informed consent documents. The FDA also has published guidance documents related to, among other things, gene therapy products in general, their preclinical assessment, observing patients involved in gene therapy studies for delayed adverse events, potency testing, and chemistry, manufacturing and control information in gene therapy Investigational New Drugs, or INDs.

 

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Ethical, social, and legal concerns about gene therapy, genetic testing, and genetic research could result in additional regulations restricting or prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing any products. New government requirements may be established that could delay or prevent regulatory approval of our current and potential product candidates under development. It is impossible to predict whether legislative changes will be enacted, regulations, policies, or guidance changed, or interpretations by agencies or courts changed, or what the impact of such changes, if any, may be.

U.S. Biological Products Development Process

The process required by the FDA before a biological product, including our Oncoprex product candidate, may be marketed in the United States generally involves the following:

 

    completion of preclinical laboratory tests and animal studies according to good laboratory practices, or GLPs, and applicable requirements for the humane use of laboratory animals or other applicable regulations;

 

    submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin;

 

    performance of adequate and well-controlled human clinical trials according to the FDA’s regulations, commonly referred to as good clinical practices, or GCPs, and any additional requirements for the protection of human research patients and their health information, to establish the safety, purity, and potency of the proposed biological product for its intended use;

 

    submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of nonclinical testing and clinical trials;

 

    satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the product is produced and tested to assess compliance with current Good Manufacturing Practice, or cGMP, requirements to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

 

    potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the BLA; and

 

    FDA review and approval, or licensure, of the BLA.

Before testing any product candidate, including a gene therapy product, in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of certain preclinical tests must comply with federal regulations and requirements, including GLPs.

Where a gene therapy study is conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA research, a protocol and related documentation has to be submitted to and the clinical trial registered with the NIH Office of Biotechnology Activities, or OBA, pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines. Compliance with the NIH Guidelines is mandatory for investigators at institutions receiving NIH funds for research involving recombinant DNA; however, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. The NIH is responsible for convening the RAC, a federal advisory committee, which discusses protocols that raise novel or particularly important scientific, safety or ethical considerations at one of its quarterly public meetings. Current NIH guidelines specify that RAC review of human gene transfer protocols should be limited to cases in which an oversight body, such as an Institutional Biosafety Committee or an Institutional Review Board,

 

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or IRB, determines that a protocol would significantly benefit from RAC review, and has been determined to meet certain additional criteria. The OBA will notify the FDA and the sponsor of the RAC’s decision regarding the necessity for full public review of a gene therapy protocol. RAC proceedings and reports are posted to the OBA web site and may be accessed by the public.

The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the Investigational New Drug application, or IND. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. With gene therapy protocols, if the FDA allows the IND to proceed, but the RAC decides that full public review of the protocol is warranted, the FDA will request at the completion of its IND review that sponsors delay initiation of the protocol until after completion of the RAC review process. The FDA may also impose clinical holds on a product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. We are conducting a Phase I/II clinical trial pursuant to an IND. However, we cannot be sure that issues will not arise that suspend or terminate our IND or that submission of any new IND will result in the FDA allowing new clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trials.

Clinical trials involve the administration of the product candidate to volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, patient selection and exclusion criteria, and the parameters to be used to monitor patient safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s regulations comprising the GCP requirements, including the requirement that all patients provide informed consent. Further, each clinical trial must be reviewed and approved by an independent Institutional Review Board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of clinical trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent, which must be signed by each clinical trial patient or his or her legal representative, and must monitor the clinical trial until completed. Clinical trials involving biological product candidates also must be reviewed by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees basic and clinical research conducted at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

 

    Phase I. The investigational product candidate is initially introduced into human patients and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product candidate may be inherently too toxic to be ethically administered to healthy volunteers, the initial human testing is often conducted in patients; gene therapy is usually administered to patients in Phase I trials. This is also true in situations where toxicity can only be judged in patients with disease. An evaluation for preliminary evidence of efficacy can be performed at this time.

 

    Phase II. The investigational product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks, to evaluate preliminarily the efficacy of the product candidate for specific targeted diseases, and to generate hypotheses for the dosage tolerance, optimal dosage, and dosing schedule.

 

   

Phase III. Clinical trials are undertaken to evaluate further dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials

 

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are intended to establish the overall risk/benefit ratio of the product candidate and provide an adequate basis for product labeling.

Post-approval clinical trials, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up. The FDA recommends that sponsors observe patients for potential gene therapy-related delayed adverse events with agents such as those we are developing for a period of up to 15 years, including a minimum of five years of annual examinations followed by ten years of annual queries, either in person or by questionnaire, of clinical trial patients.

During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators for serious and unexpected adverse events, any findings from other trials, tests in laboratory animals or in vitro testing that suggest a significant risk for human patients, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for expedited reporting. The sponsor must also notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase I, Phase II and Phase III clinical trials may not be completed successfully within any specified period, if at all. The FDA, the sponsor, or its data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the investigational product candidate has been associated with unexpected serious harm to patients.

There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. 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.

Concurrently with clinical trials, companies usually complete additional animal studies and also develop additional information about the physical characteristics of the components of a product as well as finalize processes for manufacturing the components in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the Public Health Service Act, or PHS Act, emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the components of a product candidate do not undergo unacceptable deterioration over their shelf life.

U.S. Review and Approval Processes

After the completion of clinical trials of an investigational biologic product, FDA approval of a BLA must be obtained before commercial marketing of the product may begin. The BLA must include results of product

 

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development, laboratory, and animal studies, human trials, information on the manufacture and composition of the product, proposed labeling and other relevant information. The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will accept the BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all.

Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes annual product fees and annual establishment fees on facilities used to manufacture prescription drugs or biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. No user fees are assessed on BLAs for products designated as orphan drugs, unless the application also includes a non-orphan indication.

Within 60 days following submission, the FDA reviews the BLA to determine if it is substantially complete before the agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information.

In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to an initial filing review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe and potent, or effective, for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations when making decisions. During the product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the product. If the FDA concludes that a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required.

Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in substantial compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites, to assure that the clinical trials were conducted in compliance with GCP requirements. To assure cGMP, GLP and GCP compliance, an applicant must incur significant expenditure of time, money, and effort in the areas of training, record keeping, production, and quality control.

Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently from how we interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.

If a product candidate receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings, or precautions be

 

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included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase IV clinical trials, designed to assess further a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

One of the performance goals agreed to by the FDA under the PDUFA is to review 90% of original standard BLAs within 10 months of the 60 day filing date and 90% of original priority BLAs within six months of the 60 day filing date, whereupon a review decision is to be made. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs and its review goals are subject to change from time to time. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. There can be no assurance that we will receive Orphan-Drug Designation for any indications or for any of our current and potential product candidates.

If a product candidate that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity.

Expedited Development and Review Programs

The FDA has four programs in place intended to facilitate and expedite development and review of new drugs and biologics intended to address unmet medical needs in the treatment of serious or life-threatening conditions. These are Fast Track Designation, Breakthrough Therapy Designation, Accelerated Approval Program, and Priority Review Designation.

The Fast Track program is intended to expedite or facilitate the process for reviewing a new product if it is intended for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. Fast Track Designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.

 

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A new product can receive Breakthrough Therapy Designation if it is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that it may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A Breakthrough Therapy Designation conveys all of the features of Fast Track Designation in addition to more intensive FDA guidance on an efficient development program, organizational commitment involving senior managers, and eligibility for priority review. Specifically, FDA intends to expedite the development and review of a Breakthrough Therapy by, where appropriate, intensively involving senior managers and experienced review staff in a proactive collaborative, cross-disciplinary review. Where appropriate, FDA also intends to assign a cross-disciplinary project lead for the review team to facilitate an efficient review of the development program. The FDA notes that a compressed drug development program still must generate adequate data to demonstrate that the drug or biologic meets the statutory standard for approval. Omitting components of the development program that are necessary for such a determination can significantly delay, or even preclude, marketing approval.

Breakthrough Therapy Designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy. Breakthrough Therapy Designation intensifies FDA involvement to ensure an efficient drug development program and is an organizational commitment from the FDA to involve its senior managers. A sponsor receiving Breakthrough Therapy Designation has up to six months after receiving the Breakthrough Therapy Designation to request an Initial Comprehensive Multidisciplinary meeting to discuss the drug development program. This initial meeting is a Type B meeting, used to discuss the overarching, high-level plan for drug development. These discussions include topics such as planned clinical trials and endpoints, any resizing or adaptations to the trials, plans for expediting the manufacturing development strategy and studies that potentially could be completed after approval. When Breakthrough Therapy Designation has been granted, the FDA is encouraged to meet regularly with the sponsor and subsequent meetings are considered Type B meetings and are established based on the needs of the program.

The FDA may grant accelerated approval under its Accelerated Approval Program to a product candidate for a serious or life-threatening condition upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint that can be measured earlier than an effect on 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. Accelerated approval is usually contingent on a sponsor’s agreement to conduct adequate and well-controlled additional post-approval trials to verify and describe the product’s clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Fast Track Designation, Breakthrough Therapy Designation, and Accelerated Approval do not change the standards for approval but may expedite the development process.

An application for a product candidate may be eligible to obtain Priority Review Designation if it is intended to treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA will attempt to direct additional resources to the evaluation of an application for a new product designated for priority review in an effort to facilitate the review. A Priority Review Designation means FDA’s goal is to take action on the marketing application within six months (compared to 10 months under standard review) of the 60-day filing date. Priority Review Designation does not change the standards for approval but may expedite the review process.

We believe that Oncoprex represents a breakthrough, in that the TUSC2 gene is delivered with a non-viral lipid-based nanoparticle, rather than a viral vector. In addition, Oncoprex may have broad applicability to many

 

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cancers, and we believe that Oncoprex represents a significant improvement in safety for systemic use over previously approved products. For these reasons, we believe that our ongoing Phase II clinical trial may provide sufficient data to support Accelerated Approval as a Breakthrough Therapy for Oncoprex immunogene therapy combined with erlotinib for the treatment of Stage IV non-small cell lung cancer patients with unmet medical needs whose cancer has progressed on approved therapies. We intend to enroll specifically patients with an EGFR mutation but without a T790M mutation. Patients in this group have benefited from Oncoprex + erlotinib therapy in our ongoing Phase II clinical trial, and they have no approved treatments and thus have an unmet medical need which we believe could qualify for Fast Track or Breakthrough Therapy designation. The current Phase II trial results represent a substantial improvement over the results of the Lux-Lung afatinib trial, which we believe may qualify Oncoprex in combination with erlotinib for Fast Track or Breakthrough Therapy designation. We believe that the unmet medical need may qualify for Priority Review based on a surrogate endpoint such as clinical benefit, response rate, or progression free survival (PFS), with eligibility for Accelerated Approval.

Post-Approval Requirements

Maintaining post-approval compliance with applicable federal, state, and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of combination products continues after approval, particularly with respect to cGMP. We rely, and expect to continue to rely, on third parties for the production and distribution of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements include reporting of cGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release. 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 history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer.

We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

Manufacturers and other entities involved in the manufacture and distribution of approved products are required to register the establishments where the approved products are made with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a

 

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product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.

U.S. Patent Term Restoration

Depending upon the timing, duration, and specifics of the FDA approval of the use of our current and potential product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.

Biosimilars and Exclusivity

The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated approval pathway for biological products shown to be highly similar to, or interchangeable with, an FDA-licensed reference biological product. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.

Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.

The BPCIA includes, among other provisions:

 

    A 12-year exclusivity period from the date of first licensure of the reference product, during which approval of a 351(k) application referencing that product may not be made effective;

 

    A four-year exclusivity period from the date of first licensure of the reference product, during which a 351(k) application referencing that product may not be submitted; and

 

    An exclusivity period for certain biological products that have been approved through the 351(k) pathway as interchangeable biosimilars.

The BPCIA also establishes procedures for identifying and resolving patent disputes involving applications submitted under section 351(k) of the PHS Act.

A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which

 

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runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric clinical trial in accordance with an FDA-issued “Written Request” for such a clinical trial.

The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. In addition, government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate effect, implementation, and meaning of the BPCIA is subject to uncertainty.

Additional U.S. Regulation

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 and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, for instance 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 must comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the physician payment transparency laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and similar state laws, each as amended.

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, may 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 is unlikely to have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.

Federal and State Fraud and Abuse Laws

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, CMS, other divisions of the U.S. Department of Health and Human Services, for instance, the Office of Inspector General, DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. These federal and state laws, which generally will not be applicable to us or our current and potential product candidates unless and until we obtain FDA marketing approval for any of our current and potential product candidates, include, among others, anti-kickback statutes, false claims statutes, transparency laws, privacy and regulation regarding providing drug samples, sales and marketing activities and our relationships with customers and payors as follows.

The federal Anti-Kickback Statute prohibits, among other things, individuals and entities from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, recommending, ordering, or arranging for the purchase, lease, recommendation or order of any health care item or service reimbursable, in whole or in part, under Medicare, Medicaid, or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Additionally,

 

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the intent standard under the Anti-Kickback Statute was amended by the Affordable Care Act to a stricter standard such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Further, the Affordable Care Act 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 civil False Claims Act.

HIPAA created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payers, willfully obstructing a criminal investigation of a healthcare offense, 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. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Federal false claims and civil monetary penalties 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, fictitious or fraudulent claim for payment to, or approval by, the federal government, or knowingly making, using, or causing to be made or used, a false statement to get a false claim paid. Several pharmaceutical and other health care 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 company’s marketing of the product for unapproved, and thus non-reimbursable, uses.

The majority of states also have statutes or regulations similar to the federal Anti-Kickback Statute and false claims laws, which apply to items and services, reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer.

We may also 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 HITECH, and their respective implementing regulations, including the final Omnibus Rule published in 2013, imposes requirements on certain types of entities, including mandatory contractual terms, relating to the privacy, security, and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards and certain privacy standards directly applicable to business associates, which are independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, 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, many state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other and from HIPAA in significant ways and may not have the same requirements, thus complicating compliance efforts.

Additionally, the federal Physician Payments Sunshine Act under the Affordable Care Act, 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 Children’s Health Insurance Program, with certain exceptions, annually report to CMS 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. Failure to submit timely, accurately, and completely the required information may result in civil monetary penalties of up to an aggregate

 

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of $150,000 per year and up to an aggregate of $1 million per year for “knowing failures”. Certain states also mandate implementation of compliance programs, impose restrictions on pharmaceutical manufacturer marketing practices, and/or require the tracking and reporting of gifts, compensation, and other remuneration to healthcare providers and entities.

Because of the breadth of these laws and the narrowness of the exceptions and safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition, and results of operations. If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to, without limitation, significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

In addition, as part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved products to physicians. This practice is regulated by the FDA and other governmental authorities, including, in particular, requirements concerning record keeping and control procedures. Any failure to comply with the regulations may result in significant criminal and civil penalties as well as damage to our credibility in the marketplace.

Coverage and Reimbursement

In many of the markets where we may do business in the future, the prices of pharmaceutical products are subject to direct price controls (by law) and to reimbursement programs with varying price control mechanisms. In the United States, significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain product approval. Often private payers follow the coverage and reimbursement decisions of the Medicare program, and it is difficult to predict how CMS may decide to cover and reimburse approved products, especially novel products, and those determinations are subject to change.

Moreover, the process for determining whether a third-party payer will provide coverage for a drug product may be separate from the process for setting the price of a drug product or for establishing the reimbursement rate that such a payer will pay for the drug product. Third-party payers may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payer not to cover our current and potential product candidates could reduce physician utilization of our products once approved. A payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payer’s determination to provide coverage for a drug product does not assure that other payers will also provide coverage for the drug product. Coverage and reimbursement for new products can differ significantly from payer to payer. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payer separately and will be a time-consuming process. Additionally, third-party reimbursement may not be available or may not be adequate to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

The marketability of any product candidates for which we or our collaborators receive regulatory approval for commercial sale may suffer if the government and third-party payers fail to provide adequate coverage and reimbursement. In addition, an emphasis on cost containment measures in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Third-party payers are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of drugs, medical devices and medical services, in addition to questioning safety and efficacy. If these third-party payers do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be

 

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sufficient to allow us to sell our products at a profit. 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 or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Health Care Reform

In March 2010, the Affordable Care Act was enacted, which affected, and may further affect, health care financing and delivery by both governmental and private insurers, and therefore the pharmaceutical and biotechnology industry. The Affordable Care Act has affected and may continue to affect existing government healthcare programs and may result in the development of new programs.

Among the Affordable Care Act’s 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;

 

    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, 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 methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics, including our current and potential product candidates, that are inhaled, infused, instilled, implanted or injected;

 

    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 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;

 

    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 manufacturer’s outpatient drugs to be covered under Medicare Part D;

 

    expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

 

    a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

 

    establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending that began on January 1, 2011; and

 

    a licensure framework for follow on biologic products.

There have been judicial and Congressional challenges to certain aspects of the Affordable Care Act. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the Affordable Care Act. In January 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from or

 

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delay the implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers or manufacturers of pharmaceuticals or medical devices. Further, in January 2017, Congress adopted a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the Affordable Care Act.

Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the fiscal year 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to the Bipartisan Budget Act of 2015, will remain in effect through 2025 unless additional Congressional action is taken. Further, in January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

We anticipate that the Affordable Care Act and other legislative reforms will result in additional downward pressure on the price that we receive for any approved product, if covered, 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 payers. 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.

Environmental 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, may 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 is unlikely to have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.

U.S. Foreign Corrupt Practices Act

The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to influence otherwise a person working in an official capacity.

Government Regulation Outside of the United States

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. Because biologically sourced raw materials are subject to unique contamination risks, their use may be subjected to different types of restrictions in different countries.

 

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Whether or not we obtain FDA approval for a product, we must obtain the required 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 clinical trial application equivalent to an IND prior to the commencement of human clinical trials. In the European Union, for example, a clinical trial authorization, or CTA, must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and the IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trials may start.

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 to be conducted in accordance with GCP, applicable regulatory requirements, and the ethical principles that have their origin in the Declaration of Helsinki.

If we 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 in those countries.

Employees

As of June 30, 2017, we had four full-time employees and one part-time employee, and accordingly, a high percentage of the work performed for our development projects is outsourced to qualified independent contractors.

Legal Proceedings

We are not subject to any litigation.

Properties

Our corporate and executive offices are in located in a leased facility in Austin, Texas. The current lease is month-to -month but is expected to be renegotiated in the next six months. We believe our facilities are sufficient to meet our current needs and that suitable space will be available as and when needed. We do not own any real property.

 

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MANAGEMENT

The following table sets forth certain information regarding our executive officers and directors as of June 30, 2017.

 

Name

   Age     

Position

Executive Officers

     

J. Rodney Varner

     60      President, Chief Executive Officer, Secretary, Director and Chairman of the Board of Directors

Julien L. Pham, MD, MPH

     40      Chief Operating Officer

Ryan M. Confer

     35      Chief Financial Officer

Non-Employee Directors

     

David E. Friedman

     53      Director

Robert W. Pearson

     54      Director

Set forth below is biographical information about each of the individuals named in the tables above:

Executive Officers

J. Rodney Varner is a co-founder of Genprex and has served as our President, Chief Executive Officer and Secretary, and as a member of our board of directors and as Chairman of our board of directors since August 2012. Mr. Varner served as a partner of the law firm Wilson & Varner, LLP, since 1991. Mr. Varner has more than thirty-five years of legal experience with large and small law firms, and as outside general counsel of a Nasdaq listed company. Mr. Varner has represented for-profit and non-profit companies at the board of directors or senior management levels in a wide variety of contractual, business, tax and securities matters, including technology transfers, licensing, collaboration and research agreements, clinical trial contracts, pharmaceutical and biologics manufacturing and process development contracts, state and federal grants, including NIH and SBA grants, corporate governance and fiduciary issues, and real estate matters. Mr. Varner served as counsel in company formation, mergers and acquisitions, capital raising, other business transactions, protection of trade secrets and other intellectual property, real estate, and business litigation. Mr. Varner is a member of the State Bar of Texas and has been admitted to practice before the United States Court of Appeals for the Fifth Circuit and the United States Tax Court. He is a registered securities representative and founder of a company that is a licensed securities broker-dealer. Mr. Varner holds Series 7, 24, 63, and 79 securities registrations. Mr. Varner received his BBA, with high honors, from Texas A&M University and his J.D. from The University of Texas School of Law.

Julien L. Pham, MD, MPH has served as our Chief Operating Officer since October 2016. In March 2013, Dr. Pham co-founded RubiconMD, a healthcare IT company that connects primary care providers to specialists for additional guidance and opinions on medical cases, and served as its Chief Medical Officer from March 2013 to September 2016. Prior to co-founding RubiconMD, Dr. Pham served on the faculty at Harvard Medical School’s Brigham and Women’s Hospital, where he joined as a fellow in July 2008 and became an Associate Physician in the Division of Nephrology in August 2011. Dr. Pham has over fifteen years of leadership experience in clinical settings and in emerging medical technology companies. During this time, he has held various research and teaching positions including Chief Residency in Internal Medicine and Pediatrics at the University of Illinois at Chicago Medical Center, and has received multiple awards including excellence in teaching awards from AOA and Harvard Medical School. He is a board-certified internal medicine doctor and nephrologist. Dr. Pham has received NIH research funding for translational research while at Harvard Medical School, and he has published in basic science, translational, and health policy fields. He holds a BS in Cell and Molecular Biology from University of Washington and received his MD from the University of Washington School of Medicine and his MPH at the Harvard School of Public Health.

Ryan M. Confer has served as our Chief Financial Officer since September 2016. From December 2013 through September 2016, he served as our Chief Operating and Financial Officer, and from June 2011 to

 

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December 2013 as our business Manager. Mr. Confer has served us in a variety of strategic, operations, and finance capacities since our inception in 2009 both as a consultant through his own firm, Confer Capital, Inc., and as an employee. Mr. Confer has over ten years of executive experience in planning, launching, developing, and growing emerging technology companies and has served in the chief operating and chief financial roles for non-profit and for-profit entities since 2008. Mr. Confer has also served as an international business development consultant for the University of Texas at Austin’s IC2 Institute, where he focused on evaluating the commercialization potential of nascent technologies in domestic and international markets applicable to technology incubator programs associated with the University. Mr. Confer holds a BS in finance and legal studies from Bloomsburg University of Pennsylvania and an MS in technology commercialization from the McCombs School of Business at the University of Texas at Austin.

Each of Mr. Varner, Dr. Pham and Mr. Confer is currently a full-time employee of Genprex. Mr. Varner spends fewer than 10 hours per month on duties relating to Wilson & Varner, LLP; Dr. Pham spends fewer than 10 hours per month in continuing medical practice to comply with licensing requirements; and Mr. Confer spends fewer than 10 hours per month providing financial consulting services to other companies that are not competitive with us.

Non-Employee Directors

David E. Friedman has served as a member of our board of directors since August 2012. Since August 2010, Mr. Friedman has served as a partner of TCG Group Holdings, an Austin, Texas based SEC-registered investment advisor to separately-managed institutional and private client accounts. In addition, since January 2012, Mr. Friedman has served as a managing partner of ACM Investment Management, which manages hedge fund assets acquired from KeyCorp, the bank holding company parent of KeyBank. From 2006 to 2010, Mr. Friedman served as the Chief Operating Officer of Austin Capital Management, which was owned by KeyCorp, where he led the company’s non-investment functions, including all legal, finance, investor relations, technology and operations teams. Before joining Austin Capital, Mr. Friedman was a Director on the Global Prime Brokerage desk of Citigroup in New York, and an associate at the law firm of Proskauer Rose in its New York headquarters. Mr. Friedman received his BS in management from Tulane University and his JD from Duke University School of Law. He is admitted to the Bar of the State of New York and holds FINRA Series 4, 7, 24 and 63 securities registrations. We believe that Mr. Friedman’s unique and valuable mix of high-level and relevant finance, legal and operations experience makes him a well-rounded business leader and a valuable member of our board of directors.

Robert W. Pearson has served as a member of our board of directors since July 2012. In June 2009, Mr. Pearson joined W2O Group, a global network of complementary marketing, communications, research and development firms, and has held a number of senior positions at W2O Group, including Chief Technology Officer, President and since February 2017, Vice Chair and Chief Innovation Officer. From March 2012 to February 2017, Mr. Pearson served as President of W2O, and from June 2009 to March 2012 as its Chief Technology & Media Officer. From 2007 to 2009, Mr. Pearson served as Dell Inc.’s Vice President, Communities and Conversations, and before that as its Vice President, Corporate Group Communications. From 2003 to 2006, Mr. Pearson served as Head of Global Corporate Communications and as Head of Global Pharma Communications at Novartis Pharmaceuticals, where he also served on the Pharma Executive Committee. Before joining Novartis, Mr. Pearson served as President, The Americas and Chair, Healthcare Practice for GCI Group, a global public relations consultancy, and was responsible for creating and building the firm’s global healthcare practice. Mr. Pearson previously served as Vice President of Media and Public Affairs at Rhone-Poulenc Rorer, or RPR (now Sanofi-Aventis) and worked at RPR and Ciba-Geigy in communications and pharmaceutical field sales. Mr. Pearson holds a BA from the University of North Carolina at Greensboro and an MBA from Fairleigh Dickinson University. We believe that Mr. Pearson’s senior management experience at international pharmaceutical companies and public relations/ investor relations firms, as well as with start up businesses, and his knowledge and personal contacts in the pharmaceutical industry, and his business management acumen, make him a valuable member of our board of directors.

 

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Scientific & Medical Advisory Board

Our executive team is supported by our Scientific & Medical Advisory Board, or SMA Board, the members of which include scientists experienced in epidermal growth factor receptor mutations, molecular and cellular oncology, molecularly targeted therapies and non-small cell lung cancer research. We have compensated the members of our Scientific Advisory Board, other than Dr. Pasi Antero Janne, with grants of options to purchase our common stock. We have agreed to pay Dr. Janne cash compensation for each meeting of our Scientific Advisory Board that he attends.

Jack A. Roth, MD, FACS,  is the Chairman of our SMA Board. Dr. Roth is an internationally renowned cancer expert and oncology pioneer. He is Professor and Distinguished Chair of Thoracic Surgery, Professor of Molecular & Cellular Oncology, Director of the Keck Center for Innovative Cancer Therapies, and Chief of Section of Thoracic Molecular Oncology at The University of Texas MD Anderson Cancer Center. Dr. Roth is a prolific inventor and the author of more than 600 peer reviewed publications. He is a pioneer in the clinical use of DNA as a therapeutic agent. He is the first clinical investigator approved by the FDA and NIH-RAC to conduct direct patient gene therapy clinical trials. Dr. Roth has over 20 years’ experience in developing new cancer therapeutics for commercial application and is an inventor of our key intellectual property.

Pasi Antero Janne, MD, PhD, is an Associate Professor of Medicine at Harvard Medical School and a clinician at Dana-Farber Cancer Institute Lowe Center for Thoracic Oncology. Dr. Janne is a leading researcher in medical oncology and lung cancer and is Co-Leader of the Lung Cancer Program at Dana-Farber Harvard Cancer Center. His research includes the study of epidermal growth factor receptor mutations in non-small cell lung cancer and their impact on the efficacy of EGFR-targeted therapeutic agents, as well as mechanisms of sensitivity and resistance targeted cancer therapies.

Tony S.K. Mok, BMSc, MD, FRCPC, FHKCP, FHKAM (Medicine), is a professor in the Department of Clinical Oncology at the Chinese University of Hong Kong in Prince of Wales Hospital in Hong Kong. Dr. Mok formerly served as President of the International Association for the Study of Lung Cancer (IASLC), Vice-Secretary General of the Chinese Society of Clinical Oncology (CSCO) and Co-Founder of the Lung Cancer Research Group, a multicenter organization serving the Asian-Pacific region.

George Simon, MD , is a Professor of Medicine and Section Chief, Translational Research, Department of Thoracic/Head and Neck Medical Oncology, Division of Cancer Medicine, at The University of Texas MD Anderson Cancer Center, where his principal focus includes translational research in lung cancer to predict the most effective therapeutic options based upon a tumor’s molecular profile.

Board Composition

The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and additionally as required. Our board of directors currently consists of three directors.

In accordance with our amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, our board of directors will be divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Effective upon the closing of this offering, our directors will be divided among the three classes as follows:

 

    the Class I director will be David Friedman, and his term will expire at our first annual meeting of stockholders following this offering;

 

    the Class II director will be Robert Pearson, and his term will expire at our second annual meeting of stockholders following this offering; and

 

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    the Class III director will be Rodney Varner, and his term will expire at the third annual meeting of stockholders following this offering.

Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, will provide that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock entitled to vote in the election of directors.

Director Independence

Upon the completion of this offering, we anticipate that our common stock will be listed on The Nasdaq Capital Market. Under the listing requirements and rules of The Nasdaq Capital Market, independent directors must constitute a majority of a listed company’s board of directors within 12 months after its initial public offering. In addition, the rules of The Nasdaq Capital Market require that, subject to specified exceptions and phase-in periods following its initial public offering, each member of a listed company’s audit, compensation and nominating and governance committee be independent, and that a listed company’s audit committee must have at least three members and a listed company’s compensation committee must have at least two members. Under the rules of The Nasdaq Capital Market, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

We intend to rely on the phase-in rules of The Nasdaq Capital Market with respect to the independence of our board of directors and the audit committee. In accordance with these phase-in provisions, our board of directors and the audit, compensation, and nominating and corporate governance committees will have at least one independent member by the effective date of the registration statement of which this prospectus is a part, at least two independent members within 90 days of the effective date of the registration statement of which this prospectus is a part and all members will be independent within one year of the effective date of the registration statement of which this prospectus is a part.

Audit committee members must also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act, or Rule 10A-3. To be considered to be 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 a company’s audit committee, the company’s board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.

Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that other than Rodney Varner, our President and CEO who serves on the board of directors as the Chairman, each of our directors does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the listing requirements and rules of The Nasdaq Capital Market and under the applicable rules and regulations of the SEC. In making this determination, our board of directors considered the current and prior relationships that each non-employee director has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

 

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Board Committees

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directors may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Audit Committee

Our audit committee consists of David Friedman and Robert Pearson. The chair of our audit committee is Mr. Friedman, who our board of directors has determined is an “audit committee financial expert” as that term is defined by the SEC rules implementing Section 407 of the Sarbanes-Oxley Act, and possesses financial sophistication, as defined under the listing standards of The Nasdaq Capital Market. Our board of directors has also determined that each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, the board of directors has examined each audit committee member’s scope of experience and the nature of their experience in the corporate finance sector.

The responsibilities of our audit committee include:

 

    appointing, approving the compensation of, and assessing the independence of our registered public accounting firm;

 

    overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm;

 

    reviewing and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related disclosures;

 

    monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;

 

    discussing our risk management policies;

 

    reviewing and approving or ratifying any related person transactions; and

 

    preparing the audit committee report required by SEC rules.

Compensation Committee

Our compensation committee consists of David Friedman and Robert Pearson. The chair of our compensation committee is Mr. Pearson.

The responsibilities of our compensation committee include:

 

    reviewing and approving, or recommending that our board of directors approve, the compensation of our chief executive officer and our other executive officers;

 

    reviewing and recommending to our board of directors the compensation of our directors;

 

    selecting independent compensation consultants and advisers and assessing whether there are any conflicts of interest with any of the committees compensation advisers; and

 

    reviewing and approving, or recommending that our board of directors approve, incentive compensation and equity plans.

 

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Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of David Friedman and Robert Pearson. The chair of our nominating and corporate governance committee is Mr. Friedman.

The responsibilities of our nominating and corporate governance committee include:

 

    identifying individuals qualified to become members of our board;

 

    recommending to our board the persons to be nominated for election as directors and for appointment to each of the board’s committees;

 

    reviewing and making recommendations to our board with respect to management succession planning;

 

    developing and recommending to our board corporate governance principles; and

 

    overseeing a periodic evaluation of our board.

Role of the Board in Risk Oversight

The audit committee of our board is primarily responsible for overseeing our risk management processes on behalf of our board. Going forward, we expect that the audit committee will receive reports from management on at least a quarterly basis regarding our assessment of risks. In addition, the audit committee reports regularly to our board, which also considers our risk profile. The audit committee and our board focus on the most significant risks we face and our general risk management strategies. While our board oversees our risk management, management is responsible for day-to-day risk management team processes.

Code of Business Conduct and Ethics

Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will adopt a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following this offering, a copy of the code will be made available on the Corporate Governance section of our website, which is located at www.genprex.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K filed with the SEC.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee has ever been an officer or employee of Genprex. None of our executive officers serves, or has served during the last fiscal year, as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our compensation committee.

Limitation of Liability and Indemnification

Our amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law allows a corporation to eliminate the personal liability of directors of a corporation to the corporation and its stockholders for monetary damages for breach of their fiduciary duties as directors, except for liability for:

 

    any breach of his or her duty of loyalty to the corporation or its stockholders;

 

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

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    any unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

    any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation does not eliminate a director’s duty of care and, in appropriate circumstances, equitable remedies, such as injunctive or other forms of non-monetary relief, will remain available under Delaware law. These limitations also do not affect a director’s responsibilities under any other laws, such as the federal securities laws or other state or federal laws. Our amended and restated bylaws, which will become effective upon the completion of this offering, provide that we will indemnify our directors and executive officers and may indemnify other officers, employees and other agents, to the fullest extent permitted by law. Our amended and restated bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding and also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our amended and restated bylaws permit such indemnification. We have obtained a policy of directors’ and officers’ liability insurance.

We have entered into, and intend to continue to enter into, separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements, among other things, will require us to indemnify our directors and executive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our directors or executive officers or any other company or enterprise to which the person provides services at our request. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

We believe that these provisions in our amended and restated certificate of incorporation and amended and restated bylaws and these indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

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.

 

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EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

Our named executive officers for the year ended December 31, 2016, which consist of our principal executive officer and our two other most highly compensated executive officers, are:

 

    J. Rodney Varner, our President and Chief Executive Officer;

 

    Julien L. Pham, M.D., M.P.H., our Chief Operating Officer; and

 

    Ryan M. Confer, our Chief Financial Officer

Summary Compensation Table

 

Name and Principal Position

   Year      Salary
($)
     Option
Awards

($)(1)
     All other
compensation
($)(2)
     Total
($)
 

J. Rodney Varner

              

Chief Executive Officer

     2016        75,000        763,474        29,728        868,202  

Julien L. Pham

              

Chief Operating Officer

     2016        47,500        436,216        2,451        486,167  

Ryan M. Confer

              

Chief Financial Officer

     2016        55,000        423,763        13,843        492,606  

 

(1) In accordance with SEC rules, this column reflects the aggregate grant date fair value of the stock option awards granted during 2016. These amounts have been computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are described in Note 5 to our financial statements included elsewhere in this prospectus. These amounts do not reflect the actual economic value that will be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options.
(2) This column reflects medical and term life insurance premiums paid by us on behalf of each of the named executive officers. The insurance benefits are provided to the named executive officers on the same terms as provided to all of our regular full-time employees. For more information regarding these benefits, see below under “—Perquisites, Health, Welfare and Retirement Benefits.”

Annual Base Salary

The base salary of our named executive officers is generally determined and approved periodically or in connection with the commencement of employment of the executive, by our board of directors. As of December 31, 2016, base salaries for our named executive officers, which became effective as of October 1, 2016 for Mr. Varner and Mr. Confer, and as of October 23, 2016 for Dr. Pham, are provided below.

 

Name

   2016 Base
Salary

($)
 

J. Rodney Varner

     300,000  

Julien Pham

     285,000  

Ryan Confer

     180,000  

Bonus Compensation

From time to time our board of directors or compensation committee may approve bonuses for our named executive officers based on individual performance, company performance or as otherwise determined appropriate. In 2016, our executive officers were not entitled to any target or minimum bonus and no specific performance goals or bonus program were established for our named executive officers.

 

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Pursuant to Dr. Pham’s employment agreement, he is entitled to a bonus in the amount of $65,000 in the event he is employed by us for at least one year and during his first year of employment we receive at least $12 million of funding from sources other than government sources.

Equity-Based Incentive Awards

Our equity-based incentive awards are designed to align our interests and those of our stockholders with those of our employees and consultants, including our named executive officers. The board of directors is responsible for approving equity grants. As of the date of this prospectus, stock option awards were the only form of equity awards we granted to our named executive officers in 2016.

We have historically used stock options as an incentive for long-term compensation to our named executive officers because they are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, which exercise price is set at no less than the fair market value of our common stock on the date of grant. We may grant equity awards at such times as our board of directors determines appropriate. Our executives generally are awarded an initial grant in the form of a stock option in connection with their commencement of employment with us. Additional grants may occur periodically in order to specifically incentivize executives with respect to achieving certain corporate goals or to reward executives for exceptional performance.

Prior to this offering, we have granted all stock options pursuant to our 2009 Equity Incentive Plan. Following this offering, we will grant equity incentive awards under the terms of our 2017 Equity Incentive Plan. The terms of our equity plans are described below under “—Equity Benefit Plans.”

All options are granted with an exercise price per share that is no less than the fair market value of our common stock on the date of grant of such award. Our stock option awards generally vest over a four-year period and may be subject to acceleration of vesting and exercisability under certain termination and change in control events. See “—Outstanding Equity Awards at Fiscal Year-End.”

In April 2016, the board of directors granted an option to purchase 96,582 shares of common stock to Mr. Varner and an option to purchase 24,146 shares of common stock to Mr. Confer. Each of these options has an exercise price equal to $6.45 per share, was fully vested on the date of grant, and may be exercised with respect to vested shares subject to the option for a period of five years following the cessation of the optionee’s continued service with us.

In November 2016, the board of directors granted an option to purchase 24,356 shares of common stock to Dr. Pham and an option to purchase 13,000 shares of common stock to Mr. Confer. The options granted to Dr. Pham and Mr. Confer have exercise prices equal to $35.33 per share. The option granted to Dr. Pham is subject to a 48-month vesting schedule, subject to Dr. Pham’s continued service with us. The option granted to Mr. Confer was fully vested on the date of grant. The options granted to Dr. Pham and Mr. Confer may be exercised with respect to vested shares subject to the option for a period of five years following the cessation of the optionee’s continued service with us.

Agreements with Named Executive Officers

In October 2016, we entered into an employment agreement with Dr. Pham, our Chief Operating Officer. Dr. Pham’s employment under the agreement is at will and may be terminated at any time by us or by him. Under the terms of the agreement, Dr. Pham is initially entitled to receive an annual base salary of $285,000 and an option to purchase shares of our common stock under our 2009 Plan, which was granted on November 3, 2016. The agreement provides for a target bonus of up to $65,000, as described above under “—Bonus Compensation” and provides for an option to purchase shares of common stock described above under “—Equity-Based Incentive Awards.”

 

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The agreement provides that during the term of Dr. Pham’s employment with us and for one year after the termination of his employment, Dr. Pham will not encourage any of our employees or consultants to leave Genprex and will not compete or assist others to compete with us.

If Dr. Pham is employed by us for at least one year and we terminate Dr. Pham’s employment without cause or if Dr. Pham resigns for good reason, we are obligated to pay Dr. Pham, subject to our having at least $5 million in cash or cash equivalents and a net worth of at least $5 million on the date of termination, a severance payment equal to six months of Dr. Pham’s base salary then in effect.

For the purposes of Dr. Pham’s employment agreement, “cause” means the occurrence of any of the following events: (i) his failure or inability to perform his duties as described in the employment agreement; or (ii) his breach of the employment agreement. For purposes of Dr. Pham’s employment agreement, “good reason” means the occurrence of any of the following events: (i) Dr. Pham is not paid compensation under the employment agreement when due; (ii) Dr. Pham’s job title is changed without his consent; (iii) we or stockholders acting in concert sell a majority of our issued and outstanding shares in one transaction or a series of coordinated transactions to a single buyer or a group of buyers acting in concert with each other; or (iv) we sell substantially all of our assets.

Upon the closing of this offering, we intend to enter into employment agreements with our other executive officers.

Any potential payments and benefits due upon a qualifying termination of employment or a change in control are further described below under “—Potential Payments and Benefits upon Termination or Change in Control.”

Potential Payments and Benefits upon Termination or Change in Control

Regardless of the manner in which a named executive officer’s service terminates, each named executive officer is entitled to receive amounts earned during his term of service, including unpaid salary. In addition, Dr. Pham is entitled to receive certain benefits upon our termination of his employment without cause or his resignation for good reason, as provided above under “—Agreements with Named Executive Officers.”

Each of our named executive officers holds stock options that were granted subject to the general terms of our 2009 Plan. A description of the termination and change in control provisions in our 2009 Plan and applicable to the stock options granted to our named executive officers is provided below under “—Equity Benefit Plans” and “—Outstanding Equity Awards at Fiscal Year-End” and above under “—Equity-Based Incentive Awards.”

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information regarding equity awards granted to our named executive officers that were outstanding as of December 31, 2016.

 

     Option Awards(1)  

Name

   Grant Date      Number of
securities
underlying
unexercised
option (#)
exercisable
     Number of
securities
underlying
unexercised
option (#)
unexercisable
    Option
exercise
price

($)(2)
     Option
expiration
date
 

J. Rodney Varner

     4/11/2016        96,582        —       $ 6.45        4/11/2026  

Julien Pham

     11/3/2016        1,014        23,342 (3)    $ 35.33        11/3/2026  

Ryan Confer

     7/25/2012        17,500        —       $ 0.10        7/25/2022  
     4/11/2016        24,146        —       $ 6.45        4/11/2026  
     11/3/2016        13,000        —       $ 35.33        11/3/2026  

 

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(1) All of the outstanding stock option awards were granted under and subject to the terms of the 2009 Equity Incentive Plan, described below under “—Equity Benefit Plans.” As of December 31, 2016, each option award becomes exercisable as it becomes vested and all vesting is subject to the executive’s continuous service with us through the vesting dates and the potential vesting acceleration described above under “—Potential Payments and Benefits upon Termination or Change in Control.”
(2) All of the stock option awards were granted with a per share exercise price no less than the fair market value of one share of our common stock on the date of grant, as determined in good faith by our board of directors.
(3) 503 shares will vest each month until October 25, 2020.

Option Repricings

We did not engage in any repricings or other modifications or cancellations to any of our named executive officers’ outstanding equity awards during the fiscal year ended December 31, 2016.

Perquisites, Health, Welfare and Retirement Benefits

Our named executive officers, during their employment with us, are eligible to participate in our employee benefit plans, including our medical, dental, vision, employee whole life, disability and accidental death and dismemberment insurance plans, in each case on the same basis as all of our other employees. We do not provide a 401(k) plan to our employees at this time.

We generally do not provide perquisites or personal benefits to our named executive officers, except in limited circumstances. We do, however, pay the premiums for medical, dental, vision, employee whole life, disability and accidental death and dismemberment insurance for all of our employees, including our named executive officers. Our board of directors may elect to adopt qualified or nonqualified benefit plans in the future if it determines that doing so is in our best interests.

Nonqualified Deferred Compensation

We do not maintain nonqualified defined contribution plans or other nonqualified deferred compensation plans. Our board of directors may elect to provide our officers and other employees with nonqualified defined contribution or other nonqualified deferred compensation benefits in the future if it determines that doing so is in our best interests.

Equity Benefit Plans

2017 Equity Incentive Plan

Our board of directors and stockholders approved and adopted the 2017 Plan in [*]. No awards may be granted under the 2017 Plan prior to the completion of this offering. On and after such date, no further grants will be made under the 2009 Plan.

Stock Awards . The 2017 Plan provides for the grant of incentive stock options, or ISOs, nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation, which we refer to collectively as stock awards. Additionally, the 2017 Plan provides for the grant of performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to non-employee directors and consultants of us and our affiliates.

Share Reserve . Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2017 Plan after the 2017 Plan becomes effective is [*] shares, which is the sum of

 

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(1) [*] new shares, plus (2) the number of shares reserved for issuance under our 2009 Plan at the time our 2017 Plan becomes effective, plus (3) any shares subject to outstanding stock options or other stock awards that would have otherwise returned to our 2009 Plan (such as upon the expiration or termination of a stock award prior to vesting). Additionally, the number of shares of our common stock reserved for issuance under our 2017 Plan will automatically increase on January 1 of each year, beginning on January 1, 2018 (assuming the 2017 Plan becomes effective before such date) and continuing through and including January 1, [*], by [*]% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. The maximum number of shares that may be issued upon the exercise of ISOs under our 2017 Plan is [*] shares.

No person may be granted stock awards covering more than [*] shares of our common stock under our 2017 Plan during any calendar year pursuant to stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the fair market value on the date the stock award is granted. Additionally, no person may be granted in a calendar year a performance stock award covering more than [*] shares or a performance cash award having a maximum value in excess of $[*]. Such limitations are designed to help assure that any deductions to which we would otherwise be entitled with respect to such awards will not be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to any covered executive officer imposed by Section 162(m) of the Code. In addition, the maximum number of shares of our common stock subject to stock awards granted under the 2017 Plan during any one calendar year to any non-employee director, taken together with any cash fees paid by us to such non-employee director during such calendar year for service on our board of directors, will not exceed $[*] in total value, or, with respect to the calendar year in which a non-employee director is first appointed or elected to our board of directors, $[*].

If a stock award granted under the 2017 Plan expires or otherwise terminates for any reason prior to exercise or settlement, the shares of our common stock not acquired pursuant to the stock award again will become available for subsequent issuance under the 2017 Plan. In addition, the following types of shares under the 2017 Plan may become available for the grant of new stock awards under the 2017 Plan: (1) shares that are forfeited to or repurchased by us prior to becoming fully vested; (2) shares withheld to satisfy income or employment withholding taxes; or (3) shares used to pay the exercise or purchase price of a stock award. Shares issued under the 2017 Plan may be previously unissued shares or reacquired shares bought by us on the open market. As of the date hereof, no awards have been granted and no shares of our common stock have been issued under the 2017 Plan.

Administration . Our board of directors, or a duly authorized committee thereof, has the authority to administer the 2017 Plan. Our board of directors may also delegate to one or more of our officers the authority to (1) designate employees (other than officers) to be recipients of certain stock awards, and (2) determine the number of shares of common stock to be subject to such stock awards. Subject to the terms of the 2017 Plan, our board of directors or the authorized committee, referred to herein as the plan administrator, determines recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting schedule applicable to a stock award. Subject to the limitations set forth below, the plan administrator will also determine the exercise price, strike price or purchase price of awards granted and the types of consideration to be paid for the award.

The plan administrator has the authority to modify outstanding awards under our 2017 Plan. Subject to the terms of our 2017 Plan, the plan administrator has the authority to reduce the exercise, purchase or strike price of any outstanding stock award, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.

Stock Options . ISOs and NSOs are granted pursuant to stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for a stock option, within the terms and

 

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conditions of the 2017 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2017 Plan vest at the rate specified by the plan administrator.

The plan administrator determines the term of stock options granted under the 2017 Plan, up to a maximum of 10 years. Unless the terms of an optionholder’s stock option agreement provide otherwise, if an optionholder’s service relationship with us, or any of our affiliates, ceases for any reason other than disability, death or cause, the optionholder may generally exercise any vested options for a period of three months following the cessation of service. The option term may be extended in the event that exercise of the option following such a termination of service is prohibited by applicable securities laws or our insider trading policy. If an optionholder’s service relationship with us or any of our affiliates ceases due to disability or death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, all options generally terminate immediately upon the termination of the individual for cause. In no event may an option be exercised beyond the expiration of its term.

Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (1) cash, check, bank draft or money order, (2) a broker-assisted cashless exercise, (3) the tender of shares of our common stock previously owned by the optionholder, (4) a net exercise of the option if it is an NSO, and (5) other legal consideration approved by the plan administrator.

Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionholder may designate a beneficiary, however, who may exercise the option following the optionholder’s death.

Tax Limitations on Incentive Stock Options . The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans and the stock plans of any of our affiliates may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (2) the term of the ISO does not exceed five years from the date of grant.

Restricted Stock Awards . Restricted stock awards are granted pursuant to restricted stock award agreements adopted by the plan administrator. Restricted stock awards may be granted in consideration for (1) cash, check, bank draft or money order, (2) services rendered to us or our affiliates, or (3) any other form of legal consideration. Common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by the plan administrator. A restricted stock award may be transferred only upon such terms and conditions as set by the plan administrator. Except as otherwise provided in the applicable award agreement, restricted stock that has not vested will be forfeited or repurchased by us upon the participant’s cessation of continuous service for any reason.

Restricted Stock Unit Awards . Restricted stock unit awards are granted pursuant to restricted stock unit award agreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participant’s cessation of continuous service for any reason.

 

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Stock Appreciation Rights . Stock appreciation rights are granted pursuant to stock appreciation grant agreements adopted by the plan administrator. The plan administrator determines the strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (1) the excess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (2) the number of shares of common stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the 2017 Plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.

The plan administrator determines the term of stock appreciation rights granted under the 2017 Plan, up to a maximum of 10 years. Unless the terms of a participant’s stock appreciation right agreement provides otherwise, if a participant’s service relationship with us or any of our affiliates ceases for any reason other than cause, disability or death, the participant may generally exercise any vested stock appreciation right for a period of three months following the cessation of service. The stock appreciation right term may be further extended in the event that exercise of the stock appreciation right following such a termination of service is prohibited by applicable securities laws. If a participant’s service relationship with us, or any of our affiliates, ceases due to disability or death, or a participant dies within a certain period following cessation of service, the participant or a beneficiary may generally exercise any vested stock appreciation right for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, stock appreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of the individual for cause. In no event may a stock appreciation right be exercised beyond the expiration of its term.

Performance Awards . The 2017 Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to a covered executive officer imposed by Section 162(m) of the Code. To help assure that the compensation attributable to performance-based awards will so qualify, our compensation committee can structure such awards so that stock or cash will be issued or paid pursuant to such award only after the achievement of certain pre-established performance goals during a designated performance period.

The performance goals that may be selected include one or more of the following: (1) earnings (including earnings per share and net earnings); (2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes, depreciation and amortization; (4) earnings before interest, taxes, depreciation, amortization and legal settlements; (5) earnings before interest, taxes, depreciation, amortization, legal settlements and other income (expense); (6) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense) and stock-based compensation; (7) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation and changes in deferred revenue; (8) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation, other non-cash expenses and changes in deferred revenue; (9) total stockholder return; (10) return on equity or average stockholder’s equity; (11) return on assets, investment, or capital employed; (12) stock price; (13) margin (including gross margin); (14) income (before or after taxes); (15) operating income; (16) operating income after taxes; (17) pre-tax profit; (18) operating cash flow; (19) sales or revenue targets; (20) increases in revenue or product revenue; (21) expenses and cost reduction goals; (22) improvement in or attainment of working capital levels; (23) economic value added (or an equivalent metric); (24) market share; (25) cash flow; (26) cash flow per share; (27) cash balance; (28) cash burn; (29) cash collections; (30) share price performance; (31) debt reduction; (32) implementation or completion of projects or processes (including, without limitation, discovery of a preclinical drug candidate, recommendation of a drug candidate to enter a clinical trial, clinical trial initiation, clinical trial enrollment and dates, clinical trial results, regulatory filing submissions (such as IND, BLA and NDA), regulatory filing acceptances, regulatory or advisory committee interactions, regulatory approvals, and product supply); (33) stockholders’ equity; (34) capital expenditures; (35) financings; (36) operating profit or net operating profit; (37) workforce diversity; (38) growth of net income or operating income; (39) employee retention; (40) initiation of studies by specific dates; (41) budget management; (42) submission to, or approval by, a regulatory body (including, but not limited to the FDA) of an applicable

 

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filing or a product; (43) regulatory milestones; (44) progress of internal research or development programs; (45) progress of partnered programs; (46) partner satisfaction; (47) timely completion of clinical trials; (48) milestones related to research development (including, but not limited to, preclinical and clinical studies), product development and manufacturing; (49) expansion of sales in additional geographies or markets; (50) research progress, including the development of programs; (51) strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property; (52) filing of patent applications and granting of patents; and (53) and to the extent that an award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by our board of directors.

The performance goals may be based on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise (1) in the award agreement at the time the award is granted or (2) in any other document setting forth the performance goals at the time the goals are established, we will appropriately make adjustments in the method of calculating the attainment of performance goals as follows: (a) to exclude restructuring and/or other nonrecurring charges; (b) to exclude exchange rate effects; (c) to exclude the effects of changes to generally accepted accounting principles; (d) to exclude the effects of any statutory adjustments to corporate tax rates; (e) to exclude the effects of any “items of an unusual nature or of infrequency of occurrence or non-recurring items” as determined under generally accepted accounting principles; (f) to exclude the dilutive effects of acquisitions or joint ventures; (g) to assume that any business divested by us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (h) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (i) to exclude the effects of stock based compensation and the award of bonuses under our bonus plans; (j) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; (k) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles; (l) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item; and (m) to exclude the effects of the timing of acceptance for review and/or approval of submissions to the FDA or any other regulatory body. In addition, we retain the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of the goals. The performance goals may differ from participant to participant and from award to award.

Other Stock Awards . The plan administrator may grant other awards based in whole or in part by reference to our common stock. The plan administrator will set the number of shares under the stock award and all other terms and conditions of such awards.

Changes to Capital Structure . In the event that there is a specified type of change in our capital structure, such as a stock split or recapitalization, appropriate adjustments will be made to (1) the class and maximum number of shares reserved for issuance under the 2017 Plan, (2) the class and maximum number of shares by which the share reserve may increase automatically each year, (3) the class and maximum number of shares that may be issued upon the exercise of ISOs, (4) the class and maximum number of shares subject to stock awards that can be granted to any person in a calendar year (as established under the 2017 Plan pursuant to Section 162(m) of the Code), and (5) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards.

Corporate Transactions . In the event of certain specified significant corporate transactions (or a change in control, as described below), the plan administrator has the discretion to take any of the following actions with respect to stock awards:

 

    arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company;

 

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    arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company;

 

    accelerate the vesting of the stock award and provide for its termination prior to the effective time of the transaction;

 

    arrange for the lapse of any reacquisition or repurchase right held by us;

 

    cancel or arrange for the cancellation of the stock award in exchange for such cash consideration, if any, as our board of directors may deem appropriate; or

 

    make a payment equal to the excess of (a) the value of the property the participant would have received upon exercise of the stock award immediately prior to the effective time of the transaction, over (b) the exercise price otherwise payable by the participant in connection with such exercise.

Our plan administrator is not obligated to treat all stock awards, even those that are of the same type, in the same manner.

Under the 2017 Plan, a corporate transaction is generally the consummation of (1) a sale or other disposition of all or substantially all of our assets, (2) a sale or other disposition of more than 50% of our outstanding securities, (3) a merger, consolidation or similar transaction following which we are not the surviving corporation, or (4) a merger, consolidation or similar transaction following which we are the surviving corporation but the shares of our common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction.

Change in Control . In addition to the above, the plan administrator may provide, in an individual award agreement or in any other written agreement between a participant and us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change in control. Under the 2017 Plan, a change in control is generally (1) the acquisition by a person or entity of more than 50% of our combined voting power other than by merger, consolidation or similar transaction; (2) a consummated merger, consolidation or similar transaction immediately after which our stockholders cease to own more than 50% of the combined voting power of the surviving entity (or its parent); (3) a consummated sale, lease, exclusive license or other disposition of all or substantially of our assets; (4) a complete dissolution or liquidation of the Company, except for a liquidation into a parent corporation; or (5) when a majority of our board of directors becomes comprised of individuals who were not serving on our board of directors on the date of adoption of the 2017 Plan, or the incumbent board, or whose nomination, appointment, or election was not approved by a majority of the incumbent board then still in office.

Amendment and Termination . Our board of directors has the authority to amend, suspend, or terminate our 2017 Plan, provided that such action does not impair the existing rights of any participant without such participant’s written consent. No ISOs may be granted after the 10th anniversary of the date our board of directors adopted our 2017 Plan.

2009 Equity Incentive Plan

Our board of directors and our stockholders approved our 2009 Plan in November 2009. The 2009 Plan was subsequently amended by our board of directors and stockholders, most recently in August 2012. As of June 30, 2017, there were 80,656 shares remaining available for the grant of stock awards under our 2009 Plan and there were outstanding stock options covering a total of 393,280 shares that were granted under our 2009 Plan.

After the effective date of the 2017 Plan, no additional awards will be granted under the 2009 Plan, and all outstanding awards granted under the 2009 Plan that are repurchased, forfeited, expire or are canceled will become available for grant under the 2017 Plan in accordance with its terms.

 

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Stock awards . The 2009 Plan provides for the grant of ISOs, NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards and other stock awards, or collectively, stock awards. With the exception of ISOs, all stock awards may be granted to employees, including officers, and to our non-employee directors and consultants and those of our affiliates. ISOs may be granted only to employees. We have only granted stock options under the 2009 Plan.

Share Reserve . As of the date of this prospectus, the aggregate number of shares of our common stock that have been reserved for issuance pursuant to awards under the 2009 Plan is 568,936 and the maximum number of shares that may be issued upon the exercise of ISOs under our 2009 Plan is 1,137,872 shares.

If a stock award granted under the 2009 Plan is forfeited to us or repurchased by us because of the failure to meet a contingency or condition required for vesting, such shares will become available for subsequent issuance under the 2009 Plan or the 2017 Plan, after its effective date. In addition, shares withheld to satisfy income or employment withholding taxes and shares used to pay the exercise price of a stock option will become available for the grant of new stock awards under the 2009 Plan. Shares issued under the 2009 Plan may be authorized but unissued or reacquired common stock.

Administration . Our board of directors, or a duly authorized committee thereof, has the authority to administer the 2009 Plan. Subject to the terms of the 2009 Plan, our board of directors or the authorized committee, referred to herein as the plan administrator, determines recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting schedule applicable to a stock award. Subject to the limitations set forth below, the plan administrator will also determine the exercise price, strike price or purchase price of awards granted and the types of consideration to be paid for the award.

The plan administrator has the authority to modify outstanding awards under our 2009 Plan. Subject to the terms of our 2009 Plan, the plan administrator has the authority to reduce the exercise price of any outstanding stock option, cancel any outstanding stock option in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.

Stock Options . ISOs and NSOs are granted pursuant to stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for a stock option, within the terms and conditions of the 2009 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2009 Plan vest at the rate specified by the plan administrator.

The plan administrator determines the term of stock options granted under the 2009 Plan, up to a maximum of 10 years. Unless the terms of an optionholder’s stock option agreement provide otherwise, if an optionholder’s service relationship with us, or any of our affiliates, ceases for any reason other than disability or death, the optionholder may generally exercise any vested options for a period of three months following the cessation of service, with respect to employee optionholders. The option term may be extended in the event that exercise of the option following such a termination of service is prohibited by applicable securities laws. If an optionholder’s service relationship with us or any of our affiliates ceases due to death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 12 months following the date of death. If an optionholder’s service relationship with us or any of our affiliates ceases due to disability, the optionholder may generally exercise any vested options for a period of 12 months following the cessation of service. In no event may an option be exercised beyond the expiration of its term.

Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be as determined by the plan administrator.

 

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Unless the plan administrator provides otherwise, options generally are not transferable except by will or by the laws of descent and distribution.

Tax Limitations on Incentive Stock Options . The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (2) the option is not exercisable after the expiration of five years from the date of grant.

Changes to Capital Structure . In the event that there is a specified type of change in our capital structure, such as a stock split or recapitalization, appropriate adjustments will be made to (a) the class and maximum number of shares reserved for issuance under the 2009 Plan, (b) the class and maximum number of shares that may be issued upon the exercise of ISOs, and (c) the class and number of shares and price per share of stock subject to all outstanding stock awards.

Corporate Transactions . In the event of a change in control, unless otherwise provided in a stock award or other written agreement between us and the holder of a stock award, each stock award will be treated as the plan administrator determines, arranging for the assumption or substitution of a stock award by a successor entity. If the successor entity does not assume or substitute for the stock award, the vesting and exercisability, if applicable, of the stock award will accelerate in full.

Our plan administrator is not obligated to treat all stock awards or portions thereof or all holders of stock awards, even those that are of the same type, in the same manner.

Under the 2009 Plan, a change in control is generally the occurrence of (1) any transaction or series of related transactions in which in excess of 50% of our voting power is transferred; (2) the replacement of a majority of the members of our board of directors during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors prior to the date of such appointment or election; or (3) the acquisition by a third party of our assets that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of our assets immediately prior to such acquisition.

Change in Control . The plan administrator may provide, in an individual award agreement or in any other written agreement between a participant and us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change in control.

Amendment and Termination . Our board of directors has the authority to amend, alter, suspend, or terminate our 2009 Plan, provided that such action does not impair the existing rights of any participant without such participant’s written consent.

2017 Employee Stock Purchase Plan

Our board of directors and stockholders adopted the ESPP in [*]. The ESPP will become effective when the Board determines to make this benefit available to employees at a time after the completion of this offering. The purpose of the ESPP is to retain the services of new employees and secure the services of new and existing employees while providing incentives for such individuals to exert maximum efforts toward our success and that of our affiliates.

Share Reserve . Following this offering, the ESPP authorizes the issuance of [*] shares of our common stock pursuant to purchase rights granted to our employees or to employees of any of our designated affiliates. The

 

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number of shares of our common stock reserved for issuance will automatically increase on January 1 of each calendar year, from January 1, 2018 (assuming the ESPP becomes effective before such date) through January 1, [*] by the least of (a) [*]% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (b) [*] shares, or (c) a number determined by our board of directors that is less than (a) and (b). The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. As of the date hereof, no shares of our common stock have been purchased under the ESPP.

Administration . Our board of directors has delegated its authority to administer the ESPP to our compensation committee. The ESPP is implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances.

Payroll Deductions . Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of our common stock under the ESPP. Unless otherwise determined by our board of directors, common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85% of the fair market value of a share of our common stock on the first date of an offering or (b) 85% of the fair market value of a share of our common stock on the date of purchase.

Limitations . Employees may have to satisfy one or more of the following service requirements before participating in the ESPP, as determined by our board of directors: (a) customarily employed for more than 20 hours per week, (b) customarily employed for more than five months per calendar year or (c) continuous employment with us or one of our affiliates for a period of time (not to exceed two years). No employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of our common stock based on the fair market value per share of our common stock at the beginning of an offering for each year such a purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding capital stock measured by vote or value pursuant to Section 424(d) of the Code.

Changes to Capital Structure . In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or similar transaction, the board of directors will make appropriate adjustments to (a) the class and number of shares reserved under the ESPP, (b) the class and maximum number of shares by which the share reserve may increase automatically each year, (c) the class and number of shares and purchase price of all outstanding offerings and purchase rights and (d) the class and number of shares that are the subject of the purchase limits under each ongoing offering.

Corporate Transactions . In the event of certain significant corporate transactions, including the consummation of: (1) a sale or other disposition of all or substantially all of our assets, (2) the sale or other disposition of more than 50% of our outstanding securities, (3) a merger, consolidation or similar transaction where we do not survive the transaction, and (4) a merger, consolidation or similar transaction where we do survive the transaction but the shares of our common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such purchase rights, then the participants’ accumulated payroll contributions will be used to purchase shares of our common stock within 10 business days prior to such corporate transaction, and such purchase rights will terminate immediately after such purchase.

 

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Plan Amendments, Termination . Our board of directors has the authority to amend or terminate our ESPP, provided that, except in certain circumstances, any such amendment or termination may not materially impair any outstanding purchase rights without the holder’s consent. We will obtain stockholder approval of any amendment to our ESPP as required by applicable law or listing requirements.

Director Compensation

Historically, we have not paid cash compensation to any of our non-employee directors for service on our board of directors. As set forth below, we did pay equity compensation to our non-employee directors in 2016 for service on our board of directors.

In April 2016, we granted David Friedman an option to purchase 24,146 shares of common stock and Robert Pearson an option to purchase 24,146 shares of common stock, each at an exercise price of $6.45 per share. Each option was fully vested on the date of grant.

We have reimbursed and will continue to reimburse all of our non-employee directors for their travel, lodging and other reasonable expenses incurred in attending meetings of our board of directors and committees of our board of directors.

The following table sets forth in summary form information concerning the compensation that we paid or awarded during the year ended December 31, 2016 to each of our non-employee directors. None of our non-employee directors earned or was paid any cash during the year ended December 31, 2016.

 

Name

   Option awards
($)
     Total
($)
 

David E. Friedman

     190,873        190,873  

Robert W. Pearson

     190,873        190,873  

 

(1) In accordance with SEC rules, this column reflects the aggregate grant date fair value of the stock option awards granted in 2016 computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are described in Note 5 to our financial statements included elsewhere in this prospectus. These amounts do not reflect the actual economic value that will be realized by the non-employee director upon the vesting of the stock option awards, the exercise of the stock option awards or the sale of the common stock underlying such stock option awards.
(2) As of December 31, 2016, the aggregate number of shares outstanding under all options to purchase our common stock held by our non-employee directors were: Mr. Friedman: 45,946; and Mr. Pearson: 45,946.

Our board of directors adopted a new compensation policy in [*] that will become effective upon the execution and delivery of the underwriting agreement for this offering and will be applicable to all of our non-employee directors. This compensation policy provides that each such non-employee director may receive any of the following compensation elements for service on our board of directors:

 

    an annual cash retainer of $[*];

 

    an additional cash retainer of $[*] to the chairman of the board of directors;

 

    an additional cash retainer of $[*] to the lead independent director of the board of directors;

 

    an additional annual cash retainer of $[*], $[*] and $[*] for service as a member of the audit committee, compensation committee and the nominating and corporate governance committee, respectively;

 

    an additional annual cash retainer of $[*], $[*] and $[*] for service as chairman of the audit committee, compensation committee and the nominating and corporate governance committee, respectively;

 

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    an initial option grant to purchase [*] shares of our common stock for each non-employee director who first joins our board of directors, on the date of commencement of service on the board, vesting over a three year period following the grant date; and

 

    an annual option grant to purchase [*] shares of our common stock for each non-employee director serving on the board of directors on the date of our annual stockholder meeting, vesting one year following the grant date.

Each of the option grants described above will vest and become exercisable subject to the director’s continuous service to us, provided that each option will vest in full upon a change in control (as defined under our 2017 Plan). The term of each option will be 10 years, subject to earlier termination as provided in the 2017 Plan, except that the post-termination exercise period will be for 12 months from the date of termination, if such termination is other than for death, disability or cause. The options will be granted under our 2017 Plan, the terms of which are described in more detail above under “—Equity Benefit Plans—2017 Equity Incentive Plan.”

RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following includes a summary of transactions since January 1, 2014 to which we have been a party, in which the amount involved in the transaction exceeded 1% of the average of our total assets at December 31, 2016 and 2015, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of any class of our voting securities or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Executive And Director Compensation.”

Issuances of Securities to Domecq Sebastian, LLC

In April 2016, we issued an option to purchase 24,146 shares of our common stock with an exercise price of $6.45 per share, to Domecq Sebastian, LLC, the beneficial owner of more than 5% of a class of our voting securities which is affiliated with David Nance, a former director and officer who is now deceased, in exchange for services provided by that entity.

Issuances of Securities to Jack A. Roth, MD, FACS

In November 2009, pursuant to a Consulting Agreement between us and Jack A. Roth, MD, FACS, the beneficial owner of more than 5% of a class of our voting securities and the Chairman of our SMA Board, we issued to an entity affiliated with Dr. Roth 200,000 shares of our Series A preferred stock at a purchase price of $0.001 per share. Also pursuant to the consulting agreement, we issue to Dr. Roth an aggregate of 20,000 shares of our common stock each year, pro rated in the case of 2010 for the portion of the year during which the consulting agreement was in place. We issued these shares to Dr. Roth at the beginning of each calendar quarter. Under this arrangement, we issued to Dr. Roth an aggregate of 20,000 shares of our common stock in each of 2014, 2015 and 2016, and another 10,000 shares of our common stock in 2017.

Issuances of Securities to Viet-An Hoan Ly

Series G Preferred Stock

From February 2015 to June 2017, we entered into a series of subscription agreements with various investment funds affiliated with Viet-An Hoan Ly, who is, together with his affiliated investment funds, a beneficial owner of more than 5% of a class of our voting securities, pursuant to which we issued and sold to such entities an aggregate of 87,588 shares of our Series G preferred stock at a purchase price of $35.33 per share, and received gross proceeds of approximately $3.1 million.

 

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Warrants to Purchase Preferred Stock and Common Stock

In August 2014, we issued to an entity affiliated with Mr. Ly a warrant exercisable for 2,886 shares of our Series E preferred stock, with an exercise price of $34.65 per share, and a warrant exercisable for 4,008 shares of our Series F preferred stock, with an exercise price of $22.87 per share. Each of those warrants was exercised in full in February 2015.

In July 2015, an entity affiliated with Mr. Ly exercised a warrant that we had issued to a different entity in December 2013 and that had been transferred to the entity affiliated with Mr. Ly in December 2013. The warrant was exercisable for 10,000 shares of our Series B preferred stock, with an exercise price of $17.325 per share, and was exercised in full in February 2016.

In November 2016, we issued to Mr. Ly a warrant exercisable for an aggregate of 81,185 shares of our voting common stock, with an exercise price of $35.33 per share. The purchase price of the warrant was $8,119. That warrant is currently exercisable, expires on November 1, 2026, and is currently outstanding.

Options to Purchase Common Stock

In April 2016, we granted to Mr. Ly an option to purchase 8,500 shares of our common stock, with an exercise price of $6.45 per share. This option was fully vested at the time of grant and is currently outstanding.

Issuances of Securities to the Texas Treasury Safekeeping Trust Company

In August 2010, pursuant to a Texas Emerging Technology Fund Award and Security Agreement, as amended, between us and the Texas Office of the Governor Economic Development and Tourism, or OOGEDT, we were awarded a grant in the aggregate amount of $4.5 million. The award was received in two tranches of $2.25 million each during 2010 and 2011. In consideration for the award, we provided the OOGEDT with an Investment Unit, consisting of a promissory note and a right to purchase shares of our preferred stock at a price equal to $0.001 per share. In March 2014, upon receiving a Notice of Purchase from OOGEDT, we issued to OOGEDT 184,797 shares of our Series B preferred stock pursuant to a cashless exercise. In September 2015, the shares were transferred to the Texas Treasury Safekeeping Trust Company, which is a beneficial owner of more than 5% of a class of our voting securities.

Services Provided by Confer Capital, Inc.

We paid $32,500 in 2014, $0 in 2015 and $65,000 in 2016 to Confer Capital, Inc., an entity affiliated with Ryan Confer, our Chief Financial Officer. Confer Capital, Inc. provided strategic, financial, and executive managerial services to us at times when Ryan Confer was not our employee.

Royalty Payments to Introgen Research Institute, Inc.

Pursuant to an Amended Collaboration and Assignment Agreement dated July 1, 2011 between us and Introgen Research Institute, Inc., or IRI (the “2011 IRI Collaboration Agreement”), we are obligated to IRI a royalty of 1% of net sales of licensed products and 1% of certain other payments received by us, with respect to intellectual property owned by MD Anderson and licensed to us by IRI. This royalty obligation continues for 21 years after the later of the termination of the MD Anderson License Agreement and the termination of the Technology Sublicense Agreement. IRI is affiliated with Rodney Varner, our President and Chief Executive Officer and the Chairman of our board of directors. We made no payments under the 2011 IRI Collaboration Agreement in 2014, 2015 or 2016.

Employment and Consulting Arrangements

In October 2016, we entered into an employment agreement with Dr. Pham, our Chief Operating Officer. This agreement is described in the section titled “Executive and Director Compensation.” Upon the closing of this offering, we intend to enter into employment agreements with our other executive officers.

 

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Pursuant to a Consulting Agreement dated November 5, 2009, we pay to Jack A. Roth, MD, FACS, annual cash fees at the highest amount which is consistent with the policies of MD Anderson, increased annually by a percentage equal to the automatic cost of living adjustment set forth for Social Security. Under this arrangement, we paid Dr. Roth an aggregate of $313,789 in 2014 (which includes an amount carried over from 2013), $185,828 in 2015 and $192,191 in 2016.

Stock Options Granted to Executive Officers and Directors

We have granted stock options and shares of our common stock to our executive officers and directors, as more fully described in the section titled “Executive and Director Compensation.”

Indemnification Agreements

We have entered, and intend to continue to enter, into separate indemnification agreements with each of our directors and executive officers, as described in “Management—Limitation of Liability and Indemnification.”

Policies and Procedures for Transactions with Related Persons

We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration and oversight of “related-person transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds the lesser of $120,000 and one percent of the average of our total assets for our last two completed fiscal years.

Transactions involving compensation for services provided to us as an employee, consultant or director are not considered related-person transactions under this policy. A related person is any executive officer, director, nominee to become a director or a holder of more than five percent of our common stock, including any of their immediate family members and affiliates, including entities owned or controlled by such persons.

Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to our audit committee (or, where review by our audit committee would be inappropriate, to another independent body of our board of directors) for review. The presentation must include a description of, among other things, all of the parties thereto, the direct and indirect interests of the related persons, the purpose of the transaction, the material facts, the benefits of the transaction to us and whether any alternative transactions are available, an assessment of whether the terms are comparable to the terms available from unrelated third parties and management’s recommendation. To identify related-person transactions in advance, we rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related-person transactions, our audit committee or another independent body of our board of directors takes into account the relevant available facts and circumstances including, but not limited to:

 

    the risks, costs and benefits to us;

 

    the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated;

 

    the terms of the transaction;

 

    the availability of other sources for comparable services or products; and

 

    the terms available to or from, as the case may be, unrelated third parties.

In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of June 30, 2017, regarding beneficial ownership of our capital stock by:

 

    each person, or group of affiliated persons, known by us to beneficially own more than 5% of any class of our voting securities;

 

    each of our directors;

 

    each of our named executive officers; and

 

    all of our current executive officers and directors as a group.

The percentage ownership information under the column entitled “Before Offering” is based on1,727,637 shares of common stock outstanding as of June 30, 2017, assuming conversion of all outstanding shares of our convertible preferred stock into 1,378,961 shares of voting common stock, and the conversion of all of our outstanding shares of non-voting common stock into an aggregate of 25,611 shares of voting common stock, which will occur in connection with the completion of this offering. The percentage ownership information under the column entitled “After Offering” is based on the sale of [*] shares of common stock in this offering. The following table does not reflect any potential purchases in this offering, which purchases, if any, will increase the percentage of shares owned after the offering.

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of any class of our voting securities. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable on or before August 29, 2017, which is 60 days after June 30, 2017. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

 

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Except as otherwise noted below, the address for each person or entity listed in the table is c/o Genprex, Inc., 100 Congress Ave., Suite 2000, Austin, Texas 78701.

 

Name and Address of Beneficial Owner

   Number of
Shares

Beneficially
Owned

Before
Offering
     Percentage of
Shares
Beneficially
Owned

Before
Offering
    Percentage of Shares
Beneficially Owned
After Offering
 
                  Minimum      Maximum  

5% or Greater Stockholders

          

Domecq Sebastian, LLC(1)

     466,428        26.6     

Jack A. Roth, MD, FACS(2)

     336,404        19.4     

Viet-An Hoan Ly and affiliated entities(3)

     357,186        19.7     

Texas Treasury Safekeeping Trust Company(4)

     184,797        10.7     

Directors and Named Executive Officers

          

J. Rodney Varner(5)

     518,070        28.4     

Julien Pham(6)

     5,209        *       

Ryan Confer(7)

     65,646        3.7     

David E. Friedman(8)

     45,946        2.6     

Robert W. Pearson(9)

     45,946        2.6     

All current executive officers and directors as a group (5 persons)(5)(6)(7)(8)(9)

     680,817        34.5     

 

* Represents beneficial ownership of less than 1%.
(1) Consists of (a) 362,282 shares of common stock issuable upon conversion of Series A preferred stock, (b) 80,000 shares of common stock, and (c) 24,146 shares of common stock that Domecq Sebastian, LLC has the right to acquire from us within 60 days of June 30, 2017 pursuant to the exercise of stock options. Domecq Sebastian, LLC is affiliated with David Nance, a former director and officer who is now deceased. Christy Mallinson Nance holds voting and dispositive power of the securities held by Domecq Sebastian, LLC. The address of Domecq Sebastian, LLC is 8203 Scenic Ridge Cove, Austin, Texas 78735.
(2) Consists of (a) 194,339 shares of common stock issuable upon conversion of Series A preferred stock held by JREG Investments, Ltd. (b) 137,065 shares of common stock held by Jack A. Roth, MD, FACS and (c) 5,000 shares of common stock that Dr. Roth has the right to acquire from us within 60 days of June 30, 2017 pursuant to a consulting agreement between Dr. Roth and us. Dr. Roth holds voting and dispositive power over the shares held by JREG Investments, Ltd. The address of JREG Investments, Ltd. and of Dr. Roth is 6516 Brompton Road, Houston, Texas 77005.
(3)

Consists of (a) 13,120 shares of common stock issuable upon conversion of Series B preferred stock, 72,659 shares of common stock issuable upon conversion of Series C preferred stock and 1,443 shares of common stock issuable upon conversion of Series D preferred stock, all held by Inception Fund LP, (b) 5,661 shares of common stock issuable upon conversion of Series A preferred stock, 793 shares of common stock issuable upon conversion of Series C preferred stock and 70,890 shares of common stock issuable upon conversion of Series G preferred stock, all held by Inception Tech Fund 7 LP, (c) 2,000 shares of common stock issuable upon conversion of non-voting common stock, 52,465 shares of common stock issuable upon conversion of Series A preferred stock, 10,000 shares of common stock issuable upon conversion of Series B preferred stock, 2,886 shares of common stock issuable upon conversion of Series E preferred stock and 3,065 shares of common stock issuable upon conversion of Series F preferred stock, all held by Tangletrade Fund LP, (d) 4,813 shares of common stock issuable upon conversion of Series A preferred stock, 7,813 shares of common stock issuable upon conversion of Series G preferred stock and 2,634 shares of common stock, all held by Inception Incubator Limited, (e) 1,697 shares of common stock issuable upon conversion of Series G preferred stock and 6,113 shares of common stock, all held by Inception Beast Genprex LLC, (f) 943 shares of common stock issuable upon conversion of Series F preferred stock held by Blackbox Data LLC, (g) 2,025 shares of common stock held by New Path Mining LLC, (i) 81,185 shares of common stock

 

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  that Viet-An Hoan Ly has the right to acquire from us within 60 days of June 30, 2017 pursuant to the exercise of a warrant and (j) 8,500 shares of common stock that Mr. Ly has the right to acquire from us within 60 days of June 30, 2017 pursuant to the exercise of stock options. Viet-An Hoan Ly holds voting and dispositive power over the shares held by Inception Fund, LP, Inception Tech Fund 7 LP, Tangletrade Fund LP, Inception Incubator Limited, Inception Beast Genprex LLC, Blackbox Data LLC and New Path Mining LLC. The address of each of these entities and of Mr. Ly is 5400 Carillon Point Road, Building 5000, Kirkland, Washington 98033.
(4) Consists of 184,797 shares of common stock issuable upon conversion of Series B preferred stock. Paul Ballard, the Chief Executive Officer of the Texas Treasury Safekeeping Trust Company, holds voting and dispositive power of the securities held by the Texas Treasury Safekeeping Trust Company. The address of the Texas Treasury Safekeeping Trust Company is 208 East 10 th Street, Austin, Texas 78701.
(5) Consists of (a) 359,449 shares of common stock issuable upon conversion of Series A preferred stock held by Laura Lane Biosciences, LLC, (b) 62,039 shares of common stock held by Mr. Varner, and (c) 96,582 shares of common stock that Mr. Varner has the right to acquire from us within 60 days of June 30, 2017 pursuant to the exercise of stock options. Mr. Varner holds voting power over the shares held by Laura Lane Biosciences, LLC.
(6) Consists of 5,209 shares of common stock that Dr. Pham has the right to acquire from us within 60 days of June 30, 2017 pursuant to the exercise of stock options.
(7) Consists of 11,000 shares of common stock and 54,646 shares of common stock that Mr. Confer has the right to acquire from us within 60 days of June 30, 2017 pursuant to the exercise of stock options.
(8) Consists of 45,946 shares of common stock that Mr. Friedman has the right to acquire from us within 60 days of June 30, 2017 pursuant to the exercise of stock options.
(9) Consists of 45,946 shares of common stock that Mr. Pearson has the right to acquire from us within 60 days of June 30, 2017 pursuant to the exercise of stock options.

 

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DESCRIPTION OF CAPITAL STOCK

Upon filing of our amended and restated certificate of incorporation and the completion of this offering, our authorized capital stock will consist of 100,000,000 shares of voting common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. All of our authorized preferred stock upon the completion of this offering will be undesignated. The following is a summary of the rights of our common and preferred stockholders and some of the provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, respectively, and of the Delaware General Corporation Law. This summary is not complete. For more detailed information, please see our amended and restated certificate of incorporation and amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part, as well as the relevant provisions of the Delaware General Corporation Law.

Common Stock

Outstanding Shares.

As of June 30, 2017, there were 323,065 shares of voting common stock issued and outstanding held of record by 10 stockholders and 25,611 shares of non-voting common stock issued and outstanding held of record by two stockholders. This amount excludes our outstanding shares of convertible preferred stock, which will convert into 1,378,961 shares of voting common stock in connection with the completion of this offering. Based on the number of shares of common stock outstanding as of June 30, 2017, and assuming (1) the conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 1,378,961 shares of voting common stock (before giving effect to the forward split described below), (2) the conversion of all of our outstanding shares of non-voting common stock into an aggregate of 25,611 shares of voting common stock (before giving effect to the forward split described below), (3) a [*]-for-1 forward split of our common stock, (4) no exercise of outstanding options after [*] and (5) the issuance by us of [*] shares of voting common stock in this offering, there will be [*] shares of voting common stock outstanding upon the completion of this offering.

As of June 30, 2017, there were 393,280 shares of voting common stock subject to outstanding options under our equity incentive plan. In addition, as discussed below, as of June 30, 2017, there were 81,185 shares of voting common stock issuable upon the exercise of outstanding warrants and 30,730 shares of non-voting common stock upon the exercise of outstanding warrants, which will become exercisable for 30,730 shares of voting common stock upon the completion of this offering, as described below.

Voting

Our voting common stock is entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and does not have cumulative voting rights. Accordingly, the holders of a majority of the shares of our voting common stock entitled to vote in any election of directors can elect all of the directors standing for election.

No holder of our non-voting stock is entitled to any voting powers. In connection with the completion of this offering, each share of non-voting common stock will be converted into one share of voting common stock. Each share of non-voting common stock will automatically convert into one share of voting common stock upon the conversion of outstanding shares of any series of preferred stock that is automatically convertible into shares of non-voting common stock in connection with an initial public offering of our voting common stock at a price of at least $2.00 per share, with aggregate proceeds of $20,000,000, referred to as an automatic conversion event.

Dividends

Subject to preferences that may be applicable to any then-outstanding preferred stock, the holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.

 

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Liquidation

In the event of our liquidation, dissolution or winding-up, holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities, subject to the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock.

Rights and Preferences

Holders of our common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.

Fully Paid and Nonassessable

All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.

Convertible Preferred Stock

As of June 30, 2017, there were 1,378,961 shares of convertible preferred stock outstanding, held of record by twelve stockholders. Of the outstanding shares of preferred stock, 1,001,667 were designated as Series A preferred stock, 207,917 were designated as Series B preferred stock, 73,452 were designated as Series C preferred stock, 1,443 were designated as Series D preferred stock, 2,886 were designated as Series E preferred stock, 4,008 were designated as Series F preferred stock and 87,588 were designated as Series G preferred stock.

The shares of Series A and Series D preferred stock have voting rights; the shares of Series B, Series C, Series E, Series F and Series G preferred stock are non-voting. Each share of Series A preferred stock is convertible, at the option of the holder, into one share of voting common stock; each share of Series B, Series C, Series D, Series E, Series F and Series G preferred stock is convertible, at the option of the holder, into one share of non-voting common stock. Each share of Series A preferred stock converts automatically into one share of voting common stock in connection with an automatic conversion event or on the date specified by the holders of a majority in voting power of the shares of Series A preferred stock then outstanding. Each share of Series B, Series C, Series D, Series E, Series F and Series G preferred stock converts automatically into one share of non-voting common stock in connection with an automatic conversion event. As a result of the automatic conversion event, each share of non-voting common stock will then automatically convert into one share of voting common stock.

In connection with the completion of this offering, all outstanding shares of convertible preferred stock will be converted into 1,378,961 shares of our common stock. Immediately prior to the completion of this offering, our certificate of incorporation will be amended and restated to delete all references to such shares of our existing convertible preferred stock. Under the amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to 10,000,000 shares of convertible preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes,

 

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could, among other things, have the effect of delaying, deferring or preventing a change in our control that may otherwise benefit holders of our common stock and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.

Warrants

In December 2015, we issued to an entity two warrants, each exercisable for 15,365 shares of our non-voting common stock, and each with an exercise price of $32.54. One of the warrants is exercisable beginning on the earlier to occur of June 17, 2017, and the first anniversary of the effectiveness of the registration statement of which this prospectus is a part and the commencement of trading on our securities on a national securities market, and the other warrant is exercisable beginning on the earlier to occur of June 17, 2018, and the second anniversary of the effectiveness of the registration statement of which this prospectus is a part and the commencement of trading of our securities on a national securities market. Each of those warrants expires on the fifth anniversary of the date on which it first becomes exercisable.

In November 2016, we issued to Viet-An Hoan Ly a warrant exercisable for an aggregate of 81,185 shares of our voting common stock, with an exercise price of $35.33 per share. The purchase price of the warrant was $8,119. That warrant is currently exercisable, expires on November 1, 2026.

Each of these warrants contains provisions for the adjustment of the number of shares issuable upon the exercise of the warrant and of the exercise price in the event of stock dividends, splits, mergers, consolidations, conversions, reorganizations, reclassifications, asset sales, reorganizations, liquidations or the like.

As additional compensation to the Underwriter, upon consummation of this offering, we will issue to the Underwriter or their designees warrants to purchase shares of our common stock as described under “Underwriting”.

Registration Rights

Except with respect to the shares of common stock underlying the warrants to be issued to the Underwriter, as described under “Underwriting,” none of the holders of our capital stock has any rights with respect to the registration of their shares under the Securities Act.

Anti-Takeover Effects of Provisions of Our Amended and Restated Certificate of Incorporation, Our Amended and Restated Bylaws and Delaware Law

Delaware Anti-Takeover Law

We are subject to Section 203 of the Delaware General Corporation Law, or Section 203. Section 203 generally prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time that such stockholder became an interested stockholder, unless:

 

    prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

    upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 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) those shares owned (1) by persons who are directors and also officers and (2) 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

 

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    at or subsequent to such time, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the interested stockholder.

 

    Section 203 defines a business combination to include:

 

    any merger or consolidation involving the corporation and the interested stockholder;

 

    any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;

 

    subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

 

    subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and

 

    the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, respectively, may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:

 

    permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control);

 

    provide that the authorized number of directors may be changed only by resolution of the board of directors;

 

    provide that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66-2/3% of the voting power of all of our then outstanding common stock;

 

    provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

 

    divide our board of directors into three classes;

 

    require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

 

    provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice;

 

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    do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);

 

    provide that special meetings of our stockholders may be called only by the chairman of the board, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and

 

    provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine.

The amendment of any of these provisions, with the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges thereto, would require approval by the holders of at least 66-2/3% of our then-outstanding common stock.

Limitations on Liability and Indemnification of Officers and Directors

Our certificate of incorporation and bylaws limit the liability of our officers and directors and provide that we will indemnify our officers and directors, in each case, to the fullest extent permitted by the Delaware General Corporation Law. We expect to obtain additional directors’ and officers’ liability insurance coverage prior to the completion of this offering.

Nasdaq Capital Market Listing

We intend to apply to list our common stock on the Nasdaq Capital Market under the symbol “GNPX”.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is [*]. The transfer agent and registrar’s address is [*].

 

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SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price for our common stock as well as our ability to raise equity capital in the future.

Based on the number of shares of common stock outstanding as of June 30, 2017, upon the completion of this offering and assuming (1) the conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 1,378,961 shares of common stock, (2) the conversion of all of our outstanding shares of non-voting common stock into an aggregate of 25,611 shares of voting common stock, (3) the [*]-for-1 stock split of all outstanding shares of our capital stock (including the shares of voting common stock issued upon conversion of our outstanding shares of convertible preferred stock and the shares of voting common stock issued upon conversion of our outstanding shares of non-voting common stock), and (4) no exercise of outstanding options or warrants, an aggregate of [*] shares of voting common stock will be outstanding. All of the shares sold in this offering will be freely tradable in the public market without restriction or further registration under the Securities Act, unless held by an affiliate of ours. Except as set forth below, the remaining 1,727,637 shares of common stock outstanding after this offering will be restricted as a result of securities laws or lock-up agreements. In addition, any shares sold in this offering to entities affiliated with our existing stockholders and directors will be subject to lock-up agreements. These remaining shares will generally become available for sale in the public market as follows:

 

    no restricted shares will be eligible for immediate sale upon the completion of this offering;

 

    up to [*] restricted shares will be eligible for sale under Rule 144 or Rule 701 upon expiration of lock-up agreements 180 days after the date of this offering; and

 

    the remainder of the restricted shares will be eligible for sale from time to time thereafter upon expiration of their respective holding periods under Rule 144, as described below, but could be sold earlier if the holders exercise any available registration rights.

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, any person who is not an affiliate of ours and has held their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction, provided current public information about us is available. In addition, under Rule 144, any person who is not an affiliate of ours and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the completion of this offering without regard to whether current public information about us is available. Beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a number of restricted shares within any three-month period that does not exceed the greater of:

 

    1% of the number of shares of our common stock then outstanding, which will equal approximately [*] shares immediately after this offering; or

 

    the average weekly trading volume of our common stock on The Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales of restricted shares under Rule 144 held by our affiliates are also subject to requirements regarding the manner of sale, notice and the availability of current public information about us. Rule 144 also provides that

 

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affiliates relying on Rule 144 to sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.

Notwithstanding the availability of Rule 144, the holders of substantially all of our restricted shares have entered into lock-up agreements as described below and their restricted shares will become eligible for sale at the expiration of the restrictions set forth in those agreements.

Rule 701

Under Rule 701, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under our stock plans may be resold by:

 

    persons other than affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject only to the manner-of-sale provisions of Rule 144; and

 

    our affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject to the manner-of-sale and volume limitations, current public information and filing requirements of Rule 144, in each case, without compliance with the six-month holding period requirement of Rule 144.

As of June 30, 2017, options to purchase a total of 393,280 shares of common stock were outstanding, of which 360,343 were vested. Of the total number of shares of our common stock issuable under these options, substantially all are subject to contractual lock-up agreements with us or the underwriters described below under “Underwriting” and will become eligible for sale at the expiration of those agreements unless held by an affiliate of ours.

Lock-Up Agreements

We and our officers and directors have agreed to certain restrictions on the sale or other transfer of shares of our common stock, as described under “Underwriting.”

After this offering, certain of our employees, including our executive officers and/or directors, may enter into written trading plans that are intended to comply with Rule 10b5-1 under the Exchange Act. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above.

Registration Rights

Except with respect to the shares of common stock underlying the warrants to be issued to the Underwriter, as described under “Underwriting,” none of the holders of our capital stock has any rights with respect to the registration of their shares under the Securities Act.

Equity Incentive Plans

We intend to file with the SEC a registration statement on Form S-8 under the Securities Act covering the shares of common stock reserved for issuance under the 2009 Plan, the 2017 Plan and the ESPP. The registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up agreements described above, if applicable.

 

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UNDERWRITING

We have entered into an Underwriting Agreement with Network 1 Financial Securities, Inc. (the “Underwriter”) to conduct this offering on a “best efforts” minimum/maximum basis. The offering is being made without a firm commitment by the Underwriter, which has no obligation or commitment to purchase any of our shares. Accordingly, pursuant to the Underwriting Agreement, we will sell to investors that complete a subscription agreement with us up to the [*] shares of common stock offered hereby.

The Underwriter is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act and any commissions received by it and any profit realized on the sale of the securities by them while acting as principal would be deemed to be underwriting discounts or commissions under the Securities Act. The Underwriter is required to comply with the requirements of the Securities Act and the Exchange Act including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of common stock by the Underwriter. Under these rules and regulations, the Underwriter may not (i) engage in any stabilization activity in connection with our securities; and (ii) bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until they have completed their participation in the distribution.

The Underwriting Agreement provides that the obligation of the Underwriter to arrange for the offer and sale of the shares of our common stock, on a best efforts basis, is subject to certain conditions precedent, including but not limited to (i) receipt of a listing approval letter from the Nasdaq Capital Market, (ii) delivery of legal opinions, and (iii) delivery of auditor comfort letters. The Underwriter is under no obligation to purchase any shares of our common stock for its own account. Since this offering is being conducted by the Underwriter on a “best efforts” basis, there can be no assurance that the minimum offering contemplated hereby will ultimately be completed. The Underwriter may, but is not obligated to, retain other selected dealers that are qualified to offer and sell the shares and that are members of the Financial Industry Regulatory Authority, Inc., or FINRA. The Underwriter proposes to offer the shares to investors at the offering price, and will receive the underwriting commissions, set forth on the cover of this prospectus. The gross proceeds of this offering will be deposited at [*] in an escrow account established by us, until we have sold a minimum of [*] shares of common stock and otherwise satisfy the listing conditions to trade our common stock on the Nasdaq Capital Market. Once we satisfy the minimum stock sale and Nasdaq listing conditions, the funds will be released to us.

We anticipate the shares of our common stock will be listed on the Nasdaq Capital Market under the symbol “GNPX.” In order to list, the Nasdaq Capital Market requires that, among other criteria, at least 1,000,000 publicly-held shares of our common stock be outstanding, the shares be held in the aggregate by at least 300 round lot holders, the market value of the publicly-held shares of our common stock be at least $15 million, our stockholders’ equity after giving effect to the sale of our shares in this offering be at least $5 million, the bid price per share of our common stock be $4.00 or more, and there be at least three registered and active market makers for our common stock.

Discount, Commissions and Expenses

The Underwriter has advised us that they propose to offer the shares of common stock in this offering to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $[*] per share. The Underwriter may allow, and certain dealers may re-allow, a discount from the concession not in excess of $[*] per share to certain brokers and dealers. After this offering, the initial public offering price, concession and reallowance to dealers may be changed by the representatives. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The shares are offered by the Underwriter as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part.

 

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The following table and the three succeeding paragraphs summarize the Underwriter compensation and estimated expenses we will pay.

 

     Public
Offering
Price
    Underwriter
Commissions(1)
    Proceeds to
Us, Before
Expenses
 

Per share

   $   [*]    $ [ *]    $ [ *] 

Total minimum offering

   $   [*]    $ [ *]    $ [ *] 

Total maximum offering

   $   [*]    $ [ *]    $ [ *] 

 

(1) Consists of an underwriter commission of 7.0% and an advisory fee of 1.5% of the gross proceeds raised in this offering less aggregate expenses incurred by the Underwriter. We have also agreed to reimburse the Underwriter for expenses incurred relating to the offering, including all actual fees and expenses incurred by the Underwriter in connection with, among other things, due diligence costs, the Underwriter’s “road show” expenses, and the fees and expenses of the Underwriter’s counsel which, in the aggregate, shall not exceed $100,000. We estimate that the total expenses of this offering, excluding Underwriter commissions described above, will be approximately $[*] if all [*] shares are sold.

Underwriter Warrants

We have also agreed to issue to the underwriters the Underwriter Warrants to purchase a number of common shares and warrants equal to an aggregate of 7% of the Shares sold in this offering. The Underwriter Warrants will have an exercise price equal to 125% of the initial public offering price in this offering and may be exercised on a cashless basis. The Underwriter Warrants will be exercisable 180 days following the closing date until the fifth anniversary of the closing date. The Underwriter Warrants are not redeemable by us. The Underwriter Warrants also provide for one demand registration of the common shares underlying the Underwriter Warrants at our expense and unlimited “piggyback” registration rights at our expense with respect to the underlying common shares during the five-year period commencing on the closing date of the offering. The Underwriter Warrants will provide for adjustment in the number and price of such warrants (and the common shares underlying such warrants) in the event of recapitalization, merger or other fundamental transaction. The Underwriter Warrants and the shares issuable upon the exercise of the Underwriter Warrants have been deemed compensation by FINRA and are therefore subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), none of such securities may be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of such securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which the Underwriter Warrants are being issued, except the transfer of any security:

 

    by operation of law or by reason of our reorganization;

 

    to any FINRA member firm participating in this offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction described above for the remainder of the time period;

 

    if the aggregate amount of our securities held by either an underwriter or a related person does not exceed 1% of the securities being offered;

 

    that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or

 

    the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above for the remainder of the time period.

In addition, in accordance with FINRA Rule 5110(f)(2)(G), the Underwriter Warrants may not contain certain terms.

 

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Electronic Distribution

A prospectus in electronic format may be made available on the website maintained by the Underwriter, or selling group members, if any, participating in the offering. The Underwriter may agree to allocate a number of shares to selling group members for sale to their online brokerage account holders. Online distributions will be allocated by the Underwriter, and selling group members, if any, that may make online distributions on the same basis as other allocations.

Lock-up Agreements

We and our officers and directors have agreed to not: (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of our company or any securities convertible into or exercisable or exchangeable for shares of capital stock of our company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of our company or any securities convertible into or exercisable or exchangeable for shares of capital stock of our company; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of our company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of our company or such other securities, in cash or otherwise, in each case without the prior consent of the Underwriter for a period of 180 days after the date of this prospectus, other than (A) the shares of our common stock to be sold hereunder, (B) the issuance by us of shares of our common stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date of this offering, hereafter issued pursuant to our currently existing or hereafter adopted equity compensation plans or employment or consulting agreements or arrangements of which the representative has been advised in writing or which have been filed with the SEC or (C) the issuance by us of stock options or shares of capital stock of our company under any currently existing or hereafter adopted equity compensation plan or employment/consulting agreements or arrangements of our company.

Indemnification

The Underwriting Agreement provides that we will indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act, or contribute to payments the Underwriter may be required to make in respect thereof.

Listing and Transfer Agent

We have applied to have our common stock approved for listing on the Nasdaq Capital Market under the symbol “GNPX.” If the application is approved, we anticipate that trading on the Nasdaq Capital Market will commence on the day following the completion of the offering made by this prospectus. We will not complete this offering without a listing approval letter from the Nasdaq Capital Market. Our receipt of a listing approval letter is not the same as an actual listing on the Nasdaq Capital Market. The listing approval letter will serve only to confirm that, if we sell a number of shares in this “best efforts” offering sufficient to satisfy applicable listing criteria, our common stock will in fact be listed.

The transfer agent and registrar for our common stock is [*]. The address of the transfer agent and registrar is [*].

No Public Market

Prior to this offering, there has been no public market for our common stock. The initial public offering price has been determined by negotiations between us and the Underwriter. In determining the offering price, we and the Underwriter have considered a number of factors including:

 

    the information set forth in this prospectus and otherwise available to the Underwriter;

 

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    our prospects and the history and prospects for the industry in which we compete;

 

    an assessment of our management;

 

    our prospects for future earnings;

 

    the general condition of the securities markets at the time of this offering;

 

    the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and

 

    other factors deemed relevant by the Underwriter and us.

Neither we nor the Underwriter can assure investors that an active trading market will develop for shares of our common stock, or that the shares will trade in the public market at or above the initial public offering price.

VALIDITY OF COMMON STOCK

The validity of the securities offered hereby will be passed upon for us by Streusand Landon & Ozburn, LLP, Austin, TX. Magri Law LLC, Fort Lauderdale, FL, is acting as counsel to the underwriters in connection with this offering.

EXPERTS

Our financial statements at December 31, 2015 and 2016 and for the years then ended that are included in this prospectus have been audited by Daszkal Bolton LLP, an independent registered public accounting firm, as stated in their reports appearing herein (which report expresses an unqualified opinion on the financial statements and includes an explanatory paragraph referring to our ability to continue as a going concern). Such financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the securities being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the securities offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street NE, Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing us at 100 Congress Avenue, Suite 2000, Austin, Texas 78701 or telephoning us at (512) 370-4081.

 

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Upon the completion of this offering, we will be subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at www.genprex.com, at which, following the completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference in, and is not part of, this prospectus.

 

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INDEX TO FINANCIAL STATEMENTS

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     F-2  

Balance Sheets

     F-3  

Statements of Operations

     F-4  

Statements of Changes in Stockholders’ Equity

     F-5  

Statements of Cash Flows

     F-6  

Notes to Financial Statements

     F-7  


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders’

Genprex, Inc.

Austin, Texas

We have audited the accompanying balance sheets of Genprex, Inc. (the “Company”) at December 31, 2016 and 2015, and the related statements of operations, changes in stockholders’ equity and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Genprex, Inc. at December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company has no revenues, sustained recurring losses from operations and increased accumulated deficits since inception. In addition, commercialization of the Company’s patents is dependent upon successful completion of clinical trials. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

/s/ Daszkal Bolton LLP

Fort Lauderdale, Florida

March 16, 2017

 

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Table of Contents

Genprex, Inc.

Balance Sheets

 

     December 31,     June 30,  
     2016     2015     2017  
                 (unaudited)  

Assets

      

Current assets:

      

Cash

   $ 1,602,295     $ 234,220     $ 467,944  

Prepaid expenses and other

     36,533       15,830       28,379  
  

 

 

   

 

 

   

 

 

 

Total current assets

     1,638,828       250,050       496,323  
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

     5,157       1,041       9,641  

Other assets:

      

Deposits

     —         2,519       —    

Deferred offering costs

     25,507       —         224,720  

Intellectual property, net

     241,037       156,481       277,381  
  

 

 

   

 

 

   

 

 

 

Total other assets

     266,544       159,000       502,101  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,910,529     $ 410,091     $ 1,008,065  
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

      

Current liabilities:

      

Accounts payable and accrued expenses

   $ 285,661     $ 16,354     $ 167,559  

Other current liabilities

     —         —       $ 42,446  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     285,661       16,354       210,005  
  

 

 

   

 

 

   

 

 

 

Investment unit

     —         —         —    

Commitments and contingencies

      

Stockholders’ equity:

      

Preferred stock $0.001 par value: 4,500,000 shares authorized;

      

Series A, 1,001,667 shares issued and outstanding

     1,002       1,002       1,002  

Series B, 207,917 shares issued and outstanding

     208       208       208  

Series C, 73,452 shares issued and outstanding

     73       73       73  

Series D, 1,443 shares issued and outstanding

     1       1       1  

Series E, 2,886 shares issued and outstanding

     3       3       3  

Series F, 4,008 shares issued and outstanding

     4       4       4  

Series G, 81,107 shares issued and outstanding

     82       6       87  

Common stock $0.001 par value: 5,500,000 shares authorized; 327,676, 307,676 and 348,676 shares issued and outstanding, respectively

     328       308       350  

Additional paid-in capital

     15,761,362       10,398,168       16,867,005  

Accumulated deficit

     (14,138,195     (10,006,036     (16,070,673
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     1,624,868       393,737       798,060  
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,910,529     $ 410,091     $ 1,008,065  
  

 

 

   

 

 

   

 

 

 

 

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Genprex, Inc.

Statements of Operations

 

     Year Ended December 31,     Six Months Ended June 30,  
     2016     2015     2017     2016  
                 (unaudited)     (unaudited)  

Revenues

   $ —       $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost and expenses:

        

Depreciation

     862       2,064       1,405       432  

Research and development

     354,883       201,962       173,344       135,650  

General and administrative

     3,776,414       865,696       1,757,760       2,277,157  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     4,132,159       1,069,722       1,932,509       2,413,239  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (4,132,159     (1,069,722     (1,932,509     (2,413,239

Interest Income

     —       —       31     —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (4,132,159   $ (1,069,722   $ (1,932,478   $ (2,413,239
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share—basic and diluted

   $ (13.13   $ (3.83   $ (5.67   $ (7.66

Weighted average number of shares

        

Weighted average number of common shares—basic and diluted

     314,802       279,211       340,676       315,176  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Genprex, Inc.

Statements of Changes in Stockholders’ Equity

 

    Common Stock     Preferred Stock                    
          Series A     Series B     Series C     Series D     Series E     Series F     Series G                    
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Additional
Paid-In
Capital
    Accumulated
Deficit
    Total  

Balance at December 31, 2014

    277,430     $ 278       1,001,667     $ 1,002       197,917     $ 198       73,452     $ 73       1,443     $ 1       —       $ —         —       $ —         —       $ —       $
9,231,929
 
  $
(8,936,314

  $ 297,167  

Issuance of stock upon exercise of warrants for cash

    10,246       10       —         —         10,000       10       —         —         —         —         2,886       3       4,008     $ 4       4,530       5      
724,880
 
    —         724,912  

Issuance of stock for services

    20,000       20       —         —         —         —         —         —         —         —         —         —         —         —         1,416       1      
440,379
 
    —         440,400  

Share based compensation

    —         —         —         —         —         —         —         —         —         —         —         —         —         —         —         —        
980
 
    —         980  

Net loss

    —         —         —         —         —         —         —         —         —         —         —         —         —         —         —         —        
—  
 
    (1,069,722     (1,069,722

Balance at December 31, 2015

    307,676     $ 308       1,001,667     $ 1,002       207,917     $ 208       73,452     $ 73       1,443     $ 1       2,886     $ 3       4,008     $ 4       5,946     $ 6     $
10,398,168
 
  $
(10,006,036

  $ 393,737  

Issuance of stock for cash

    —         —         —         —         —         —         —         —         —         —         —         —         —         —         76,577       77      
2,705,795
 
    —         2,705,872  

Issuance of stock for services

    20,000       20       —         —         —         —         —         —         —         —         —         —         —         —         (1,416     (1    
419,431
 
    —         419,450  

Share based compensation

    —         —         —         —         —         —         —         —         —         —         —         —         —         —         —         —        
2,237,968
 
    —         2,237,968  

Net loss

    —         —         —         —         —         —         —         —         —         —         —         —         —         —         —         —        
—  
 
    (4,132,159     (4,132,159

Balance at December 31, 2016

    327,676     $ 328       1,001,667     $ 1,002       207,917     $ 208       73,452     $ 73       1,443     $ 1       2,886     $ 3       4,008     $ 4       81,107     $ 82     $
15,761,362
 
  $ (14,138,195   $ 1,624,868  

 

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Genprex, Inc.

Statements of Cash Flows

 

     Year Ended December 31,     Six Months Ended June 30,  
     2016     2015     2017     2016  
                 (unaudited)     (unaudited)  

Cash flows from operating activities:

        

Net loss

   $ (4,132,159   $ (1,069,722   $ (1,932,478   $ (2,413,239

Adjustments to reconcile net loss to net cash used in operating activities:

        

Depreciation

     862       2,064       1,405       432  

Share based compensation

     2,657,418       441,380       876,696       2,088,407  

Changes in operating assets and liabilities:

        

Accounts receivable

         —         —  

Prepaid expenses and other

     (20,703     (5,019     8,154       9,928  

Deferred operating costs

     (25,507     —         (199,213     —    

Deposits

     2,519       2,518       —       2,519

Accounts payable and accrued expenses

     269,307       (59,482     (75,656     62,332  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     (1,248,263     (688,261     (1,321,092     (249,621
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Additions to property and equipment

     (4,978     (919     (5,889     —    

Additions to intellectual property

     (84,556     (20,365     (36,344     (4,798
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (89,534     (21,284     (42,233     (4,798
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from issuances of common stock

     —         200,002       —         —    

Proceeds from issuances of preferred stock

     2,705,872       524,910       228,974           44,975  
  

 

 

   

 

 

     

Net cash provided by financing activities

     2,705,872       724,912       228,974         44,975    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     1,368,075       15,367       (1,134,351     (209,444

Cash, beginning of period

     234,220       218,853       1,602,295       234,220  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,602,295     $ 234,220     $ 467,944     $ 24,776  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Genprex, Inc.

Notes to Financial Statements

(information at June 30, 2017 and for the six months ended June 30, 2016 and 2017 is unaudited)

Note 1—Description of Business and Basis of Presentation

Genprex, Inc. (“we” or “the Company”), is a privately held, clinical-stage biopharmaceutical company developing immunogene therapies for cancer. Our first product candidate, branded as Oncoprex™, is in phase II clinical trials for lung cancer patients in the United States.

We are subject to all the risks inherent in a start-up company in the biopharmaceutical industry. The biopharmaceutical industry is subject to rapid and technological change. We have numerous competitors, including major pharmaceutical and chemical companies, specialized biotechnology firms, universities and other research institutions. These competitors may succeed in developing technologies and products that are more effective than any that are being developed by us or that would render our technology and products obsolete and noncompetitive. Many of these competitors have substantially greater financial and technical resources than us. In addition, many of our competitors have significantly greater experience than us in pre-clinical testing and human clinical trials of new or improved pharmaceutical products and in obtaining FDA and other regulatory approvals on products for use in health care.

Capital Requirements, Liquidity and Going Concern Considerations

Our financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as shown in the accompanying financial statements, we have sustained substantial losses from operations since inception and have no current source of revenue. In addition, we have used, rather than provided, cash in our operations. We expect to continue to incur significant expenditures to further clinical trials for the commercial development of our patents

Management recognizes that we must obtain additional resources to successfully commercialize our intellectual property. To date, we have received funding in the form of equity and debt, and plan to either continue obtaining funding through 2017 or until we have secured a capital market transaction. However, no assurances can be given that we will be successful in raising additional capital. If we are not able to timely and successfully raise additional capital, the timing of our clinical trials, financial condition and results of operations will continue to be materially affected. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Note 2—Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and reflect all adjustments, which are of a normal and recurring nature, that are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations for the related periods. The results of operations for any interim periods are not necessarily indicative of results to be expected for the full year. A summary of our significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.

Restatement of Balance Sheet at December 31, 2016

Subsequent to the auditors’ issuance of their report on our December 31, 2016 financial statements, management became aware of a scrivener’s error in the terms of certain options granted, resulting in a $136,810 increase in share based compensation (accumulated deficit) and additional paid-in capital during the fourth quarter of 2016.

 

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Table of Contents

Genprex, Inc.

Notes to Financial Statements

Note 2—Summary of Significant Accounting Policies, continued

 

Use of Estimates

The preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider all highly liquid short-term investments with an initial maturity of three months or less to be cash equivalents. Any amounts of cash in financial institutions which exceed FDIC insured limits expose us to cash concentration risk. We have no cash equivalents, and had $209,339 and $1,351,868 in excess of FDIC insured limits of $250,000 at June 30, 2017 and December 31, 2016, respectively. There were no cash balances in excess of FDIC limits at December 31, 2015.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.

ASC 820 defines fair value, provides a consistent framework for measuring fair value under GAAP and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

 

Level 1:    Quoted prices for identical instruments in active markets
Level 2:    Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable
Level 3:    Instruments with primarily unobservable value drivers.

Property and Equipment

Furniture and equipment are stated at cost. Depreciation is calculated using the straight line method over the estimated useful lives of the assets, which range from three to five years. Routine maintenance and repairs are charged to expense as incurred and major renovations or improvements are capitalized.

Research and Development Materials Costs

Research and development expenditures are comprised of costs incurred to conduct research and development activities. These include payments to collaborative research partners, including wages and associated employee benefits, facilities and overhead costs. These expenditures relate to Phase 1 and 2 clinical trials and are expensed as incurred. Purchased materials to be used in future research are capitalized and included in prepaid expenses.

Awards

In 2010, we were awarded $4.5 million from the State of Texas Emerging Technology Fund (“TETF”). The award was received in two tranches of $2.25 million during 2010 and 2011. The award proceeds were used for

 

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Table of Contents

Genprex, Inc.

Notes to Financial Statements

Note 2—Summary of Significant Accounting Policies, continued

Awards, continued

 

the development and future commercialization of our nanomolecular therapy product for the treatment of cancer. In consideration for the award, we provided the TETF with an “Investment Unit”, consisting of (i) a Promissory Note (“Note”) and (ii) a right to purchase our equity shares (“Warrant”). The funds received for this award were assigned to the Investment Unit, and classified separately from equity as “mezzanine” in the balance sheet.

In 2010, we also were awarded approximately $244,500 from the U.S. Treasury Department for our QTDP Program Nanoparticle Therapy for Lung Cancer. The award was received during 2011 for our historical activities, and required no prospective expenditures. We accounted for these funds received as revenue at that time.

Intellectual Property

Intellectual property consists of external legal and related costs associated with patents and other proprietary technology acquired, licensed, or maintained by us that we believe contribute to a probable economic benefit toward such patents and activities. These legal costs incurred in connection with the patent applications and patent maintenance are capitalized. Intellectual property is stated at cost, to be amortized on a straight-line basis over the estimated useful lives of the assets.

Accounting for Stock-Based Compensation

We use the fair value-based method of accounting for stock-based compensation for options granted to employees, independent consultants and contractors. We measure options granted at fair value determined as of the grant date, and recognize the expense over the periods in which the related services are rendered based on the terms and conditions of the award. Generally, where the award only has a service condition, the requisite service period is the same as the vesting period.

Financial Instruments

We have elected the Fair Value Option to account for the Investment Unit at fair value as a combined hybrid financial instrument containing a Warrant and a Note (see Note 4). Prior to its exercise, the Warrant component was not classified within equity, as the exercise price of the warrants was affected by the market price of our stock in a future qualifying financing transaction and was not considered to be indexed to our own stock. The Note is not classified within liabilities, as our management can determine the timing of the repayment obligation, if any. As a result, the Warrant and Note that comprised the Investment Unit were aggregated and classified within the mezzanine section of the balance sheet.

Due to the contingent terms of the financial instruments, changes in the fair value of the Investment Unit were calculated and realized in earnings. There were no changes in the fair value of the Investment Unit at June 30, 2017.

Long-Lived Assets

We review long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In

 

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Table of Contents

Genprex, Inc.

Notes to Financial Statements

Note 2—Summary of Significant Accounting Policies, continued

Long-Lived Assets, continued

 

evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. We recognize an impairment loss if the carrying value of the asset exceeds the expected future cash flows. During the period ended June 30, 2017 and the years ended December 31, 2016 and 2015, there were no deemed impairments of our long-lived assets.

Recent Accounting Developments

Accounting pronouncements issued but not effective until after June 30, 2017 are not expected to have a significant effect on our financial condition, results of operations, or cash flows.

Note 3—Intellectual Property

We have license agreements on forty-five (45) issued and two (2) pending patents for technologies developed by researchers at the National Institutes of Health, The University of Texas MD Anderson Cancer Center, and The University of Texas Southwestern Medical Center. These patents comprise various therapeutic, diagnostic, technical and processing claims. See Note 9.

These license rights will be amortized on a straight-line basis over the estimated period of useful lives of the underlying patents or the license agreements.

Note 4—Investment Unit

The Texas Emerging Technology Fund (“TETF”) was created as an incentive for economic development to the Texas economy by providing financial support that leverage private investment for the creation of high-quality technology jobs in Texas. The award received required us to comply with certain performance conditions to ensure the monies the Company received were used for development activities in the state of Texas, and that we maintained our corporate nexus in Texas. Further, in connection with the award, the Company issued an Investment Unit to the TETF. As further described below, the Investment Unit consists of a Promissory Note and a Right to Purchase:

Promissory Note

The Promissory Note is an obligation to repay the $4.5 million principal amount, with interest accrued at 8% per annum, but only if an event of default occurs prior to August 13, 2020. If no event of default occurs prior to August 13, 2020, the Promissory Note and all related interest will be cancelled.

Consistent with the stated objectives of the TETF, an event of default that would trigger the repayment obligation under the Promissory Note is our failure to maintain our principal place of business or our principal executive offices headquartered in the State of Texas (referred to as the “Residency Requirement”) until August 13, 2020.

Warrant

The Warrant is an obligation to issue (a Right to purchase by the TETF) shares of the same class of stock to be issued in a “First Qualifying Financing Transaction,” at 80% of the per share transaction value (effectively a 20% discount). Alternatively, the TETF could exercise its right to purchase at any time prior to the occurrence of a First Qualifying Financial Transaction for $0.001 per share.

 

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Table of Contents

Genprex, Inc.

Notes to Financial Statements

Note 4—Investment Unit, continued

Warrant, continued

 

The Warrant included a provision that required changes in the strike price, driven by the pricing of the “First Qualifying Financing Transaction.” As a result, the Warrants embedded in the Investment Unit were accounted for as a derivative financial instrument and classified outside from equity under ASC 815-40-15 as the settlement adjustment from the future transaction did not permit for the strike price to be considered fixed.

On March 12, 2014, the TETF exercised its Right to Purchase for $0.001 per share, and we issued to the TETF an aggregate of 184,797 shares of its Series B preferred stock.

Accounting for the Investment Unit

We accounted for the Investment Unit as a hybrid financial instrument under FASB Statement 155, and measured the Investment Unit at the amount of proceeds received from the TETF award. The First Qualifying Financial Transaction occurred during December 2013, resulting in an adjustment to the fair value of the Investment Unit in the amount of approximately $2.5 million. The TETF exercised the Warrant for $0.001 per share. We received notice of purchase from the TETF during March 2014, and issued 184,797 shares of series B Preferred Stock. Upon exercise by the TETF of the Warrant, the remaining component within the Investment Unit was the Promissory Note. The Investment Unit was valued at zero, because our obligation to repay the Promissory Note arises from an event of default (a failure to maintain the Texas Residency Requirement), which is an event which rests entirely within our control.

Note 5—Equity

Stock Issuances

During the period ended June 30, 2017, we issued (i) 21,000 shares of Common Stock for service provided to us, valued at $741,930, and we issued (ii) 6,481 shares of Series G Preferred Stock for cash of $228,974.

During the year ended December 31, 2016, we issued (i) 20,000 shares of Common Stock for service provided to us, valued at $469,450, and we issued (ii) 76,577 shares of Series G Preferred Stock for cash of $2,705,872.

During the year ended December 31, 2015, we issued (i) 10,246 and 20,000 shares of Common Stock for cash of $200,000 and services provided to us, valued at $390,400, (ii) 10,000 shares of Series B Preferred Stock, (iii) 2,886 shares of Series E Preferred Stock, (iv) 4,008 shares of Series F Preferred Stock, and (v) 4,530 and 1,416 shares of Series G Preferred Stock for cash of $524,913 and services valued at $50,000, respectively. During 2016, the 1,416 shares of Series G Preferred Stock issued for services were cancelled due to nonperformance of services.

In October 2016, we hired a Chief Operating Officer. Under the terms of the agreement, we granted options to purchase shares of our Common Stock equal to one and one-half percent (1.5%) of our issued and outstanding common shares then outstanding. These options will vest ratably over 48 months.

Preferred Stock

We have 4,500,000 shares of preferred stock authorized with a par value of $0.001. The Board has the authority to issue the shares in one or more series and to set the designations, preferences, powers and other rights, as it deems appropriate.

 

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Genprex, Inc.

Notes to Financial Statements

Note 5—Equity, continued

Preferred Stock, continued

 

The Series A Preferred Stock is convertible by the holder into Voting Common Stock on a 1:1 basis, and is converted automatically upon a public offering of securities resulting in a capital raise of at least $20 million at a share price of at least $2.00 per share. The Series B through Series G Preferred Stock is convertible by the holder into Non-Voting Common Stock on a 1:1 basis, and is converted automatically into Voting Common Stock upon a public offering of securities resulting in a capital raise of at least $20 million at a share price of at least $2.00 per share.

The Series A Preferred is voting and carries a non-cumulative dividend of $0.05 per share, if, as and when declared by the Board of Directors and carries a liquidation preference of $1.00 per share upon a “Liquidation Event”, as defined in our certificate of incorporation.

The Series B Preferred is nonvoting and carries a non-cumulative dividend of $1.91 per share, if, as and when declared by the Board of Directors and carries a liquidation preference, subordinate to the rights of the holders of Series A and D Preferred Stock, of $38.11 per share upon a “Liquidation Event”, as defined in our certificate of incorporation.

The Series C Preferred is nonvoting and carries a non-cumulative dividend of $.19 per share, if, as and when declared by the Board of Directors and carries a liquidation preference, subordinate to the rights of the holders of Series A, B and D Preferred Stock and pari passu with the rights of the holders of the Series E and F Preferred Stock, of $19.06 per share upon a “Liquidation Event”, as defined in our certificate of incorporation.

The Series D Preferred is voting and carries a non-cumulative dividend of $3.46 per share, if, as and when declared by the Board of Directors and carries a liquidation preference, subordinate to the rights of the holders of Series A Preferred Stock, of $69.29 per share upon a “Liquidation Event”, as defined in our certificate of incorporation.

The Series E Preferred is nonvoting and carries a non-cumulative dividend of $2.08 per share, if, as and when declared by the Board of Directors and carries a liquidation preference, subordinate to the rights of the holders of Series A, B and D Preferred Stock and pari passu with the rights of the holders of the Series C and E Preferred Stock, of $34.65 per share upon a “Liquidation Event”, as defined in our certificate of incorporation.

The Series F Preferred is nonvoting and carries a non-cumulative dividend of $1.37 per share, if, as and when declared by the Board of Directors and carries a liquidation preference, subordinate to the rights of the holders of Series A, B and D Preferred Stock and pari passu with the rights of the holders of the Series C and E Preferred Stock, of $22.87 per share upon a “Liquidation Event”, as defined in our certificate of incorporation.

The Series G Preferred is nonvoting and carries a non-cumulative dividend of $1.06 per share, if, as and when declared by the Board of Directors and carries a liquidation preference, subordinate to the rights of the holders of Series A, B, C, D, E, and F Preferred Stock, of $35.33 per share upon a “Liquidation Event”, as defined in our certificate of incorporation.

 

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Genprex, Inc.

Notes to Financial Statements

Note 5—Equity, continued

 

Common Stock

We have 5,500,000 shares of Common Stock authorized (4,500,000 voting and 1,000,000 nonvoting) with a par value of $0.001. Each share of voting Common Stock has one vote per share for the election of directors and all other items submitted to a vote of stockholders. The Common Stock does not have cumulative voting rights, preemptive, redemption or conversion rights. For all periods presented, 25,611 shares of our total number of shares of Common Stock outstanding were nonvoting.

Preferred Stock Purchase Warrants

There was no preferred stock purchase warrant activity for the period ended June 30, 2017. Preferred stock purchase warrant activity for the years ended December 31, 2016 and 2015 are as follows:

 

     Number of
Warrants
     Weighted Avg.
Exercise Price
 

Outstanding at January 1, 2015

     10,000      $ 17.33  

Issued

     —          —    

Cancelled or Expired

     —          —    

Exercised

     (10,000      (17.33

Outstanding at December 31, 2015

     —          —    

Issued

     

Cancelled or Expired

     —          —    

Exercised

     —          —    

Outstanding at December 31, 2016

     —        $ —    

Common Stock Purchase Warrants

There was no common stock purchase warrant activity for the period ended June 30, 2017. Common stock purchase warrant activity for the years ended December 31, 2016 and 2015, respectively, are as follows:

 

     Number of
Warrants
     Weighted Avg.
Exercise Price
 

Outstanding at January 1, 2015

     15,365      $ 19.52  

Issued

     30,730        32.54  

Cancelled or Expired

     (5,119      (19.52

Exercised

     (10,246      (19.52

Outstanding at December 31, 2015

     30,730        32.54  

Issued

     81,185        35.33  

Cancelled or Expired

     —          —    

Exercised

     —          —    

Outstanding at December 31, 2016

     111,915      $ 34.56  

During November 2016, we granted warrants to purchase 81,185 shares of our voting Common Stock, with a per share strike price of $35.33. We received $8,118 for the issuance of these warrants.

During December 2015, we granted two warrants, each to purchase 15,365 shares of our nonvoting Common Stock (a total of 30,730 shares) with a per share strike price of $32.54. The first warrant vests 18 months from the grant date, and expires five (5) years after vesting. The second warrant vests 30 months from the grant date, and expires five (5) years after vesting. Compensation expense related to the vesting of these warrants was approximately $31,105 and $70,392 for the period ended June 30, 2017 and year ended December 31, 2016, respectively.

 

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Genprex, Inc.

Notes to Financial Statements

Note 5—Equity, continued

 

Stock Options

We have outstanding stock options to purchase 393,280 shares of Common Stock that have been granted to various employees, vendors and independent contractors. These options vest over periods ranging from twelve (12) to forty-eight (48) months, are exercisable for a period of ten years, and enable the holders to purchase shares of our Common Stock at exercise prices ranging from $0.001—$35.33. The per-share fair values of these options range from $0.001 to $17.91, based on Black-Scholes-Merton pricing models with the following assumptions: volatility (76.74%); risk-free rates (1.77%—1.82%); and terms (3—10 years). The weighted average remaining contractual term for the outstanding options at June 30, 2017, December 31, 2016 and 2015 is 7.44, 8.24 and 6.44 years, respectively.

Stock option activity for the period and year ended June 30, 2017 and December 31, 2016, respectively, is as follows:

 

     Number of
Shares
     Weighted Avg.
Exercise Price
 

Outstanding at January 1, 2016

     100,397      $ 0.09  

Options granted

     292,883        11.73  

Options exercised

     —          —    

Options expired

     —          —    

Outstanding at December 31, 2016

     393,280      $ 8.76  

Options granted

     —          —    

Options exercised

     —          —    

Options expired

     —          —    

Outstanding at June 30, 2017

     393,280      $ 8.76  

Note 6—Related Party Transactions

Introgen Research Institute

Introgen Research Institute (“IRI”) is a Texas-based technology company, currently affiliated with Rodney Varner, our CEO.

In April 2009, prior to Mr. Varner becoming an officer and director of our Company in August 2012, we entered into an Assignment and Collaboration Agreement with IRI, providing us with the exclusive right to commercialize a portfolio of intellectual property. This agreement was amended in 2011 to include additional sublicensing of additional intellectual property made available to IRI from the University of Texas MD Anderson Cancer Center (“UTMDACC”).

Confer Capital

Confer Capital, Inc. (“Confer Capital”) is a technology commercialization advisory services company affiliated with Ryan Confer, current CFO. From time to time since the Company’s inception, Confer Capital provided strategic, financial, and executive managerial services to the Company when Ryan Confer was not considered a payroll employee. Additionally, Confer Capital has also incurred corporate expenses on our behalf and was reimbursed for these expenses. Mr. Confer provided $65,000 of consulting services to the Company during 2016 while not on Company payroll. These services were booked in account payable when the service period concluded in August 2016 and paid out in December 2016.

 

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Genprex, Inc.

Notes to Financial Statements

 

Note 7—Commitments and Contingencies

Commitments

We have entered into a clinical trial agreement with the University of Texas MD Anderson Cancer Center to administer a phase I/II clinical trial, combining FUS1-nanoparticles and Erlotinib in Stage IV lung cancer patients. The trial is expected to run through the end of 2018 with a projected total cost of approximately $2 million. Payments are due and payable when invoiced throughout the clinical trial period. The agreement may be terminated at any time.

In 2009, we agreed to assume certain contractual and other obligations of IRI in consideration for the sublicense rights, expertise, and assistance associated with the assignment of certain technologies and intellectual property. We also agreed to pay royalties of one percent (1%) on sales of resulting Licensed Products, for a period of 21 years following the termination of the last of the MD Anderson License Agreement and Sublicense Agreement, to IRI and we assumed patent prosecution costs and an annual minimum royalty of $20,000 payable to the National Institutes of Health (“NIH”).

Our $191,393 payment obligation to the National Institutes of Health (“NIH”) represented a current obligation, of which $15,393 of 2016 patent prosecution costs were paid in the fourth quarter of 2016 and $176,000 was included in Accounts Payable at December 31, 2016 (consisting of accrued annual royalties of $140,000 and patent costs of $36,000). During the first quarter of 2017, we modified the terms of our accrued royalty obligation to NIH. Under the modified agreement, NIH agreed to extinguish $120,000 of the accrued royalties payable to them in consideration for payment by us of (i) accrued patent costs of $36,000, (ii) a royalty payment of $20,000, and (iii) a contingent payment of $240,000, increasing at $20,000 per year starting in 2018, to be paid upon our receipt of FDA approval. The payments for the patent costs of $36,000 and royalties of $20,000 were paid during the second quarter of 2017.

As a result of our modified agreement with the NIH, we have recognized the exchange of the $120,000 fixed obligation for the $240,000 contingent obligation as a $120,000 reduction to intellectual property expense (classified within General and Administrative Expense) during the first quarter of 2017. The $240,000 contingent obligation (and related expense) will be recognized when we obtain regulatory approval (the event that triggers the payment obligation).

Contingencies

From time to time we may become subject to threatened and/or asserted claims arising in the ordinary course of our business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material impact on our Company’s financial condition, results of operations or liquidity.

Note 8—Income Taxes

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences are as follows:

 

Income tax provisions at the federal statutory rate

     34

Effect of operating losses

     -34
     0

At December 31, 2016, we have a net operating loss carryforward of approximately $6.8 million for Federal and state purposes. This loss will be available to offset future taxable income. If not used, this carryforward will

 

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Genprex, Inc.

Notes to Financial Statements

Note 8—Income Taxes, continued

 

begin to expire in 2029. The deferred tax asset relating to the operating loss carryforward has been fully reserved at June 30, 2017 and December 31, 2016 and 2015. The principal differences between the operating loss for income tax purposes and reporting purposes are shares issued for services and share-based compensation and a temporary difference in depreciation expense.

Note 9—Subsequent Events

In August 2017, we issued 8,066 shares of Series G Preferred Stock for $35.33 per share, and received $284,971 in cash for the issuance.

As of August 1, 2017, 15 issued patents associated with our non-exclusive NIH license agreement have expired.

 

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Up to [*] Shares

Genprex, Inc.

Common Stock

 

LOGO

Through and including                 , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

 


Table of Contents

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by Genprex, Inc., or the Registrant, in connection with the sale of the securities being registered. All amounts shown are estimates except for the Securities and Exchange Commission, or SEC, registration fee, the FINRA filing fee and The Nasdaq Capital Market listing fee.

 

     Amount  

SEC registration fee

   $ 2,836  

FINRA filing fee

     4,171  

Nasdaq Capital Market listing fee

     *  

Printing and engraving expenses

     *  

Legal fees and expenses

     *  

Accounting fees and expenses

     *  

Transfer agent and registrar fees and expenses

     *  

Miscellaneous expenses

     *  

Total

   $                 *  

 

* To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

The Registrant is incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who were, are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who were, are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) actually and reasonably incurred.

The Registrant’s amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, respectively, provide for the indemnification of its directors and officers to the fullest extent permitted under the Delaware General Corporation Law.

 

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Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:

 

    transaction from which the director derives an improper personal benefit;

 

    act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    unlawful payment of dividends or redemption of shares; or

 

    breach of a director’s duty of loyalty to the corporation or its stockholders.

The Registrant’s amended and restated certificate of incorporation, as currently in effect, includes such a provision, and the Registrant’s amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, will include such a provision. Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by the Registrant upon delivery to it of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Registrant.

Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.

As permitted by the Delaware General Corporation Law, the Registrant has entered into indemnity agreements with each of its directors and executive officers, that require the Registrant to indemnify such persons against any and all costs and expenses (including attorneys’, witness or other professional fees) actually and reasonably incurred by such persons in connection with any action, suit or proceeding (including derivative actions), whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer or is or was acting or serving as an officer, director, employee or agent of the Registrant or any of its affiliated enterprises. Under these agreements, the Registrant is not required to provide indemnification for certain matters, including:

 

    indemnification beyond that permitted by the Delaware General Corporation Law;

 

    indemnification for any proceeding with respect to the unlawful payment of remuneration to the director or officer;

 

    indemnification for certain proceedings involving a final judgment that the director or officer is required to disgorge profits from the purchase or sale of the Registrant’s stock;

 

    indemnification for proceedings involving a final judgment that the director’s or officer’s conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct or a breach of his or her duty of loyalty, but only to the extent of such specific determination;

 

    indemnification for proceedings or claims brought by an officer or director against us or any of the Registrant’s directors, officers, employees or agents, except for claims to establish a right of indemnification or proceedings or claims approved by the Registrant’s board of directors or required by law;

 

    indemnification for settlements the director or officer enters into without the Registrant’s consent; or

 

    indemnification in violation of any undertaking required by the Securities Act of 1933, as amended, or the Securities Act, or in any registration statement filed by the Registrant.

 

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The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

Except as otherwise disclosed under the heading “Legal Proceedings” in the “Business” section of the prospectus included in this registration statement, there is at present no pending litigation or proceeding involving any of the Registrant’s directors or executive officers as to which indemnification is required or permitted, and the Registrant is not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

The Registrant has an insurance policy in place that covers its officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act, or otherwise.

The Registrant plans to enter into an underwriting agreement which provides that the underwriters are obligated, under some circumstances, to indemnify the Registrant’s directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act.

Item 15. Recent Sales of Unregistered Securities.

Set forth below is information regarding securities issued and options granted by us since January 1, 2014 that were not registered under the Securities Act. Also included is the consideration, if any, received by us, for such securities and options and information relating to the Securities Act, or rule of the SEC, under which exemption from registration was claimed.

 

(1) From January 2014 through June 2017, we issued 70,000 shares of our common stock to a consultant in consideration of services provided by the consultant.

 

(2) In March 2014, pursuant to the exercise of an investment unit, we issued to a government agency 184,797 shares of our Series B preferred stock at an exercise price of $0.001 per share, pursuant to a cashless exercise. We had issued the investment unit in 2010 in connection with a grant award by the government agency in the aggregate amount of $4.5 million.

 

(3) In August 2014, we issued to an investor a warrant exercisable for 2,886 shares of our Series E preferred stock, with an exercise price of $34.65 per share, and a warrant exercisable for 4,008 shares of our Series F preferred stock, with an exercise price of $22.87 per share. Each of those warrants was exercised in full in February 2015, and we received gross proceeds of approximately $192,000.

 

(4) In December 2014, we issued 15,365 shares of our non-voting common stock to an investor in connection with the issuance to the same entity of a warrant to purchase an aggregate of 15,365 shares of our non-voting common stock, with an exercise price of $19.52 per share. In December 2015, that warrant was exercised with respect to 10,246 shares of our non-voting common stock, and we received gross proceeds of approximately $200,000.

 

(5) From February 2015 to June 2017, we entered into a series of subscription agreements with various investors, pursuant to which we issued and sold to such investors an aggregate of 87,588 shares of our Series G preferred stock at a purchase price of $35.33 per share, and received gross proceeds of approximately $3.1 million.

 

(6) In December 2015, we issued to an investor two warrants, each exercisable for 15,365 shares of our non-voting common stock, and each with an exercise price of $32.54.

 

(7) In February 2016, upon exercise of a warrant that has been issued to an investor in 2013, we issued 10,000 shares of our Series B preferred stock at an exercise price of $17.325 per share, and received gross proceeds of approximately $173,000

 

(8) In November 2016, we issued to an investor a warrant exercisable for an aggregate of 81,185 shares of our common stock, with an exercise price of $35.33 per share. We received gross proceeds of approximately $8,000 from the sale of the warrant.

 

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(9) From January 1, 2014 to the effective date of this registration statement, we granted 11,000 shares of our common stock and stock options under our 2009 equity incentive plan to purchase up to an aggregate of 292,883 shares of our common stock to our employees, directors and consultants, at a weighted average exercise price of $11.73 per share.

The offers, sales and issuances of the securities described in paragraphs (1) through (8) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) (or Regulation D promulgated thereunder) in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D.

The offers, sales and issuances of the securities described in paragraph (9) were deemed to be exempt from registration under the Securities Act in reliance on either Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701 or Section 4(2) in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of such securities were our employees, directors or bona fide consultants and received the securities under our 2009 Plan.

Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits : Reference is made to the Exhibit Index following the signature pages hereto, which Exhibit Index is hereby incorporated into this Item.

(b) Financial Statement Schedules : All schedules are omitted because the required information is inapplicable or the information is presented in the financial statements and the related notes.

Item 17. Undertakings

The undersigned registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(1) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(2) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(3) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

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(b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment 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.

(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(d) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

(e) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this registration statement, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(f) The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Austin, Texas, on August 18, 2017.

 

GENPREX, INC.
By:   /s/ J. Rodney Varner
  J. Rodney Varner
  Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated:

 

Signature

  

Title

 

Date

/s/ J. Rodney Varner

J. Rodney Varner

  

Chief Executive Officer and

Member of the Board of Directors ( Principal Executive Officer )

  August 18, 2017

/s/ Ryan M. Confer

Ryan M. Confer

   Chief Financial Officer ( Principal Financial Officer )   August 18, 2017

/s/ David E. Friedman

David E. Friedman

   Member of the Board of Directors   August 18, 2017

/s/ Robert W. Pearson

Robert W. Pearson

   Member of the Board of Directors   August 18, 2017

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Description of Exhibit

  1.1†    Form of Underwriting Agreement.
  3.1.1†    Third Amended and Restated Certificate of Incorporation filed December 13, 2013.
  3.1.2    Certificate of Designation of Series B Preferred Stock filed December 13, 2013.
  3.1.3    Certificate of Designation of Series C Preferred Stock filed December 19, 2013.
  3.1.4    Certificate of Designation of Series D Preferred Stock filed December 19, 2013.
  3.1.5    Certificate of Designation of Series E Preferred Stock filed September 3, 2014.
  3.1.6    Certificate of Designation of Series F Preferred Stock filed September 3, 2014.
  3.1.7    Certificate of Designation of Series G Preferred Stock filed February 16, 2015.
  3.1.8†    Certificate of Increase of Series B Preferred Stock filed July 14, 2015.
  3.1.9†    Certificate of Increase of Series G Preferred Stock filed November 2, 2016.
  3.1.10†    Certificate of Increase of Series G Preferred Stock filed June 7, 2017.
  3.2†    Form of Amended and Restated Certificate of Incorporation to become effective immediately prior to the completion of this offering.
  3.3    Bylaws, as currently in effect.
  3.4†    Form of Amended and Restated Bylaws to become effective upon the completion of this offering.
  4.1†    Form of Common Stock Certificate of the Registrant.
  4.2    Texas Emerging Technology Fund Award and Security Agreement dated August 13, 2010 by and between the Registrant and The State of Texas
  4.3    Investment Unit, dated August 13, 2010, issued to the State of Texas
  4.4    Warrant Agreement, dated December 17, 2015, issued to DABS Advanced Biotech Solutions, LLC.
  4.5    Warrant Agreement, dated December 17, 2015, issued to DABS Advanced Biotech Solutions, LLC.
  4.6    Warrant Agreement, dated November 3, 2016, issued to Viet Ly.
  5.1†    Opinion of Streusand, Landon & Ozburn LLP.
10.1†+    Form of Indemnification Agreement by and between the Registrant and its directors and officers.
10.2+    Registrant’s 2009 Equity Incentive Plan and Forms of Option Grant Notice and Option Agreement thereunder.
10.3†+    Form of Genprex, Inc. 2017 Equity Incentive Plan and Forms of Stock Option Grant Notice, Option Agreement and Notice of Exercise thereunder.
10.4†+    Form of Genprex, Inc. 2017 Employee Stock Purchase Plan.
10.5†+    Form of Genprex, Inc. Non-Employee Director Compensation Policy.
10.6    Patent and Technology License Agreement dated effective July 20, 1994, by and between the Board of Regents of the University of Texas System, The University of Texas M.D. Anderson Cancer Center and Intron Therapeutics, Inc.
10.7    Amendment No. 3 to Patent and Technology License Agreement dated October 4, 2001

 

II-7


Table of Contents

Exhibit

Number

  

Description of Exhibit

10.8    Technology Sublicense Agreement effective March 7, 2007, by and between Introgen Therapeutics, Inc., and Introgen Research Institute, Inc.
10.9    Assignment and Collaboration Agreement effective April 13, 2009, by and between Gensolve, Inc. and the Registrant
10.10    Technology License Agreement dated as of February 26, 2010, by and between Introgen Research Institute, Inc. and P53, Inc.
10.11    Sponsored Research Agreement dated September 14, 2010, by and between The University of Texas M.D. Anderson Cancer Center and the Registrant
10.12    Technology Sublicense Agreement effective June 1, 2011, by and between the Registrant and Introgen Research Institute, Inc.
10.13    Amended Collaboration and Assignment Agreement effective July 1, 2011, by and between Introgen Research Institute, Inc. and the Registrant
10.14†    Clinical Study Agreement dated February 10, 2014, by and between The University of Texas M.D. Anderson Cancer Center and the Registrant
10.15†    Amendment No. 1 to Clinical Study Agreement dated June 25, 2015
10.16+    Employment agreement, dated October 23, 2016, by and between the Registrant and Julien L. Pham, M.D., M.P.H..
23.1    Consent of Independent Registered Public Accounting Firm.
23.2†    Consent of Streusand, Landon & Ozburn LLP. Reference is made to Exhibit 5.1.
24.1*    Power of Attorney.

 

To be filed by amendment.
+ Indicates management contract or compensatory plan.
* Previously filed.

 

II-8

Exhibit 3.1.2

CERTIFICATE OF DESIGNATION

OF

SERIES B PREFERRED STOCK

OF

GENPREX, INC.

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

Genprex, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter, the “ Corporation ”), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”):

“NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the certificate of incorporation of the Corporation, the Board of Directors of the Corporation hereby creates out of the authorized but unissued preferred stock, par value $0.001 per share, of the Corporation (“ Preferred Stock ”), a new series of Preferred Stock, and hereby states the designation and the number of shares of such series and fixes the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, thereof as follows:

Series B Preferred Stock:

Section 1. Designation and Amount . The shares of such series shall be designated as shares of “Series B Preferred Stock,” par value $0.001 per share, of the Corporation (the “ Series B Preferred Stock ”), and the number of shares constituting such series shall be one hundred sixty-five thousand (165,000).

Section 2. Dividends Provisions. Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation ranking senior to the Series B Preferred Stock as to the declaration or payment of any dividend, including, without limitation, the Series A Preferred Stock par value $0.001 per share, of the Corporation (the “ Dividend Senior Stock ”), the holders of shares of Series B Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend payable (other than in shares of Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock or on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series B Preferred Stock as to the declaration or payment of any dividend (together with the Common Stock, the “ Dividend Junior Stock ”), and on a pari passu basis with respect to any declaration or payment of any dividend on any outstanding series of Preferred Stock

 

1


provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series B Preferred as to the declaration or payment of any dividend (the “ Dividend Parity Stock ”), at the Dividend Rate (as defined below), payable when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. If the dividend to be distributed among the holders of the Series B Preferred Stock and the Dividend Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire amount legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock and the Dividend Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this Section 1. For purposes of this Section 1, “ Dividend Rate ” shall mean $1.91 per annum for each share of Series B Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like.

Section 3. Liquidation Rights.

(a) Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the certificate of incorporation of the Corporation ranking senior to the Series B Preferred Stock as to a Liquidation Event (as defined below), including, without limitation, the Series A Preferred Stock, $0.001 per share, of the Corporation (the “ Series A Preferred Stock ”), in the event of any Liquidation Event, either voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the proceeds of such Liquidation Event (the “ Proceeds ”) to the holders of Common Stock and any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series B Preferred Stock as to a Liquidation Event, and on a pari passu basis with respect to any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series B Preferred as to a Liquidation Event (collectively, the “ Liquidation Parity Stock ”), an amount per share equal to the sum of the Original Issue Price (as defined below) for Series B Preferred Stock, plus declared but unpaid dividends on such share. If, upon the occurrence of such event, the Proceeds thus distributed among the holders of the Series B Preferred Stock and the Liquidation Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire Proceeds legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock and the Liquidation Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this subsection (a). For purposes of this Certificate of Designation, the “ Original Issue Price ” of the Series B Preferred Stock shall mean $38.11 per share for each share of Series B Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to Series B Preferred Stock.

 

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(b) For purposes of this Section 3, a “ Liquidation Event ” shall include (A) the closing of the sale, transfer or other disposition of all or substantially all of the Corporation’s assets, (B) the consummation of the merger or consolidation of the Corporation with or into another entity (except a merger or consolidation in which the holders of voting capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Corporation or the surviving or acquiring entity), or (C) a liquidation, dissolution or winding up of the Corporation; provided, however, that a transaction shall not constitute a Liquidation Event if its sole purpose is to change the state of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s voting securities immediately prior to such transaction. The treatment of any particular transaction as a Liquidation Event may be waived by the vote or written consent of the holders of a majority in voting power of the series of Preferred Stock then outstanding and entitled to vote on all matters on which stockholders generally are entitled to vote (voting together as a single class).

(c) In any Liquidation Event, if any of the Proceeds received by the Corporation or its stockholders is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

(A) Securities not subject to investment letter or other similar restrictions on free marketability covered by subsection (B) below:

(1) if traded on a securities exchange or through the NASDAQ National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event;

(2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event; and

(3) If there is no active public market, the value shall be the fair market value thereof, as determined by the Corporation.

(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in subsections (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined by the Corporation.

(C) The foregoing methods for valuing non-cash consideration to be distributed in connection with a Liquidation Event may be superseded by any determination of such value set forth in the definitive agreements governing such Liquidation Event.

 

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(d) In the event the requirements of this Section 2 are not complied with, the Corporation shall forthwith either:

(A) cause the closing of such Liquidation Event to be postponed until such time as the requirements of this Section 2 have been complied with; or

(B) cancel such transaction, in which event the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, of the holders of the Series B Preferred Stock shall revert to and be the same as such powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, existing prior to the Liquidation Event.

Section 4. Conversion Rights . The holders of the Series B Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

(a) Right to Convert . Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series B Preferred Stock, into such number of fully paid and nonassessable shares of Non-Voting Common Stock, par value $0.001 per share, of the Corporation (the “ Non-Voting Common Stock ”), as is determined by dividing the Original Issue Price for the Series B Preferred Stock by the Conversion Price for the Series B Preferred Stock (the conversion rate for the Series B Preferred Stock into Non-Voting Common Stock is referred to herein as the “ Conversion Rate ” for the Series B Preferred Stock), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial “ Conversion Price ” per share for the Series B Preferred Stock shall be the Original Issue Price for the Series B Preferred Stock; provided, however, that the Conversion Price for the Series B Preferred Stock shall be subject to adjustment as set forth in subsection (d) below.

(b) Automatic Conversion . Each share of Series B Preferred Stock shall automatically be converted into shares of Non-Voting Common Stock at the Conversion Rate then in effect for the Series B Preferred Stock immediately prior to the consummation of the Corporation’s initial sale of its Voting Common Stock, par value $0.001 per share (the “ Voting Common Stock ”), in a public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which is not less than $2.00 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like) and $20,000,000.00 in the aggregate (a “ Qualified Public Offering ”).

(c) Mechanics of Conversion . Before any holder of Series B Preferred Stock shall be entitled to voluntarily convert the same into shares of Non-Voting Common Stock pursuant to subsection (a) above, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series B Preferred Stock, and shall give written notice to the Corporation at

 

4


its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Non-Voting Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Non-Voting Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates for shares of Series B Preferred Stock to be converted, and the person or persons entitled to receive the shares of Non-Voting Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Non-Voting Common Stock as of such date.

(d) Conversion Price Adjustments of Series B Preferred Stock for Certain Distributions, Splits and Combinations . The Conversion Price of the Series B Preferred Stock shall be subject to adjustment from time to time as follows:

(A) In the event the Corporation should at any time or from time to time after the date upon which the original Second Amended and Restated Certificate of Incorporation is accepted for filing with the Secretary of State of the State of Delaware (the “ Filing Date ”), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion, exchange or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series B Preferred Stock shall be appropriately decreased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series B Preferred Stock shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and/or the aggregate number of shares of Common Stock issuable with respect to such Common Stock Equivalents, with the number of shares issuable with respect to Common Stock Equivalents determined from time to time as follows:

(1) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such Common Stock Equivalents shall be deemed to have been issued at the time such Common Stock Equivalents were issued.

 

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(2) In the event of any change in the number of shares of Common Stock deliverable upon conversion, exchange or exercise of such Common Stock Equivalents, the Conversion Price of the Series B Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Common Stock Equivalents.

(3) Upon the termination or expiration of any such Common Stock Equivalents, the Conversion Price of the Series B Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(B) If the number of shares of Common Stock outstanding at any time after the Filing Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series B Preferred Stock shall be appropriately increased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series B Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

(e) Recapitalizations . If at any time or from time to time after the Filing Date, there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in subsection (d) above and other than a Liquidation Event (which shall be subject to Section 2)), provision shall be made so that the holders of the Series B Preferred Stock shall thereafter be entitled to receive upon conversion of the Series B Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Non-Voting Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of subsection (d) above with respect to the rights of the holders of the Series B Preferred Stock after the recapitalization to the end that the provisions of subsection (d) above (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series B Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable.

 

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(f) No Fractional Shares and Certificate as to Adjustments .

(A) No fractional shares shall be issued upon the conversion of any share or shares of the Series B Preferred Stock and the aggregate number of shares of Non-Voting Common Stock to be issued to particular stockholders, shall be rounded down to the nearest whole share and the Corporation shall pay in cash the fair market value of any fractional shares as of the time when entitlement to receive such fractions is determined. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series B Preferred Stock the holder is at the time converting into Non-Voting Common Stock and the number of shares of Non-Voting Common Stock issuable upon such conversion.

(B) The Corporation shall, upon the written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) each adjustment and readjustment of the Conversion Price for the Series B Stock made pursuant to this Section 3, (B) the Conversion Price for the Series B Preferred Stock at the time in effect, and (C) the number of shares of Non-Voting Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series B Preferred Stock.

(g) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Non-Voting Common Stock solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Non-Voting Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Non-Voting Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series B Preferred Stock, the Corporation shall, to the fullest extent permitted by law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Non-Voting Common Stock (and, if applicable, 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 Certificate of Designation.

(h) Notices . Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

Section 5. Voting Rights . Except as provided by law, the holder of Series B Preferred Stock shall have no voting rights and its vote or consent shall not be required for taking any corporate action.

 

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Section 6. Status of Purchased or Converted Shares of Series B Preferred Stock. If any share of Series B Preferred Stock is purchased or otherwise acquired by the Corporation, in any manner whatsoever, the share of Series B Preferred Stock so acquired shall, to the fullest extent permitted by law, be retired and cancelled upon such acquisition, and shall not be reissued as a share of Series B Preferred Stock. Any share of Series B Preferred Stock so acquired shall, upon its retirement and cancellation, and upon the taking of any action required by law, become an authorized but unissued share of Preferred Stock undesignated as to series and may be reissued a part of a new series of Preferred Stock, subject to the conditions and restrictions set forth in the certificate of incorporation of the Corporation or imposed by the General Corporation Law.”

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation of the Series B Preferred Stock of Genprex, Inc. on this 13th day of December, 2013.

 

GENPREX, INC.
By:  

/s/ RODNEY VARNER

Name: Rodney Varner
Title: Chief Executive Officer

 

9

Exhibit 3.1.3

CERTIFICATE OF DESIGNATION

OF

SERIES C PREFERRED STOCK

OF

GENPREX, INC.

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

Genprex, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter, the “ Corporation ”), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”):

“NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the certificate of incorporation of the Corporation, the Board of Directors of the Corporation hereby creates out of the authorized but unissued preferred stock, par value $0.001 per share, of the Corporation (“ Preferred Stock ”), a new series of Preferred Stock, and hereby states the designation and the number of shares of such series and fixes the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, thereof as follows:

Series C Preferred Stock:

Section 1. Designation and Amount . The shares of such series shall be designated as shares of “Series C Preferred Stock,” par value $0.001 per share, of the Corporation (the “ Series C Preferred Stock ”), and the number of shares constituting such series shall be seventy three thousand four hundred and fifty-two (73,452).

Section 2. Dividends Provisions. Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation ranking senior to the Series C Preferred Stock as to the declaration or payment of any dividend, including, without limitation, the Series A Preferred Stock, par value $0.001 per share, of the Corporation, and the Series B Preferred Stock, par value $0.001 per share, of the Corporation (the “ Dividend Senior Stock ”), the holders of shares of Series C Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend payable (other than in shares of Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock or on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series C Preferred Stock as to the declaration or payment of any dividend (together with the Common Stock, the “ Dividend Junior Stock ”), and on a pari passu basis with respect to

 


any declaration or payment of any dividend on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series C Preferred as to the declaration or payment of any dividend (the “ Dividend Parity Stock ”), at the Dividend Rate (as defined below), payable when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. If the dividend to be distributed among the holders of the Series C Preferred Stock and the Dividend Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire amount legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock and the Dividend Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this Section 1. For purposes of this Section 1, “ Dividend Rate ” shall mean $0.19 per annum for each share of Series C Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like.

Section 3. Liquidation Rights.

(a) Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the certificate of incorporation of the Corporation ranking senior to the Series C Preferred Stock as to a Liquidation Event (as defined below), including, without limitation, the Series A Preferred Stock, $0.001 per share, of the Corporation (the “ Series A Preferred Stock ”), and the Series B Preferred Stock, par value $0.001 per share, of the corporation (the “ Series B Preferred Stock ”), in the event of any Liquidation Event, either voluntary or involuntary, the holders of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the proceeds of such Liquidation Event (the “ Proceeds ”) to the holders of Common Stock and any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series C Preferred Stock as to a Liquidation Event, and on a pari passu basis with respect to any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series C Preferred as to a Liquidation Event (collectively, the “ Liquidation Parity Stock ”), an amount per share equal to the sum of the Original Issue Price (as defined below) for Series C Preferred Stock, plus declared but unpaid dividends on such share. If, upon the occurrence of such event, the Proceeds thus distributed among the holders of the Series C Preferred Stock and the Liquidation Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire Proceeds legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock and the Liquidation Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this subsection (a). For purposes of this Certificate of Designation, the “ Original Issue Price ” of the Series C Preferred Stock shall mean $19.06 per share for each share of Series C Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to Series C Preferred Stock.

 

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(b) For purposes of this Section 3, a “ Liquidation Event ” shall include (A) the closing of the sale, transfer or other disposition of all or substantially all of the Corporation’s assets, (B) the consummation of the merger or consolidation of the Corporation with or into another entity (except a merger or consolidation in which the holders of voting capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Corporation or the surviving or acquiring entity), or (C) a liquidation, dissolution or winding up of the Corporation; provided, however, that a transaction shall not constitute a Liquidation Event if its sole purpose is to change the state of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s voting securities immediately prior to such transaction. The treatment of any particular transaction as a Liquidation Event may be waived by the vote or written consent of the holders of a majority in voting power of the series of Preferred Stock then outstanding and entitled to vote on all matters on which stockholders generally are entitled to vote (voting together as a single class).

(c) In any Liquidation Event, if any of the Proceeds received by the Corporation or its stockholders is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

(A) Securities not subject to investment letter or other similar restrictions on free marketability covered by subsection (B) below:

(1) if traded on a securities exchange or through the NASDAQ National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event;

(2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event; and

(3) If there is no active public market, the value shall be the fair market value thereof, as determined by the Corporation.

(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in subsections (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined by the Corporation.

 

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(C) The foregoing methods for valuing non-cash consideration to be distributed in connection with a Liquidation Event may be superseded by any determination of such value set forth in the definitive agreements governing such Liquidation Event.

(d) In the event the requirements of this Section 2 are not complied with, the Corporation shall forthwith either:

(A) cause the closing of such Liquidation Event to be postponed until such time as the requirements of this Section 2 have been complied with; or

(B) cancel such transaction, in which event the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, of the holders of the Series C Preferred Stock shall revert to and be the same as such powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, existing prior to the Liquidation Event.

Section 4. Conversion Rights . The holders of the Series C Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

(a) Right to Convert . Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series C Preferred Stock, into such number of fully paid and nonassessable shares of Non-Voting Common Stock, par value $0.001 per share, of the Corporation (the “ Non-Voting Common Stock ”), as is determined by dividing the Original Issue Price for the Series C Preferred Stock by the Conversion Price (as defined below) for the Series C Preferred Stock (the conversion rate for the Series C Preferred Stock into Non-Voting Common Stock is referred to herein as the “ Conversion Rate ” for the Series C Preferred Stock), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial “ Conversion Price ” per share for the Series C Preferred Stock shall be the Original Issue Price for the Series C Preferred Stock; provided, however, that the Conversion Price for the Series C Preferred Stock shall be subject to adjustment as set forth in subsection (d) below.

(b) Automatic Conversion . Each share of Series C Preferred Stock shall automatically be converted into shares of Non-Voting Common Stock at the Conversion Rate then in effect for the Series C Preferred Stock immediately prior to the consummation of the Corporation’s initial sale of its Voting Common Stock, par value $0.001 per share (the “ Voting Common Stock ”), in a public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which is not less than $2.00 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like) and $20,000,000.00 in the aggregate (a “ Qualified Public Offering ”).

 

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(c) Mechanics of Conversion . Before any holder of Series C Preferred Stock shall be entitled to voluntarily convert the same into shares of Non-Voting Common Stock pursuant to subsection (a) above, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series C Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Non-Voting Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Non-Voting Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates for shares of Series C Preferred Stock to be converted, and the person or persons entitled to receive the shares of Non-Voting Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Non-Voting Common Stock as of such date.

(d) Conversion Price Adjustments of Series C Preferred Stock for Certain Distributions, Splits and Combinations . The Conversion Price of the Series C Preferred Stock shall be subject to adjustment from time to time as follows:

(A) In the event the Corporation should at any time or from time to time after the date upon which the original Certificate of Designation of Series C Preferred Stock is accepted for filing with the Secretary of State of the State of Delaware (the “ Filing Date ”), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion, exchange or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series C Preferred Stock shall be appropriately decreased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series C Preferred Stock shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and/or the aggregate number of shares of Common Stock issuable with respect to such Common Stock Equivalents, with the number of shares issuable with respect to Common Stock Equivalents determined from time to time as follows:

 

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(1) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such Common Stock Equivalents shall be deemed to have been issued at the time such Common Stock Equivalents were issued.

(2) In the event of any change in the number of shares of Common Stock deliverable upon conversion, exchange or exercise of such Common Stock Equivalents, the Conversion Price of the Series C Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Common Stock Equivalents.

(3) Upon the termination or expiration of any such Common Stock Equivalents, the Conversion Price of the Series C Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(B) If the number of shares of Common Stock outstanding at any time after the Filing Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series C Preferred Stock shall be appropriately increased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series C Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

(e) Recapitalizations . If at any time or from time to time after the Filing Date, there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in subsection (d) above and other than a Liquidation Event (which shall be subject to Section 2)), provision shall be made so that the holders of the Series C Preferred Stock shall thereafter be entitled to receive upon conversion of the Series C Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Non-Voting Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of subsection (d) above with respect to the rights of the holders of the Series C Preferred Stock after the recapitalization to the end that the provisions of subsection (d) above (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series C Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable.

 

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(f) No Fractional Shares and Certificate as to Adjustments .

(A) No fractional shares shall be issued upon the conversion of any share or shares of the Series C Preferred Stock and the aggregate number of shares of Non-Voting Common Stock to be issued to particular stockholders, shall be rounded down to the nearest whole share and the Corporation shall pay in cash the fair market value of any fractional shares as of the time when entitlement to receive such fractions is determined. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series C Preferred Stock the holder is at the time converting into Non-Voting Common Stock and the number of shares of Non-Voting Common Stock issuable upon such conversion.

(B) The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) each adjustment and readjustment of the Conversion Price for the Series C Stock made pursuant to this Section 3, (B) the Conversion Price for the Series C Preferred Stock at the time in effect, and (C) the number of shares of Non-Voting Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series C Preferred Stock.

(g) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Non-Voting Common Stock solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Non-Voting Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock; and if at any time the number of authorized but unissued shares of Non-Voting Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series C Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series C Preferred Stock, the Corporation shall, to the fullest extent permitted by law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Non-Voting Common Stock (and, if applicable, 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 Certificate of Designation or the certificate of incorporation of the Corporation.

(h) Notices . Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series C Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

Section 5. Voting Rights . Except as provided by law, the holder of Series C Preferred Stock shall have no voting rights and its vote or consent shall not be required for taking any corporate action.

 

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Section 6. Status of Purchased or Converted Shares of Series C Preferred Stock. If any share of Series C Preferred Stock is purchased or otherwise acquired by the Corporation, in any manner whatsoever, the share of Series C Preferred Stock so acquired shall, to the fullest extent permitted by law, be retired and cancelled upon such acquisition, and shall not be reissued as a share of Series C Preferred Stock. Any share of Series C Preferred Stock so acquired shall, upon its retirement and cancellation, and upon the taking of any action required by law, become an authorized but unissued share of Preferred Stock undesignated as to series and may be reissued a part of a new series of Preferred Stock, subject to the conditions and restrictions set forth in the certificate of incorporation of the Corporation or imposed by the General Corporation Law.”

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation of the Series C Preferred Stock of Genprex, Inc. on this 19th day of December, 2013.

 

GENPREX, INC.

By:

 

/s/ RODNEY VARNER

Name: Rodney Varner

Title: Chief Executive Officer

 

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Exhibit 3.1.4

CERTIFICATE OF DESIGNATION

OF

SERIES D PREFERRED STOCK

OF

GENPREX, INC.

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

Genprex, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter, the “ Corporation ”), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”):

“NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the certificate of incorporation of the Corporation, the Board of Directors of the Corporation hereby creates out of the authorized but unissued preferred stock, par value $0.001 per share, of the Corporation (“ Preferred Stock ”), a new series of Preferred Stock, and hereby states the designation and the number of shares of such series and fixes the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, thereof as follows:

Series D Preferred Stock:

Section 1. Designation and Amount . The shares of such series shall be designated as shares of “Series D Preferred Stock,” par value $0.001 per share, of the Corporation (the “ Series D Preferred Stock ”), and the number of shares constituting such series shall be one thousand four hundred and forty-three (1,443).

Section 2. Dividends Provisions. Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation ranking senior to the Series D Preferred Stock as to the declaration or payment of any dividend, including, without limitation, the Series A Preferred Stock par value $0.001 per share, of the Corporation (the “ Dividend Senior Stock ”), the holders of shares of Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend payable (other than in shares of Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock or on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series D Preferred Stock as to the declaration or payment of any dividend, including, without limitation, the Series B Preferred Stock, par value $0.001 per share, of the Corporation, and the Series C Preferred Stock, par value $0.001 per share, of the Corporation (together

 


with the Common Stock, the “ Dividend Junior Stock ”), and on a pari passu basis with respect to any declaration or payment of any dividend on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series D Preferred as to the declaration or payment of any dividend (the “ Dividend Parity Stock ”), at the Dividend Rate (as defined below), payable when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. If the dividend to be distributed among the holders of the Series D Preferred Stock and the Dividend Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire amount legally available for distribution shall be distributed ratably among the holders of the Series D Preferred Stock and the Dividend Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this Section 1. For purposes of this Section 1, “ Dividend Rate ” shall mean $3.46 per annum for each share of Series D Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like.

Section 3. Liquidation Rights.

(a) Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the certificate of incorporation of the Corporation ranking senior to the Series D Preferred Stock as to a Liquidation Event (as defined below), including, without limitation, the Series A Preferred Stock, $0.001 per share, of the Corporation (the “ Series A Preferred Stock ”), in the event of any Liquidation Event, either voluntary or involuntary, the holders of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the proceeds of such Liquidation Event (the “ Proceeds ”) to the holders of Common Stock and any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series D Preferred Stock as to a Liquidation Event, including, without limitation, the Series B Preferred Stock, par value $0.001 per share, of the Corporation, and the Series C Preferred Stock, par value $0.001 per share, of the Corporation, and on a pari passu basis with respect to any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series D Preferred as to a Liquidation Event (collectively, the “ Liquidation Parity Stock ”), an amount per share equal to the sum of the Original Issue Price (as defined below) for Series D Preferred Stock, plus declared but unpaid dividends on such share. If, upon the occurrence of such event, the Proceeds thus distributed among the holders of the Series D Preferred Stock and the Liquidation Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire Proceeds legally available for distribution shall be distributed ratably among the holders of the Series D Preferred Stock and the Liquidation Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this subsection (a). For purposes of this Certificate of Designation, the “ Original Issue Price ” of the Series D Preferred Stock shall mean $69.29 per share for each share of Series D Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to Series D Preferred Stock.

 

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(b) For purposes of this Section 3, a “ Liquidation Event ” shall include (A) the closing of the sale, transfer or other disposition of all or substantially all of the Corporation’s assets, (B) the consummation of the merger or consolidation of the Corporation with or into another entity (except a merger or consolidation in which the holders of voting capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Corporation or the surviving or acquiring entity), or (C) a liquidation, dissolution or winding up of the Corporation; provided, however, that a transaction shall not constitute a Liquidation Event if its sole purpose is to change the state of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s voting securities immediately prior to such transaction. The treatment of any particular transaction as a Liquidation Event may be waived by the vote or written consent of the holders of a majority in voting power of the series of Preferred Stock then outstanding and entitled to vote on all matters on which stockholders generally are entitled to vote (voting together as a single class).

(c) In any Liquidation Event, if any of the Proceeds received by the Corporation or its stockholders is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

(A) Securities not subject to investment letter or other similar restrictions on free marketability covered by subsection (B) below:

(1) if traded on a securities exchange or through the NASDAQ National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event;

(2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event; and

(3) If there is no active public market, the value shall be the fair market value thereof, as determined by the Corporation.

(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in subsections (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined by the Corporation.

 

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(C) The foregoing methods for valuing non-cash consideration to be distributed in connection with a Liquidation Event may be superseded by any determination of such value set forth in the definitive agreements governing such Liquidation Event.

(d) In the event the requirements of this Section 2 are not complied with, the Corporation shall forthwith either:

(A) cause the closing of such Liquidation Event to be postponed until such time as the requirements of this Section 2 have been complied with; or

(B) cancel such transaction, in which event the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, of the holders of the Series D Preferred Stock shall revert to and be the same as such powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, existing prior to the Liquidation Event.

Section 4. Conversion Rights . The holders of the Series D Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

(a) Right to Convert . Each share of Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series D Preferred Stock, into such number of fully paid and nonassessable shares of Non-Voting Common Stock, par value $0.001 per share, of the Corporation (the “ Non-Voting Common Stock ”), as is determined by dividing the Original Issue Price for the Series D Preferred Stock by the Conversion Price (as defined below) for the Series D Preferred Stock (the conversion rate for the Series D Preferred Stock into Non-Voting Common Stock is referred to herein as the “ Conversion Rate ” for the Series D Preferred Stock), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial “ Conversion Price ” per share for the Series D Preferred Stock shall be the Original Issue Price for the Series D Preferred Stock; provided, however, that the Conversion Price for the Series D Preferred Stock shall be subject to adjustment as set forth in subsection (d) below.

(b) Automatic Conversion . Each share of Series D Preferred Stock shall automatically be converted into shares of Non-Voting Common Stock at the Conversion Rate then in effect for the Series D Preferred Stock immediately prior to the consummation of the Corporation’s initial sale of its Voting Common Stock, par value $0.001 per share (the “ Voting Common Stock ”), in a public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which is not less than $2.00 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like) and $20,000,000.00 in the aggregate (a “ Qualified Public Offering ”).

 

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(c) Mechanics of Conversion . Before any holder of Series D Preferred Stock shall be entitled to voluntarily convert the same into shares of Non-Voting Common Stock pursuant to subsection (a) above, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series D Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Non-Voting Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series D Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Non-Voting Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates for shares of Series D Preferred Stock to be converted, and the person or persons entitled to receive the shares of Non-Voting Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Non-Voting Common Stock as of such date.

(d) Conversion Price Adjustments of Series D Preferred Stock for Certain Distributions, Splits and Combinations . The Conversion Price of the Series D Preferred Stock shall be subject to adjustment from time to time as follows:

(A) In the event the Corporation should at any time or from time to time after the date upon which the original Certificate of Designation of Series D Preferred Stock is accepted for filing with the Secretary of State of the State of Delaware (the “ Filing Date ”), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion, exchange or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series D Preferred Stock shall be appropriately decreased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series D Preferred Stock shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and/or the aggregate number of shares of Common Stock issuable with respect to such Common Stock Equivalents, with the number of shares issuable with respect to Common Stock Equivalents determined from time to time as follows:

 

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(1) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such Common Stock Equivalents shall be deemed to have been issued at the time such Common Stock Equivalents were issued.

(2) In the event of any change in the number of shares of Common Stock deliverable upon conversion, exchange or exercise of such Common Stock Equivalents, the Conversion Price of the Series D Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Common Stock Equivalents.

(3) Upon the termination or expiration of any such Common Stock Equivalents, the Conversion Price of the Series D Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(B) If the number of shares of Common Stock outstanding at any time after the Filing Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series D Preferred Stock shall be appropriately increased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series D Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

(e) Recapitalizations . If at any time or from time to time after the Filing Date, there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in subsection (d) above and other than a Liquidation Event (which shall be subject to Section 2)), provision shall be made so that the holders of the Series D Preferred Stock shall thereafter be entitled to receive upon conversion of the Series D Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Non-Voting Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of subsection (d) above with respect to the rights of the holders of the Series D Preferred Stock after the recapitalization to the end that the provisions of subsection (d) above (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series D Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable.

 

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(f) No Fractional Shares and Certificate as to Adjustments .

(A) No fractional shares shall be issued upon the conversion of any share or shares of the Series D Preferred Stock and the aggregate number of shares of Non-Voting Common Stock to be issued to particular stockholders, shall be rounded down to the nearest whole share and the Corporation shall pay in cash the fair market value of any fractional shares as of the time when entitlement to receive such fractions is determined. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series D Preferred Stock the holder is at the time converting into Non-Voting Common Stock and the number of shares of Non-Voting Common Stock issuable upon such conversion.

(B) The Corporation shall, upon the written request at any time of any holder of Series D Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) each adjustment and readjustment of the Conversion Price for the Series D Stock made pursuant to this Section 3, (B) the Conversion Price for the Series D Preferred Stock at the time in effect, and (C) the number of shares of Non-Voting Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series D Preferred Stock.

(g) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Non-Voting Common Stock solely for the purpose of effecting the conversion of the shares of the Series D Preferred Stock, such number of its shares of Non-Voting Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Non-Voting Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series D Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series D Preferred Stock, the Corporation shall, to the fullest extent permitted by law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Non-Voting Common Stock (and, if applicable, 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 Certificate of Designation or the certificate of incorporation of the Corporation.

(h) Notices . Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series D Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

 

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Section 5. Voting Rights . Each holder of Series D Preferred Stock, as such, shall have the right to one (1) vote for each share of Series D Preferred Stock held by or of record by such holder on all matters on which stockholders generally are entitled to vote, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the Voting Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the Bylaws of this Corporation, and shall be entitled to vote, together with the holders of the Voting Common Stock, with respect to any question upon which holders of the Voting Common Stock have the right to vote.

Section 6. Status of Purchased or Converted Shares of Series D Preferred Stock. If any share of Series D Preferred Stock is purchased or otherwise acquired by the Corporation, in any manner whatsoever, the share of Series D Preferred Stock so acquired shall, to the fullest extent permitted by law, be retired and cancelled upon such acquisition, and shall not be reissued as a share of Series D Preferred Stock. Any share of Series D Preferred Stock so acquired shall, upon its retirement and cancellation, and upon the taking of any action required by law, become an authorized but unissued share of Preferred Stock undesignated as to series and may be reissued a part of a new series of Preferred Stock, subject to the conditions and restrictions set forth in the certificate of incorporation of the Corporation or imposed by the General Corporation Law.”

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation of the Series D Preferred Stock of Genprex, Inc. on this 19th day of December, 2013.

 

GENPREX, INC.
By:  

/s/ RODNEY VARNER

Name: Rodney Varner
Title: Chief Executive Officer

 

9

Exhibit 3.1.5

CERTIFICATE OF DESIGNATION

OF

SERIES E PREFERRED STOCK

OF

GENPREX, INC.

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

Genprex, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter, the “ Corporation ”), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”):

“NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the certificate of incorporation of the Corporation, the Board of Directors of the Corporation hereby creates out of the authorized but unissued preferred stock, par value $0.001 per share, of the Corporation (“ Preferred Stock ”), a new series of Preferred Stock, and hereby states the designation and the number of shares of such series and fixes the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, thereof as follows:

Series E Preferred Stock:

Section 1. Designation and Amount . The shares of such series shall be designated as shares of “Series E Preferred Stock,” par value $0.001 per share, of the Corporation (the “ Series E Preferred Stock ”), and the number of shares constituting such series shall be two-thousand eight hundred and eighty-six (2,886).

Section 2. Dividends Provisions. Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation ranking senior to the Series E Preferred Stock as to the declaration or payment of any dividend, including, without limitation, the Series A Preferred Stock, par value $0.001 per share, of the Corporation, the Series B Preferred Stock, par value $0.001 per share, of the Corporation, and the Series D Preferred Stock, par value $0.001 per share, of the Corporation (the “ Dividend Senior Stock ”), the holders of shares of Series E Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend payable (other than in shares of Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock or on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series E Preferred Stock as to the declaration or payment of any dividend (together with the Common Stock, the “ Dividend

 


Junior Stock ”), and on a pari passu basis with respect to any declaration or payment of any dividend on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series E Preferred as to the declaration or payment of any dividend including, without limitation, the Series C Preferred Stock, par value $0.001 per share, of the Corporation (the “ Dividend Parity Stock ”), at the Dividend Rate (as defined below), payable when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. If the dividend to be distributed among the holders of the Series E Preferred Stock and the Dividend Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire amount legally available for distribution shall be distributed ratably among the holders of the Series E Preferred Stock and the Dividend Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this Section 2 . For purposes of this Section 2 , “ Dividend Rate ” shall mean $2.08 per annum for each share of Series E Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like.

Section 3. Liquidation Rights.

(a) Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the certificate of incorporation of the Corporation ranking senior to the Series E Preferred Stock as to a Liquidation Event (as defined below), including, without limitation, the Series A Preferred Stock, $0.001 per share, of the Corporation, the Series B Preferred Stock, par value $0.001 per share, of the Corporation, and the Series D Preferred Stock, par value $0.001 per share, of the Corporation in the event of any Liquidation Event, either voluntary or involuntary, the holders of Series E Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the proceeds of such Liquidation Event (the “ Proceeds ”) to the holders of Common Stock and any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series E Preferred Stock as to a Liquidation Event, and on a pari passu basis with respect to any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series E Preferred as to a Liquidation Event, including, without limitation, the Series C Preferred Stock, par value $0.001 per share, of the Corporation (collectively, the “ Liquidation Parity Stock ”), an amount per share equal to the sum of the Original Issue Price (as defined below) for Series E Preferred Stock, plus declared but unpaid dividends on such share. If, upon the occurrence of such event, the Proceeds thus distributed among the holders of the Series E Preferred Stock and the Liquidation Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire Proceeds legally available for distribution shall be distributed ratably among the holders of the Series E Preferred Stock and the Liquidation Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this subsection (a). For purposes of this Certificate of Designation, the “ Original Issue Price ” of the Series E Preferred Stock shall mean $34.65 per share for each share of Series E Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to Series E Preferred Stock.

 

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(b) For purposes of this Section 3, a “ Liquidation Event ” shall include (A) the closing of the sale, transfer or other disposition of all or substantially all of the Corporation’s assets, (B) the consummation of the merger or consolidation of the Corporation with or into another entity (except a merger or consolidation in which the holders of voting capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Corporation or the surviving or acquiring entity), or (C) a liquidation, dissolution or winding up of the Corporation; provided, however, that a transaction shall not constitute a Liquidation Event if its sole purpose is to change the state of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s voting securities immediately prior to such transaction. The treatment of any particular transaction as a Liquidation Event may be waived by the vote or written consent of the holders of a majority in voting power of the series of Preferred Stock then outstanding and entitled to vote on all matters on which stockholders generally are entitled to vote (voting together as a single class).

(c) In any Liquidation Event, if any of the Proceeds received by the Corporation or its stockholders is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

(A) Securities not subject to investment letter or other similar restrictions on free marketability covered by subsection (B) below:

(1) if traded on a securities exchange or through the NASDAQ National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event;

(2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event; and

(3) If there is no active public market, the value shall be the fair market value thereof, as determined by the Corporation.

(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in subsections (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined by the Corporation.

 

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(C) The foregoing methods for valuing non-cash consideration to be distributed in connection with a Liquidation Event may be superseded by any determination of such value set forth in the definitive agreements governing such Liquidation Event.

(d) In the event the requirements of this Section 3 are not complied with, the Corporation shall forthwith either:

(A) cause the closing of such Liquidation Event to be postponed until such time as the requirements of this Section 3 have been complied with; or

(B) cancel such transaction, in which event the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, of the holders of the Series E Preferred Stock shall revert to and be the same as such powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, existing prior to the Liquidation Event.

Section 4. Conversion Rights . The holders of the Series E Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

(a) Right to Convert . Each share of Series E Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series E Preferred Stock, into such number of fully paid and nonassessable shares of Non-Voting Common Stock, par value $0.001 per share, of the Corporation (the “ Non-Voting Common Stock ”), as is determined by dividing the Original Issue Price for the Series E Preferred Stock by the Conversion Price (as defined below) for the Series E Preferred Stock (the conversion rate for the Series E Preferred Stock into Non-Voting Common Stock is referred to herein as the “ Conversion Rate ” for the Series E Preferred Stock), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial “ Conversion Price ” per share for the Series E Preferred Stock shall be the Original Issue Price for the Series E Preferred Stock; provided, however, that the Conversion Price for the Series E Preferred Stock shall be subject to adjustment as set forth in subsection (d) below.

(b) Automatic Conversion . Each share of Series E Preferred Stock shall automatically be converted into shares of Non-Voting Common Stock at the Conversion Rate then in effect for the Series E Preferred Stock immediately prior to the consummation of the Corporation’s initial sale of its Voting Common Stock, par value $0.001 per share (the “ Voting Common Stock ”), in a public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which is not less than $2.00 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like) and $20,000,000.00 in the aggregate (a “ Qualified Public Offering ”).

 

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(c) Mechanics of Conversion . Before any holder of Series E Preferred Stock shall be entitled to voluntarily convert the same into shares of Non-Voting Common Stock pursuant to subsection (a) above, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series E Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Non-Voting Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series E Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Non-Voting Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates for shares of Series E Preferred Stock to be converted, and the person or persons entitled to receive the shares of Non-Voting Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Non-Voting Common Stock as of such date.

(d) Conversion Price Adjustments of Series E Preferred Stock for Certain Distributions, Splits and Combinations . The Conversion Price of the Series E Preferred Stock shall be subject to adjustment from time to time as follows:

(A) In the event the Corporation should at any time or from time to time after the date upon which the original Certificate of Designation of Series E Preferred Stock is accepted for filing with the Secretary of State of the State of Delaware (the “ Filing Date ”), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion, exchange or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series E Preferred Stock shall be appropriately decreased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series E Preferred Stock shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and/or the aggregate number of shares of Common Stock issuable with respect to such Common Stock Equivalents, with the number of shares issuable with respect to Common Stock Equivalents determined from time to time as follows:

 

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(1) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such Common Stock Equivalents shall be deemed to have been issued at the time such Common Stock Equivalents were issued.

(2) In the event of any change in the number of shares of Common Stock deliverable upon conversion, exchange or exercise of such Common Stock Equivalents, the Conversion Price of the Series E Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Common Stock Equivalents.

(3) Upon the termination or expiration of any such Common Stock Equivalents, the Conversion Price of the Series E Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(B) If the number of shares of Common Stock outstanding at any time after the Filing Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series E Preferred Stock shall be appropriately increased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series E Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

(e) Recapitalizations . If at any time or from time to time after the Filing Date, there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in subsection (d) above and other than a Liquidation Event (which shall be subject to Section 3)), provision shall be made so that the holders of the Series E Preferred Stock shall thereafter be entitled to receive upon conversion of the Series E Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Non-Voting Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of subsection (d) above with respect to the rights of the holders of the Series E Preferred Stock after the recapitalization to the end that the provisions of subsection (d) above (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series E Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable.

 

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(f) No Fractional Shares and Certificate as to Adjustments .

(A) No fractional shares shall be issued upon the conversion of any share or shares of the Series E Preferred Stock and the aggregate number of shares of Non-Voting Common Stock to be issued to particular stockholders, shall be rounded down to the nearest whole share and the Corporation shall pay in cash the fair market value of any fractional shares as of the time when entitlement to receive such fractions is determined. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series E Preferred Stock the holder is at the time converting into Non-Voting Common Stock and the number of shares of Non-Voting Common Stock issuable upon such conversion.

(B) The Corporation shall, upon the written request at any time of any holder of Series E Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) each adjustment and readjustment of the Conversion Price for the Series E Stock made pursuant to this Section 4, (B) the Conversion Price for the Series E Preferred Stock at the time in effect, and (C) the number of shares of Non-Voting Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series E Preferred Stock.

(g) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Non-Voting Common Stock solely for the purpose of effecting the conversion of the shares of the Series E Preferred Stock, such number of its shares of Non-Voting Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series E Preferred Stock; and if at any time the number of authorized but unissued shares of Non-Voting Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series E Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series E Preferred Stock, the Corporation shall, to the fullest extent permitted by law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Non-Voting Common Stock (and, if applicable, 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 Certificate of Designation or the certificate of incorporation of the Corporation.

(h) Notices . Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series E Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

Section 5. Voting Rights . Except as provided by law, each holder of Series E Preferred Stock shall have no voting rights and its vote or consent shall not be required for taking any corporate action.

 

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Section 6. Status of Purchased or Converted Shares of Series E Preferred Stock. If any share of Series E Preferred Stock is purchased or otherwise acquired by the Corporation, in any manner whatsoever, the share of Series E Preferred Stock so acquired shall, to the fullest extent permitted by law, be retired and cancelled upon such acquisition, and shall not be reissued as a share of Series E Preferred Stock. Any share of Series E Preferred Stock so acquired shall, upon its retirement and cancellation, and upon the taking of any action required by law, become an authorized but unissued share of Preferred Stock undesignated as to series and may be reissued a part of a new series of Preferred Stock, subject to the conditions and restrictions set forth in the certificate of incorporation of the Corporation or imposed by the General Corporation Law.”

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation of the Series E Preferred Stock of Genprex, Inc. on this 3rd day of September, 2014.

 

GENPREX, INC.

By:  

/s/ RODNEY VARNER

Name: Rodney Varner

Title: Chief Executive Officer

 

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Exhibit 3.1.6

CERTIFICATE OF DESIGNATION

OF

SERIES F PREFERRED STOCK

OF

GENPREX, INC.

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

Genprex, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter, the “ Corporation ”), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”):

“NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the certificate of incorporation of the Corporation, the Board of Directors of the Corporation hereby creates out of the authorized but unissued preferred stock, par value $0.001 per share, of the Corporation (“ Preferred Stock ”), a new series of Preferred Stock, and hereby states the designation and the number of shares of such series and fixes the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, thereof as follows:

Series F Preferred Stock:

Section 1. Designation and Amount . The shares of such series shall be designated as shares of “Series F Preferred Stock,” par value $0.001 per share, of the Corporation (the “ Series F Preferred Stock ”), and the number of shares constituting such series shall be four thousand eight (4,008).

Section 2. Dividends Provisions. Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation ranking senior to the Series F Preferred Stock as to the declaration or payment of any dividend, including, without limitation, the Series A Preferred Stock, par value $0.001 per share, of the Corporation, the Series B Preferred Stock, par value $0.001 per share, of the Corporation, and the Series D Preferred Stock, par value $0.001 per share, of the Corporation (the “ Dividend Senior Stock ”), the holders of shares of Series F Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend payable (other than in shares of Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock or on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series F Preferred Stock as to the declaration or payment of any dividend (together with the Common Stock, the “ Dividend

 


Junior Stock ”), and on a pari passu basis with respect to any declaration or payment of any dividend on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series F Preferred as to the declaration or payment of any dividend including, without limitation, the Series C Preferred Stock, par value $0.001 per share, of the Corporation (the “ Dividend Parity Stock ”), at the Dividend Rate (as defined below), payable when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. If the dividend to be distributed among the holders of the Series F Preferred Stock and the Dividend Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire amount legally available for distribution shall be distributed ratably among the holders of the Series F Preferred Stock and the Dividend Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this Section 2 . For purposes of this Section 2 , “ Dividend Rate ” shall mean $1.37 per annum for each share of Series F Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like.

Section 3. Liquidation Rights.

(a) Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the certificate of incorporation of the Corporation ranking senior to the Series F Preferred Stock as to a Liquidation Event (as defined below), including, without limitation, the Series A Preferred Stock, $0.001 per share, of the Corporation, the Series B Preferred Stock, par value $0.001 per share, of the Corporation, and the Series D Preferred Stock, par value $0.001 per share, of the Corporation in the event of any Liquidation Event, either voluntary or involuntary, the holders of Series F Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the proceeds of such Liquidation Event (the “ Proceeds ”) to the holders of Common Stock and any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series F Preferred Stock as to a Liquidation Event, and on a pari passu basis with respect to any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series F Preferred as to a Liquidation Event, including, without limitation, the Series C Preferred Stock, par value $0.001 per share, of the Corporation (collectively, the “ Liquidation Parity Stock ”), an amount per share equal to the sum of the Original Issue Price (as defined below) for Series F Preferred Stock, plus declared but unpaid dividends on such share. If, upon the occurrence of such event, the Proceeds thus distributed among the holders of the Series F Preferred Stock and the Liquidation Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire Proceeds legally available for distribution shall be distributed ratably among the holders of the Series F Preferred Stock and the Liquidation Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this subsection (a). For purposes of this Certificate of Designation, the “ Original Issue Price ” of the Series F Preferred Stock shall mean $22.87 per share for each share of Series F Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to Series F Preferred Stock.

 

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(b) For purposes of this Section 3, a “ Liquidation Event ” shall include (A) the closing of the sale, transfer or other disposition of all or substantially all of the Corporation’s assets, (B) the consummation of the merger or consolidation of the Corporation with or into another entity (except a merger or consolidation in which the holders of voting capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Corporation or the surviving or acquiring entity), or (C) a liquidation, dissolution or winding up of the Corporation; provided, however, that a transaction shall not constitute a Liquidation Event if its sole purpose is to change the state of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s voting securities immediately prior to such transaction. The treatment of any particular transaction as a Liquidation Event may be waived by the vote or written consent of the holders of a majority in voting power of the series of Preferred Stock then outstanding and entitled to vote on all matters on which stockholders generally are entitled to vote (voting together as a single class).

(c) In any Liquidation Event, if any of the Proceeds received by the Corporation or its stockholders is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

(A) Securities not subject to investment letter or other similar restrictions on free marketability covered by subsection (B) below:

(1) if traded on a securities exchange or through the NASDAQ National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event;

(2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event; and

(3) If there is no active public market, the value shall be the fair market value thereof, as determined by the Corporation.

(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in subsections (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined by the Corporation.

 

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(C) The foregoing methods for valuing non-cash consideration to be distributed in connection with a Liquidation Event may be superseded by any determination of such value set forth in the definitive agreements governing such Liquidation Event.

(d) In the event the requirements of this Section 3 are not complied with, the Corporation shall forthwith either:

(A) cause the closing of such Liquidation Event to be postponed until such time as the requirements of this Section 3 have been complied with; or

(B) cancel such transaction, in which event the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, of the holders of the Series F Preferred Stock shall revert to and be the same as such powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, existing prior to the Liquidation Event.

Section 4. Conversion Rights . The holders of the Series F Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

(a) Right to Convert . Each share of Series F Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series F Preferred Stock, into such number of fully paid and nonassessable shares of Non-Voting Common Stock, par value $0.001 per share, of the Corporation (the “ Non-Voting Common Stock ”), as is determined by dividing the Original Issue Price for the Series F Preferred Stock by the Conversion Price (as defined below) for the Series F Preferred Stock (the conversion rate for the Series F Preferred Stock into Non-Voting Common Stock is referred to herein as the “ Conversion Rate ” for the Series F Preferred Stock), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial “ Conversion Price ” per share for the Series F Preferred Stock shall be the Original Issue Price for the Series F Preferred Stock; provided, however, that the Conversion Price for the Series F Preferred Stock shall be subject to adjustment as set forth in subsection (d) below.

(b) Automatic Conversion . Each share of Series F Preferred Stock shall automatically be converted into shares of Non-Voting Common Stock at the Conversion Rate then in effect for the Series F Preferred Stock immediately prior to the consummation of the Corporation’s initial sale of its Voting Common Stock, par value $0.001 per share (the “ Voting Common Stock ”), in a public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which is not less than $2.00 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like) and $20,000,000.00 in the aggregate (a “ Qualified Public Offering ”).

 

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(c) Mechanics of Conversion . Before any holder of Series F Preferred Stock shall be entitled to voluntarily convert the same into shares of Non-Voting Common Stock pursuant to subsection (a) above, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series F Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Non-Voting Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series F Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Non-Voting Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates for shares of Series F Preferred Stock to be converted, and the person or persons entitled to receive the shares of Non-Voting Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Non-Voting Common Stock as of such date.

(d) Conversion Price Adjustments of Series F Preferred Stock for Certain Distributions, Splits and Combinations . The Conversion Price of the Series F Preferred Stock shall be subject to adjustment from time to time as follows:

(A) In the event the Corporation should at any time or from time to time after the date upon which the original Certificate of Designation of Series F Preferred Stock is accepted for filing with the Secretary of State of the State of Delaware (the “ Filing Date ”), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion, exchange or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series F Preferred Stock shall be appropriately decreased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series F Preferred Stock shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and/or the aggregate number of shares of Common Stock issuable with respect to such Common Stock Equivalents, with the number of shares issuable with respect to Common Stock Equivalents determined from time to time as follows:

 

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(1) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such Common Stock Equivalents shall be deemed to have been issued at the time such Common Stock Equivalents were issued.

(2) In the event of any change in the number of shares of Common Stock deliverable upon conversion, exchange or exercise of such Common Stock Equivalents, the Conversion Price of the Series F Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Common Stock Equivalents.

(3) Upon the termination or expiration of any such Common Stock Equivalents, the Conversion Price of the Series F Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(B) If the number of shares of Common Stock outstanding at any time after the Filing Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series F Preferred Stock shall be appropriately increased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series F Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

(e) Recapitalizations . If at any time or from time to time after the Filing Date, there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in subsection (d) above and other than a Liquidation Event (which shall be subject to Section 3 )), provision shall be made so that the holders of the Series F Preferred Stock shall thereafter be entitled to receive upon conversion of the Series F Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Non-Voting Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of subsection (d) above with respect to the rights of the holders of the Series F Preferred Stock after the recapitalization to the end that the provisions of subsection (d) above (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series F Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable.

 

6


(f) No Fractional Shares and Certificate as to Adjustments .

(A) No fractional shares shall be issued upon the conversion of any share or shares of the Series F Preferred Stock and the aggregate number of shares of Non-Voting Common Stock to be issued to particular stockholders, shall be rounded down to the nearest whole share and the Corporation shall pay in cash the fair market value of any fractional shares as of the time when entitlement to receive such fractions is determined. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series F Preferred Stock the holder is at the time converting into Non-Voting Common Stock and the number of shares of Non-Voting Common Stock issuable upon such conversion.

(B) The Corporation shall, upon the written request at any time of any holder of Series F Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) each adjustment and readjustment of the Conversion Price for the Series F Stock made pursuant to this Section 4 , (B) the Conversion Price for the Series F Preferred Stock at the time in effect, and (C) the number of shares of Non-Voting Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series F Preferred Stock.

(g) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Non-Voting Common Stock solely for the purpose of effecting the conversion of the shares of the Series F Preferred Stock, such number of its shares of Non-Voting Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series F Preferred Stock; and if at any time the number of authorized but unissued shares of Non-Voting Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series F Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series F Preferred Stock, the Corporation shall, to the fullest extent permitted by law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Non-Voting Common Stock (and, if applicable, 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 Certificate of Designation or the certificate of incorporation of the Corporation.

(h) Notices . Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series F Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

Section 5. Voting Rights . Except as provided by law, each holder of Series F Preferred Stock shall have no voting rights and its vote or consent shall not be required for taking any corporate action.

 

7


Section 6. Status of Purchased or Converted Shares of Series F Preferred Stock. If any share of Series F Preferred Stock is purchased or otherwise acquired by the Corporation, in any manner whatsoever, the share of Series F Preferred Stock so acquired shall, to the fullest extent permitted by law, be retired and cancelled upon such acquisition, and shall not be reissued as a share of Series F Preferred Stock. Any share of Series F Preferred Stock so acquired shall, upon its retirement and cancellation, and upon the taking of any action required by law, become an authorized but unissued share of Preferred Stock undesignated as to series and may be reissued a part of a new series of Preferred Stock, subject to the conditions and restrictions set forth in the certificate of incorporation of the Corporation or imposed by the General Corporation Law.”

[Signature Page Follows]

 

8


IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation of the Series F Preferred Stock of Genprex, Inc. on this 3rd day of September, 2014.

 

GENPREX, INC.

By:

 

/s/ RODNEY VARNER

Name: Rodney Varner

Title: Chief Executive Officer

 

9

Exhibit 3.1.7

CERTIFICATE OF DESIGNATION

OF

SERIES G PREFERRED STOCK

OF

GENPREX, INC.

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

Genprex, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter, the “ Corporation ”), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”):

“NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the certificate of incorporation of the Corporation, the Board of Directors of the Corporation hereby creates out of the authorized but unissued preferred stock, par value $0.001 per share, of the Corporation (“ Preferred Stock ”), a new series of Preferred Stock, and hereby states the designation and the number of shares of such series and fixes the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, thereof as follows:

Series G Preferred Stock:

Section 1. Designation and Amount . The shares of such series shall be designated as shares of “Series G Preferred Stock,” par value $0.001 per share, of the Corporation (the “ Series G Preferred Stock ”), and the number of shares constituting such series shall be fifty six thousand six hundred fifteen (56,615).

Section 2. Dividends Provisions. Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking senior to the Series G Preferred Stock as to the declaration or payment of any dividend, including, without limitation, the Series A Preferred Stock, par value $0.001 per share, of the Corporation, the Series B Preferred Stock, par value $0.001 per share, of the Corporation, the Series C Preferred Stock, par value $0.001 per share, of the Corporation, the Series D Preferred Stock, par value $0.001 per share, of the Corporation, the Series E Preferred Stock, par value $0.001 per share, of the Corporation, and the Series F Preferred Stock, par value $0.001 per share, of the Corporation (the “ Dividend Senior Stock ”), the holders of shares of Series G Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend payable (other than in shares of Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock or on any outstanding series of Preferred Stock provided

 


for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series G Preferred Stock as to the declaration or payment of any dividend (together with the Common Stock, the “ Dividend Junior Stock ”), and on a pari passu basis with respect to any declaration or payment of any dividend on any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series G Preferred Stock as to the declaration or payment of any dividend (the “ Dividend Parity Stock ”), at the Dividend Rate (as defined below), payable when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. If the dividend to be distributed among the holders of the Series G Preferred Stock and the Dividend Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire amount legally available for distribution shall be distributed ratably among the holders of the Series G Preferred Stock and the Dividend Parity Stock in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this Section 2. For purposes of this Section 2, “ Dividend Rate ” shall mean $1.06 per annum for each share of Series G Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like.

Section 3. Liquidation Rights.

(a) Subject to the rights of the holders of any outstanding series of Preferred Stock provided for or fixed pursuant to the certificate of incorporation of the Corporation ranking senior to the Series G Preferred Stock as to a Liquidation Event (as defined below), including, without limitation, the Series A Preferred Stock, $0.001 per share, of the Corporation, the Series B Preferred Stock, par value $0.001 per share, of the Corporation, the Series C Preferred Stock, par value $0.001 per share, of the Corporation, the Series D Preferred Stock, par value $0.001 per share, of the Corporation, the Series E Preferred Stock, par value $0.001 per share, of the Corporation, and the Series F Preferred Stock, par value $0.001 per share, of the Corporation, in the event of any Liquidation Event, either voluntary or involuntary, the holders of Series G Preferred Stock shall be entitled to receive, prior and in preference to any distribution of the proceeds of such Liquidation Event (the “ Proceeds ”) to the holders of Common Stock and any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking junior to the Series G Preferred Stock as to a Liquidation Event, and on a pari passu basis with respect to any outstanding series of Preferred Stock provided for or fixed pursuant to the provisions of the certificate of incorporation of the Corporation ranking on parity with the Series G Preferred as to a Liquidation Event (collectively, the “ Liquidation Parity Stock ”), an amount per share equal to the sum of the Original Issue Price (as defined below) for Series G Preferred Stock, plus declared but unpaid dividends on such share. If, upon the occurrence of such event, the Proceeds thus distributed among the holders of the Series G Preferred Stock and the Liquidation Parity Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire Proceeds legally available for distribution shall be distributed ratably among the holders of the Series G Preferred Stock and the Liquidation Parity Stock in proportion to

 

2


the full preferential amount that each such holder is otherwise entitled to receive under this subsection (a). For purposes of this Certificate of Designation, the “ Original Issue Price ” of the Series G Preferred Stock shall mean $35.33 per share for each share of Series G Preferred Stock, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to Series G Preferred Stock.

(b) For purposes of this Section 3, a “ Liquidation Event ” shall include (A) the closing of the sale, transfer or other disposition of all or substantially all of the Corporation’s assets, (B) the consummation of the merger or consolidation of the Corporation with or into another entity (except a merger or consolidation in which the holders of voting capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of the Corporation or the surviving or acquiring entity), or (C) a liquidation, dissolution or winding up of the Corporation; provided, however, that a transaction shall not constitute a Liquidation Event if its sole purpose is to change the state of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s voting securities immediately prior to such transaction. The treatment of any particular transaction as a Liquidation Event may be waived by the vote or written consent of the holders of a majority in voting power of the series of Preferred Stock then outstanding and entitled to vote on all matters on which stockholders generally are entitled to vote (voting together as a single class).

(c) In any Liquidation Event, if any of the Proceeds received by the Corporation or its stockholders is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

(A) Securities not subject to investment letter or other similar restrictions on free marketability covered by subsection (B) below:

(1) if traded on a securities exchange or through the NASDAQ National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event;

(2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading-day period ending three (3) trading days prior to the closing of the Liquidation Event; and

(3) If there is no active public market, the value shall be the fair market value thereof, as determined by the Corporation.

 

3


(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in subsections (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined by the Corporation.

(C) The foregoing methods for valuing non-cash consideration to be distributed in connection with a Liquidation Event may be superseded by any determination of such value set forth in the definitive agreements governing such Liquidation Event.

(d) In the event the requirements of this Section 3 are not complied with, the Corporation shall forthwith either:

(A) cause the closing of such Liquidation Event to be postponed until such time as the requirements of this Section 3 have been complied with; or

(B) cancel such transaction, in which event the powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, of the holders of the Series G Preferred Stock shall revert to and be the same as such powers (including voting powers), if any, and the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions, if any, existing prior to the Liquidation Event.

Section 4. Conversion Rights . The holders of the Series G Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

(a) Right to Convert . Each share of Series G Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series G Preferred Stock, into such number of fully paid and nonassessable shares of Non-Voting Common Stock, par value $0.001 per share, of the Corporation (the “ Non-Voting Common Stock ”), as is determined by dividing the Original Issue Price for the Series G Preferred Stock by the Conversion Price (as defined below) for the Series G Preferred Stock (the conversion rate for the Series G Preferred Stock into Non-Voting Common Stock is referred to herein as the “ Conversion Rate ” for the Series G Preferred Stock), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial “ Conversion Price ” per share for the Series G Preferred Stock shall be the Original Issue Price for the Series G Preferred Stock; provided, however, that the Conversion Price for the Series G Preferred Stock shall be subject to adjustment as set forth in subsection (d) below.

(b) Automatic Conversion . Each share of Series G Preferred Stock shall automatically be converted into shares of Non-Voting Common Stock at the Conversion Rate then in effect for the Series G Preferred Stock immediately prior to the consummation of the Corporation’s initial sale of its Voting Common Stock, par value $0.001 per share (the “ Voting Common Stock ”), in a public offering pursuant to a

 

4


registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which is not less than $2.00 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like) and $20,000,000.00 in the aggregate (a “ Qualified Public Offering ”).

(c) Mechanics of Conversion . Before any holder of Series G Preferred Stock shall be entitled to voluntarily convert the same into shares of Non-Voting Common Stock pursuant to subsection (a) above, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series G Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Non-Voting Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series G Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Non-Voting Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates for shares of Series G Preferred Stock to be converted, and the person or persons entitled to receive the shares of Non-Voting Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Non-Voting Common Stock as of such date.

(d) Conversion Price Adjustments of Series G Preferred Stock for Certain Distributions, Splits and Combinations . The Conversion Price of the Series G Preferred Stock shall be subject to adjustment from time to time as follows:

(A) In the event the Corporation should at any time or from time to time after the date upon which the original Certificate of Designation of Series G Preferred Stock is accepted for filing with the Secretary of State of the State of Delaware (the “ Filing Date ”), fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion, exchange or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series G Preferred Stock shall be appropriately decreased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series G Preferred Stock shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and/or the aggregate number of shares of Common Stock issuable with respect to such Common Stock Equivalents, with the number of shares issuable with respect to Common Stock Equivalents determined from time to time as follows:

 

5


(1) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such Common Stock Equivalents shall be deemed to have been issued at the time such Common Stock Equivalents were issued.

(2) In the event of any change in the number of shares of Common Stock deliverable upon conversion, exchange or exercise of such Common Stock Equivalents, the Conversion Price of the Series G Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such Common Stock Equivalents.

(3) Upon the termination or expiration of any such Common Stock Equivalents, the Conversion Price of the Series G Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(B) If the number of shares of Common Stock outstanding at any time after the Filing Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series G Preferred Stock shall be appropriately increased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Series G Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

(e) Recapitalizations . If at any time or from time to time after the Filing Date, there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in subsection (d) above and other than a Liquidation Event (which shall be subject to Section 3)), provision shall be made so that the holders of the Series G Preferred Stock shall thereafter be entitled to receive upon conversion of the Series G Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Non-Voting Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of subsection (d) above with respect to the rights of the holders of the Series G Preferred Stock after the recapitalization to the end that the provisions of subsection (d) above (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series G Preferred Stock) shall be applicable after that event as nearly equivalently as may be practicable.

 

6


(f) No Fractional Shares and Certificate as to Adjustments .

(A) No fractional shares shall be issued upon the conversion of any share or shares of the Series G Preferred Stock and the aggregate number of shares of Non-Voting Common Stock to be issued to particular stockholders, shall be rounded down to the nearest whole share and the Corporation shall pay in cash the fair market value of any fractional shares as of the time when entitlement to receive such fractions is determined. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series G Preferred Stock the holder is at the time converting into Non-Voting Common Stock and the number of shares of Non-Voting Common Stock issuable upon such conversion.

(B) The Corporation shall, upon the written request at any time of any holder of Series G Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) each adjustment and readjustment of the Conversion Price for the Series G Stock made pursuant to this Section 4, (B) the Conversion Price for the Series G Preferred Stock at the time in effect, and (C) the number of shares of Non-Voting Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series G Preferred Stock.

(g) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Non-Voting Common Stock solely for the purpose of effecting the conversion of the shares of the Series G Preferred Stock, such number of its shares of Non-Voting Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series G Preferred Stock; and if at any time the number of authorized but unissued shares of Non-Voting Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series G Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series G Preferred Stock, the Corporation shall, to the fullest extent permitted by law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Non-Voting Common Stock (and, if applicable, 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 Certificate of Designation or the certificate of incorporation of the Corporation.

 

7


(h) Notices . Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series G Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

Section 5. Voting Rights . Except as provided by law, each holder of Series G Preferred Stock shall have no voting rights and its vote or consent shall not be required for taking any corporate action.

Section 6. Status of Purchased or Converted Shares of Series G Preferred Stock. If any share of Series G Preferred Stock is purchased or otherwise acquired by the Corporation, in any manner whatsoever, the share of Series G Preferred Stock so acquired shall, to the fullest extent permitted by law, be retired and cancelled upon such acquisition, and shall not be reissued as a share of Series G Preferred Stock. Any share of Series G Preferred Stock so acquired shall, upon its retirement and cancellation, and upon the taking of any action required by law, become an authorized but unissued share of Preferred Stock undesignated as to series and may be reissued a part of a new series of Preferred Stock, subject to the conditions and restrictions set forth in the certificate of incorporation of the Corporation or imposed by the General Corporation Law.”

[Signature Page Follows]

 

8


IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation of the Series G Preferred Stock of Genprex, Inc. on this 16th day of February, 2015.

 

GENPREX, INC.

By:

 

/s/ RYAN CONFER

Name: Ryan Confer

Title: Chief Operating Officer

 

9

Exhibit 3.3

BYLAWS OF

CONVERGEN LIFESCIENCES, INC.

(A DELAWARE CORPORATION)

 


TABLE OF CONTENTS

 

ARTICLE I. OFFICES

     1  

1.1

  Registered Office      1  

1.2

  Offices      1  

ARTICLE II. MEETINGS OF STOCKHOLDERS

     1  

2.1

  Location      1  

2.2

  Timing      1  

2.3

  Notice of Meeting      1  

2.4

  Stockholders Records      2  

2.5

  Special Meetings      2  

2.6

  Notice of Meeting      2  

2.7

  Business Transacted at Special Meeting      2  

2.8

  Quorum; Meeting Adjournment; Presence by Remote Means      2  

2.9

  Voting Thresholds      3  

2.10

  Number of Votes Per Share      3  

2.11

  Action by Written Consent of Stockholders; Electronic Consent; Notice of Action      4  

ARTICLE III. DIRECTORS

     4  

3.1

  Authorized Directors      4  

3.2

  Vacancies      5  

3.3

  Board Authority      5  

3.4

  Location of Meetings      5  

3.5

  First Meeting      5  

3.6

  Regular Meetings      5  

3.7

  Special Meetings      5  

 

i


3.8

  Quorum      6  

3.9

  Action Without a Meeting      6  

3.10

  Telephonic Meetings      6  

3.11

  Committees      7  

3.12

  Minutes of Meetings      7  

3.13

  Compensation of Directors      7  

3.14

  Removal of Directors      7  

ARTICLE IV. NOTICES

     7  

4.1

  Notice      7  

ARTICLE V. OFFICERS

     8  

5.1

  Required and Permitted Officers      8  

5.2

  Appointment of Required Officers      9  

5.3

  Appointment of Permitted Officers      9  

5.4

  Officer Compensation      9  

5.5

  Term of Office; Vacancies      9  

5.6

  Chairman Presides      9  

5.7

  Absence of Chairman      9  

5.8

  Powers of President      9  

5.9

  President’s Signature Authority      10  

5.10

  Absence of President      10  

5.11

  Duties of Secretary      10  

5.12

  Duties of Assistant Secretary      10  

5.13

  Duties of Treasurer      10  

5.14

  Disbursements and Financial Reports      11  

5.15

  Treasurer’s Bond      11  

 

ii


5.16

  Duties of Assistant Treasurer      11  

ARTICLE VI. CERTIFICATE OF STOCK

     11  

6.1

  Stock Certificates      11  

6.2

  Facsimile Signatures      12  

6.3

  Lost Certificates      12  

6.4

  Transfer of Stock      12  

6.5

  Fixing a Record Date      12  

6.6

  Registered Stockholders      12  

ARTICLE VII. GENERAL PROVISIONS

     13  

7.1

  Dividends      13  

7.2

  Reserve for Dividends      13  

7.3

  Checks      13  

7.4

  Fiscal Year      13  

7.5

  Corporate Seal      13  

7.6

  Indemnification      13  

7.7

  Conflicts with Certificate of Incorporation      15  

ARTICLE VIII. AMENDMENTS

     15  

ARTICLE IX. LOANS TO OFFICERS

     15  

 

 

iii


BYLAWS

OF

CONVERGEN LIFESCIENCES, INC.

ARTICLE I

OFFICES

1.1 Registered Office . The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.

1.2 Offices . The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1 Location . All meetings of the stockholders for the election of directors shall be held in the City of Austin, State of Texas, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting; provided, however, that the Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211 of the Delaware General Corporations Law (“DGCL”). Meetings of stockholders for any other purpose may be held at such time and place, if any, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof, or a waiver by electronic transmission by the person entitled to notice.

2.2 Timing . Annual meetings of stockholders, commencing with the year 2010, shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting.

2.3 Notice of Meeting . Written notice of any stockholder meeting stating the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given to each stockholder entitled to vote at such meeting not fewer than ten (10) nor more than sixty (60) days before the date of the meeting.

 

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2.4 Stockholders Records . The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address (but not the electronic address or other electronic contact information) of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

2.5 Special Meetings . Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning at least ten percent (10%) in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.

2.6 Notice of Meeting . Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not fewer than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. The means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting shall also be provided in the notice.

2.7 Business Transacted at Special Meeting . Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

2.8 Quorum; Meeting Adjournment; Presence by Remote Means .

(a) Quorum; Meeting Adjournment. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the

 

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stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

(b) Presence by Remote Means. If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:

(1) participate in a meeting of stockholders; and

(2) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.

2.9 Voting Thresholds . When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question.

2.10 Number of Votes Per Share . Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote by such stockholder or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period.

 

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2.11 Action by Written Consent of Stockholders; Electronic Consent; Notice of Action.

(a) Action by Written Consent of Stockholders. Unless otherwise provided by the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken, is signed in a manner permitted by law by the holders of outstanding stock having not less than the number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Written stockholder consents shall bear the date of signature of each stockholder who signs the consent in the manner permitted by law and shall be delivered to the corporation as provided in subsection (b) below. No written consent shall be effective to take the action set forth therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner provided above, written consents signed by a sufficient number of stockholders to take the action set forth therein are delivered to the corporation in the manner provided above.

(b) Electronic consent. An email or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such email or other electronic transmission sets forth or is delivered with information from which the corporation can determine the satisfaction of the Board (1) that the email or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (2) the date on which such stockholder or proxyholder or authorized person or persons transmitted such electronic transmission. The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. Delivery made to a corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by email or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board of Directors of the corporation.

(c) Notice of Action . Prompt notice of any action taken pursuant to this Section 2.11 shall be provided to the stockholders in accordance with Section 228(e) of the DGCL.

ARTICLE III

DIRECTORS

3.1 Authorized Directors. The number of directors that shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting of the stockholders, except as provided in Section 3.2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders.

 

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3.2 Vacancies. Unless otherwise provided in the corporation’s certificate of incorporation, as it may be amended, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board of Directors (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office.

3.3 Board Authority. The business of the corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders.

3.4 Location of Meetings. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware.

3.5 First Meeting. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.

3.6 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.

3.7 Special Meetings. Special meetings of the Board of Directors may be called by the president upon notice to each director; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two (2) directors

 

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unless the Board of Directors consists of only one director, in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Notice of any special meeting shall be given to each director at his business or residence in writing, or by telegram, facsimile transmission, telephone communication or electronic transmission (provided, with respect to electronic transmission, that the director has consented to receive the form of transmission at the address to which it is directed). If mailed, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by telegram, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company at least twenty-four (24) hours before such meeting. If by facsimile transmission or other electronic transmission, such notice shall be transmitted at least twenty-four (24) hours before such meeting. If by telephone, the notice shall be given at least twelve (12) hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these Bylaws as provided under Section 8.1 of Article VIII hereof. A meeting may be held at any time without notice if all the directors are present (except as otherwise provided by law) or if those not present waive notice of the meeting in writing, either before or after such meeting.

3.8 Quorum. At all meetings of the Board of Directors a majority of the directors shall constitute a quorum for the transaction of business and any act of a majority of the directors present at any meeting at which there is a quorum shall be an act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

3.9 Action Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing, writings, electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee.

3.10 Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors or any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or any committee, by means of conference telephone or other means of communication by which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting.

 

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3.11 Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it, but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval or (ii) adopting, amending or repealing any provision of these bylaws.

3.12 Minutes of Meetings. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

3.13 Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director; and may be awarded stock options or other equity as compensation. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

3.14 Removal of Directors. Unless otherwise provided by the certificate of incorporation or these bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors.

ARTICLE IV

NOTICES

4.1 Notice. Unless otherwise provided in these bylaws, whenever, under the provisions of the statutes or of the certificate of incorporation or of these bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram, or by electronic facsimile or email, with confirmation of receipt.

 

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4.2 Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

4.3 Electronic Notice.

(a) Electronic Transmission. Without limiting the manner by which notice otherwise may be given effectively to stockholders and directors, any notice to stockholders or directors 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 or director to whom the notice is given. Any such consent shall be revocable by the stockholder or director by written notice to the corporation. Any such consent shall be deemed revoked if (1) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent and (2) 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.

(b) Effective Date of Notice. Notice given pursuant to subsection (a) of this section shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the stockholder or director has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder or director has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder or director of such specific posting, upon the later of (i) such posting and (ii) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder or director. 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 by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

(c) Form of Electronic Transmission. For purposes of these bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

ARTICLE V

OFFICERS

5.1 Required and Permitted Officers. The officers of the corporation shall be chosen by the Board of Directors and shall be a president, treasurer and a secretary. The Board of Directors may elect from among its members a Chairman of the Board and a

 

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Vice-Chairman of the Board. The Board of Directors may also choose one or more vice-presidents, assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide.

5.2 Appointment of Required Officers. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, a treasurer, and a secretary and may choose vice-presidents.

5.3 Appointment of Permitted Officers. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

5.4 Officer Compensation. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors.

5.5 Term of Office; Vacancies. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors.

THE CHAIRMAN OF THE BOARD

5.6 Chairman Presides. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which he or she shall be present. he or she shall have and may exercise such powers as are, from time to time, assigned to him by the Board of Directors and as may be provided by law.

5.7 Absence of Chairman. In the absence of the Chairman of the Board, the Vice-Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which he or she shall be present. He or she shall have and may exercise such powers as are, from time to time, assigned to him by the Board of Directors and as may be provided by law.

THE PRESIDENT AND VICE-PRESIDENTS

5.8 Powers of President. The president shall be the chief executive officer of the corporation; in the absence of the Chairman and Vice-Chairman of the Board he or she shall preside at all meetings of the stockholders and the Board of Directors; he or she shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect.

 

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5.9 President’s Signature Authority. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation.

5.10 Absence of President. In the absence of the president or in the event of his inability or refusal to act, the vice-president, if any, (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

THE SECRETARY AND ASSISTANT SECRETARY

5.11 Duties of Secretary. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he or she shall be. The secretary shall have custody of the corporate seal of the corporation and he or she, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature.

5.12 Duties of Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

THE TREASURER AND ASSISTANT TREASURERS

5.13 Duties of Treasurer. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors.

 

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5.14 Disbursements and Financial Reports. The treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation.

5.15 Treasurer’s Bond. If required by the Board of Directors, the treasurer shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation.

5.16 Duties of Assistant Treasurer. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of the treasurer’s inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

ARTICLE VI

CERTIFICATE OF STOCK

6.1 Stock Certificates . Every holder of stock in the corporation shall be entitled to have a certificate, signed by or in the name of the corporation by, the Chairman or Vice-Chairman of the Board of Directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation.

Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified.

If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the

 

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certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

6.2 Facsimile Signatures. Any or all of the signatures on the certificate may be facsimile. In the event that 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, the certificate may be issued by the corporation with the same effect as if such officer, transfer agent or registrar were still acting as such at the date of issue.

6.3 Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issuance of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

6.4 Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

6.5 Fixing a Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date which 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. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

6.6 Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to vote as such owner, to hold liable for calls and assessments a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

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ARTICLE VII

GENERAL PROVISIONS

7.1 Dividends. Dividends upon the capital stock of the corporation, if any, subject to the provisions of the certificate of incorporation, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the certificate of incorporation.

7.2 Reserve for Dividends. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their sole discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purposes as the directors think conducive to the interests of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

7.3 Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

7.4 Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

7.5 Corporate Seal. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.

7.6 Indemnification. The corporation shall, to the fullest extent authorized under the laws of the State of Delaware, as those laws may be amended and supplemented from time to time, indemnify any director made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of being a director of the corporation or a predecessor corporation or, at the corporation’s request, a director or officer of another corporation; provided, however, that the corporation shall indemnify any such agent in connection with a proceeding initiated by such agent only if such proceeding was authorized by the Board of Directors of the corporation. The indemnification provided for in this Section 7.6 shall: (i) not be deemed exclusive of any other rights to which those indemnified may be entitled under these bylaws, agreement or vote of stockholders or disinterested directors or otherwise, both as to action in their official capacities and as to action in another capacity while holding such office, (ii) continue as to a person who has ceased to be a director, and (iii) inure to the benefit of the heirs, executors and administrators of a person who has ceased to be a director. The corporation’s obligation to provide indemnification under this Section 7.6 shall be offset to the extent of any other source of indemnification or any otherwise applicable insurance coverage under a policy maintained by the corporation or any other person.

 

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Expenses incurred by a director of the corporation in defending a civil or criminal action, suit or proceeding by reason of the fact that he or she is or was a director of the corporation (or was serving at the corporation’s request as a director or officer of another corporation) shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized by relevant sections of the DGCL. Notwithstanding the foregoing, the corporation shall not be required to advance such expenses to an agent who is a party to an action, suit or proceeding brought by the corporation and approved by a majority of the Board of Directors of the corporation that alleges willful misappropriation of corporate assets by such agent, disclosure of confidential information in violation of such agent’s fiduciary or contractual obligations to the corporation or any other willful and deliberate breach in bad faith of such agent’s duty to the corporation or its stockholders.

The foregoing provisions of this Section 7.6 shall be deemed to be a contract between the corporation and each director who serves in such capacity at any time while this bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts.

The Board of Directors in its sole discretion shall have power on behalf of the corporation to indemnify any person, other than a director, made a party to any action, suit or proceeding by reason of the fact that he or she, his testator or intestate, is or was an officer or employee of the corporation.

To assure indemnification under this Section 7.6 of all directors, officers and employees who are determined by the corporation or otherwise to be or to have been “fiduciaries” of any employee benefit plan of the corporation that may exist from time to time, Section 145 of the DGCL shall, for the purposes of this Section 7.6, be interpreted as follows: an “other enterprise” shall be deemed to include such an employee benefit plan, including without limitation, any plan of the corporation that is governed by the Act of Congress entitled “Employee Retirement Income Security Act of 1974,” as amended from time to time; the corporation shall be deemed to have requested a person to serve the corporation for purposes of Section 145 of the DGCL, as administrator of an employee benefit plan where the performance by such person of his duties to the corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to such Act of Congress shall be deemed “fines.”

 

14


CERTIFICATE OF INCORPORATION GOVERNS

7.7 Conflicts with Certificate of Incorporation. In the event of any conflict between the provisions of the corporation’s certificate of incorporation and these bylaws, the provisions of the certificate of incorporation shall govern.

ARTICLE VIII

AMENDMENTS

8.1 These bylaws may be altered, amended or repealed, or new bylaws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. If the power to adopt, amend or repeal bylaws is conferred upon the Board of Directors by the certificate of incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal bylaws.

ARTICLE IX

LOANS TO OFFICERS

9.1 The corporation may lend money to, or guarantee any obligation of or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.

 

15

Exhibit 4.2

TEXAS EMERGING TECHNOLOGY FUND

AWARD AND SECURITY AGREEMENT

BETWEEN THE STATE OF TEXAS

AND

CONVERGEN LIFESCIENCES, INC.

THIS TEXAS EMERGING TECHNOLOGY FUND AWARD AND SECURITY AGREEMENT (this “ Agreement ”) shall be effective as of the last date of execution hereof by the parties hereto, as reflected on the signature page hereto (the “ Effective Date ”), and is by and between the State of Texas, acting by and through the Office of the Governor Economic Development and Tourism (the “ OOGEDT ”) and Convergen LifeSciences, Inc., a Delaware corporation (the “ Company ”).

RECITALS

A. Pursuant to Texas Government Code Chapter 490, the State of Texas has allocated $300 million, to be used with the express written approval of the Governor, Lieutenant Governor, and Speaker of the House of Representatives to develop and diversify the economy of the State of Texas by expediting innovation and commercialization of research; attracting, creating, or expanding private sector entities that will promote a substantial increase in high-quality jobs; and increasing higher education applied technology research capabilities.

B. Article III, Section 52-a of the Texas Constitution expressly authorizes the State of Texas to use public funds for the public purposes of development and diversification of the economy of the State of Texas, the elimination of unemployment or underemployment in the State of Texas, or the development of commerce in the State of Texas.

C. The Governor, Lieutenant Governor, and Speaker have each approved the Award (as defined below) from the Emerging Technology Fund to the Company, as evidenced in the letter attached as Exhibit A hereto.

 

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D. To ensure that the benefits the OOGEDT provides under this Agreement are utilized in a manner consistent with Article III, Section 52-a of the Texas Constitution, and other applicable laws, the Company has agreed to comply with certain conditions and deliver certain performance, in exchange for receiving the benefits associated with the Award to the Company.

E. The Company and the OOGEDT desire to set forth herein the provisions relating to the awarding of such monies and the disbursement thereof to the Company.

IN CONSIDERATION of the Award and the premises, covenants, agreements and provisions contained in this Agreement, the parties to this Agreement, intending to be legally bound, agree as follows:

Article I

DEFINITIONS

Section 1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set out respectively after each such term (the meanings to be equally applicable to both the singular and plural forms of the terms defined), unless the context specifically indicates otherwise:

 

  A. Additional Amount ” – has the meaning set forth in Section  3.03 .

 

  B. Agreement ” – has the meaning set forth in the preamble.

 

  C. Application ” – has the meaning set forth in Section  2.02 .

 

  D. Award ” – means an award of monies from the OOGEDT to the Company in an amount equal to the sum of the Initial Amount plus the Additional Amount that may be disbursed pursuant to the terms and conditions of this Agreement.

 

  E. Collateral ” – has the meaning set forth in Section  4.01 .

 

  F. Common Stock ” – has the meaning set forth in the Unit.

 

  G. Company ” – has the meaning set forth in the preamble.

 

  H. Company Affiliate ” means a person who or that directly, or indirectly through one or more intermediaries, controls the Company or is controlled by, or is under common control with, such a person.

 

  I. Company Associate ” means, as of any particular date, a current shareholder of the Company (including a holder of common stock, preferred stock or other capital stock of the Company), a current debtholder of the Company, and a current holder of convertible securities or holder of any right to purchase or acquire any capital stock of the Company.

 

  J. Compliance Verification ” – has the meaning set forth in Section  5.05 .

 

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  K. Effective Date ” – has the meaning set forth in the preamble.

 

  L. Event of Default ” – has the meaning set forth in Section  2.07 .

 

  M. GAAP ” – has the meaning set forth in Section  1.01(U)(vi) .

 

  N. Initial Amount ” – has the meaning set forth in Section  3.02 .

 

  O. Lien ” – means, with respect to any asset, any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory or other), security interest or other security arrangement relating to such asset and any other preference, priority or preferential arrangement of any kind or nature whatsoever relating to such asset.

 

  P. Note ” – has the meaning set forth in Section  3.04(B) .

 

  Q. Office of the Governor Economic Development and Tourism ” – means the Economic Development and Tourism Division within the Office of the Governor, and any designated representatives thereof.

 

  R. OOGEDT ” – has the meaning set forth in the preamble.

 

  S. Opinion Letter ” – has the meaning set forth in Section  3.04(C) .

 

  T. Permitted Liens ” – means, with respect to any Person, any of the following:

 

  (i) Liens (1) with respect to the payment of taxes, assessments or other governmental charges or (2) of suppliers, carriers, materialmen, warehousemen, workmen or mechanics and other similar Liens, in each case imposed by law or arising in the ordinary course of business, and, for each of the Liens in clauses (1)  and (2) above for amounts that are not yet due or that are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are maintained on the books of such Person;

 

  (ii) Liens of a collection bank on items in the course of collection arising under Section 4.208 of the Texas UCC or any similar section under the Uniform Commercial Code of any other applicable state;

 

  (iii) Liens, pledges or cash deposits made in the ordinary course of business (1) in connection with workers’ compensation, unemployment insurance or other types of social security benefits (other than any Lien imposed by ERISA), (2) to secure the performance of bids, tenders, leases, sales or other trade contracts (other than for the repayment of borrowed money) or (3) made in lieu of, or to secure the performance of, surety, customs, reclamation or performance bonds (in each case not related to judgments or litigation);

 

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  (iv) judgment liens (not including those for the payment of taxes, assessments or other governmental charges covered in (i) above) securing judgments and other proceedings not greater than $25,000 and pledges or cash deposits made in lieu of, or to secure the performance of, judgment or appeal bonds in respect of such judgments and proceedings;

 

  (v) Liens (1) arising by reason of zoning restrictions, easements, licenses, reservations, restrictions, covenants, rights-of-way, encroachments, minor defects or irregularities in title (including leasehold title) and other similar encumbrances, restrictions or limitations on the use of real property or (2) consisting of leases, licenses or subleases granted by a lessor, licensor, sublessor or sublicensor on its property (in each case other than capital leases) otherwise permitted hereunder that, for each of the Liens in clauses (1)  and (2) above, do not, in the aggregate, materially (x) impair the value or marketability of such real property or (y) interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property;

 

  (vi) Liens of landlords and mortgagees of landlords (1) arising by statute or under any lease or related contractual obligation entered into in the ordinary course of business, (2) on fixtures and movable tangible property located on the real property leased or subleased from such landlord, (3) for amounts not yet due or that are being contested in good faith by appropriate proceedings diligently conducted and (4) for which adequate reserves or other appropriate provisions are maintained on the books of such Person to the extent required by generally accepted accounting principals (“ GAAP ”);

 

  (vii) Liens arising by virtue of any statutory or common law provisions relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary or financial institution; and

 

  (viii) the title and interest of a lessor, sublessor, licensor or sublicensor in and to personal property leased, subleased, licensed or sublicensed, in each case extending only to such personal property and any Liens arising from UCC Financing Statements filed in connection therewith.

 

  U. Person ” – means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or governmental agency or body.

 

  V. Qualifying Liquidation Event ” means (a) the sale, conveyance, or other disposition of all or substantially all of the assets of the Company and its subsidiaries (taken as a whole) to persons who are not then Company Associates (as hereinafter defined) or Company Affiliates (as hereinafter defined), or (b) the sale of the Company’s then-outstanding equity securities by the Company’s stockholders or the Company’s merger into or consolidation with any other entity, in each such case, in which more than fifty percent (50%) of the voting power of the Company is transferred to persons who are not then Company Associates or Company Affiliates.

 

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  W. Right to Purchase ” – has the meaning set forth in Section  3.04(B) .

 

  X. SEC ” – means the United States Securities and Exchange Commission.

 

  Y. Secured Obligations ” – means all obligations of the Company and its successors and assigns now or hereafter existing under this Agreement and the Unit (including the Note), whether (i) for the prompt payment when due, whether at stated maturity or otherwise) of principal, interest, costs, fees, expenses or otherwise (including the payment of amounts which would become due but for the operation of the automatic stay under Section 362 of the United States Bankruptcy Code, 11 U.S.C. § 362), and/or (ii) for the prompt performance or payment when due of any other obligation of the Company and its successors and assigns to the OOGEDT, now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how created, evidenced or arising.

 

  Z. Security Term ” – means the period commencing on the date of the disbursement of the Initial Amount and ending on the earliest of the date on which (i) the Company has paid all principal and interest due under the Note pursuant to the terms of this Agreement and the Unit; (ii) the OOGEDT has fully exercised the Right to Purchase under the Unit; and (iii) the OOGEDT’s Right to Purchase expires pursuant to the terms of the Unit.

 

  AA. Texas Emerging Technology Fund ” – means the “fund” as defined under the Chapter 490 of the Texas Government Code.

 

  BB. Texas UCC ” – means the Uniform Commercial Code as from time to time in effect in the State of Texas.

 

  CC. Unit ” – has the meaning set forth in Section  3.04(B) .

 

  DD. The following terms have the meanings given to them in the Texas UCC and terms used herein without definition that are defined in the Texas UCC have the meanings given to them in the Texas UCC (such meanings to be equally applicable to both the singular and plural forms of the terms defined): “account”, “account debtor”, “as-extracted collateral”, “certificated security”, “chattel paper”, “commercial tort claim”, “commodity contract”, “deposit account”, “electronic chattel paper”, “equipment”, “farm products”, “fixture”, “general intangible”, “goods”, “health-care-insurance receivable”, “instruments”, “inventory”, “investment property”, “letter-of-credit right”, “proceeds”, “record”, “securities account”, “security”, “supporting obligation” and “tangible chattel paper”.

 

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Article II

AWARD

Section 2.01 Award of Monies. The OOGEDT shall issue the Award to the Company and disburse the proceeds in accordance with the conditions subsequent to its retention contained herein and the other provisions of this Agreement.

Section 2.02 Use of Award Proceeds. The Company shall use the Award to expedite commercialization that is intended to lead to an increase in high-quality jobs in the State of Texas by adding the Award to its working capital and using the Award in the development of its business, through acquisition of capital assets and/or reasonable and appropriate business expenses only in furtherance of the commercialization of a targeted nanomolecular therapy product for the treatment of cancer as described in the application previously submitted by the Company the OOGEDT (the “ Application ”). Notwithstanding the foregoing, the Award shall not be used for repayment of debt, in any form, (other than repayment of the Note pursuant to the terms of this Agreement and the terms of the Unit, and other than accounts payable (excluding capital leases) incurred in the ordinary course of business upon customary industry terms) including but not limited to (i) repayment to any members of the Company’s board of directors, its officers, its investors, its shareholders or any other affiliates of the Company, (ii) any restructuring of any existing debt or (iii) payment on any capital leases.

Section 2.03 Commercialization Milestones . The Company commits to using all of its reasonable efforts to meet the commercialization milestones attached as Exhibit C hereto as promptly as practicable. Promptly following the attainment of any such milestone, the Company shall provide the OOGEDT with sufficient evidence, to the satisfaction of the OOGEDT, that the milestones have been met by the date listed for each milestone.

Section 2.04 Guarantee of Commercialization or Manufacturing/Principal Place of Business. The Company agrees that a substantial percentage of any new or expanded commercialization or manufacturing of any real or intellectual product resulting from the Award shall be established in the State of Texas. New or expanded commercialization may include, but shall not be limited to, the occurrence of the following in the State of Texas: employment, capital investment, intellectual property development, manufacturing production, business expansion, development of supplier relationships, financing, outside sources of capital, and university collaboration. Further, the Company agrees that it shall maintain its principal place of business and its principal executive offices headquartered in the State of Texas throughout the term of this Agreement.

Section 2.05 Use and Retention of Texas Suppliers. The Company shall use reasonable efforts to use qualified Texas-based suppliers to provide products and services under this Agreement; provided , however , that the Company may in its sole discretion select suppliers and contractors based on program needs, scientific criteria, and industry standards.

Section 2.06 Company Representations, Warranties and Covenants. Without limiting the covenants, representations and warranties provided in other sections of this Agreement, including without limitation those provided under Article IV hereof, the Company further covenants with, and represents and warrants to the OOGEDT as of the Effective Date as follows:

 

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A. The Company has all necessary corporate and legal authority to enter into, execute, and deliver this Agreement, the Unit and all other documents referred to herein, and it has taken all actions necessary to duly execute and deliver all such agreements, instruments and documents.

B. The Company shall comply with all of the terms, conditions, provisions, covenants, requirements, and warranties in this Agreement and all other documents referred to herein.

C. The Company has made no material false statement or misstatement of fact in connection with its receipt of the Award, and all of the information it previously submitted to the OOGEDT or which it shall submit to the OOGEDT in the future relating to the Award or the disbursement of any of the Award is and shall be true and correct as of the date such information is submitted to the OOGEDT.

D. The Company is not in violation of any provisions of its certificate of formation or bylaws (or other charter documents) or of the laws of the State of Texas, the laws of the state in which it was formed or any other federal, state or local statutes, laws, ordinances and regulations applicable to the Company and its business, and there are no actions, suits, or proceedings pending, or to its knowledge threatened, before any judicial body or governmental authority against or affecting it, other than those specifically disclosed in the Application, and it is not in default with respect to any order, writ, injunction, decree, or demand of any court or any governmental authority which would impair its ability to enter into this Agreement, execute and issue the Unit, or perform any of its obligations hereunder or thereunder or as required by the transactions contemplated hereby.

E. Neither the execution and delivery of this Agreement, or any document referred to herein, nor compliance with any of the terms, conditions, requirements, or provisions contained in this Agreement or any documents referred to herein is prevented by, constitutes a breach of, or shall result in a breach of, any term, condition, or provision of any agreement or document to which the Company is now a party or by which it is bound.

F. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and any other jurisdiction in which it is qualified to transact business as a foreign corporation, and has provided the OOGEDT sufficient evidence of such, and certifies that it owes no delinquent taxes to any taxing entity of the State of Texas as of the Effective Date.

G. Except as set forth on Schedule 2.06(G), the Company, directly or indirectly, owns and has good title to or, in the case of leased or licensed property and assets, has valid leasehold or license interests in, all property and assets necessary for the conduct of the Company’s business, in each case free and clear of all Liens and other encumbrances other than Permitted Liens.

H. Except as set forth on Schedule 2.06(H), there are no existing or contemplated transactions of a material nature involving the Company by and between the members of the Company’s board of directors, its officers, and/or its investors, shareholders or other affiliates of the Company.

 

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I. The Company is not the direct or indirect subsidiary of another operating company and is not reasonably susceptible, and shall not in the future be reasonably susceptible, of being substantively consolidated with another Person in the context of bankruptcy or insolvency proceedings.

J. The Company has no subsidiaries as of the Effective Date and the Company hereby covenants and agrees that it shall not, without the prior written consent of the OOGEDT (such consent to be granted or withheld in the sole discretion of the OOGEDT), create or acquire any subsidiary during the Security Term. If the OOGEDT shall consent to the formation or acquisition of a subsidiary (in its sole discretion), the Company shall provide the OOGEDT with a written supplement to Schedule 2.06(J) to this Agreement providing in reasonable detail the following information regarding such subsidiary: (i) its name, (ii) its jurisdiction of formation and (iii) the shares of capital stock (number of shares and percentage) of such subsidiary that are beneficially owned, directly or indirectly, by the Company. The Company shall promptly provide the OOGEDT with an amended Schedule 2.06(J) to reflect any change with respect to any such subsidiary that occurs during the Security Term.

K. The Company’s jurisdiction of formation, legal name and organizational identification number, if any, and the location of the Company’s chief executive office or sole place of business, in each case as of the Effective Date, are specified on Schedule 2.06(K) , and such Schedule 2.06(K) also lists any jurisdictions of incorporation, legal names and locations of the Company’s chief executive office or sole place of business for the five (5) years preceding the Effective Date. The Company hereby covenants and agrees that it shall not change its jurisdiction of formation, legal name, organizational identification number (if any) or the location of the Company’s chief executive office or sole place of business without first providing the OOGEDT with thirty (30) days prior written notice of the same, and then only in accordance with the other terms and conditions of this Agreement.

L. The Company shall furnish a certificate executed by the Chief Executive Officer or Chief Financial Officer of the Company on behalf of the Company certifying that the representations and warranties made by Company in this Section  2.06 (as modified by the disclosure in any schedule or exhibit hereto) shall be true and correct in all material respects as of the Effective Date.

Section 2.07 Event(s) of Default. The following events shall, unless waived in writing by the OOGEDT, constitute an event of default (each, an “ Event of Default ”) under this Agreement upon the OOGEDT giving the Company thirty (30) days written notice of such event, and the Company’s failure to cure such event during such thirty (30) day time period for those Events of Default that can be cured within thirty (30) days or within whatever time period is needed to cure those Events of Default that cannot be cured within thirty (30) days as long as the Company is using its best efforts to cure and is making reasonable progress in curing such Events of Default; provided , however , that in no event shall the time period to cure any Event of

 

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Default exceed three (3) months; provided , further , that notwithstanding the foregoing, any of the following events that cannot be cured shall, unless waived in writing by the OOGEDT, constitute an Event of Default under this Agreement immediately upon the OOGEDT giving the Company written notice of such event:

A. The Company’s failure, for any reason, to continue using its reasonable efforts to commercialize a targeted nanomolecular therapy product for the treatment of cancer as described in the Application, including but not limited to an inability to continue business operations for any reason.

B. The Company’s failure to maintain its principal place of business or its principal executive offices headquartered in the State of Texas throughout the term of this Agreement (other than in connection with the consummation of a bona fide Qualifying Liquidation Event).

C. The Company or any business, branch, division, or department of the Company being convicted of a violation under Section 1324a(f) of the Immigrant and Nationality Act, 8 U.S.C. § 1324a(f).

D. Except for the Company’s failure to maintain its principal place of business or its principal executive offices headquartered in the State of Texas throughout the term of this Agreement (other than in connection with the consummation of a bona fide Qualifying Liquidation Event), which shall solely be governed by Section  2.07(B) , the Company’s failure to fully comply with any provision, term, condition or covenant contained in this Agreement, the Unit, the Application, or any other document referred to herein.

E. Except for the Company’s failure to maintain its principal place of business or its principal executive offices headquartered in the State of Texas throughout the term of this Agreement (other than in connection with the consummation of a bona fide Qualifying Liquidation Event), which shall solely be governed by Section  2.07(B) , if any representation, covenant, or warranty made by the Company herein, or in the Application for funding, in any other document furnished by Company pursuant to this Agreement, or in order to induce the OOGEDT to disburse any of the Award, shall prove to have been untrue or incorrect in any material respect or materially misleading as of the time such representation, covenant or warranty was made.

Section 2.08 Remedies. Subject to the notice and cure provisions in Section  2.07 hereof, upon the occurrence of an Event of Default and at any time thereafter until such Event of Default is cured to the reasonable satisfaction of the OOGEDT, the OOGEDT may enforce any or all of the following remedies (such rights and remedies being in addition to and not in lieu of any rights or remedies set forth in Section  4.10 below).

 

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A. Notwithstanding anything in the Fund Agreement or the Unit to the contrary, the OOGEDT, in its sole discretion, may, as its sole remedy with respect to an Event of Default under Section 2.07(b), require repayment of the full outstanding amount of the Award disbursed to the Company at such time of such Event of Default with interest pursuant to the terms of the Note, but in no event shall the OOGEDT have the right to exercise such remedy (or otherwise make a claim for damages based upon the outstanding amount of the Award rather than on the amount of the damages themselves) with respect to any other Event of Default under Section 2.07.

B. If the Company fails to repay the full amount under the Note as specified in Section  2.08(A) hereof within thirty (30) days of demand by the OOGEDT, then such amount may, unless precluded by law, be taken from or off-set against any aids or other monies that the Company is otherwise entitled to receive from the State of Texas.

C. Except as limited in Section 2.08(A) above and unless otherwise limited herein, the OOGEDT may enforce any additional remedies it has in law or equity.

D. Unless otherwise limited herein, the rights and remedies herein specified are cumulative and not exclusive of any rights or remedies that the OOGEDT would otherwise possess.

Section 2.09 Notification of Event of Default. The Company shall notify the OOGEDT in writing, as soon as possible and in any event within five (5) days after its executive officers have obtained knowledge of the occurrence of each Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. The Company shall include a statement setting forth details of each Event of Default or condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default, and the action which the Company proposes to take with respect thereto.

Section 2.10 Termination/Modification of Award. If the Company does not meet all conditions precedent in Section  3.04 below to the satisfaction of the OOGEDT, and does not request in writing the first disbursement in Section  3.02 by the date that is three (3) months after the Effective Date, then the OOGEDT’s obligation to disburse any of the Award shall terminate as of such day, and this Agreement shall become null and void. If the Company does not request in writing the second disbursement in Section  3.03 by the date that is nine (9) months after the Effective Date, then the OOGEDT’s obligation to disburse any portion of the Additional Amount shall terminate as of such date and the OOGEDT shall have no further obligations to provide any additional funding of the Award and, if the OOGEDT does not terminate this Agreement, this Agreement shall remain in full force and effect but shall be modified and amended to reflect the amount of the Award that was actually disbursed as of such date.

Section 2.11 Effect of Event of Default/Termination. If an Event of Default occurs and the Company is required to and does repay the amount specified in Section  2.08(A) to the OOGEDT under the Note, then this Agreement shall automatically terminate as of the date full repayment of the Note is received by the OOGEDT. Further, in any event OOGEDT may terminate this Agreement at any time following an Event of Default following the opportunity to cure as provided by Section  2.07 .

 

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Section 2.12 Right to Notice of Intellectual Property and/or Business Status. Upon any business dissolution, sale, merger, liquidation of assets, bankruptcy of the Company or the occurrence of any material adverse effect regarding the Company or its business (or the existence of facts that would reasonably be expected to result in a material adverse effect regarding the Company or its business), the Company shall provide the OOGEDT with full business information as necessary to fully inform the OOGEDT, and provide an opportunity to participate in assisting the Company in finding other avenues for fully developing and using the Company’s intellectual property if appropriate. However, the Company shall not be obligated to provide any information that it reasonably considers in good faith to constitute a trade secret or other highly confidential information under this Section  2.12 .

Section 2.13 Right to Terminate upon Repayment. Unless terminated earlier pursuant to Section  5.01(B) , the Company may at any time following eighteen (18) months after the Effective Date, terminate this Agreement and be released from its obligations hereunder by paying the OOGEDT an amount equal to the full amount of the principal and interest (and any other amounts) due under the Note pursuant to the terms of the Unit.

Section 2.14 Survival of Right to Purchase. Anything herein to the contrary notwithstanding, the Unit and the Right to Purchase under the Unit shall survive any termination of this Agreement and any repayment of the Note in accordance with the terms of the Unit.

Article III

DISBURSEMENT OF AWARD PROCEEDS

Section 3.01 Disbursement of Award. OOGEDT shall disburse the Award to the Company in accordance with Sections 3.02 and 3.03 below, and only after all conditions precedent have been complied with to the satisfaction of the OOGEDT in Section  3.04 below. Under no circumstance shall the OOGEDT be required to disburse funds in excess of the amount requested by the Company under the provisions contained in Sections 3.02 and 3.03 below, and the Company may not request less than the full amount of each disbursement outlined in Sections 3.02 and 3.03 below.

Section 3.02 Initial Disbursement. The OOGEDT shall disburse to the Company the initial disbursement of the Award in the amount of Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) (the “ Initial Amount ”) as soon as practicable following the Effective Date provided that all other requirements prior to receiving any disbursements pursuant to this Agreement have been satisfied.

Section 3.03 Second Disbursement. Provided that all other requirements prior to receiving any disbursements pursuant to this Agreement have been satisfied, the OOGEDT shall disburse to the Company the second half of Award disbursement in the amount of Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) (the “ Additional Amount ”) seven (7) months after the Effective Date, unless the Company demonstrates to the OOGEDT’s satisfaction that the disbursement of the Additional Amount should occur sooner based on significant completion of the commercialization milestones set forth on Exhibit C hereto. However, in no event shall the disbursement of the Additional Amount occur sooner than four (4) months after the Effective Date.

 

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Section 3.04 Conditions Precedent to Disbursement of Award. All of the following conditions precedent shall be met to the reasonable satisfaction of the OOGEDT prior to any disbursement of the Award:

A. Prior to the Company receiving a disbursement outlined in Sections 3.02 or 3.03 above, the OOGEDT shall have received a written request for disbursement of the Award.

B. Prior to the disbursement of the Initial Amount, the OOGEDT shall have received evidence, in form and substance acceptable to the OOGEDT, showing that the Company has issued the OOGEDT a duly executed Investment Unit in the form attached hereto as Exhibit B (the “ Unit ”) providing OOGEDT with (i) a promissory note pursuant to which the Company promises to repay the OOGEDT, in accordance with the terms of this Agreement and the Unit, all amounts of the Award disbursed hereunder with interest (the “ Note ”) and (ii) a right to acquire (the “ Right to Purchase ”) shares of the Company’s capital stock that shall as of the date of this Agreement represent 81.82% of the Common Stock as determined on a fully diluted basis (for purposes of this clause (ii)  only, such percentage assumes the disbursement of the full Award as of the date of this Agreement and assumes that the total number of shares of capital stock represented by the Right to Purchase under the Unit as of the date of this Agreement equals 4,500,000 shares of Common Stock). Notwithstanding the preceding clause (ii) , the number and type of shares represented by the Right to Purchase under the Unit at any given time is determined pursuant to the terms of the Unit.

C. Prior to the disbursement of the Initial Amount, the OOGEDT shall have received an outside counsel opinion letter provided by Company’s counsel (the “ Opinion Letter ”). The Opinion Letter shall provide that the Company is in compliance with the following:

 

  1. The Company is a corporation validly existing and in good standing under the laws of its state of incorporation.

 

  2. The Company has the requisite corporate power and authority to own, operate and lease its properties and to carry on its business as presently conducted.

 

  3. The Company is duly qualified to transact business (as either a domestic corporation or a foreign corporation) in the State of Texas.

 

  4. The Company has the corporate power to enter into this Agreement and to issue the Unit and the securities issuable upon exercise of the Right to Purchase under the Unit.

 

  5. All issued and outstanding equity securities of the Company have been duly authorized and validly issued and are fully-paid and non-assessable.

 

  6. The execution and delivery of the Award and Security Agreement and the Investment Unit does not violate the Company’s certificate of formation and bylaws (or other similar governing documents) or any of the material agreements specifically identified in the opinion as “Reviewed Agreements.”

 

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  7. Assuming timely filing of all relevant federal and state securities filings necessary to perfect any relevant registration exemptions, the issuance of the Unit and the equity securities issuable upon exercise of the Right to Purchase under the Unit do not require registration under applicable state and federal securities laws and regulations.

D. No Event of Default under this Agreement or event which would constitute an Event of Default but for the requirement that notice be given or that a period of grace or time elapse shall have occurred and be continuing.

E. The Company has supplied to the OOGEDT all other documentation that the OOGEDT may reasonably require.

F. If the “First Qualifying Financing Transaction” (as defined in the Unit) occurs prior to the disbursement of the Additional Amount, then prior to the disbursement of the Additional Amount, the Company shall:

 

  (i) furnish the OOGEDT with a statement containing the information required in Section  3.04(B)(ii) above with respect to the percentage as of the date of the disbursement of the Additional Amount of the Common Stock that the additional Right to Purchase contained in the Unit then represents as determined on a fully diluted basis; and

 

  (ii) furnish the OOGEDT with a certificate executed by the Chief Executive Officer or Chief Financial Officer of the Company on behalf of the Company certifying, as of the date of the disbursement of the Additional Amount, that (1) the percentage set forth in the statement provided pursuant to Section  3.04(F)(ii) above is true and correct and (2) the representations and warranties made by the Company in Section  2.06 (as modified in any schedule or exhibit hereto) are true and correct in all material respects.

Prior to any disbursement of the Additional Amount, the Company agrees to execute and deliver such further instruments and take such further actions as the OOGEDT may reasonably request in order to carry out the intent of this Section  3.04(F) .

Article IV

SECURITY INTEREST IN COLLATERAL

Section 4.01 Grant of Security Interest. As collateral security to secure the prompt payment and performance to the OOGEDT of the Secured Obligations during the Security Term, the Company hereby assigns, pledges and grants to the OOGEDT for its benefit a continuing first and prior security interest and Lien in and to all assets of the Company now owned or hereafter acquired, including, without limitation, (A) all of the Company’s present and future accounts, accounts receivable, contract rights, general intangibles, letter of credit rights, payment intangibles, patents, trademarks, trademark rights, copyrights, intellectual property, chattel

 

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paper, documents, instruments, raw materials, work in process, materials used or consumed in the Company’s business, equipment, furniture, fixtures, vehicles and inventory, wherever located and whether in the possession of the Company or any other person, now owned or hereafter acquired by the Company; (B) all present and future increases, profits, combinations, reclassifications, improvements and products of, assessions, attachments and other additions to, tools, parts and equipment used in connection with, and substitutes and replacements for, all or part of the foregoing assets of the Company; (C) all cash and non-cash proceeds and other rights arising from or by virtue of, or from the voluntary or involuntary sale, lease or other disposition of, or collections with respect to, or insurance proceeds payable with respect to, or proceeds payable by virtue of warranty or other claims against manufacturers of, or claims against any other person with respect to, all or any part of the foregoing assets of the Company; (D) all present and future security for the payment to the Company of any of the foregoing assets of the Company; (E) all goods which gave or will give rise to any of the foregoing assets of the Company or are evidenced, identified or represented therein or thereby; and (F) all certificates of title, manufacturer’s statements of origin, other documents, accounts and chattel paper arising from or related to any of the foregoing assets of the Company (collectively, the “ Collateral ”). The Company shall mark its books and records as may be necessary or appropriate to evidence, protect and perfect the OOGEDT’s security interest and shall cause its financial statements to reflect such security interest. During the Security Term, the Company shall promptly provide the OOGEDT with written notice of all commercial tort claims in which it is the plaintiff, such notice to contain the case title together with the applicable court and a brief description of the claim(s). Upon delivery of each such notice, the Company shall be deemed to hereby grant to the OOGEDT a security interest and Lien in and to such commercial tort claims and all proceeds thereof.

Section 4.02 Subsidiaries. Without limiting the generality of Section  4.01 above, to secure the Secured Obligations and the prompt payment and performance to the OOGEDT under the Note, if at any time during the Security Term the OOGEDT (in its sole discretion) consents to permit the Company to create or acquire any subsidiaries (in each case in accordance with Section  2.06(J) ), the Company hereby assigns, pledges and grants to the OOGEDT for its benefit a continuing security interest in and to all the issued and outstanding equity interests of each such subsidiary and shall cause each such subsidiary to promptly execute and deliver a security agreement in form and substance reasonably satisfactory to the OOGEDT granting to the OOGEDT a security interest and Lien in all of such subsidiary’s assets.

Section 4.03 Perfection of Security Interest. The Company shall take all actions during the Security Term that may be necessary or desirable, or that OOGEDT may reasonably request, so as to maintain the validity, perfection, enforceability and priority of the OOGEDT’s first and prior security interest in the Collateral or to enable the OOGEDT to protect, exercise or enforce its rights hereunder and in the Collateral, including without limitation (A) the preparation and filing of all financing statements (including any continuation or amendment statements), (B) delivering to the OOGEDT (or its designee) any and all instruments, tangible chattel paper, certificated securities or other Collateral in which a security interest may be perfected by possession as set forth in the Texas UCC, (C) granting OOGEDT (or its designee) “control” (as defined in the Texas UCC) over any and all investment property, deposit accounts, securities accounts, (D) filing security agreements and other notices with the United States Patent and Trademark Office and any other government agency in connection with the

 

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perfection of security interests in intellectual property Collateral and (E) using commercially reasonable efforts to obtain any and all consents or approvals from any applicable third parties. The OOGEDT (or its designee) is hereby authorized to file financing statements without signature in accordance with the Texas UCC or the Uniform Commercial Code of any other jurisdiction from time to time and by its signature hereto, the Company hereby authorizes the OOGEDT to file against the Company, one or more financing statements (including any continuation or amendment statements) pursuant to the Texas UCC or the Uniform Commercial Code of any other jurisdiction from time to time in form and substance satisfactory to the OOGEDT (which statements may have a description of collateral which is broader than that set forth herein provided that, in the event of conflict, the description of the Collateral set forth herein shall be controlling as to the property or assets in which the OOGEDT has been granted a security interest and Lien).

Section 4.04 Disposition of Collateral. During the Security Term, the Company hereby covenants and agrees to safeguard and protect all Collateral, to maintain all Collateral in good working order (subject to ordinary wear and tear) and make no disposition thereof except for goods or inventory sold or licensing or sublicensing or other granting of intellectual property rights in the ordinary course of business, and abandonment of patents and other intellectual property which the Company determines is not necessary to its business and is not worth the cost of maintenance to the Company.

Section 4.05 Preservation of Collateral. Following the occurrence, and during the continuance, of an Event of Default during the Security Term and in addition to other rights and remedies available to the OOGEDT, the OOGEDT may take such steps as the OOGEDT deems necessary to protect the OOGEDT’s interest in and to preserve the Collateral. The Company shall cooperate fully with all of the OOGEDT’s efforts to preserve the Collateral and shall take such actions to preserve the Collateral as the OOGEDT may direct.

Section 4.06 Defense of OOGEDT’s Interests. Until the expiration of the Security Term, the OOGEDT’s interests in the Collateral shall continue in full force and effect. The Company shall defend the OOGEDT’s first and prior security interest and its other interests in the Collateral against any and all persons whatsoever. At any time following demand by the OOGEDT for payment in accordance with the terms of this Agreement and the Note, the OOGEDT shall have the right to take possession of the indicia of the Collateral and the Collateral in whatever physical form contained. After the occurrence of an Event of Default, the OOGEDT, at its option, may instruct all suppliers, customers, carriers, forwarders, warehousers or others receiving or holding cash, checks, inventory, documents or instruments in which the OOGEDT holds a security interest to deliver same to the OOGEDT.

Section 4.07 Notification of Assignment of Receivables; Cash and Cash Equivalents. At any time following the occurrence and during the continuance of an Event of Default during the Security Term, the OOGEDT shall have the right to send notice of the assignment of, and the OOGEDT’s security interest in and Lien on, the Company’s account receivables to any and all customers or any third party holding or otherwise concerned with any of the Collateral. Thereafter, the OOGEDT shall have the sole right to collect the accounts receivables, take possession of the Collateral, or both, to the extent necessary secure the obligations of the Company under the Note and all proceeds of any Collateral received by the Company in cash or cash equivalents shall be held by the Company in trust for the OOGEDT, segregated from other funds of the Company, and shall, promptly upon receipt by the Company of such proceeds, be turned over to the OOGEDT in the exact form received (with any necessary endorsement).

 

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Section 4.08 Exculpation of Liability. Nothing herein contained shall be construed to constitute OOGEDT as the Company’s agent for any purpose whatsoever, nor shall the OOGEDT be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located and regardless of the cause thereof. The OOGEDT, whether by anything herein or in any assignment or otherwise, does not assume any of the Company’s obligations under any contract or agreement assigned to the OOGEDT, and the OOGEDT shall not be responsible in any way for the performance by the Company of any of the terms and conditions thereof. Anything herein to the contrary notwithstanding, (A) the Company shall remain liable under the contracts and agreements included in the Collateral, to the extent set forth therein, and shall perform all of its duties and obligations under such contracts and agreements to the same extent as if this Agreement had not been executed, and (B) the exercise by the OOGEDT of any of its rights hereunder shall not release the Company from any of its duties or obligations under any such contracts or agreements included in the Collateral.

Section 4.09 Financing Statements. Except for the financing statements filed by the OOGEDT and the financing statements described on Schedule 4.09 hereto, no financing statement covering any of the Collateral or any proceeds thereof is on file in any public office.

Section 4.10 Remedies with Respect to the Collateral. If the OOGEDT shall proceed to realize its benefits under this Agreement or any other documents granting the OOGEDT a Lien upon any Collateral, either by judicial foreclosure or by non-judicial sale or enforcement, the OOGEDT may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Agreement. If, in the exercise of any of its rights and remedies, the OOGEDT shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against the Company or any other Person, whether because of any applicable laws pertaining to “election of remedies” or the like, the Company hereby consents to such action by the OOGEDT and waives any claim based upon such action, even if such action by the OOGEDT shall result in a full or partial loss of any rights of subrogation that the Company might otherwise have had but for such action by the OOGEDT. In addition to any other rights or remedies hereunder or under applicable law, the Company hereby agrees that the OOGEDT and its successors and assigns shall have all of the following rights and remedies with respect to the Collateral:

A. UCC Remedies . During the continuance of an Event of Default, the OOGEDT may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any Secured Obligation, all rights and remedies of a secured party under the Texas UCC or any other applicable law.

B. Disposition of Collateral . Without limiting the generality of the foregoing, the OOGEDT may, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below)

 

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to or upon the Company or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), during the continuance of any Event of Default (personally or through its agents or attorneys), (i) enter upon the premises where any Collateral is located, without any obligation to pay rent, through self-help, without judicial process, without first obtaining a final judgment or giving the Company or any other Person notice or opportunity for a hearing on the OOGEDT’s claim or action, (ii) collect, receive, appropriate and realize upon any Collateral and (iii) sell, grant option or options to purchase and deliver any Collateral, in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the OOGEDT or its designee or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The OOGEDT shall have the right, upon any such public sale or sales and, to the extent permitted by the Texas UCC and other applicable requirements of law, upon any such private sale, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption of the Company, which right or equity is hereby waived and released.

C. Management of the Collateral . The Company further agrees, that, during the continuance of any Event of Default, (i) at the OOGEDT’s request, it shall assemble the Collateral and make it available to the OOGEDT at places that the OOGEDT shall reasonably select, whether at the Company’s premises or elsewhere, (ii) without limiting the foregoing, the OOGEDT also has the right to require that the Company store and keep any Collateral pending further action by the OOGEDT and, while any such Collateral is so stored or kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain such Collateral in good condition, (iii) until the OOGEDT is able to sell any Collateral, the OOGEDT shall have the right to hold or use such Collateral to the extent that it deems appropriate for the purpose of preserving the Collateral or its value or for any other purpose deemed appropriate by the OOGEDT and (iv) the OOGEDT may, if it so elects, seek the appointment of a receiver or keeper to take possession of any Collateral and to enforce any of the OOGEDT’s remedies, with respect to such appointment without prior notice or hearing as to such appointment. The OOGEDT shall not have any obligation to the Company to maintain or preserve the rights of the Company as against third parties with respect to any Collateral while such Collateral is in the possession of the OOGEDT.

D. Application of Proceeds . The OOGEDT shall apply the cash proceeds of any action taken by it pursuant to this Section  4.10 , after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any Collateral or in any way relating to the Collateral or the rights of the OOGEDT hereunder, including reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the Secured Obligations and, only after such application and after the payment by the OOGEDT of any other amount required by applicable law, the surplus, if any, to the Company.

E. Direct Obligation . The OOGEDT shall not be required to make any demand upon, or pursue or exhaust any right or remedy against, the Company or any other Person with respect to the payment of the Secured Obligations or to pursue or exhaust any right or

 

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remedy with respect to any Collateral therefor or any direct or indirect guaranty thereof. All of the rights and remedies of the OOGEDT hereunder and under the Unit shall be cumulative, may be exercised individually or concurrently and not exclusive of any other rights or remedies provided by any requirement of law. To the extent it may lawfully do so, the Company absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the OOGEDT, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or defenses it may have as a surety, now or hereafter existing, arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of any Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition.

F. Commercially Reasonable . To the extent that applicable requirements of law impose duties on the OOGEDT to exercise remedies in a commercially reasonable manner, the Company acknowledges and agrees that it is not commercially unreasonable for the OOGEDT to do any of the following:

(i) fail to incur significant costs, expenses or other liabilities reasonably deemed as such by the OOGEDT to prepare any Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition;

(ii) fail to obtain permits, or other consents, for access to any Collateral to sell or for the collection or sale of any Collateral, or, if not required by other requirements of law, fail to obtain permits or other consents for the collection or disposition of any Collateral;

(iii) fail to exercise remedies against account debtors or other Persons obligated on any Collateral or to remove Liens on any Collateral or to remove any adverse claims against any Collateral;

(iv) advertise dispositions of any Collateral through publications or media of general circulation, whether or not such Collateral is of a specialized nature or to contact other Persons, whether or not in the same business as the Company, for expressions of interest in acquiring any such Collateral;

(v) exercise collection remedies against account debtors and other Persons obligated on any Collateral, directly or through the use of collection agencies or other collection specialists, hire one or more professional auctioneers to assist in the disposition of any Collateral, whether or not such Collateral is of a specialized nature or, to the extent deemed appropriate by the OOGEDT, obtain the services of other brokers, investment bankers, consultants and other professionals to assist the OOGEDT in the collection or disposition of any Collateral, or utilize internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets to dispose of any Collateral;

 

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(vi) dispose of assets in wholesale rather than retail markets;

(vii) disclaim disposition warranties, such as title, possession or quiet enjoyment; or

(viii) purchase insurance or credit enhancements to insure the OOGEDT against risks of loss, collection or disposition of any Collateral or to provide to the OOGEDT a guaranteed return from the collection or disposition of any Collateral.

The Company acknowledges that the purpose of this Section  4.10 is to provide a non-exhaustive list of actions or omissions that are commercially reasonable when exercising remedies against any Collateral and that other actions or omissions by the OOGEDT shall not be deemed commercially unreasonable solely on account of not being indicated in this Section  4.10 . Without limitation upon the foregoing, nothing contained in this Section  4.10 shall be construed to grant any rights to the Company or to impose any duties on the OOGEDT that would not have been granted or imposed by this Agreement or by applicable requirements of law in the absence of this Section  4.10 .

G. IP Licenses and Real Property Licenses . For the purpose of enabling the OOGEDT to exercise rights and remedies under this Section  4.10 (including in order to take possession of, collect, receive, assemble, process, appropriate, remove, realize upon, sell or grant options to purchase any Collateral) at such time as the OOGEDT shall be lawfully entitled to exercise such rights and remedies, the Company hereby grants to the OOGEDT, effective only upon the occurrence of an Event of Default (following the expiration of any applicable cure period) and during the continuation thereof, (i) an irrevocable, transferable, nonexclusive, worldwide license (exercisable without payment of royalty or other compensation to the Company), including in such license the right to sublicense, use and practice any intellectual property now owned or hereafter acquired by the Company and access to all media in which any of the licensed items may be recorded or stored and to all software and programs used for the compilation or printout thereof and (ii) an irrevocable license (without payment of rent or other compensation to the Company) to use, operate and occupy all real property owned, operated, leased, subleased or otherwise occupied by the Company.

Section 4.11 Notices. In addition to any other notices required hereunder, the Company shall promptly notify the OOGEDT in writing of its acquisition of any interest hereafter in property that is of a type where (A) perfection can be determined or effected by control or possession (each as defined in the Texas UCC) or (B) a security interest or Lien must be or may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation.

MISCELLANEOUS

Section 5.01 Term of Agreement. Unless terminated earlier pursuant to the terms of this Agreement, except for Section  5.18 hereof and the Unit which shall survive any termination of this Agreement, this Agreement shall terminate on the earlier of (A) the date ten (10) years after the Effective Date and (B) the date of consummation of a bona fide Qualifying Liquidation Event.

 

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Section 5.02 Record Keeping and Reporting. The Company shall maintain or cause to be maintained books, records, documents and other evidence pertaining to compliance with the requirements contained in this Agreement, and upon request shall allow the OOGEDT, or auditors for the OOGEDT, including the State Auditor for the State of Texas, to inspect, audit, copy, or abstract, all of its books, records, papers, or other documents relevant to the Award. The Company shall use GAAP in the maintenance of such books and records, and shall retain or cause to be retained all of such books, records, documents and other evidence for a period of seven (7) years from and after the later of (A) the date that this Agreement is terminated or this Agreement’s term expires and (B) unless the Right to Purchase under the Unit expires without having been exercised, the date on which the OOGEDT fully divested all rights and ownership of all stock that was issued upon the OOGEDT’s exercise of its Right to Purchase under the Unit.

Section 5.03 Unit Records/Information. If at any point following the execution and issuance of the Unit the OOGEDT becomes obligated to file disclosure reports with the SEC pursuant to Section 13 or Section 16 of the Securities Exchange Act of 1934, as amended, by virtue of the OOGEDT holding the Unit or securities issuable upon exercise of the Right to Purchase under the Unit, the Company agrees to provide any and all information reasonably necessary to assist the OOGEDT in making any such timely filings with the SEC.

Section 5.04 Certification Relating to Undocumented Workers . By execution of this Agreement, the Company, including any business, branch, division, and department of the Company, certifies that it does not currently employ any undocumented worker (as defined in Texas Government Code Section 2264.001(4)) and that the Company shall not knowingly employ an undocumented worker hereafter.

Section 5.05 Compliance Verification Reporting . Each year throughout the term of this Agreement, on each anniversary of the Effective Date, the Company shall deliver to the OOGEDT a compliance verification report signed by a duly authorized representative of the Company that shall verify the Company’s compliance with each of the Company’s agreements, covenants and obligations under this Agreement (each, a “ Compliance Verification ”). Further, the Company shall provide the OOGEDT reasonable access to the Company’s annual financial reports. In addition to each annual Compliance Verification, the Company shall also provide the OOGEDT a Compliance Verification on the earlier of (i) six (6) months after the Effective Date and (ii) the date on which the Company makes a request to the OOGEDT for disbursement of an Additional Amount. Each Compliance Verification that has become due shall be submitted prior to the Company receiving any Additional Amounts. All Compliance Verifications shall be in a form reasonably satisfactory to the OOGEDT and shall include appropriate back-up data.

Section 5.06 Liability. In no event shall either party be liable to the other party for any indirect, special, punitive, exemplary, incidental or consequential damages. This limitation shall apply regardless of whether or not the other party has been advised of the possibility of such damages.

 

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Section 5.07 Indemnification by the Company and Hold Harmless. The Company agrees to indemnify and hold the OOGEDT, the maker of the Award, and its agents, officers, employees and assigns harmless for any and all losses, claims, suits, actions, and liability, including any litigation costs, that arise from any act or omission of the Company or any of its officers, and employees, agents, contractors, assignees, and affiliates relating to the project for which the Award is made regardless of whether the act or omission is related to job creation or other stated purpose of the Award.

Section 5.08 EXPRESS NEGLIGENCE. THE INDEMNITY SET FORTH IN THIS AGREEMENT IS INTENDED TO BE ENFORCEABLE AGAINST THE COMPANY AND ITS SUCCESSORS AND ASSIGNS IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE HEREOF NOTWITHSTANDING TEXAS’ EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF THE OOGEDT AND/OR ITS AGENTS, OFFICERS, EMPLOYEES AND ASSIGNS.

Section 5.09 Relationship of the Parties. The parties shall perform their respective obligations under this Agreement as independent contractors and not as agents, employees, partners, joint venturers, or representatives of the other party. Neither party shall be permitted or empowered to make representations or commitments that bind the other party. The Company is not a “governmental body” by virtue of this Agreement or the use of the Award under the Texas Emerging Technology Fund, any other funding, the issuance of the Unit or the issuance of capital stock upon exercise of the Right to Purchase under the Unit.

Section 5.10 Binding Effect and Assignment. The Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the OOGEDT. The OOGEDT may assign this Agreement and any of its rights or obligations hereunder without the consent of the Company. Subject to the foregoing, this Agreement and all terms, provisions and obligations set forth herein shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns and all other state agencies and any other agencies, departments, divisions, governmental entities, public corporations and other entities that shall be successors to each of the parties or that shall succeed to or become obligated to perform or become bound by any of the covenants, agreements or obligations hereunder of each of the parties hereto.

Section 5.11 Waiver. Neither the failure by the Company or the OOGEDT, in any one or more instances to insist upon the complete and total observance or performance of any term or provision hereof, nor the failure of the Company or the OOGEDT to exercise any right, privilege, or remedy conferred hereunder or afforded by law shall be construed as waiving any breach of such term, provision, or the right to exercise such right, privilege, or remedy thereafter. In addition, no delay on the part of either the Company or the OOGEDT, in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude other or further exercise thereof or the exercise of any other right or remedy.

 

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Section 5.12 Entire Agreement. This Agreement, the Unit and the other documents referred to and incorporated herein by reference embody the entire agreement between the Company and the OOGEDT, and there are no other agreements, either oral or written, between the Company and the OOGEDT on the subject matter hereof. This Agreement may be amended, modified and supplemented only by written agreement between the parties hereto.

Section 5.13 Applicable Law and Venue. This Agreement is made and entered into in the State of Texas, and this Agreement and all disputes arising out of or relating thereto shall be governed by the laws of the State of Texas, without regard to any otherwise applicable conflict of law rules or requirements.

The Company agrees that any action, suit, litigation or other proceeding (collectively “litigation”) arising out of or in any way relating to this Agreement, or the matters referred to therein, shall be commenced exclusively in the Travis County District Court or the United States District Court for the Western District of Texas, Austin Division, and hereby irrevocably and unconditionally consents to the exclusive jurisdiction of those courts for the purpose of prosecuting and/or defending such litigation. The Company hereby waives and agrees not to assert by way of motion, as a defense, or otherwise, in any suit, action or proceeding, any claim that (A) the Company is not personally subject to the jurisdiction of the above-named courts, (B) the suit, action or proceeding is brought in an inconvenient forum or (C) the venue of the suit, action or proceeding is improper.

Section 5.14 Dispute Resolution.

A. Informal Meetings . The parties’ representatives shall meet as needed to implement the terms of this Agreement and shall make a good faith attempt to informally resolve any disputes.

B. Non-binding Mediation . Except to prevent irreparable harm for which there is no adequate remedy at law, neither party shall file suit to enforce this Agreement without first submitting the dispute to confidential, non-binding mediation before a mediator mutually agreed upon by the parties.

Section 5.15 Publicity. The parties agree to cooperate fully to coordinate with each other in connection with all press releases and publications regarding this Agreement. The Company shall not issue any press releases or other publicity regarding this Agreement or the Award without the prior written consent of OOGEDT.

Section 5.16 No Waiver of Sovereign Immunity. Nothing in this Agreement may be construed to be a waiver of the sovereign immunity of the OOGEDT to suit.

Section 5.17 Severability. If any provision of this Agreement is finally judged by any court to be invalid, then the remaining provisions shall remain in full force and effect and they shall be interpreted, performed, and enforced as if the invalid provision did not appear herein.

 

Texas Emerging Technology Fund Award and Security Agreement

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Section 5.18 Survival of Promises. Notwithstanding any expiration, termination or cancellation of this Agreement, the rights and obligations pertaining to payment or repayment of funds confidentiality, disclaimers and limitation of liability, indemnification, and any other provision implying survivability shall remain in effect after this Agreement ends.

Section 5.19 Force Majeure. Except for the obligation to make payments under this Agreement and the Unit when due and indemnification obligations arising hereunder, neither party shall be required to perform any obligation under this Agreement or be liable or responsible for any loss or damage resulting from its failure to perform so long as performance is delayed by force majeure or acts of God, including but not limited to strikes, lockouts or labor shortages, embargo, riot, war, revolution, terrorism, rebellion, insurrection, flood, natural disaster, or interruption of utilities from external causes.

Section 5.20 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but such counterparts shall together constitute one and the same instrument.

Section 5.21 Notices. All notices, requests, demands and other communications shall be in writing and shall be deemed given and received (A) on the date of delivery when delivered by hand, (B) on the following business day when sent by confirmed simultaneous telecopy, (C) on the following business day when sent by receipted overnight courier or (D) three (3) business days after deposit in the United States Mail when mailed by registered or certified mail, return receipt requested, first class postage prepaid, as follows:

If to the OOGEDT to:

Financial Services

ETF Compliance

PO Box 12878

Austin, TX 78711-2878

Email: ETF.Compliance@governor.state.tx.us

with a concurrent copy to :

ATTN: Emerging Technology Fund Award Program

General Counsel

Office of the Governor

P.O Box 12428

Austin, Texas 78711

Phone: 512-463-1788

Fax: 512-463-1932

If to Company to:

Convergen LifeSciences, Inc.

ATTN: Rodney Varner

9015 Mountain Ridge Drive, Suite 250

Austin, Texas 78749

Phone: 512-320-4165

Fax: 512-495-9441

 

Texas Emerging Technology Fund Award and Security Agreement

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provided , however , that if any party shall have designated a different address by written notice to the other party, then to the last address so designated.

Section 5.22 Construction . The language in all parts of this Agreement shall be construed, in all cases, according to its fair meaning. The parties acknowledge that each party and its counsel have reviewed this Agreement and that any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. Whenever used herein, the terms “include,” “includes” and “including” shall be deemed to be followed by the phrase, “without limitation,”.

Section 5.23 Headings . The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part hereof.

Section 5.24 Schedules and Exhibits. The schedules and exhibits referred to herein and required to be delivered pursuant to the terms hereof are hereby incorporated fully herein by this reference.

Section 5.25 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the State of Texas, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday in the State of Texas.

Section 5.26 Additional Requirements. The Company and the OOGEDT agree to comply with the following additional requirements.

(If there are no additional requirements then insert the word “NONE”.)

NONE.

(THE REMAINING PORTION OF THIS PAGE WAS INTENTIONALLY LEFT BLANK)

 

Texas Emerging Technology Fund Award and Security Agreement

- 24 -


IN TESTIMONY HEREOF, the Company and the OOGEDT have executed this Texas Emerging Technology Fund Award and Security Agreement on the day and date indicated immediately below their respective signatures.

 

The State of Texas      Convergen LifeSciences, Inc.

/s/ RAYMOND C. SULLIVAN

    

/s/ DAVID G. NANCE

Raymond C. Sullivan      David G. Nance
Chief of Staff      President
Office of the Governor     

8/13/2010

    

8/13/2010

Date      Date

 

Texas Emerging Technology Fund Award and Security Agreement

- 25 -


Exhibits and Schedules

Exhibits

 

Exhibit A      Approval Letter from Governor, Lieutenant Governor and Speaker
Exhibit B      Investment Unit
Exhibit C      Milestones
Exhibit D      Form of Unit Amendment
Schedules
Schedule 2.06(G)      Title to Assets
Schedule 2.06(H)      Related Party Transaction
Schedule 2.06(J)      Subsidiaries
Schedule 2.06(K)      Organizational Information
Schedule 4.09      Financing Statements

Texas Emerging Technology Fund Award and Security Agreement


Exhibit A

Letter from Governor, Lieutenant Governor and Speaker Approving Award to the Company from the Texas Emerging Technology Fund

See attached.

Texas Emerging Technology Fund Award and Security Agreement


Exhibit B

Investment Unit

See attached.

Texas Emerging Technology Fund Award and Security Agreement


Exhibit C

Milestones

Early phase milestones and deliverables needing completion prior to later stage toxicology and Phase I/II trials:

 

  1. Complete study for CNVN202 dose calculation for use in Phase I/II clinical trial. Deliverable : Provide CNVN202 dose specification calculation and confirmation of dose acceptance from M. D. Anderson Cancer Center investigator.

 

  2. Complete CNVN202 toxicology study protocol design in consultation with M. D. Anderson Cancer Center Pharmaceutical Development Center in use in toxicology study. Deliverable : Provide completed CNVN202 toxicology study protocol and confirmation of acceptance by M. D. Anderson Cancer Center investigator.

 

  3. Complete CNVN202 Phase I/II clinical trial protocol design to prepare for submission to the National Institutes of Health Recombinant Advisory Committee (NIH-RAC) and the U.S. Food and Drug Administration (FDA). Deliverable : Provide CNVN202 Phase I/II clinical trial protocol document and confirmation of acceptance by M. D. Anderson Cancer Center investigator.

 

  4. Agreement for M. D. Anderson Cancer Center to start CNVN202 + erlotinib Phase I/II clinical trial preparation, CNVN202 Phase I clinical trial data integration, toxicology, clinical study protocol and associated activities. Deliverable : Signed agreement and funding documentation.

Milestones for toxicology and phase I/II trial completion:

 

  5. Conduct and report toxicology study (animal models) using CNVN202 + erlotinib combination regimen.

 

  6. Complete preclinical data report to support CNVN202 + erlotinib Phase I/II clinical trial application submission to National Institutes of Health Recombinant DNA Advisory Committee (NIH-RAC).

 

  7. Obtain FDA approvals to conduct CNVN202 + erlotinib clinical trial.

 

  8. GMP production of CNVN202 nanoparticle components for Phase I/II trial.

 

  9. GMP formulation of CNVN202 and release of final product for Phase I/II trial.

 

  10. Start CNVN202 + erlotinib Phase I/II Clinical Trial.

Texas Emerging Technology Fund Award and Security Agreement


Schedule 2.06(G)

Title to Property

None.

Texas Emerging Technology Fund Award and Security Agreement


Schedule 2.06(H)

Related Party Transactions

None.

Texas Emerging Technology Fund Award and Security Agreement


Schedule 2.06(J)

Subsidiaries

None.

Texas Emerging Technology Fund Award and Security Agreement


Schedule 2.06(K)

Organizational Information

Jurisdiction of Formation: Delaware

Legal Name: Convergen LifeSciences, Inc.

Organizational Identification Number: 26-4598633

Location of Company’s Chief Executive Office:

9015 Mountain Ridge Drive, Suite 250

Austin, Texas 78759

Company’s Sole Place of Business:

9015 Mountain Ridge Drive, Suite 250

Austin, Texas 78759

The Company has had no other jurisdiction of incorporation, legal name, location of Company’s Chief Executive office or sole place of business for five (5) years preceding effective date.

Texas Emerging Technology Fund Award and Security Agreement


Schedule 4.09

Financing Statements

None.

Texas Emerging Technology Fund Award and Security Agreement

Exhibit 4.3

NEITHER THIS INVESTMENT UNIT NOR THE PROMISSORY NOTE UNDER ARTICLE I OF THIS INVESTMENT UNIT OR THE EQUITY SECURITIES ISSUABLE UPON EXERCISE OF THE RIGHT TO PURCHASE UNDER ARTICLE II OF THIS INVESTMENT UNIT (COLLECTIVELY, THE “ SECURITIES REPRESENTED HEREBY ”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ ACT ”) OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, TOGETHER WITH QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAW, OR AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.

CONVERGEN LIFESCIENCES, INC.

INVESTMENT UNIT

 

August 13, 2010

This Investment Unit (this “ Unit ”) has been issued by the undersigned, Convergen LifeSciences, Inc., a Delaware corporation (the “ Company ”), in connection with that certain Texas Emerging Technology Fund Award and Security Agreement (the “ Fund Agreement ”), effective as of the date hereof (the “ Effective Date ”), by and between the Company and the State of Texas, acting by and through the Office of Governor Economic Development and Tourism, together with its nominees or assigns (the “ OOGEDT ”), pursuant to which the Company is receiving from the OOGEDT an award of funding under the Emerging Technology Fund subject to conditions which could, upon satisfaction, require repayment. This Unit is subject to all of the terms and provisions of the Fund Agreement.

This Unit consists of a promissory note (the “ Note ”) and a right to purchase equity securities (the “ Right to Purchase ”).

ARTICLE I

NOTE

Section 1.1 Promissory Note . This Article I consists of the Note.

Section 1.2 Promise to Pay . FOR VALUE RECEIVED, the Company hereby promises to pay to the order of the OOGEDT the principal sum equal to the full amount of all disbursements of the Award (as defined in the Fund Agreement) that are made from time to time under the Fund Agreement (collectively, the “ Principal ”) together with interest thereon at a rate of eight percent (8%) simple interest per annum accruing daily from the date such amounts are disbursed under the Fund Agreement and calculated on the basis of a 365 or 366 day year, as the case may be (“ Interest ”), as hereinafter set forth in this Article I .


Section 1.3 General Payment Terms . Principal and Interest due hereunder shall be paid in the lawful currency of the United States of America at such address as the OOGEDT may designate.

Section 1.4 Mandatory Repayment . The Principal, together with all accrued and unpaid Interest on the Principal balance, shall be due and payable upon demand by the OOGEDT upon the occurrence of an Event of Default (as hereinafter defined) in accordance with the terms hereinafter set forth and the terms of the Fund Agreement. In the event of any conflict between the terms hereof and the terms of the Fund Agreement with respect to mandatory repayment, the terms of the Fund Agreement shall control.

Section 1.5 Optional Prepayment . The Company may pay, at its option, all sums of unpaid Principal and accrued but unpaid Interest at any time on or after eighteen (18) months following the Effective Date if the Company elects to terminate the Fund Agreement in accordance with Section 2.13 of the Fund Agreement.

Section 1.6 Cancellation of Note . This Note shall be canceled, the Principal and Interest evidenced hereby shall be forgiven in its entirety and the Company shall be released of all covenants, liabilities and obligations under this Article I on and after the earlier of (a) the date ten (10) years after the Effective Date and (b) the consummation of a Qualifying Liquidation Event (as hereinafter defined).

Section 1.7 Qualifying Liquidation Event . “ Qualifying Liquidation Event ” means (a) the sale, conveyance, or other disposition of all or substantially all of the assets of the Company and its subsidiaries (taken as a whole) to persons who are not then Company Associates (as hereinafter defined) or Company Affiliates, or (b) the sale of the Company’s then-outstanding equity securities by the Company’s stockholders or the Company’s merger into or consolidation with any other entity, in each such case, in which more than fifty percent (50%) of the voting power of the Company is transferred to persons who are not then Company Associates or Company Affiliates. “Company Affiliate” means a person who or that directly, or indirectly through one or more intermediaries, controls the Company or is controlled by, or is under Common control with, such a person.

Section 1.8 Events of Default .

(a) The occurrence or existence of any “ Event of Default ” under Section 2.07(B) of the Fund Agreement shall constitute an “ Event of Default” hereunder.

(b) Upon the occurrence of any Event of Default, the OOGEDT shall have the right to (i) declare all sums of unpaid Principal and accrued but unpaid Interest and all other amounts properly payable under the Note immediately due and payable and (ii) unless otherwise limited hereunder or under the Fund Agreement, exercise any and all other rights available to it hereunder or under the Fund Agreement or at law or in equity, all of which rights and powers may be exercised cumulatively and not alternatively. Notwithstanding the foregoing, in the event that the OOGEDT shall receive any amounts of compensatory damages as a result of a claim of an event of default under the Fund Agreement, such amounts (“Damage Payments”) shall be deemed to reduce the amount of Principal then outstanding under the Note on a dollar

 

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for dollar basis. In the event that, following any Event of Default hereunder, the OOGEDT receives a Damage Payment or payment of any sum of then unpaid Principal and accrued but unpaid Interest on the Note, the OOGEDT hereby irrevocably elects to convert that number of shares of Prior Financing Shares or Next Financing Shares, as the case may be, then held by the OOGEDT into shares of Common Stock of the Company in an amount equal to (1) the total number of the shares of Prior Financing Shares or Next Financing Shares, as the case may be, then held by the OOGEDT multiplied by (2) the quotient obtained by dividing the amount of (A) any such Damage Payment or (B) any such repayment by the Company of Principal and interest on the Note, as the case may be, by the aggregate amount of Principal and interest outstanding and unpaid under the Note immediately prior to the receipt by the OOGEDT of such Damage Payment or Principal and interest repayment, as the case may be.

Section 1.9 Usury . Notwithstanding any provision to the contrary contained herein, the Fund Agreement or any other agreement entered into in connection with this Note or as security therefor or otherwise, it is expressly provided that in no case or event shall the aggregate of (a) all Interest on the unpaid balance of Principal, accrued or paid from the date hereof and (b) the aggregate of any other amounts accrued or paid pursuant hereto, which under applicable laws are or may be deemed to constitute interest upon the indebtedness evidenced hereby from the date hereof, ever exceed the Ceiling Rate (as hereinafter defined). In this connection, the Company and the OOGEDT stipulate and agree that it is their common and overriding intent to contract in strict compliance with applicable usury laws. In furtherance thereof, none of the terms hereof shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Ceiling Rate. The Company or other parties now or hereafter becoming liable for payment of the indebtedness evidenced by the Note shall never be liable for interest in excess of the Ceiling Rate. If, for any reason whatever, the interest paid or received on the Note during its full term produces a rate which exceeds the Ceiling Rate, the OOGEDT shall credit against the principal of this Note (or, if such indebtedness shall have been paid in full, shall refund to the payor of such interest) such portion of said interest as shall be necessary to cause the interest paid on this Note to produce a rate equal to the Ceiling Rate. All sums contracted for, charged or received by the OOGEDT or the holder of this Note for the use, forbearance or detention of the indebtedness evidenced hereby shall, to the extent required to avoid or minimize usury and to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term of this Note so that the interest rate does not exceed the Ceiling Rate. The provisions of this Section 1.9 shall control all agreements, whether now or hereafter existing and whether written or oral, between the Company and any holder of this Note. As used herein, the term “ Ceiling Rate ” means, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum.

Section 1.10 Cost of Collection . If the OOGEDT retains an attorney in connection with any Event of Default or to collect, enforce or defend this Note or any papers intended to secure or guarantee it in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if the Company sues the OOGEDT in connection herewith or any such papers and does not prevail, then the Company agrees to pay to the OOGEDT, in addition to the Principal and Interest, all reasonable costs and expenses incurred by the OOGEDT in trying to collect this Note or in any such suit or proceeding, including reasonable attorneys’ fees.

 

3


Section 1.11 Waivers . Except for any notices that are specifically required by another provision hereof, the Company and any and all endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this Note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after the term hereof.

Section 1.12 Federal Tax Classification . It is expressly provided that the promise to pay to the order of the OOGEDT that is evidenced by this Note is not intended to be classified as indebtedness for U.S. federal income purposes unless and until an Event of Default occurs and the OOGEDT declares payable all sums of unpaid Principal. The Company and any and all endorsers, guarantors and sureties agree to report the Note consistent with this Section 1.12 for all U.S. federal income tax purposes except as otherwise required by law.

ARTICLE II

RIGHT TO PURCHASE

Section 2.1 Right to Purchase . This Article II consists of the Right to Purchase, which certifies that, for the value received, the OOGEDT is entitled to purchase from the Company up to the number of shares set forth in Section 2.3 below (subject to adjustment in accordance with the provisions hereof) of either (a) shares of common stock of the Company, $0.001 par value per share (“ Common Stock ”), (b) shares (“Prior Financing Shares”) of Series A Preferred Stock of the Company, $.001 par value per share, or (c) shares (“ Next Financing Shares ”) of the same class of capital stock or series of preferred stock as shall be issued in the First Qualifying Financing Transaction (as hereinafter defined).

Section 2.2 Purchase Price . The price per share (the “ Purchase Price ”) of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, purchased hereunder shall be $0.001 per share.

Section 2.3 Number of Shares .

(a) The number of shares of Common Stock or Prior Financing Shares (in the case of Section 2.3(a)(ii)(C) below) or Next Financing Shares (in the case of Sections 2.3(a)(ii)(A) and (B) below) to be issued upon the OOGEDT’s exercise of this Right to Purchase shall be equal to the quotient obtained by dividing:

 

 

4


(i) The total amount of the Award disbursed as of the date of the exercise (including, if applicable, any Additional Amount(s) disbursed after the date of the First Qualifying Financing Transaction), by

(ii) Either:

(A) if the First Qualifying Financing Transaction is closed and consummated on or before ninety (90) days after the Effective Date, then the Stock Price (as hereinafter defined) of such First Qualifying Financing Transaction; or

(B) if the First Qualifying Financing Transaction is closed and consummated after ninety (90) days following the Effective Date and on or prior to the date eighteen (18) months after the Effective Date, then eight-tenths (0.80) multiplied by the Stock Price of such First Qualifying Financing Transaction; or

(C) if no First Qualifying Financing Transaction is closed and consummated on or before the date eighteen (18) months after the Effective Date or the OOGEDT exercises its Right to Purchase prior to the closing and consummation of a First Qualifying Financing Transaction, then $1.00.

(b) No fractional shares shall be issued upon the exercise of this Right to Purchase. Instead of any fractional share that would otherwise be issuable upon a conversion hereunder, the Company shall pay the OOGEDT a cash amount in respect of such fractional share based upon the applicable Stock Price of the whole shares of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, issuable to the OOGEDT upon such exercise.

(c) The Company shall (i) notify the OOGEDT in writing of the terms of the First Qualifying Financing Transaction at least fifteen (15) days prior to the anticipated closing of such transaction; (ii) deliver all material closing documentation regarding the First Qualifying Financing Transaction to the OOGEDT so that the OOGEDT actually receives such documentation within three (3) business days of the closing of the First Qualifying Financing Transaction; and (iii) and provide promptly such additional information to the OOGEDT as the OOGEDT may reasonably request.

(d) “ Stock Price ” means, as applicable:

(i) With respect to Common Stock, (A) if Common Stock is sold in the First Qualifying Financing Transaction, the price per share at which such Common Stock is sold in the First Qualifying Financing Transaction; (B) if Common Stock is not sold in the First Qualifying Financing Transaction, the price per share of capital stock that is sold in the First Qualifying Financing Transaction as determined by dividing (1) the total amount received by the Company as consideration for the sale of such capital stock, plus the minimum aggregate amount of additional consideration payable to the Company upon the conversion or exchange of all such capital stock into Common Stock, if any, by (2) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of such capital stock; or (C) if there has been no First Qualifying Financing Transactions, then $1.00 per share;

 

 

5


(ii) With respect to Next Financing Shares, the lesser of (i) the average price per share of Next Financing Shares, if any, that are sold to Company Associates and/or Company Affiliates in the First Qualifying Financing Transaction and (ii) the average price per share of Next Financing Shares that are sold to investors other than Company Associates and/or Company Affiliates in the First Qualifying Financing Transaction; and

(iii) With respect to Prior Financing Shares, $1.00 per share.

(e) “ Company Associates ” means, as of any particular date, the shareholders of the Company (including the holders of Common Stock, preferred stock, or other capital stock of the Company), debtholders of the Company, and holders of convertible securities or holders of any right to purchase or acquire any capital stock of the Company.

(f) “ Company Affiliate ” means a person who or that directly, or indirectly through one or more intermediaries, controls the Company or is controlled by, or is under common control with, such a person.

(g) “ Associate Debt ” means debt of the Company outstanding on the date of the First Qualifying Financing Transaction (regardless of whether such debt is evidenced by a promissory note, a convertible promissory note or any other form or instrument) that is owed to any Company Affiliate or any person (or any affiliate of such person) that is purchasing capital stock from the Company in the First Qualifying Financing Transaction, other than accounts payable for goods and services obtained in the ordinary course of business.

(h) “ Stock Acquisition ” means the sale by the Company’s shareholders of all of the issued and outstanding shares of capital stock of the Company to an acquiring person or entity.

(i) “ First Qualifying Financing Transaction ” means the earlier of (i) a Qualifying Liquidation Event and (ii) the first issuance and sale of Common Stock of the Company or other classes or series of authorized capital stock of the Company (excluding, however, (A) any securities of the Company, other than capital stock, that are convertible into or exchangeable or exercisable for capital stock of the Company, such as warrants, options, or convertible debt, and (B) any capital stock issued in exchange for the retirement or partial retirement of any Associate Debt, including without limitation any capital stock issued in exchange for any future promise to retire or partially retire any Associate Debt) to occur following the Effective Date in a public offering or private placement, for an aggregate amount of cash consideration received by the Company from persons other than Company Associates or Company Affiliates equal to or greater than Five Hundred Thousand Dollars ($500,000); provided , however , that, with respect to clause (ii)  above, the cash proceeds received as consideration by the Company in the First Qualifying Financing Transaction shall not be directly used in any single transaction or any series of related transactions to make payments on any Associate Debt (unless the Company receives cash proceeds in the First Qualifying Financing Transaction in excess of Five Hundred Thousand Dollars ($500,000), in which case such excess amount may be used to make payments on Associate Debt).

 

6


Section 2.4 Purchase Procedure .

(a) The purchase rights represented by this Right to Purchase are exercisable by the OOGEDT or its assignee, in whole or in part, at any time on or after the Vesting Date (as hereinafter defined) and on or before the earlier of ninety (90) days after (a) the First Qualifying Financing Transaction (provided, however, if any Additional Amount is disbursed on or after the date of the First Qualifying Financing Transaction, such deadline shall be extended to 90 days after such disbursement with respect to any portion of the Right to Purchase relating to such Additional Amount) and (b) the date thirty (30) months after the Effective Date, by delivering to the principal office of the Company, or at such other office or agency as the Company may designate by notice in writing to the OOGEDT, a duly executed Notice of Purchase in the form attached hereto as Exhibit A and, upon payment of the per share Purchase Price multiplied by the total number of shares thereby purchased (the “ Aggregate Purchase Price ”) (at the sole option of the OOGEDT, to be paid by cash or by check or bank draft payable to the order of the Company, by cashless exercise as described below or by cancellation of indebtedness of the Company to the OOGEDT), whereupon the OOGEDT shall be entitled to receive a certificate for the number of shares of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, so purchased. The OOGEDT, in its sole discretion, shall elect whether to purchase Common Stock, Prior Financing Shares or Next Financing Shares upon its exercise of the purchase rights hereunder.

(b) “ Vesting Date ” means the earlier of (i) the date eighteen (18) months after the Effective Date; (ii) the date on which the First Qualifying Financing Transaction is closed and consummated; or (iii) the date on which any of the following events occur: (A) any capital reorganization or any reclassification of the capital stock of the Company, except for a forward or reverse stock split, stock dividend, reclassification of series, or other event that does not change the proportional ownership of Common Stock among the stockholders, determined as if all preferred stock were converted to Common Stock; (B) any consolidation or merger of the Company; (C) the disposition or transfer of assets of the Company other than in the ordinary course of the Company’s business; (D) any dividend or other distribution to the holders of capital stock of the Company in the form of any asset, including without limitation securities of the Company, except as provided in Section 2.4(b)(iii)(A) above; or (E) the dissolution, liquidation or winding up of the Company; or (iv) the date of a Stock Acquisition.

Section 2.5 Cashless Exercise . In lieu of paying the Purchase Price, the OOGEDT may exercise its purchase rights hereunder by cashless exercise, which shall be effected by converting the Right to Purchase (the “ Conversion Right ”) into shares of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, as follows. Upon exercise of the Conversion Right with respect to a particular number of shares of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be (the “ Converted Right ”), the Company shall deliver to the OOGEDT (without payment by the OOGEDT of any cash, cancellation of indebtedness or delivery of any other consideration) that number of shares of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, equal to the quotient obtained by dividing (a) the difference between (i) the product of the Stock Price of a share of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, and the number of such shares into which the Converted Right could have been exercised hereunder and (ii) the Aggregate Purchase Price that would have been payable upon such exercise of the Converted Right, by (b) the applicable Stock Price.

 

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Section 2.6 Issuance of Shares . The issuance of Next Financing Shares upon exercise of the purchase rights under this Right to Purchase shall be upon and subject to the same terms and conditions (other than price and timing) applicable to the First Qualifying Financing Transaction and, subject to Section 3.4 below, the OOGEDT shall be entitled to all the same rights and preferences with respect to each share of Next Financing Shares held by the OOGEDT to which all other holders of shares of the same class and series of stock are entitled. The issuance of Prior Financing Shares upon exercise of the purchase rights under this Right to Purchase shall be upon and subject to the same terms and conditions (other than price and timing) applicable to the founders’ shares originally issued to JREG Investments, Ltd., Domecq-Sebastian Holdings, LLC; Domecq-Austin, L.L.C.; and Wilson, Sonsini, Goodrich and Rosati and, subject to Section 3.4 below, the OOGEDT shall be entitled to all the same rights and preferences with respect to each share of Prior Financing Shares held by the OOGEDT to which all other holders of shares of the same class and series of stock are entitled. All shares of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, issued to the OOGEDT upon a purchase hereunder shall be validly issued, fully paid, non-assessable and free from all taxes, liens and charges. In case the OOGEDT shall exercise this Right to Purchase with respect to less than all of the shares that may be purchased hereunder, or if future disbursements of the Award are made under the Fund Agreement following any exercise hereof, this Right to Purchase shall thereafter represent the right to purchase the balance of such shares and any additional shares represented by such additional Award disbursement. The issuance of certificates for shares upon exercise of this Right to Purchase shall be made without charge to the holder thereof for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of the shares. Notwithstanding anything to the contrary provided herein, the OOGEDT shall not be required to execute, join or become a party to any other agreement, including any shareholders agreement, in connection with the issuance to the OOGEDT of Next Financing Shares or Common Stock.

Section 2.7 Reservation of Shares . The Company shall at all times reserve and keep available out of its authorized but unissued Common Stock and Prior Financing Shares, and once designated, Next Financing Shares, solely for the purpose of issuance upon the exercise of this Right to Purchase, the maximum number of shares issuable upon the exercise of this Right to Purchase. If at any time the number of authorized but unissued shares shall not be sufficient to permit exercise of this Right to Purchase, the Company shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock, Prior Financing Shares and Next Financing Shares to such number of shares as shall be sufficient for such purpose.

Section 2.8 Certain Adjustments . The number of shares of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, purchasable hereunder and the Purchase Price shall be subject to adjustment from time to time as hereinafter provided.

(a) In case of (i) any capital reorganization or any reclassification of the capital stock of the Company, (ii) any consolidation or merger of the Company, (iii) the disposition or transfer of assets of the Company other than in the ordinary course of the Company’s business, (iv) any dividend or other distribution to the holders of capital stock of the Company in the form of additional shares of capital stock of the Company or its subsidiaries, property of the Company or its subsidiaries (other than cash) or rights, options or warrants to purchase or otherwise acquire shares of capital stock of the Company or its subsidiaries, or (v) the dissolution, liquidation or winding up of the Company, this Right to Purchase shall thereafter

 

8


be exercisable for and the OOGEDT shall thereafter be entitled to purchase (and it shall be a condition to the consummation of any such transaction or event that appropriate provision shall be made so that the OOGEDT shall thereafter be entitled to purchase) the kind and amount of shares of stock and other securities and property receivable in such transaction by a holder of the number of shares of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, for which this Right to Purchase entitled the OOGEDT to purchase immediately prior to such capital reorganization, reclassification of capital stock, non-surviving combination or disposition or other transaction; and in any such case appropriate adjustments shall be made in the application of the provisions of this paragraph with respect to rights and interests thereafter purchasable upon the exercise of this Right to Purchase and the Purchase Price. In the case of a capital reorganization or reclassification, the number of shares that the OOGEDT is entitled to purchase hereunder shall be proportionately increased in the case of a split or subdivision or proportionately decreased in the case of a combination and the Purchase Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination.

(b) In the case of any cash dividends declared or paid on the Common Stock, Prior Financing Shares or the Next Financing Shares, as the case may be, of the Company prior to the exercise of this Right to Purchase, the OOGEDT shall be entitled, upon exercise of this Right to Purchase, to receive the value of any such dividends to the full extent as if the OOGEDT had exercised this Right to Purchase as of the date of declaration or payment of any such dividend. The OOGEDT, in its sole discretion, shall elect one of the two following methods for the Company to pay the value of such dividends to the OOGEDT: (i) in cash or (ii) by adjusting this Right to Purchase to represent the right to acquire, in addition to the number of shares receivable upon exercise hereof, and without payment of any additional consideration therefor, the amount of such other shares of Common Stock, Prior Financing Shares or the Next Financing Shares, as the case may be, of the Company that such holder could have purchased with such cash dividend at the Stock Price on the date of such exercise had it received such cash dividends on the date of their distribution and had thereafter retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions hereof.

(c) Notice of Adjustments or Dividends . Upon any event that has the effect of causing an adjustment of shares of securities purchasable (or payment of dividends) upon exercise of this Right to Purchase, a certificate, signed by (i) an authorized officer of the Company or (ii) an independent firm of certified public accountants selected by the Company at its own expense, setting forth in reasonable detail the events requiring the adjustment and the method by which such adjustment was calculated, shall promptly be mailed to the OOGEDT and shall specify the adjusted Purchase Price and the number of shares of securities (and payment of dividends) purchasable upon exercise of this Right to Purchase after giving effect to the adjustment.

 

 

9


Section 2.9 Stock Certificate Legend . Each certificate representing shares of Common Stock, Prior Financing Shares or Next Financing Shares issued pursuant to this Right to Purchase shall be imprinted with a legend in substantially the following form:

THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS SUCH OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS, AS THE SAME MAY BE AMENDED FROM TIME TO TIME.

THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN INVESTMENT UNIT AND AN EMERGING TECHNOLOGY FUND SECURITY AND AWARD AGREEMENT, EACH DATED AS OF             ,             , BY AND BETWEEN THE COMPANY AND THE STATE OF TEXAS, ACTING BY AND THROUGH THE OFFICE OF GOVERNOR ECONOMIC DEVELOPMENT AND TOURISM, WHICH INVESTMENT UNIT AND AGREEMENT CONTAIN, AMONG OTHER PROVISIONS, RESTRICTIONS ON THE TRANSFER, SALE, OR OTHER DISPOSITION OF THE SHARES EVIDENCED BY THIS CERTIFICATE. A COPY OF SUCH INVESTMENT UNIT AND AGREEMENT HAS BEEN FILED, AND IS AVAILABLE FOR REVIEW BY THE RECORD HOLDER OF THIS CERTIFICATE, AT THE PRINCIPAL OFFICE OF THE COMPANY.

Section 2.10 No Impairment . So long as this Right to Purchase is outstanding and unexercised, the Company shall not, by amendment of its certificate of formation (or other formation document) or bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in the carrying out of all the provisions of this section and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the OOGEDT hereunder against impairment.

ARTICLE III

MISCELLANEOUS

Section 3.1 Representations and Covenants of the Company .

(a) The Company shall comply with the Act, all applicable state securities laws, and all other applicable laws and regulations in respect of the issuance of this Unit and the issuance of any securities issued or issuable under Article II hereof, and shall timely make all required filings and reports under such laws and regulations.

 

10


(b) The Company represents that it has the power to issue this Unit and to carry out the obligations hereunder, and the execution, delivery and performance by the Company of this Unit has been duly authorized by all necessary corporate action.

(c) The Company shall maintain or cause to be maintained books, records, documents and other evidence pertaining to compliance with the requirements contained in this Unit, and during all such time when the OOGEDT is holding this Unit or any securities issued upon the exercise of the Right to Purchase under Article II hereof, upon request shall allow or cause the entity which is maintaining such items to allow the OOGEDT, or auditors for the OOGEDT, including the State Auditor for the State of Texas, to inspect, audit, copy, or abstract, all of its books, records, papers, or other documents relevant to this Unit and the securities issued or issuable upon exercise of the Right to Purchase under Article II hereof. The Company shall use or cause the entity that is maintaining such books and records to use generally accepted accounting principles in the maintenance of such books and records, and shall retain or cause to be retained all of such books, records, documents and other evidence for a period of seven (7) years from and after the later of (i) the date that the Fund Agreement is terminated or the Fund Agreement’s term expires and (ii) unless the Right to Purchase hereunder expires without having been exercised, the date on which the OOGEDT fully divested all rights and ownership of all stock that was issued upon the OOGEDT’s exercise of its Right to Purchase under Article II hereof.

Section 3.2 Representations and Covenants of the OOGEDT . The OOGEDT, by acceptance of this Right to Purchase, agrees that the right to purchase shares of Common Stock, Prior Financing Shares, Next Financing Shares or other securities to be issued upon exercise hereof are being acquired for the OOGEDT’s own account to be held on behalf of the State of Texas pursuant to the provisions of Chapter 490 of the Texas Government Code and that the OOGEDT shall not offer, sell or otherwise dispose of this Right to Purchase or any shares issuable hereunder except under circumstances that will not result in a violation of the Act or any securities laws of any state. Otherwise, the OOGEDT is permitted at any time and without limitation to offer, sell or otherwise dispose of this Right to Purchase and any securities issued hereunder in a manner that is in compliance with the Act and any applicable state securities laws of, including making such offers, sales or dispositions under Rule 144 of the Act. Prior to any offer, sale, or other disposition of this Right to Purchase and any securities issued hereunder, the OOGEDT shall provide the Company with fifteen (15) days written notice thereof.

Section 3.3 Notices . Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier or personal delivery at the respective addresses of the parties as set forth herein or on the register maintained by Company. The Company and the OOGEDT may by notice so given change the OOGEDT’s and Company’s respective address for future notice hereunder. Notice shall conclusively be deemed to have been given when received. The current addresses for notice are as follows:

To OOGEDT:     Financial Services

 ETF Compliance

 PO Box 12878

 

11


                 Austin, TX 78711-2878

                 Email: ETF.Compliance@governor.state.tx.us

                 with a concurrent copy to :

                 ATTN: Emerging Technology Fund Award Program

                 General Counsel

                 Office of the Governor

                 P.O Box 12428

                 Austin, Texas 78711

                 Phone: 512-463-1788

                 Fax: 512-463-1932

To Company:     Convergen LifeSciences, Inc.

                 9015 Mountain Ridge Drive, Suite 250Austin, Texas 78759

                 Attn: Rodney Varner

                 Phone: 512-320-4165

                 Fax: 512-495-9441

Section 3.4 No Rights as Shareholder . Nothing in the Unit shall be construed as conferring on the OOGEDT or any other person any voting rights or other rights as a shareholder of the Company. Further, from and after any exercise of the Right to Purchase under Article II hereof, so long as the OOGEDT holds such capital stock, the OOGEDT shall grant a revocable proxy (the “ Proxy ”) of all its voting rights to the then-current Chief Executive Officer (or, if no Chief Executive Officer is then serving, President) of the Company with respect to each matter that is presented for a vote to holders of capital stock held by the OOGEDT, substantially in the form attached hereto as Exhibit B (which form shall provide, among other things, that such Proxy shall be voted in proportionate accordance to the votes of such other holders (holding shares of the same class and series of stock as the OOGEDT) on the matter). It is the general intent of the OOGEDT not to revoke the Proxy unless the OOGEDT’s rights and interests would be adversely and disproportionately effected in connection with a matter on which the OOGEDT otherwise would have the right to vote, and any such determination regarding whether any such matter has or would have an adverse or disproportionate effect on the OOGEDT’s rights and interests shall be made in the sole discretion of the OOGEDT. Notwithstanding anything to the contrary herein, in the Fund Agreement or in connection with the OOGEDT’s grant of the Proxy, upon exercise of the Right to Purchase hereunder, the OOGEDT shall become the record holder of the Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, and shall have all legal and beneficial ownership rights thereto at all times (except as is specifically set forth in the Proxy). In addition, notwithstanding the OOGEDT’s grant of the Proxy, the Company shall provide the OOGEDT with all notices to which holders of Common Stock, Prior Financing Shares or Next Financing Shares, as the case may be, are entitled, including without limitation all notices of shareholders’ meetings and all notices of any votes upon any matters submitted for a vote of the holders of Common Stock, Prior Financing Shares or the Next Financing Shares, as the case may be, which notices shall be delivered by the Company to the OOGEDT on or before such date as shall provide the OOGEDT with adequate time to revoke the Proxy prior to such meeting or vote if the OOGEDT so chooses.

 

12


Section 3.5 Right of First Offer . If the OOGEDT shall decide at any time that it wants to sell, transfer or assign all or any portion of its Common Stock, Prior Financing Shares or Next Financing Shares (as the case may be, the “ Offered Shares ”) to any person or entity that is not another Texas state agency, the OOGEDT shall first provide the Company with a written offer to sell the Offered Shares to the Company at a specified price per share. The Company shall then have thirty (30) days to accept or reject such offer with respect to all but not less than all of the Offered Shares. If the Company irrevocably accepts the offer within the applicable time period, the Company shall have an additional thirty (30) days to complete the purchase of the Offered Shares. The Company shall be permitted to assign its purchase right under this Section 3.5 to one or more of its executive officers, but this right shall be otherwise non-assignable by the Company. If the Company rejects the offer or fails to accept the offer within the applicable time period with respect to all of the Offered Shares, then the OOGEDT may sell all or a portion of the Offered Shares that have been offered but not accepted for purchase by the Company within one hundred eighty (180) days of such rejection or expiration of the time period for response to any person or entity; provided, that the OOGEDT does not sell any of the Offered Shares for less than one hundred percent (100%) of the per share price the OOGEDT offered to the Company. If the OOGEDT does not sell the Offered Shares within the time period and for the price indicated above, it must comply again with the provisions of this Section 3.5 before selling all or any portion of the Offered Shares.

Section 3.6 Unit Register . The Company shall maintain at its principal executive office books for the registration and the registration of transfer of the Unit. The Company may deem and treat the OOGEDT as the absolute owner hereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes, and neither the Company nor the OOGEDT shall be affected by any notice to the contrary.

Section 3.7 Transfers . The Company shall not close its books against the transfer of this Unit or of any shares issued or issuable upon the exercise of the Right to Purchase under Article II hereof in any manner which interferes with the timely exercise of the Right to Purchase.

Section 3.8 Assignment . Except as specifically set forth in Section 3.5 . the Company shall not assign this Unit or any of its rights or obligations hereunder without the prior written consent of the OOGEDT. Except as otherwise required by Section 3.5 above, the OOGEDT may assign this Unit and any of its rights or obligations hereunder without the consent of the Company but must first provide the Company with fifteen (15) days written notice of such assignment. Subject to the foregoing, this Unit and all terms, provisions and obligations set forth herein shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns and all other state agencies and any other agencies, departments, divisions, governmental entities, public corporations and other entities that shall be successors to any of the parties or that shall succeed to or become obligated to perform or become bound by any of the covenants, agreements or obligations hereunder of any of the parties hereto.

Section 3.9 Governing Law and Venue . This Unit shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America from time to time in effect, without regard to any otherwise applicable conflict of law rules or requirements. The Company and all endorsers, guarantors and sureties irrevocably agree that any action, claim,

 

13


suit, litigation or other proceeding (collectively, “ Litigation ”) arising out of or in any way relating to this Unit, or the matters referred to therein, shall be commenced exclusively in the Travis County District Court or the United States District Court for the Western District of Texas, Austin Division, and hereby irrevocably and unconditionally consents to the exclusive jurisdiction of those courts for the purpose of prosecuting and/or defending such Litigation. The Company and all endorsers, guarantors and sureties hereby waive and agree not to assert by way of motion, as a defense, or otherwise, in any Litigation that (a) the Company is not personally subject to the jurisdiction of the above-named courts, (b) the Litigation is brought in an inconvenient forum or (c) the venue of the Litigation is improper.

Section 3.10 Replacement . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Unit and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to the Company, or in the case of any such mutilation, upon surrender and cancellation of the mutilated Unit, the Company shall execute and deliver, in lieu thereof, a new Unit of like date and tenor.

Section 3.11 Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

Section 3.12 Proceeds . This Unit, the securities issuable upon exercise of the Right to Purchase under Article II hereof, and all amounts of cash or other benefits earned or received by the OOGEDT hereunder or by sale hereof, are held for and on behalf of the State of Texas. Any and all cash received by the OOGEDT under or by sale of this Unit or the securities issuable under the Right to Purchase shall be deposited into the Emerging Technology Fund in accordance with Chapter 490 of the Texas Government Code.

Section 3.13 Severability . If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

Section 3.14 Further Assurances . The Company and the OOGEDT shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any governmental authority or any other person, and otherwise fulfilling, or causing the fulfillment of, the various obligations made herein), as may be reasonably required or desirable to carry out or to perform the provisions of this Unit and to consummate and make effective as promptly as possible the transactions contemplated by this Unit.

Section 3.15 Agreement by OOGEDT . Receipt of this Unit by the OOGEDT shall constitute acceptance of and agreement to the foregoing terms and conditions.

 

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Section 3.16 Amendment . Any term of this Unit may be amended and the observance of any term of this Unit may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the OOGEDT.

Section 3.17 Headings . The section headings in this Unit are inserted for purposes of convenience only and shall have no substantive effect.

Section 3.18 Survival . The warranties, representations and covenants contained in or made pursuant to this Unit shall survive the execution and delivery of this Unit and shall survive any breach, expiration or termination of the Fund Agreement. Notwithstanding anything herein to the contrary, this Unit, including without limitation the Right to Purchase under Article II hereof, shall survive the repayment of the Note.

Section 3.19 Exhibits . The exhibits referred to herein are hereby incorporated fully herein by this reference.

[ Remainder of page intentionally left blank .]

 

15


IN WITNESS WHEREOF, the Company has caused this Investment Unit to be signed by its duly authorized officers in Austin, Travis County, Texas as of the date and year first written above.

 

Convergen LifeSciences, Inc.
By:  

/s/ DAVID G. NANCE

Name:   David G. Nance
Title:   President

 

16


EXHIBIT A

Notice of Purchase

The undersigned, representing the State of Texas, acting by and through the Office of Governor Economic Development and Tourism, together with its nominees or assigns (the “ OOGEDT ”), pursuant to the provisions of the Investment Unit, dated [            ] (the “ Unit ”), issued to the OOGEDT by Convergen LifeSciences, Inc., a Delaware corporation (the “ Company ”), hereby agrees to subscribe for and purchase             shares of [Common Stock / Series             Preferred Stock], par value $0.001 per share, of the Company covered by the Right to Purchase (as defined in the Unit), and makes such payment therefor in full at the Purchase Price (as defined in the Unit) either in cash, by cashless exercise or by other method as provided by the Unit.

 

Signature:  

 

Name:  

 

Title:  

 

Dated:  

 

INSTRUCTIONS FOR REGISTRATION OF STOCK:
Name  

 

(please type or print in block letters)
Address  

 

Address  

 

 

17


Exhibit B

Form of Revocable Proxy

CONTINUING REVOCABLE PROXY

The State of Texas, acting by and through the Office of the Governor Economic Development and Tourism (the “ undersigned ”), hereby grants to the then-current Chief Executive Officer (or, if no Chief Executive Officer is serving, President), of Convergen LifeSciences, Inc., a Delaware corporation (the “ Company ”), a proxy with full power of substitution to vote, or execute and deliver written consents or otherwise act with respect to the [INSERT NUMBER] shares of Stock the undersigned owns, beneficially or of record, that were issued to the undersigned by the Company on             , 2            , in proportionate accordance to the votes on the applicable matter of such other holders of the Company’s Stock who hold shares of the same class and series as held by the undersigned, as fully, to the same extent and with the same effect as the undersigned might or could do under any applicable laws or regulations governing the rights and powers of shareholders of a Delaware corporation, and in connection therewith to execute any documents which are necessary or appropriate in order to effectuate the foregoing, on any matter requiring the vote of the holders of the Stock, or by written consent in lieu of a meeting, or otherwise, or whether such vote is to be cast in person, or by proxy, or as otherwise permitted by law. The proxy granted herein (x) shall be revocable at any time by the undersigned upon notice by the undersigned to the Company and, (y) notwithstanding Section 21.368 of the Texas Business Organizations Code, Article 2.29(C) of the Texas Business Corporation Act, or any similar or successor statute, shall remain valid and in effect from the date hereof until the date it is revoked as described in clause(x) preceding.

 

Date:                 ,          2         THE STATE OF TEXAS
   

 

By:

    Title:   Chief of Staff
      Office of the Governor

 

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Exhibit 4.4

THE PURCHASE RIGHTS EVIDENCED BY THIS WARRANT AGREEMENT AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON EXERCISE OF SUCH PURCHASE RIGHTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM.

GENPREX, INC.

WARRANT AGREEMENT

Effective as of December 17, 2015

THIS CERTIFIES THAT, for value received, DABS Advanced Biotech Solutions, LLC, or its successors and permitted assigns pursuant to the terms hereof (the “ Warrantholder ”), is entitled to purchase from Genprex, Inc., a Delaware corporation (the “ Corporation ”), subject to the terms set forth below, 15,365 fully paid and non-assessable shares (subject to adjustment as provided herein) (the “ Warrant Shares ”) of the Corporation’s Non-Voting Common Stock, par value $0.001 per share (the “ Non-Voting Common Stock ”), at a purchase price of $32.54 in cash per Warrant Share (the “ Exercise Price ”), subject to the provisions and upon the terms and conditions hereinafter set forth. The term “ Warrant Agreement ” as used herein shall refer to this Warrant Agreement, as the same may be amended or amended and restated.

This Warrant Agreement is issued pursuant to that certain Consultant Agreement, made and entered into as of the effective date hereof, by and between the Corporation and the Warrantholder.

1. Exercise Period . Subject to the terms and conditions of this Warrant Agreement, the purchase rights evidenced by this Warrant Agreement may be exercised, in whole or in part, at any time and from time to time from and after the vesting date (“Vesting Date”) which is the sooner of: (a) one year after a registration statement filed by the Company under the Securities Act of 1933 (15 USC 77f) becomes effective and the Company’s securities commence trading on the OTCBB, NASDAQ, or other national securities market, (the “Registration Date”), and (b) eighteen months after the date of this Warrant Agreement, and before 5:00 p.m. (Central Time) on the fifth anniversary of the Vesting Date (the “Expiration Date”). Upon the Expiration Date this warrant will expire and be of no further force or effect.

2. Method of Exercise; Payment; Issuance of New Warrants .

(a) The purchase rights evidenced by this Warrant Agreement may be exercised by the Warrantholder, in whole or in part, by the surrender of this Warrant Agreement (with a duly executed notice of exercise in the form attached hereto as Exhibit A (the “ Notice of

 

Warrant Agreement    Page 1


Exercise ”)) at the principal office of the Corporation, accompanied by the payment to the Corporation, in cash, by wire transfer, or by certified check payable to the Corporation, of an amount equal to the product of (i) the Exercise Price times (ii) the number of Warrant Shares as to which the purchase rights evidenced by this Warrant Agreement is being exercised (which number of Warrant Shares shall be stated in the duly executed Notice of Exercise). Upon receipt by the Corporation at such office of this Warrant Agreement and a duly executed Notice of Exercise in proper form for exercise, together with the aggregate Exercise Price due to the Corporation, the Warrantholder shall be deemed to have become the holder of record of, and shall be treated for all purposes as the record holder of, the number of the Warrant Shares set forth in such Notice of Exercise (and such Warrant Shares shall be deemed, to the fullest extent permitted by law, to have been issued) immediately prior to the close of business on the date upon which the purchase rights evidenced by this Warrant Agreement is exercised as aforesaid.

(b) In the event of any exercise of the purchase rights evidenced by this Warrant pursuant to this Section  2 , the Corporation will use commercially reasonable efforts to execute and deliver certificates evidencing the Warrant Shares so purchased to the Warrantholder within ten (10) Business Days (as defined below) from the Corporation’s receipt of the Notice of Exercise. If the purchase rights evidenced by this Warrant Agreement are exercised in part only, unless the purchase rights evidenced by this Warrant Agreement have been fully exercised or expired, the Corporation shall use commercially reasonable efforts to deliver to the Warrantholder a new Warrant Agreement evidencing the rights of the Warrantholder to purchase the balance of the Warrant Shares purchasable hereunder within such ten (10) Business Day period. For purposes of this Warrant, “ Business Day ” means any day, except a Saturday, Sunday or legal holiday, on which banking institutions in New York, New York, are required to be open.

(c) Fractions of a Warrant Share . The Corporation shall not be required to issue any fraction of a Warrant Share in connection with the exercise of the purchase rights evidenced by this Warrant Agreement pursuant to this Section  2 . At its option, the Corporation may pay to the Warrantholder, in lieu of any fraction of a Warrant Share resulting from the exercise of the purchase rights evidenced by this Warrant Agreement, an amount of cash equal to the product of (a) the applicable fraction of a Warrant Share multiplied by (b) the Fair Market Value (as defined below) of a share of Non-Voting Common Stock. For purposes hereof, “ Fair Market Value ” shall mean, for any date, the price determined by the first of the following clauses that applies: (i) if the Non-Voting Common Stock is then listed or traded on a national securities exchange for at least ten (10) consecutive trading days immediately preceding such date of determination, the daily volume-weighted average price of such security for the ten (10) consecutive trading days immediately preceding such date of determination as reported by Bloomberg, L.P. (or, if no such price is reported by Bloomberg, L.P. for any particular trading day during such ten (10) trading day period, the daily volume-weighted average price of such security as officially reported for such trading day on the principal securities exchange on which such security is then listed or admitted to trading shall be used for the purposes of calculating such ten (10) trading day volume-weighted average price); or (ii) if the Non-Voting Common Stock is not then listed or traded on a national securities exchange for at least ten (10) consecutive trading days immediately preceding such date of determination, the fair market value as determined by the board of directors of the Corporation (the “ Board ”) in good faith, as evidenced by a resolution or resolutions of the Board.

 

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3. Exercise in Connection with an Extraordinary Transaction.

(a) Definitions . For purposes of this Section  3 , “ Extraordinary Transaction ” shall mean (i) a merger or consolidation in which the Corporation is a constituent corporation and the shares of Non-Voting Common Stock are converted, exchanged or cancelled, (ii) a conversion, reorganization or reclassification of the capital stock of the Corporation in which the Non-Voting Common Stock are converted, exchanged or cancelled (other than a merger or consolidation provided in clause (i) hereof), (iii) a transaction or series of related transactions which constitute(s) a sale, lease or exchange of all or substantially all of the property and assets of the Corporation, including its goodwill and its corporate franchises, or (iv) a transaction or series of related transactions which constitute(s) a dissolution or liquidation of the Corporation.

(b) If there shall occur any Extraordinary Transaction, then, from and after the consummation of such Extraordinary Transaction, the Warrantholder shall receive upon exercise of all or any portion of the purchase rights evidenced by this Warrant Agreement pursuant to the terms of Section  2 , in lieu of Warrant Shares, the kind and amount of shares or other securities, cash, property or other rights that the Warrantholder would have received if the purchase rights evidenced by this Warrant Agreement (or portion thereof being exercised) had been exercised pursuant to the terms of Section  2 immediately prior to the consummation of such Extraordinary Transaction (assuming the Warrantholder failed to exercise its rights of election, if any, as to the kind or amount of shares or other securities, cash, property or other rights receivable by the holders of shares of Non-Voting Common Stock upon consummation of such Extraordinary Transaction) and, without further action on the part of the Corporation, the Warrantholder or any other person or entity, the purchase rights evidenced by this Warrant Agreement shall thereafter represent the right to receive upon exercise pursuant to the terms of Section  2 , solely the kind and amount shares or securities, cash, property or other rights that the Warrantholder would have received if the purchase rights evidenced by this Warrant Agreement (or portion thereof being exercised) had been exercised pursuant to the terms hereof immediately prior to the consummation of such Extraordinary Transaction (assuming the Warrantholder failed to exercise its rights of election, if any, as to the kind or amount of shares or other securities, cash, property or other rights receivable by the holders of shares of Non-Voting Common Stock upon consummation of such Extraordinary Transaction).

(c) The Corporation will not affect any Extraordinary Transaction unless prior to the consummation thereof, the successor entity (if other than the Corporation) or purchasing person or entity shall assume by written instrument the obligation to deliver to the Warrantholder such shares or other securities, cash, property or other rights in accordance with Section  3(b) .

(d) Notwithstanding any other provision of this Warrant Agreement, if an exercise of any all or any portion of the purchase rights evidenced by this Warrant Agreement is to be made in connection with an Extraordinary Transaction, the exercise of all or any portion of the purchase rights evidenced by this Warrant Agreement may, at the election of the Warrantholder, be conditioned upon the consummation of such Extraordinary Transaction, in which case, such exercise shall not be deemed to be effective until immediately prior to the consummation of such Extraordinary Transaction.

 

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4. Stock Fully Paid; Reservation of Warrant Shares . The Corporation covenants and agrees that all Warrant Shares from time to time issuable upon exercise of the purchase rights evidenced by this Warrant Agreement have been duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Corporation hereby covenants and agrees that the Corporation will, at all times through the Expiration Date, reserve and keep available out of its aggregate authorized but unissued shares of Non-Voting Common Stock, the number of Warrant Shares deliverable upon the exercise of the purchase rights evidenced by this Warrant Agreement.

5. Adjustment . The number of Warrant Shares purchasable upon the exercise of the purchase rights evidenced by this Warrant Agreement shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a) In case the outstanding shares of Non-Voting Common Stock shall be subdivided into a greater number of shares or combined into a smaller number of shares, the number of Warrant Shares to be received by the Warrantholder upon exercise of the purchase rights evidenced by this Warrant Agreement shall be appropriately adjusted such that the proportion of the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement to the total number of outstanding shares of Non-Voting Common Stock immediately prior to such subdivision or combination is equal to the proportion of the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement to the total number of outstanding shares of Non-Voting Common Stock immediately after such subdivision or combination.

(b) In the case the Corporation shall hereafter declare a dividend or distribution to all holders of the outstanding shares of Non-Voting Common Stock in shares of Non-Voting Common Stock, the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement shall be increased by dividing such number by a fraction, (i) the numerator of which shall be the number of shares of Non-Voting Common Stock outstanding at the close of business on such record date, and (ii) the denominator of which shall be the sum of (x) the number of shares of Non-Voting Common Stock outstanding at the close of business on such record date and (y) the total number of shares of Non-Voting Common Stock constituting such dividend or distribution. If any dividend or distribution of the type described in this Section  5(b) is declared but not so paid or made, the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement shall again be adjusted to the number of Warrant Shares that would be issuable upon exercise of the purchase rights evidenced by this Warrant Agreement if such dividend or distribution had not been declared.

(c) In the event the Corporation shall make or issue, or fix a record date for the determination of holders of shares of Non-Voting Common Stock entitled to receive, a dividend or other distribution payable in any securities of the Corporation other than shares of Non-Voting Common Stock (including, but not limited to, any other class of capital stock or debt securities), then and in each such event the Board shall, to the fullest extent permitted by law, take all lawful actions so that the Warrantholder shall receive upon exercise of the purchase

 

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rights evidenced by this Warrant Agreement, in addition to the number of Warrant Shares receivable upon exercise of the purchase rights evidenced by this Warrant Agreement, the number of such other securities of the Corporation which the Warrantholder would have received had the purchase rights evidenced by this Warrant Agreement been exercised on the date of such event and had such holder thereafter, during the period from the date of such event to and including the date of exercise, retained such securities receivable by such holder as aforesaid during such period, giving application to all adjustments called for during such period under this Section  5 as applied to such distributed securities.

6. Legend . Each certificate evidencing Warrant Shares issued upon exercise of this Warrant shall bear the following legends substantially in the forms set forth below:

“THE SECURITIES OF REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM.”

“THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON ASSIGNMENT AND TRANSFER CONTAINED IN AN AGREEMENT WITH THE CORPORATION WHICH IS ON FILE IN THE PRINCIPAL OFFICES OF THE CORPORATION. THE HOLDER OF THIS CERTIFICATE MAY OBTAIN A COPY OF SUCH RESTRICTIONS UPON WRITTEN REQUEST TO THE CORPORATION.”

7. Rights as Stockholder . Notwithstanding any other provision of this Warrant Agreement, prior to the proper exercise of the purchase rights evidenced by this Warrant Agreement by the Warrantholder in accordance with the terms of this Warrant Agreement, no Warrantholder, as such, shall be entitled to vote or receive dividends or distributions or be deemed the holder of Warrant Shares, nor shall anything contained herein be construed to confer upon the Warrantholder, as such, any of the rights of a stockholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof (or by written consent in lieu of any such meeting), or to receive notice of meetings, or to receive dividends or distributions or otherwise. Upon the proper exercise of the purchase rights evidenced by this Warrant Agreement in accordance with the terms of this Warrant Agreement, the Warrantholder shall for all purposes be deemed to have become the holder of record of the Warrant Shares represented thereby on, and such certificate shall be dated as of, the date upon which the purchase rights evidenced by this Warrant Agreement is exercised with respect to such Warrant Shares in accordance with the terms hereof.

8. Modification and Waiver . The Corporation may change, waive, discharge, terminate or amend any provision of this Warrant Agreement with the consent of Warrantholder.

 

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9. Termination . The purchase rights evidenced by this Warrant Agreement shall terminate on the Expiration Date. Notwithstanding the foregoing, the purchase rights evidenced by this Warrant Agreement will terminate on any earlier date when all of the purchase rights evidenced by this Warrant Agreement have been exercised.

10. Notices . Any notice required to be given or delivered to the Warrantholder or the Corporation shall be sent by certified or registered mail, postage prepaid, to such Warrantholder at its address indicated on the signature page of this Agreement or as shown on the books and records of the Corporation or to the Corporation at the address indicated on the signature page of this Warrant. All such notices shall be effective on the day following the date such notice is deposited in the mails, addressed as aforesaid, unless otherwise provided herein.

11. Restrictions on Assignment, Transfer of Shares . The purchase rights evidenced by this Warrant Agreement and the Warrant Shares issued upon the exercise of the purchase rights evidenced by this Warrant Agreement will be restricted against transfer, and Consultant will not enter into any contract, option, or other agreement for the sale or transfer of such shares, warrants or Warrant Shares, until the sooner of (i) 180 days after a Genprex IPO; (ii) sale of more than sixty-five percent of Genprex’s issued and outstanding common stock by its shareholders to persons who are not shareholders as of the date hereof; (iii) sale by Genprex of substantially all of its assets; or (iv) five years from the date hereof; or (v) written consent of Genprex to such transfer. Further, the shares, warrants and Warrant Shares may not be transferred unless Genprex receives an opinion of legal counsel reasonably acceptable to it that such transfer will not violate the Securities Act of 1933 or any other federal or state securities law, unless this requirement is waived by Genprex.

12. Binding Effect on Successors . To the fullest extent permitted by law, this Warrant Agreement shall be binding upon any entity succeeding the Corporation by merger, consolidation or acquisition of all or substantially all of the Corporation’s assets, and all of the covenants and agreements of the Corporation shall inure to the benefit of the successors and permitted assigns of the Warrantholder. This Warrant Agreement shall be binding upon and inure to the benefit of the Corporation and the Warrantholder and their respective successors and permitted assigns. The Warrantholder shall not be permitted to assign any of its rights, interests or obligations hereunder without the express written consent of the Corporation.

13. Lost Warrant Agreement . The Corporation covenants to the Warrantholder that upon receipt of evidence reasonably satisfactory to the Corporation of the loss, theft, destruction, or mutilation of this Warrant Agreement and, in the case of any such loss, theft or destruction, upon receipt of the Warrantholder’s unsecured indemnification agreement, or in the case of any such mutilation upon surrender and cancellation of this Warrant Agreement, the Corporation will make and deliver a new Warrant Agreement in lieu of the lost, stolen, destroyed or mutilated Warrant Agreement.

14. Governing Law . This Warrant Agreement shall be governed in all respects by and construed in accordance with the laws of the State of Delaware (without regard to any conflict of laws principle that would apply the law of another jurisdiction), whether as to its validity, construction, capacity, performance or otherwise.

 

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15. Consent To Jurisdiction . ANY LEGAL ACTION, SUIT OR PROCEEDING ARISING OUT OF OR BASED UPON THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF TEXAS, IN EACH CASE, LOCATED IN THE CITY OF AUSTIN, AND, TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS. TO THE FULLEST EXTENT PERMITTED BY LAW, IN ANY SUCH ACTION, SUIT OR PROCEEDING, SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT. TO THE FULLEST EXTENT PERMITTED BY LAW, THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

16. Waiver of Jury Trial . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS WARRANT AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY TO THIS WARRANT AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (ii) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 17 .

[Signature Page Follows]

 

 

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IN WITNESS WHEREOF, this Warrant Agreement is executed effective as of the date first above written.

 

GENPREX, INC.

/s/ RODNEY VARNER

Name: Rodney Varner
Title: Chief Executive Officer
100 Congress Avenue
Suite 2000
Austin, Texas 78701
Attn: Rodney Varner,
Chief Executive Officer

Exhibit 4.5

THE PURCHASE RIGHTS EVIDENCED BY THIS WARRANT AGREEMENT AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON EXERCISE OF SUCH PURCHASE RIGHTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM.

GENPREX, INC.

WARRANT AGREEMENT

Effective as of December 17, 2015

THIS CERTIFIES THAT, for value received, DABS Advanced Biotech Solutions, LLC, or its successors and permitted assigns pursuant to the terms hereof (the “ Warrantholder ”), is entitled to purchase from Genprex, Inc., a Delaware corporation (the “ Corporation ”), subject to the terms set forth below, 15,365 fully paid and non-assessable shares (subject to adjustment as provided herein) (the “ Warrant Shares ”) of the Corporation’s Non-Voting Common Stock, par value $0.001 per share (the “ Non-Voting Common Stock ”), at a purchase price of $32.54 in cash per Warrant Share (the “ Exercise Price ”), subject to the provisions and upon the terms and conditions hereinafter set forth. The term “ Warrant Agreement ” as used herein shall refer to this Warrant Agreement, as the same may be amended or amended and restated.

This Warrant Agreement is issued pursuant to that certain Consultant Agreement, made and entered into as of the effective date hereof, by and between the Corporation and the Warrantholder.

1. Exercise Period . Subject to the terms and conditions of this Warrant Agreement, the purchase rights evidenced by this Warrant Agreement may be exercised, in whole or in part, at any time and from time to time from and after the vesting date (“Vesting Date”) which is the sooner of: (a) two years after a registration statement filed by the Company under the Securities Act of 1933 (15 USC 77f) becomes effective and the Company’s securities commence trading on the OTCBB, NASDAQ, or other national securities market, (the “Registration Date”), and (b) thirty (30) months after the date of this Warrant Agreement, and before 5:00 p.m. (Central Time) on the fifth anniversary of the Vesting Date (the “Expiration Date”). Upon the Expiration Date this warrant will expire and be of no further force or effect.

2. Method of Exercise; Payment; Issuance of New Warrants .

(a) The purchase rights evidenced by this Warrant Agreement may be exercised by the Warrantholder, in whole or in part, by the surrender of this Warrant Agreement (with a duly executed notice of exercise in the form attached hereto as Exhibit A (the “ Notice of

 

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Exercise ”)) at the principal office of the Corporation, accompanied by the payment to the Corporation, in cash, by wire transfer, or by certified check payable to the Corporation, of an amount equal to the product of (i) the Exercise Price times (ii) the number of Warrant Shares as to which the purchase rights evidenced by this Warrant Agreement is being exercised (which number of Warrant Shares shall be stated in the duly executed Notice of Exercise). Upon receipt by the Corporation at such office of this Warrant Agreement and a duly executed Notice of Exercise in proper form for exercise, together with the aggregate Exercise Price due to the Corporation, the Warrantholder shall be deemed to have become the holder of record of, and shall be treated for all purposes as the record holder of, the number of the Warrant Shares set forth in such Notice of Exercise (and such Warrant Shares shall be deemed, to the fullest extent permitted by law, to have been issued) immediately prior to the close of business on the date upon which the purchase rights evidenced by this Warrant Agreement is exercised as aforesaid.

(b) In the event of any exercise of the purchase rights evidenced by this Warrant pursuant to this Section  2 , the Corporation will use commercially reasonable efforts to execute and deliver certificates evidencing the Warrant Shares so purchased to the Warrantholder within ten (10) Business Days (as defined below) from the Corporation’s receipt of the Notice of Exercise. If the purchase rights evidenced by this Warrant Agreement are exercised in part only, unless the purchase rights evidenced by this Warrant Agreement have been fully exercised or expired, the Corporation shall use commercially reasonable efforts to deliver to the Warrantholder a new Warrant Agreement evidencing the rights of the Warrantholder to purchase the balance of the Warrant Shares purchasable hereunder within such ten (10) Business Day period. For purposes of this Warrant, “ Business Day ” means any day, except a Saturday, Sunday or legal holiday, on which banking institutions in New York, New York, are required to be open.

(c) Fractions of a Warrant Share . The Corporation shall not be required to issue any fraction of a Warrant Share in connection with the exercise of the purchase rights evidenced by this Warrant Agreement pursuant to this Section  2 . At its option, the Corporation may pay to the Warrantholder, in lieu of any fraction of a Warrant Share resulting from the exercise of the purchase rights evidenced by this Warrant Agreement, an amount of cash equal to the product of (a) the applicable fraction of a Warrant Share multiplied by (b) the Fair Market Value (as defined below) of a share of Non-Voting Common Stock. For purposes hereof, “ Fair Market Value ” shall mean, for any date, the price determined by the first of the following clauses that applies: (i) if the Non-Voting Common Stock is then listed or traded on a national securities exchange for at least ten (10) consecutive trading days immediately preceding such date of determination, the daily volume-weighted average price of such security for the ten (10) consecutive trading days immediately preceding such date of determination as reported by Bloomberg, L.P. (or, if no such price is reported by Bloomberg, L.P. for any particular trading day during such ten (10) trading day period, the daily volume-weighted average price of such security as officially reported for such trading day on the principal securities exchange on which such security is then listed or admitted to trading shall be used for the purposes of calculating such ten (10) trading day volume-weighted average price); or (ii) if the Non-Voting Common Stock is not then listed or traded on a national securities exchange for at least ten (10) consecutive trading days immediately preceding such date of determination, the fair market value as determined by the board of directors of the Corporation (the “ Board ”) in good faith, as evidenced by a resolution or resolutions of the Board.

 

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3. Exercise in Connection with an Extraordinary Transaction.

(a) Definitions . For purposes of this Section  3 , “ Extraordinary Transaction ” shall mean (i) a merger or consolidation in which the Corporation is a constituent corporation and the shares of Non-Voting Common Stock are converted, exchanged or cancelled, (ii) a conversion, reorganization or reclassification of the capital stock of the Corporation in which the Non-Voting Common Stock are converted, exchanged or cancelled (other than a merger or consolidation provided in clause (i) hereof), (iii) a transaction or series of related transactions which constitute(s) a sale, lease or exchange of all or substantially all of the property and assets of the Corporation, including its goodwill and its corporate franchises, or (iv) a transaction or series of related transactions which constitute(s) a dissolution or liquidation of the Corporation.

(b) If there shall occur any Extraordinary Transaction, then, from and after the consummation of such Extraordinary Transaction, the Warrantholder shall receive upon exercise of all or any portion of the purchase rights evidenced by this Warrant Agreement pursuant to the terms of Section  2 , in lieu of Warrant Shares, the kind and amount of shares or other securities, cash, property or other rights that the Warrantholder would have received if the purchase rights evidenced by this Warrant Agreement (or portion thereof being exercised) had been exercised pursuant to the terms of Section  2 immediately prior to the consummation of such Extraordinary Transaction (assuming the Warrantholder failed to exercise its rights of election, if any, as to the kind or amount of shares or other securities, cash, property or other rights receivable by the holders of shares of Non-Voting Common Stock upon consummation of such Extraordinary Transaction) and, without further action on the part of the Corporation, the Warrantholder or any other person or entity, the purchase rights evidenced by this Warrant Agreement shall thereafter represent the right to receive upon exercise pursuant to the terms of Section  2 , solely the kind and amount shares or securities, cash, property or other rights that the Warrantholder would have received if the purchase rights evidenced by this Warrant Agreement (or portion thereof being exercised) had been exercised pursuant to the terms hereof immediately prior to the consummation of such Extraordinary Transaction (assuming the Warrantholder failed to exercise its rights of election, if any, as to the kind or amount of shares or other securities, cash, property or other rights receivable by the holders of shares of Non-Voting Common Stock upon consummation of such Extraordinary Transaction).

(c) The Corporation will not affect any Extraordinary Transaction unless prior to the consummation thereof, the successor entity (if other than the Corporation) or purchasing person or entity shall assume by written instrument the obligation to deliver to the Warrantholder such shares or other securities, cash, property or other rights in accordance with Section  3(b) .

(d) Notwithstanding any other provision of this Warrant Agreement, if an exercise of any all or any portion of the purchase rights evidenced by this Warrant Agreement is to be made in connection with an Extraordinary Transaction, the exercise of all or any portion of the purchase rights evidenced by this Warrant Agreement may, at the election of the Warrantholder, be conditioned upon the consummation of such Extraordinary Transaction, in which case, such exercise shall not be deemed to be effective until immediately prior to the consummation of such Extraordinary Transaction.

 

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4. Stock Fully Paid; Reservation of Warrant Shares . The Corporation covenants and agrees that all Warrant Shares from time to time issuable upon exercise of the purchase rights evidenced by this Warrant Agreement have been duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Corporation hereby covenants and agrees that the Corporation will, at all times through the Expiration Date, reserve and keep available out of its aggregate authorized but unissued shares of Non-Voting Common Stock, the number of Warrant Shares deliverable upon the exercise of the purchase rights evidenced by this Warrant Agreement.

5. Adjustment . The number of Warrant Shares purchasable upon the exercise of the purchase rights evidenced by this Warrant Agreement shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a) In case the outstanding shares of Non-Voting Common Stock shall be subdivided into a greater number of shares or combined into a smaller number of shares, the number of Warrant Shares to be received by the Warrantholder upon exercise of the purchase rights evidenced by this Warrant Agreement shall be appropriately adjusted such that the proportion of the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement to the total number of outstanding shares of Non-Voting Common Stock immediately prior to such subdivision or combination is equal to the proportion of the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement to the total number of outstanding shares of Non-Voting Common Stock immediately after such subdivision or combination.

(b) In the case the Corporation shall hereafter declare a dividend or distribution to all holders of the outstanding shares of Non-Voting Common Stock in shares of Non-Voting Common Stock, the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement shall be increased by dividing such number by a fraction, (i) the numerator of which shall be the number of shares of Non-Voting Common Stock outstanding at the close of business on such record date, and (ii) the denominator of which shall be the sum of (x) the number of shares of Non-Voting Common Stock outstanding at the close of business on such record date and (y) the total number of shares of Non-Voting Common Stock constituting such dividend or distribution. If any dividend or distribution of the type described in this Section  5(b) is declared but not so paid or made, the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement shall again be adjusted to the number of Warrant Shares that would be issuable upon exercise of the purchase rights evidenced by this Warrant Agreement if such dividend or distribution had not been declared.

(c) In the event the Corporation shall make or issue, or fix a record date for the determination of holders of shares of Non-Voting Common Stock entitled to receive, a dividend or other distribution payable in any securities of the Corporation other than shares of Non-Voting Common Stock (including, but not limited to, any other class of capital stock or debt securities), then and in each such event the Board shall, to the fullest extent permitted by law, take all lawful actions so that the Warrantholder shall receive upon exercise of the purchase

 

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rights evidenced by this Warrant Agreement, in addition to the number of Warrant Shares receivable upon exercise of the purchase rights evidenced by this Warrant Agreement, the number of such other securities of the Corporation which the Warrantholder would have received had the purchase rights evidenced by this Warrant Agreement been exercised on the date of such event and had such holder thereafter, during the period from the date of such event to and including the date of exercise, retained such securities receivable by such holder as aforesaid during such period, giving application to all adjustments called for during such period under this Section  5 as applied to such distributed securities.

6. Legend . Each certificate evidencing Warrant Shares issued upon exercise of this Warrant shall bear the following legends substantially in the forms set forth below:

“THE SECURITIES OF REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM.”

“THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON ASSIGNMENT AND TRANSFER CONTAINED IN AN AGREEMENT WITH THE CORPORATION WHICH IS ON FILE IN THE PRINCIPAL OFFICES OF THE CORPORATION. THE HOLDER OF THIS CERTIFICATE MAY OBTAIN A COPY OF SUCH RESTRICTIONS UPON WRITTEN REQUEST TO THE CORPORATION.”

7. Rights as Stockholder . Notwithstanding any other provision of this Warrant Agreement, prior to the proper exercise of the purchase rights evidenced by this Warrant Agreement by the Warrantholder in accordance with the terms of this Warrant Agreement, no Warrantholder, as such, shall be entitled to vote or receive dividends or distributions or be deemed the holder of Warrant Shares, nor shall anything contained herein be construed to confer upon the Warrantholder, as such, any of the rights of a stockholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof (or by written consent in lieu of any such meeting), or to receive notice of meetings, or to receive dividends or distributions or otherwise. Upon the proper exercise of the purchase rights evidenced by this Warrant Agreement in accordance with the terms of this Warrant Agreement, the Warrantholder shall for all purposes be deemed to have become the holder of record of the Warrant Shares represented thereby on, and such certificate shall be dated as of, the date upon which the purchase rights evidenced by this Warrant Agreement is exercised with respect to such Warrant Shares in accordance with the terms hereof.

8. Modification and Waiver . The Corporation may change, waive, discharge, terminate or amend any provision of this Warrant Agreement with the consent of Warrantholder.

 

Warrant Agreement    Page 5


9. Termination . The purchase rights evidenced by this Warrant Agreement shall terminate on the Expiration Date. Notwithstanding the foregoing, the purchase rights evidenced by this Warrant Agreement will terminate on any earlier date when all of the purchase rights evidenced by this Warrant Agreement have been exercised.

10. Notices . Any notice required to be given or delivered to the Warrantholder or the Corporation shall be sent by certified or registered mail, postage prepaid, to such Warrantholder at its address indicated on the signature page of this Agreement or as shown on the books and records of the Corporation or to the Corporation at the address indicated on the signature page of this Warrant. All such notices shall be effective on the day following the date such notice is deposited in the mails, addressed as aforesaid, unless otherwise provided herein.

11. Restrictions on Assignment, Transfer of Shares . The purchase rights evidenced by this Warrant Agreement and the Warrant Shares issued upon the exercise of the purchase rights evidenced by this Warrant Agreement will be restricted against transfer, and Consultant will not enter into any contract, option, or other agreement for the sale or transfer of such shares, warrants or Warrant Shares, until the sooner of (i) 180 days after a Genprex IPO; (ii) sale of more than sixty-five percent of Genprex’s issued and outstanding common stock by its shareholders to persons who are not shareholders as of the date hereof; (iii) sale by Genprex of substantially all of its assets; or (iv) five years from the date hereof; or (v) written consent of Genprex to such transfer. Further, the shares, warrants and Warrant Shares may not be transferred unless Genprex receives an opinion of legal counsel reasonably acceptable to it that such transfer will not violate the Securities Act of 1933 or any other federal or state securities law, unless this requirement is waived by Genprex.

12. Binding Effect on Successors . To the fullest extent permitted by law, this Warrant Agreement shall be binding upon any entity succeeding the Corporation by merger, consolidation or acquisition of all or substantially all of the Corporation’s assets, and all of the covenants and agreements of the Corporation shall inure to the benefit of the successors and permitted assigns of the Warrantholder. This Warrant Agreement shall be binding upon and inure to the benefit of the Corporation and the Warrantholder and their respective successors and permitted assigns. The Warrantholder shall not be permitted to assign any of its rights, interests or obligations hereunder without the express written consent of the Corporation.

13. Lost Warrant Agreement . The Corporation covenants to the Warrantholder that upon receipt of evidence reasonably satisfactory to the Corporation of the loss, theft, destruction, or mutilation of this Warrant Agreement and, in the case of any such loss, theft or destruction, upon receipt of the Warrantholder’s unsecured indemnification agreement, or in the case of any such mutilation upon surrender and cancellation of this Warrant Agreement, the Corporation will make and deliver a new Warrant Agreement in lieu of the lost, stolen, destroyed or mutilated Warrant Agreement.

14. Governing Law . This Warrant Agreement shall be governed in all respects by and construed in accordance with the laws of the State of Delaware (without regard to any conflict of laws principle that would apply the law of another jurisdiction), whether as to its validity, construction, capacity, performance or otherwise.

 

Warrant Agreement    Page 6


15. Consent To Jurisdiction . ANY LEGAL ACTION, SUIT OR PROCEEDING ARISING OUT OF OR BASED UPON THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF TEXAS, IN EACH CASE, LOCATED IN THE CITY OF AUSTIN, AND, TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS. TO THE FULLEST EXTENT PERMITTED BY LAW, IN ANY SUCH ACTION, SUIT OR PROCEEDING, SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT. TO THE FULLEST EXTENT PERMITTED BY LAW, THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

16. Waiver of Jury Trial . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS WARRANT AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY TO THIS WARRANT AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (ii) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 17 .

[Signature Page Follows]

 

Warrant Agreement    Page 7


IN WITNESS WHEREOF, this Warrant Agreement is executed effective as of the date first above written.

 

GENPREX, INC.

/s/ RODNEY VARNER

Name: Rodney Varner
Title: Chief Executive Officer

100 Congress Avenue

Suite 2000

Austin, Texas 78701
Attn: Rodney Varner,
Chief Executive Officer

Exhibit 4.6

THE PURCHASE RIGHTS EVIDENCED BY THIS WARRANT AGREEMENT AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON EXERCISE OF SUCH PURCHASE RIGHTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. SUCH SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM.

GENPREX, INC.

WARRANT AGREEMENT

November 3, 2016

THIS CERTIFIES THAT, for value received, Viet Ly or his successors and permitted assigns pursuant to the terms hereof (the “ Warrantholder ”), is entitled to purchase from Genprex, Inc., a Delaware corporation (the “ Corporation ”), subject to the terms set forth below, 81,185 fully paid and non-assessable shares (subject to adjustment as provided herein) (the “ Warrant Shares ”) of the Corporation’s voting common stock, par value $0.001 per share (the “ Common Stock ”), at a purchase price of $35.33 in cash per Warrant Share (the “ Exercise Price ”), subject to the provisions and upon the terms and conditions hereinafter set forth. The term “ Warrant Agreement ” as used herein shall refer to this Warrant Agreement, as the same may be amended or amended and restated.

This Warrant Agreement is issued pursuant to that certain Warrant Purchase Agreement, made and entered into as of the date hereof by and between the Corporation and the Warrantholder.

1. Exercise Period . Subject to the terms and conditions of this Warrant Agreement, the purchase rights evidenced by this Warrant Agreement may be exercised, in whole or in part, at any tune and from time to time following the date hereof and before 5:00 p.m. (Central Time) on November 1, 2026 (the “ Expiration Date ”).

2. Method of Exercise; Payment; Issuance of New Warrants .

(a) The purchase rights evidenced by this Warrant Agreement may be exercised by the Warrantholder, in whole or in part, by the surrender of this Warrant Agreement (with a duly executed notice of exercise in the form attached hereto as Exhibit A (the “ Notice of Exercise ”)) at the principal office of the Corporation, accompanied by the payment to the Corporation, in cash, by wire transfer, or by certified check payable to the Corporation, of an amount equal to the product of (i) the Exercise Price times (ii) the number of Warrant Shares as to which the purchase rights evidenced by this Warrant Agreement is being exercised (which number of Warrant Shares shall be stated in the duly executed Notice of Exercise). Upon receipt by the Corporation at such office of this Warrant Agreement and a duly executed Notice of Exercise in proper form for exercise, together with the aggregate Exercise Price due to the

 

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Corporation, the Warrantholder shall be deemed to have become the holder of record of, and shall be treated for all purposes as the record holder of, the number of the Warrant Shares as to which the purchase rights set forth in this Warrant Agreement have been so exercised (and such Warrant Shares shall be deemed, to the fullest extent permitted by law, to have been issued) immediately prior to the close of business on the date upon which the purchase rights evidenced by this Warrant Agreement are exercised as aforesaid.

(b) In the event of any exercise of the purchase rights evidenced by this Warrant pursuant to this Section  2 , the Corporation will use commercially reasonable efforts to execute and deliver a certificate or certificates evidencing the Warrant Shares so purchased to the Warrantholder within five (5) Business Days (as defined below) from the Corporation’s receipt of the Notice of Exercise and payment as described in this Section  2 . If the purchase rights evidenced by this Warrant Agreement are exercised in part only, unless the purchase rights evidenced by this Warrant Agreement have been fully exercised or expired, the Corporation shall use commercially reasonable efforts to deliver to the Warrantholder a new Warrant Agreement evidencing the rights of the Warrantholder to purchase the balance of the Warrant Shares purchasable hereunder within such five (5) Business Day period. For purposes of this Warrant, “ Business Day ” means any day, except a Saturday, Sunday or legal holiday, on which banking institutions in New York, New York, are required to be open.

(c) Fractions of a Warrant Share . The Corporation shall not be required to issue any fraction of a Warrant Share in connection with the exercise of the purchase rights evidenced by this Warrant Agreement pursuant to this Section  2 . At its option, the Corporation may pay to the Warrantholder, in lieu of any fraction of a Warrant Share resulting from the exercise of the purchase rights evidenced by this Warrant Agreement, an amount of cash equal to the product of (a) the applicable fraction of a Warrant Share multiplied by (b) the Fair Market Value (as defined below) of a share of Common Stock. For purposes hereof, “ Fair Market Value ” shall mean, for any date, the price determined by the first of the following clauses that applies: (i) if the Common Stock is then listed or traded on a national securities exchange for at least ten (10) consecutive trading days immediately preceding such date of determination, the daily volume-weighted average price of such security for the ten (10) consecutive trading days immediately preceding such date of determination as reported by Bloomberg, L.P. (or, if no such price is reported by Bloomberg, L.P. for any particular trading day during such ten (10) trading day period, the daily volume-weighted average price of such security as officially reported for such trading day on the principal securities exchange on which such security is then listed or admitted to trading shall be used for the purposes of calculating such ten (10) trading day volume-weighted average price); or (ii) if the Common Stock is not then listed or traded on a national securities exchange for at least ten (10) consecutive trading days immediately preceding such date of determination, the fair market value as determined by the board of directors of the Corporation (the “ Board’’ ) in good faith, as evidenced by a resolution or resolutions of the Board.

 

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3. Exercise in Connection with an Extraordinary Transaction .

(a) Definitions . For purposes of this Section  3 , “ Extraordinary Transaction ” shall mean (i) a merger or consolidation in which the Corporation is a constituent corporation and the shares of Common Stock are converted, exchanged or cancelled, (ii) a conversion, reorganization or reclassification of the capital stock of the Corporation in which the Common Stock are converted, exchanged or cancelled (other than a merger or consolidation provided in clause (i) hereof), (iii) a transaction or series of related transactions which constitute(s) a sale, lease or exchange of all or substantially all of the property and assets of the Corporation, including its goodwill and its corporate franchises, or (iv) a transaction or series of related transactions which constitute(s) a dissolution or liquidation of the Corporation.

(b) If there shall occur any Extraordinary Transaction, then, from and after the consummation of such Extraordinary Transaction, the Warrantholder shall receive upon exercise of all or any portion of the purchase rights evidenced by this Warrant Agreement pursuant to the terms of Section  2 , in lieu of Warrant Shares, the kind and amount of shares or other securities, cash, property or other rights that the Warrantholder would have received if the purchase rights evidenced by this Warrant Agreement (or portion thereof being exercised) had been exercised pursuant to the terms of Section  2 immediately prior to the consummation of such Extraordinary Transaction (assuming the Warrantholder failed to exercise its rights of election, if any, as to the kind or amount of shares or other securities, cash, property or other rights receivable by the holders of shares of Common Stock upon consummation of such Extraordinary Transaction) and, without further action on the part of the Corporation, the Warrantholder or any other person or entity, the purchase rights evidenced by this Warrant Agreement shall thereafter represent the right to receive upon exercise pursuant to the terms of Section  2 , solely the kind and amount shares or securities, cash, property or other rights that the Warrantholder would have received if the purchase rights evidenced by this Warrant Agreement (or portion thereof being exercised) had been exercised pursuant to the terms hereof immediately prior to the consummation of such Extraordinary Transaction (assuming the Warrantholder failed to exercise its rights of election, if any, as to the kind or amount of shares or other securities, cash, property or other rights receivable by the holders of shares of Common Stock upon consummation of such Extraordinary Transaction).

(c) The Corporation will not effect any Extraordinary Transaction unless prior to the consummation thereof, the successor entity (if other than the Corporation) or purchasing person or entity shall assume by written instrument the obligation to deliver to the Warrantholder such shares or other securities, cash, property or other rights in accordance with Section  3(b) .

(d) Notwithstanding any other provision of this Warrant Agreement, if an exercise of all or any portion of the purchase rights evidenced by this Warrant Agreement is to be made in connection with an Extraordinary Transaction, the exercise of all or any portion of the purchase rights evidenced by this Warrant Agreement may, at the election of the Warrantholder, be conditioned upon the consummation of such Extraordinary Transaction, in which case, such exercise shall not be deemed to be effective until immediately prior to the consummation of such Extraordinary Transaction.

4. Stock Fully Paid; Reservation of Warrant Shares . The Corporation covenants and agrees that all Warrant Shares from time to time issuable upon exercise of the purchase rights evidenced by this Warrant Agreement have been duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable, and free from all taxes, liens and

 

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charges with respect to the issuance thereof. The Corporation hereby covenants and agrees that the Corporation will, at all times through the Expiration Date, reserve and keep available out of its aggregate authorized but unissued shares of Common Stock, the number of Warrant Shares deliverable upon the exercise of the purchase rights evidenced by this Warrant Agreement.

5. Adjustment . The number of Warrant Shares purchasable upon the exercise of the purchase rights evidenced by this Warrant Agreement shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares or combined into a smaller number of shares, the number of Warrant Shares to be received by the Warrantholder upon exercise of the purchase rights evidenced by this Warrant Agreement shall be appropriately adjusted such that the proportion of the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement to the total number of outstanding shares of Common Stock immediately prior to such subdivision or combination is equal to the proportion of the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement to the total number of outstanding shares of Common Stock immediately after such subdivision or combination.

(b) In the case the Corporation shall hereafter declare a dividend or distribution to all holders of the outstanding shares of Common Stock in shares of Common Stock, the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement shall be increased by dividing such number by a fraction, (i) the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on such record date, and (ii) the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding at the close of business on such record date and (y) the total number of shares of Common Stock constituting such dividend or distribution. If any dividend or distribution of the type described in this Section  5(b) is declared but not so paid or made, the number of Warrant Shares issuable upon exercise of the purchase rights evidenced by this Warrant Agreement shall again be adjusted to the number of Warrant Shares that would be issuable upon exercise of the purchase rights evidenced by this Warrant Agreement if such dividend or distribution had not been declared.

(c) In the event the Corporation shall make or issue, or fix a record date for the determination of holders of shares of Common Stock entitled to receive, a dividend or other distribution payable in any securities of the Corporation other than shares of Common Stock (including, but not limited to, any other class of capital stock or debt securities), then and in each such event the Board shall, to the fullest extent permitted by law, take all lawful actions so that the Warrantholder shall receive upon exercise of the purchase rights evidenced by this Warrant Agreement, in addition to the number of Warrant Shares receivable upon exercise of the purchase rights evidenced by this Warrant Agreement, the number of such other securities of the Corporation which the Warrantholder would have received had the purchase rights evidenced by this Warrant Agreement been exercised on the date of such event and had such holder thereafter, during the period from the date of such event to and including the date of exercise, retained such securities receivable by such holder as aforesaid during such period, giving application to all adjustments called for during such period under this Section  5 as applied to such distributed securities.

 

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(d) The Corporation will not, by amendment of its certificate of incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at times in good faith assist in the carrying out of all the provisions of this Section  5 and in the taking of all such lawful action as may be necessary or appropriate in order to protect the rights of the Warrantholder under this Section  5 against impairment.

6. Notice of Adjustments . Whenever an adjustment is required pursuant to Section  5 , the Corporation shall, within thirty (30) days of such adjustment, deliver a certificate signed by its chief executive officer or chief financial officer to the Warrantholder setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and number of Warrant Shares (or other securities) purchasable upon exercise of the purchase rights evidenced by this Warrant Agreement after giving effect to such adjustment.

7. Legend . Each certificate evidencing Warrant Shares issued upon exercise of this Warrant shall bear the following legend substantially in the form set forth below:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM.”

8. Rights as Stockholder . Notwithstanding any other provision of this Warrant Agreement, prior to the proper exercise of the purchase rights evidenced by this Warrant Agreement by the Warrantholder in accordance with the terms of this Warrant Agreement, no Warrantholder, as such, shall be entitled to vote or receive dividends or distributions or be deemed the holder of Warrant Shares, nor shall anything contained herein be construed to confer upon the Warrantholder, as such, any of the rights of a stockholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof (or by written consent in lieu of any such meeting), or to receive notice of meetings, or to receive dividends or distributions or otherwise. Upon the proper exercise of the purchase rights evidenced by this Warrant Agreement in accordance with the terms of this Warrant Agreement, the Warrantholder shall for all purposes be deemed to have become the holder of record of the Warrant Shares represented thereby on, and such certificate shall be dated as of, the date upon which the purchase rights evidenced by this Warrant Agreement are exercised with respect to such Warrant Shares in accordance with the terms hereof.

 

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9. Modification and Waiver . The Corporation may change, waive, discharge, terminate or amend any provision of this Warrant Agreement with the consent of Warrantholder.

10. Termination . The purchase rights evidenced by this Warrant Agreement shall terminate on the Expiration Date. Notwithstanding the foregoing, the purchase rights evidenced by this Warrant Agreement will terminate on any earlier date when all of the purchase rights evidenced by this Warrant Agreement have been exercised.

11. Notices . Any notice required to be given or delivered to the Warrantholder or the Corporation shall be sent by certified or registered mail, postage prepaid, to such Warrantholder at its address indicated on the signature page of this Agreement or as shown on the books and records of the Corporation or to the Corporation at the address indicated on the signature page of this Warrant. All such notices shall be effective on the day following the date such notice is deposited in the mails, addressed as aforesaid, unless otherwise provided herein.

12. Restrictions on Assignment; Transfer of Shares . The purchase rights evidenced by this Warrant Agreement and the Warrant Shares issued upon the exercise of the purchase rights evidenced by this Warrant Agreement shall not be assigned, sold, pledged, transferred or otherwise disposed of except in compliance with the Securities Act of 1933, as amended, and applicable state securities laws.

13. Binding Effect on Successors . To the fullest extent permitted by law, this Warrant Agreement shall be binding upon any entity succeeding the Corporation by merger, consolidation or acquisition of all or substantially all of the Corporation’s assets, and all of the covenants and agreements of the Corporation shall inure to the benefit of the successors and permitted assigns of the Warrantholder. This Warrant Agreement shall be binding upon and inure to the benefit of the Corporation and the Warrantholder and their respective successors and permitted assigns. The Warrantholder shall not be permitted to assign any of its rights, interests or obligations hereunder without the express written consent of the Corporation.

14. Lost Warrant Agreement . The Corporation covenants to the Warrantholder that upon receipt of evidence reasonably satisfactory to the Corporation of the loss, theft, destruction, or mutilation of this Warrant Agreement and, in the case of any such loss, theft or destruction, upon receipt of the Warrantholder’s unsecured indemnification agreement, or in the case of any such mutilation upon surrender and cancellation of this Warrant Agreement, the Corporation will make and deliver a new Warrant Agreement in lieu of the lost, stolen, destroyed or mutilated Warrant Agreement.

15. Governing Law . This Warrant Agreement shall be governed in all respects by and construed in accordance with the laws of the State of Delaware (without regard to any conflict of laws principle that would apply the law of another jurisdiction), whether as to its validity, construction, capacity, performance or otherwise.

16. Consent to Jurisdiction . ANY LEGAL ACTION, SUIT OR PROCEEDING ARISING OUT OF OR BASED UPON THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF

 

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DELAWARE, IN EACH CASE, LOCATED IN THE CITY OF WILMINGTON, AND TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY IRRBVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS. TO THE FULLEST EXTENT PERMITTED BY LAW, IN ANY SUCH ACTION, SUIT OR PROCEEDING, SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OTHER ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT. TO THE FULLEST EXTENT PERMITTED BY LAW, THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGT IN AN INCONVENIENT FORUM.

17. Waiver of Jury Trial . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS WARRANT AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY TO THIS WARRANT AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (ii) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 17 .

[Signature Page Follows]

 

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IN WITNESS WHEREOF, this Warrant Agreement is executed as of the date first written above.

 

COMPANY:
GENPREX, INC.

/s/ RODNEY VARNER

Name: Rodney Varner
Title: Chief Executive Officer
Address:
100 Congress Avenue
Suite 2000
Austin, TX 78701

 

ACCEPTED AND AGREED:
WARRANTHOLDER:

/s/ VIET LY

Viet Ly

Exhibit 10.2

CONVERGEN LIFECIENCES, INC.

2009 EQUITY INCENTIVE PLAN

1. Purposes of the Plan . The purposes of this Plan are:

 

    to attract and retain the best available personnel for positions of substantial responsibility,

 

    to provide incentives to individuals who perform services to the Company, and

 

    to promote the success of the Company’s business.

The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine.

2. Definitions . As used herein, the following definitions will apply:

(a) “ Administrator ” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.

(b) “ Applicable Laws ” means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

(c) “ Award ” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine.

(d) “ Award Agreement ” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.

(e) “ Board ” means the Board of Directors of the Company.

(f) “ Change in Control ” means the occurrence of any of the following events:

(i) A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group, (“ Person ”) acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any one Person, who is considered to own more than 50% of the total voting power of the stock of the Company will not be considered a Change in Control; or

 


(ii) A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors 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 purposes of this clause (ii), if any Person is considered to effectively control the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or

(iii) A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

For purposes of this Section 2(f), 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.

(g) “ Code ” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

(h) “ Committee ” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.

(i) “ Common Stock ” means the common stock of the Company.

(j) “ Company ” means Convergen LifeSciences, a Delaware corporation, or any successor thereto.

(k) “ Consultant ” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(l) “ Director ” means a member of the Board.

 

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(m) “ Disability ” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.

(n) “ Employee ” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

(o) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(p) “ Exchange Program ” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is reduced. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.

(q) “ Fair Market Value ” means, as of any date, the value of the Common Stock as the Administrator may determine in good faith by reference to the price of such stock on any established stock exchange or a national market system on the day of determination if the Common Stock is so listed on any established stock exchange or a national market system. If the Common Stock is not listed on any established stock exchange or a national market system, the value of the Common Stock will be determined as the Administrator may determine in good faith.

(r) “ Incentive Stock Option ” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(s) “ Nonstatutory Stock Option ” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.

(t) “ Officer ” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(u) “ Option ” means a stock option granted pursuant to Section 6 of the Plan.

(v) “ Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(w) “ Participant ” means the holder of an outstanding Award.

(x) “ Performance Share ” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 10.

 

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(y) “ Performance Unit ” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10.

(z) “ Period of Restriction ” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.

(aa) “ Plan ” means this 2009 Equity Incentive Plan.

(bb) “ Restricted Stock ” means Shares issued pursuant to an Award of Restricted Stock under Section 8 of the Plan, or issued pursuant to the early exercise of an Option.

(cc) “ Restricted Stock Unit ” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 9. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

(dd) “ Rule 16b-3 ” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

(ee) “ Section  16(b) ” means Section 16(b) of the Exchange Act.

(ff) “ Service Provider ” means an Employee, Director, or Consultant.

(gg) “ Share ” means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.

(hh) “ Stock Appreciation Right ” means an Award, granted alone or in connection with an Option, that pursuant to Section 7 is designated as a Stock Appreciation Right.

(ii) “ Subsidiary ” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock  Subject  to  the  Plan .

(a) Stock Subject to the Plan . Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be awarded and sold under the Plan is Two Hundred Thousand (200,000) Shares plus any Shares subject to stock options or similar awards granted under the PLAN that expire or otherwise terminate without having been exercised in full and Shares issued pursuant to awards granted under the PLAN that are forfeited to or repurchased by the Company. There will also be added to the number of shares that may be awarded and sold under the plan on the first day of each calendar year the lesser of : (i) the number of shares equal to twenty percent (20%) of the difference between the number of shares of Common Stock issued and outstanding on such date and the number of shares of Common Stock issued and outstanding on the first day of the immediately preceding calendar year, or (ii) any number that may be determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock.

 

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(b) Lapsed Awards . If an Award expires or becomes unexercisable without having been exercised in full, or, with respect to Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, is forfeited to or repurchased by the Company, the unpurchased Shares (or for Awards other than Options and Stock Appreciation Rights, the forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). Upon exercise of a Stock Appreciation Right settled in Shares, the net number of Shares actually issued pursuant to the Award so exercised will cease to be available under the Plan. Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if unvested Shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will become available for future grant under the Plan. Shares used to pay the tax and exercise price of an Award will become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Notwithstanding the foregoing provisions of this Section 3(b), subject to adjustment provided in Section 13, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code, any Shares that become available for issuance under the Plan under this Section 3(b).

(c) Share Reserve . The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.

4. Administration of the Plan .

(a) Procedure .

(i) Multiple Administrative Bodies . Different Committees with respect to different groups of Service Providers may administer the Plan.

(ii) Section  162(m) . To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two (2) or more “outside directors” within the meaning of Section 162(m) of the Code.

(iii) Rule 16b-3 . To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.

(iv) Other Administration . Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.

(b) Powers of the Administrator . Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:

 

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(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Awards may be granted hereunder;

(iii) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder;

(iv) to determine the terms and conditions of any, and with the approval of the Company’s stockholders, to institute an Exchange Program;

(v) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

(vi) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

(vii) to modify or amend each Award (subject to Section 18(c) of the Plan);

(viii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;

(ix) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award pursuant to such procedures as the Administrator may determine; and

(x) to make all other determinations deemed necessary or advisable for administering the Plan.

(c) Effect of Administrator’s  Decision . The Administrator’s decisions, determinations, and interpretations will be final and binding on all Participants and any other holders of Awards.

5. Eligibility . Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares, and such other cash or stock awards as the Administrator determines may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

6. Stock Options .

(a) Limitations . Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000 (U.S.), such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options 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.

 

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(b) Term of Option . The Administrator will determine the term of each Option in its sole discretion; provided, however, that the term will be no more than ten (10) years from the date of grant thereof. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

(c) Option Exercise Price and Consideration .

(i) Exercise Price . The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, but will be no less than 100% of the Fair Market Value per Share on the date of grant. In addition, in the case of an Incentive Stock Option granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the date of grant. Notwithstanding the foregoing provisions of this Section 6(c), Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.

(ii) Waiting Period and Exercise Dates . At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.

(iii) Form of Consideration . The Administrator will determine the acceptable form(s) of consideration for exercising an Option, including the method of payment, to the extent permitted by Applicable Laws.

(d) Exercise of Option .

(i) Procedure for Exercise; Rights as a Stockholder . Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator 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: (i) notice of exercise (in such form as the Administrator specifies from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with any applicable withholding taxes). No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan.

 

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(ii) Termination of Relationship as a Service Provider . If a Participant ceases to be a Service Provider, other than upon the Participant’s termination as the result of the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

(iii) Disability of Participant . If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

(iv) Death of Participant . If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

(v) Other Termination . A Participant’s Award Agreement may also provide that if the exercise of the Option following the termination of Participant’s status as a Service Provider (other than upon the Participant’s death or Disability) would result in liability under Section 16(b), then the Option will terminate on the earlier of (A) the expiration of the term of the Option set forth in the Award Agreement, or (B) the 10th day after the last date on which such exercise would result in such liability under Section 16(b). Finally, a Participant’s Award Agreement may also provide that if the exercise of the Option following the termination of the Participant’s status as a Service Provider (other than upon the Participant’s death or Disability)

 

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would be prohibited at any time solely because the issuance of Shares would violate the registration requirements under the Securities Act, then the Option will terminate on the earlier of (A) the expiration of the term of the Option, or (B) the expiration of a period of three (3) months after the termination of the Participant’s status as a Service Provider during which the exercise of the Option would not be in violation of such registration requirements.

7. Stock Appreciation Rights .

(a) Grant of Stock Appreciation Rights . Subject to the terms and conditions of the Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.

(b) Number of Shares . The Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted to any Participant.

(c) Exercise Price and Other Terms . The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan, provided, however, that the exercise price will be not less than 100% of the Fair Market Value of a Share on the date of grant.

(d) Stock Appreciation Right Agreement . Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

(e) Expiration of Stock Appreciation Rights . A Stock Appreciation Right granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement; provided, however, that the term will be no more than ten (10) years from the date of grant thereof. Notwithstanding the foregoing, the rules of Section 6(d) also will apply to Stock Appreciation Rights.

(f) Payment of Stock Appreciation Right Amount . Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:

(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times

(ii) The number of Shares with respect to which the Stock Appreciation Right is exercised.

At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

 

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8. Restricted Stock .

(a) Grant of Restricted Stock . Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.

(b) Restricted Stock Agreement . Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company as escrow agent until the restrictions on such Shares have lapsed.

(c) Transferability . Except as provided in this Section 8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.

(d) Other Restrictions . The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.

(e) Removal of Restrictions . Except as otherwise provided in this Section 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed, upon such terms and conditions as the administrator may determine.

(f) Voting Rights . During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.

(g) Dividends and Other Distributions . During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.

(h) Return of Restricted Stock to Company . On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.

9. Restricted Stock Units .

(a) Grant . Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. Each Restricted Stock Unit grant will be evidenced by an Award Agreement that will specify such other terms and conditions as the Administrator, in its sole discretion, will determine, including all terms, conditions, and restrictions related to the grant, the number of Restricted Stock Units and the form of payout, which, subject to Section 9(d), may be left to the discretion of the Administrator.

 

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(b) Vesting Criteria and Other Terms . The Administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. After the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any restrictions for such Restricted Stock Units. Each Award of Restricted Stock Units will be evidenced by an Award Agreement that will specify the vesting criteria, and such other terms and conditions as the Administrator, in its sole discretion will determine.

(c) Earning Restricted Stock Units . Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as specified in the Award Agreement.

(d) Form and Timing of Payment . Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) set forth in the Award Agreement. The Administrator, in its sole discretion, may pay earned Restricted Stock Units in cash, Shares, or a combination thereof. Shares represented by Restricted Stock Units that are fully paid in cash again will be available for grant under the Plan.

(e) Cancellation . On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.

10. Performance Units and Performance Shares .

(a) Grant of Performance Units/Shares . Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units/Shares granted to each Participant.

(b) Value of Performance Units/Shares . Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.

(c) Performance Objectives and Other Terms . The Administrator will set performance objectives or other vesting provisions. The Administrator may set vesting criteria based upon the achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued employment), or any other basis determined by the Administrator in its discretion. The time period during which the performance objectives or other vesting provisions must be met will be called the “ Performance Period .”

(d) Earning of Performance Units/Shares . After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.

 

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(e) Form and Timing of Payment of Performance Units/Shares . Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.

(f) Cancellation of Performance Units/Shares . On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.

11. Leaves of Absence . Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of absence approved by the Company, or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months and one (1) day following the commencement of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.

12. Transferability of Awards . Unless determined otherwise by the Administrator, 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 and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.

13. Adjustments; Dissolution or Liquidation; Merger or Change in Control .

(a) Adjustments . In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Award, and the numerical Share limits set forth in Section 3 of the Plan.

(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

 

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(c) Change in Control . In the event of a merger or Change in Control, each outstanding Award will be treated as the Administrator determines, including, without limitation, that each Award will be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation (the “ Successor Corporation ”). The Administrator will not be required to treat all Awards similarly in the transaction.

In the event that the Successor Corporation does not assume or substitute for the Award, the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock will lapse, and, with respect to Restricted Stock Units, Performance Shares and Performance Units, all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted for in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.

For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a Stock Appreciation Right upon the exercise of which the Administrator determines to pay cash or a Performance Share or Performance Unit which the Administrator can determine to pay in cash, the fair market value of the consideration received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Performance Share or Performance Unit, for each Share subject to such Award (or in the case of Performance Units, the number of implied shares determined by dividing the value of the Performance Units by the per share consideration received by holders of Common Stock in the Change in Control), to be solely common stock of the Successor Corporation equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.

Notwithstanding anything in this Section 13(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the Successor Corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.

14. Tax Withholding

(a) Withholding Requirements . Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).

 

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(b) Withholding Arrangements . The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum amount required to be withheld, (iii) delivering to the Company already-owned Shares having a Fair Market Value equal to the amount required to be withheld, or (iv) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld. The amount of the withholding requirement will be deemed to include any amount which the Administrator agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.

15. No Effect on Employment or Service . Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor will they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.

16. Date of Grant . The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.

17. Term of Plan . Subject to Section 21 of the Plan, the Plan will become effective upon its adoption by the Board. It will continue in effect for a term of ten (10) years unless terminated earlier under Section 18 of the Plan.

18. Amendment and Termination of the Plan .

(a) Amendment and Termination . The Administrator may at any time amend, alter, suspend or terminate the Plan.

(b) Stockholder Approval . The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

(c) Effect of Amendment or Termination . No amendment, alteration, suspension, or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

 

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19. Conditions Upon Issuance of Shares .

(a) Legal Compliance . Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations . As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

20. Inability to Obtain Authority . The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained.

21. Stockholder Approval . The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.

 

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NOTICE OF STOCK OPTION GRANT AND STOCK OPTION AGREEMENT

I. NOTICE OF STOCK OPTION GRANT

Genprex, Inc. grants to [                                          ] (“Optionee”) an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement. Please see the Genprex, Inc. (formerly known as Convergen LifeSciences, Inc.) 2009 Equity Incentive Plan (the “Plan”) for the definition of capitalized terms in this grant and Option Agreement.

A. Terms of this Option Grant

Date of Grant

Vesting Commencement Date

Term/Expiration Date

Total Number of Shares You May Purchase

Exercise Price per Share

Type of Option

B. Vesting Schedule

C. Exercise Period After Termination

This Option may be exercised with respect to vested shares for five (5) years after Optionee ceases to be a Service Provider except that upon the death or Disability of the Optionee, this Option may be exercised for twelve months after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above.

(The Stock Option Agreement begins on the next page.)

 

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II. STOCK OPTION AGREEMENT

A. Grant of Option.

The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Stock Option Grant in Part I of this Agreement an Option to purchase the number of Shares, as set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference. 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 of Stock Option Grant 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 Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d), it shall be treated as a Nonstatutory Stock Option (“NSO”).

B. Exercise of Option.

1. Right to Exercise . This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and the applicable provisions of the Plan and this Option Agreement.

2. Method of Exercise . This Option is exercisable by delivery of the Company’s stock option exercise notice in effect at the time of exercise (the “Exercise Notice”), which shall 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 shall be completed by the Optionee and delivered to the Chief Financial Officer of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

 

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C. Method of Payment.

Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

1. Cash;

2. Check;

3. Consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or

4. Surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

D. Transferability of Option.

This Option may be transferred by the Optionee only with the written consent of the Plan Administrator. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

E. Term of Option.

This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

F. Tax Consequences.

Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

G. Exercising the Option.

1. Nonstatutory Stock Option . The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

 

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2. Incentive Stock Option . If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status.

3. Disposition of Shares .

1. NSO . If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.

2. ISO . If the Optionee holds ISO Shares for at least one year after exercise and two years after the Grant Date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the Grant Date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held.

3. Notice of Disqualifying Disposition of ISO Shares . If the Optionee 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, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee 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 the Optionee.

H. Entire Agreement; Governing Law.

The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Texas.

 

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I. NO GUARANTEE OF CONTINUED SERVICE.

OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

J. FLUCTUATIONS IN STOCK PRICE

OPTIONEE ACKNOWLEDGES AND AGREES THAT THE EXERCISE PRICE OF THE OPTION GRANTED BY THE COMPANY AND REFERRED TO HEREIN IS THE FAIR MARKET VALUE OF THE COMPANY’S COMMON STOCK ON THE DATE THE OPTION WAS GRANTED AS DETERMINED BY THE PLAN ADMINISTRATOR. THE FAIR MARKET VALUE OF THE COMPANY’S COMMON STOCK IS SUBJECT TO MANY FACTORS, INCLUDING THE ANNOUNCEMENT OF NEW PRODUCTS OR SERVICES BY THE COMPANY OR ITS COMPETITORS, VARIATIONS IN THE COMPANY’S OR ITS COMPETITORS’ RESULTS OF OPERATIONS, FAILURE TO ACHIEVE OPERATING RESULTS, GENERAL MARKET CONDITIONS AND OTHER FACTORS, INCLUDING FACTORS UNRELATED TO OUR OPERATING PERFORMANCE OR THE OPERATING PERFORMANCE OF OUR COMPETITORS. THEREFORE, THE COMPANY CANNOT GUARANTEE THAT THE OPTION WILL HAVE ANY VALUE IN THE FUTURE.

By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. You and the Company agree that this Option is not valid and enforceable until both parties hereto have executed this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

 

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OPTIONEE:       GENPREX, INC.

 

      By:  

 

Name         Rodney Varner, Chief Executive Officer

 

       
Social Security Number        

 

       
Residence Street Address        

 

       
Residence City, State and Zip        

 

       
E-Mail address (required)        

THE CONSENT OF SPOUSE ON THE NEXT PAGE IS AN INTEGRAL PART OF THIS DOCUMENT.

 

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CONSENT OF SPOUSE

The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company’s granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned’s spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement.

 

 

Signature of Spouse of Optionee

 

Printed Name of Spouse of Optionee

 

Social Security Number of Spouse of Optionee

CONFIRMATION OF NO SPOUSE

If there is no consent of spouse signature above, I confirm that as of the Grant Date of this option, I have no spouse.

 

 

Signature of Optionee

 

Date

 

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Exhibit 10.6

PATENT AND TECHNOLOGY LICENSE AGREEMENT

THIS AGREEMENT (“AGREEMENT”) is made by and between the BOARD OF REGENTS (“BOARD”) of THE UNIVERSITY OF TEXAS SYSTEM (“SYSTEM”), an agency of the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701, THE UNIVERSITY OF TEXAS M.D. ANDERSON CANCER CENTER (“MDA”), a component institution of the SYSTEM and INTRON THERAPEUTICS, INC., a Texas corporation having a principal place of business located at 301 Congress, Suite 2025, Austin, Texas 78701 (“LICENSEE”).

RECITALS

 

A. BOARD owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS related to LICENSED SUBJECT MATTER, which were developed at MDA, a component institution of the SYSTEM.

 

B. BOARD desires to have the LICENSED SUBJECT MATTER developed and used for the benefit of LICENSEE, the inventor, BOARD. and the public as outlined in the Intellectual Property Policy promulgated by the BOARD.

 

C. The LICENSED SUBJECT MATTER was the subject of an OPTION AGREEMENT between MDA and the Texas Biomedical Development Partners (“TBDP”), dated December 15, 1992, a copy of which is attached hereto as Exhibit 1 for approval by BOARD, granting TBDP the option to negotiate a license from BOARD to the LICENSED SUBJECT MATTER in consideration for an option fee and commitment of research support.

 

D. TBDP exercised its option under the OPTION AGREEMENT in a timely manner by virtue of the letter dated June 17, 1993, a copy of which is attached hereto as Exhibit 2 for approval by BOARD, and further assigned TBDP’s right and obligation under the OPTION AGREEMENT (Exhibit 1) to Licensee, thereby granting permission to BOARD to execute this LICENSE AGREEMENT with LICENSEE.

 

E. The LICENSED SUBJECT MATTER was also the subject of SPONSORED RESEARCH AGREEMENTS between MDA and the TBDP, entitled “Development of Therapeutic Treatment and Prevention of Lung Cancer” (SR93-04) and “Clinical Protocol for Modification of Oncogene and Tumor Supressor Gene Expression in Nori-Small Cell Lung Cancer (CS93-27), respectively, and a copy of each is attached hereto as Exhibits 3 and 4 (the “RESEARCH AGREEMENTS”).

 

F. The RESEARCH AGREEMENTS have been assigned by TBDP to LICENSEE by virtue of a letter dated November 26, 1993, a copy of which is attached hereto as Exhibit 5 for approval by BOARD.

 

G. LICENSEE is a company which was formed to develop and commercially exploit the inventions of LICENSED SUBJECT MATTER, and LICENSEE, therefore, wishes to obtain a license from BOARD to practice LICENSED SUBJECT MATTER.


NOW, THEREFORE, in consideration of the mutual covenants and premises herein contained, the parties hereto agree as follows:

I. EFFECTIVE DATE

 

1.1. This AGREEMENT shall be effective as of July 20, 1994 (“EFFECTIVE DATE”), subject to approval by BOARD.

II. DEFINITIONS

As used in this AGREEMENT, the following terms shall have the meanings indicated:

 

2.1 LICENSED FIELD shall mean all fields of use of the LICENSED SUBJECT MATTER.

 

2.2 LICENSED SUBJECT MATTER shall mean inventions and discoveries covered by PATENT RIGHTS or TECHNOLOGY RIGHTS within LICENSED FIELD.

 

2.3 PATENT RIGHTS shall mean any and all rights of BOARD in and to:

(a)the patents and patent applications described in Schedule A hereto (the “Existing Patent Rights”) and all patents anywhere in the world issuing thereon;

(b)any patent or patent application of any kind anywhere in the world that claims or discloses any invention that is claimed in any of the Existing Patent Rights, or that takes priority from an application within the Existing Patent Rights or derives from an application from which any of the Existing Patent Rights derived;

(c)all divisions, continuations, continuations-in-part, patents of addition, patents, substitutions, registrations, reissues, reexaminations or extensions of any kind with respect to any of the applications and patents described in (a) or (b) above. From time to time during the term of this AGREEMENT, upon request by either party, LICENSEE and BOARD shall promptly update Schedule A hereto to include all patent applications and patents that are then within the PATENT RIGHTS.

 

2.4 TECHNOLOGY RIGHTS shall mean BOARD’s rights in any technical information, know-how, process, procedure, composition, biological materials, device, method, formula, protocol, technique, software, design, drawing or data relating to LICENSED FIELD and made or developed by Dr. Jack A. Roth or others working in his lab or under his supervision or direction, whether or not covered by PATENT RIGHTS, which is reasonably necessary for practicing any invention at any time covered by PATENT RIGHTS.

 

2.5 LICENSE PRODUCT shall mean any product, component or material the manufacture, use or sale of which would infringe a VALID CLAIM.

 

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2.6 LICENSED TERRITORY shall mean the entire world.

 

2.7 SALE or sold shall mean the transfer or disposition of a LICENSED PRODUCT for value to a party to a party other than LICENSEE or an AFFILIATE, which transfer or disposition would, but for the rights and license granted hereunder, infringe a VALID CLAIM in the country for which such LICENSED PRODUCT is transferred or disposed.

 

2.8 NET SALES shall mean the gross revenues received by LICENSEE, its AFFILIATES or SUBLICENSEES, from the SALE of LICENSED PRODUCTS less sales and/or use taxes actually paid, import and/or export duties actually paid, outbound transportation prepaid or allowed, and amounts allowed or credited due to returns (not to exceed the original billing or invoice amount).

 

2.9 AFFILIATE shall mean any business entity more than 50% owned by LICENSEE, or any business entity that is more than 50% owned by a business entity that owns more than 50% of LICENSEE.

 

2.10 VALID CLAIM shall mean either (a) a claim of an issued and unexpired patent included within the PATENT RIGHTS, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, or (b) a pending claim in a patent application within the PATENT RIGHTS, provided that if such pending claim has not issued as a claim or an issued patent within the PATENT RIGHTS within three (3) years after the filing date from which such patent application takes priority, such pending claim shall not be a VALID CLAIM for purposes of this AGREEMENT unless and until, subsequent to such three (3) year period, such pending claim is issued as a claim of an issued and unexpired patent included within the PATENT RIGHTS as set forth in (a) above. In the event that a claim of an issued and unexpired patent within the PATENT RIGHTS is held by a court or other government agency of competent jurisdiction to be unenforceable, unpatentable or invalid, and such holding is reversed on appeal by a higher court or agency of competent jurisdiction, such claim shall be reinstated thereafter as a VALID CLAIM hereunder.

 

2.11 SUBLICENSEE shall mean any third party to whom LICENSEE has granted a sublicense under the PATENT RIGHTS to make and sell LICENSED PRODUCTS, with respect to LICENSED PRODUCTS made and sold by such SUBLICENSEE. As used herein, “SUBLICENSEE” shall also mean a third party to whom LICENSEE has granted the exclusive right to distribute LICENSED PRODUCTS supplied by LICENSEE, provided that such third party is responsible for all marketing and promotion of the subject LICENSED PRODUCTS within its exclusive territory.

III. WARRANTY: SUPERIOR-RIGHTS

 

3.1

Except for the rights, if any, of the Government of the United States as set forth hereinbelow, BOARD represents and warrants its belief that it is the owner of the entire right, title, and interest in and to LICENSED SUBJECT MATTER, and that it has the

 

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  sole right to grant licenses thereunder, and that it has not granted licenses thereunder to any other entity that would restrict rights granted hereunder except as Stated herein. In addition, BOARD represents and warrants that it owns and will own all right, title and interest in and to the patent applications listed on Exhibit A as of the Effective Date, and all patents that will issue thereon; and that the patents listed on Exhibit A comprise all patents and applications owned by BOARD or MDA that claim inventions of any of the inventors listed therein which pertain to the p53 gene or K-ras or gene therapy.

 

3.2 LICENSEE understands that the LICENSED SUBJECT MATTER may have been developed under a funding agreement with the Government of the United States of America and, if so, that the Government may have certain rights relative thereto. This AGREEMENT is explicitly made subject to the Government’s rights under any such agreement and any applicable law or regulation, including P.L. 96-517 as amended by P.L. 98-620. To the extent that there is a conflict between any such agreement, applicable law or regulation and this Agreement, the terms of such Government agreement, applicable law or regulation shall prevail.

 

3.3 BOARD, by this AGREEMENT, makes no representation to the patentability, validity, and/or breadth of the inventions contained in the PATENT RIGHTS. BOARD, by this AGREEMENT, makes no representation as to whether there are any patents now held, or which will be held, by others or by BOARD in the LICENSED FIELD, nor does BOARD make any representation that the inventions contained in PATENT RIGHTS do not infringe any other patents now held or that will be held by others or by BOARD.

IV. LICENSE

 

4.1 BOARD hereby grants to LICENSEE a royalty-bearing, exclusive license under the LICENSED SUBJECT MATTER to manufacture, have manufactured, use and/or sell LICENSED PRODUCTS, to practice any method, process or procedure and to otherwise exploit the LICENSED SUBJECT MATTER, within LICENSED TERRITORY for use within LICENSED FIELD. Subject to Paragraph 5.8 herein, such license shall extend to BOARD’s undivided interest in any LICENSED SUBJECT MATTER developed during the term of this AGREEMENT and jointly owned by BOARD and LICENSEE. This grant shall be subject to Paragraph 3.2, hereinabove, the payment by LICENSEE to BOARD of all consideration as provided in this AGREEMENT, including the timely payment of all amounts due during the term of this Agreement under any sponsored research agreement covering the Licensed Subject Matter between MDA and LICENSEE (including but not limited to the RESEARCH AGREEMENTS, reimbursement of MDA’s patent expenses as set forth in Paragraph 5.7 below, and shall be further subject to rights retained by BOARD and MDA to:

 

  (a) Publish the general scientific findings from research related to LICENSE SUBJECT MATTER; and

 

  (b) Use of any information contained in LICENSED SUBJECT MATTER for research, teaching, patient care, and other educationally-related purposes.

 

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Notwithstanding the foregoing, the license granted in this Section 4.1 under TECHNOLOGY RIGHTS not covered by any PATENT RIGHTS shall be non-exclusive for all applications that do not pertain in any way to the p53 gene, the k-ras gene, or mutations thereof, the genetic or functional inhibition or promotion thereof; the translation or transcription pathways of such genes or mutations thereof, or any protein or molecule expressed by such genes or mutation thereof.

 

4.2 LICENSE shall have the right to extend the license granted herein to any AFFILIATE provided that such AFFILIATE consents in writing, with copy to BOARD, to be bound by this AGREEMENT to the same extent as LICENSEE.

 

4.3 The license granted under Paragraph 4.1 above shall include the rights to grant and authorize sublicenses within the scope of the right and license granted to LICENSEE. LICENSEE shall monitor the operations of its SUBLICENSEES in connection with the obligations of LICENSEE pursuant to this AGREEMENT, and shall use reasonable effort to ensure that such SUBLICENSEES comply fully with such obligations. LICENSEE shall promptly inform BOARD of the name and address of each such SUBLICENSEE, and subject to any obligations of confidentiality to the SUBLICENSEE, shall provide MDA a copy of the sublicense agreement.

V. PAYMENTS AND REPORTS

 

5.1 In consideration of rights granted by BOARD to LICENSEE under this AGREEMENT, LICENSEE agrees to pay MDA the following:

 

  (a) One and one half percent (1.5%) of NET SALES attributed to SALES of LICENSED PRODUCTS by LICENSEE, AFFILATES and SUBLICENSEES; and

 

  (b) For any advance payment received by LICENSEE from a third party pursuant to a sublicense, marketing, distribution, or franchise agreement, other than amounts paid to LICENSEE in reimbursement of development or other costs, as provided for in Article 4.3 hereof and which is creditable against future royalties to be received by LICENSEE: one and one half percent (1.5%) of said advance payment.

 

  (c) LICENSEE will not be obligated to pay MDA any portion of any advanced payment received by LICENSEE from a third party that is not creditable against future running royalties to be received by LICENSEE.

 

  (d) If LICENSEE desires to fund sponsored research, and particularly where LICENSEE receives R&D money in lieu of or in addition to royalty revenues pursuant to a sublicense, LICENSEE shall give good faith consideration to funding such proposals at MDA.

 

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5.2 In the event that more than one patent within the PATENT RIGHTS is applicable to any LICENSED PRODUCT subject to royalties under this Article V, then only one royalty shall be paid to MDA in respect of such quantity of the LICENSED PRODUCTS and in any event no more than one royalty will be payable hereunder with respect to any particular LICENSED PRODUCT unit. In addition:

 

  (a) No royalty shall be payable under Paragraph 5.1 above with respect to the SALE of LICENSED PRODUCTS between or among LICENSEE, AFFILIATES and SUBLICENSEES, provided that such LICENSED PRODUCTS are to be resold to unrelated third parties, or with respect to any fees or other payments paid between or among LICENSEE and AFFILIATES; nor shall a royalty be payable under Paragraph 5.1 with respect to SALES of LICENSED PRODUCTS for use in clinical trials or as samples.

 

  (b) In the event that a LICENSED PRODUCT is sold in combination as a single product, or in a kit, with another product or component and no royalty would be due hereunder on the sale of such other product or component alone, then NET SALES from such combination sales for purposes of calculating the amounts due under this Article V shall be as reasonably allocated by LICENSEE between such LICENSED PRODUCT and such other product or components, based upon their relative importance and proprietary protection as commercially reasonable.

 

5.3 During the Term of this AGREEMENT and for one (1) year thereafter, LICENSEE shall keep complete and accurate records if its SALES and NET SALES of LICENSED PRODUCTS and other income subject to royalties hereunder and all revenues received from all SUBLICENSEES to enable the royalties payable hereunder to be determined. LICENSEE shall permit BOARD or its representatives, at BOARD’s expense, to periodically examine its books, ledgers, and records during regular business hours for the purpose of and to the extent that the amounts due to BOARD are determined to have been underpaid LICENSEE shall pay the cost of such examination. and accrued interest at the highest allowable rate.

 

5.4 Within thirty (30) days after March 31, June 30, September 30, and December 31, LICENSEE shall deliver to BOARD and MDA a true and accurate report, giving such particulars of the business conducted, if any, by LICENSEE, including all revenues received from all SUBLICENSEES, during the preceding three (3) calendar months under this AGREEMENT as are pertinent to an account for payments hereunder. Such report shall include at least (a) the quantities of LICENSED SUBJECT MATTER that it has produced; (b) the total SALES, (c) the calculation of royalties thereon; and (d) the total royalties so computed and due BOARD. Simultaneously with the delivery of each such report, LICENSEE shall pay to BOARD the amount, if any, due for the period of such report. If no payments are due, it shall be so reported.

 

5.5 Upon the request of BOARD or MDA but not more often than once per calendar year, LICENSEE shall deliver to BOARD and MDA a written report as to LICENSEE’s efforts and accomplishments during the preceding year in commercializing LICENSED SUBJECT MATTER in various parts of the LICENSED TERRITORY and its commercialization plans for the upcoming year.

 

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5.6 All amounts payable hereunder by LICENSEE shall be payable in United States funds. Checks shall be made payable to The University of Texas M.D. Anderson Cancer Center. Any withholding or other tax that LICENSEE, an AFFILIATE, or a SUBLICENSEE are required by law to withhold shall be deducted from royalties owing to MDA hereunder and promptly paid to the taxing authority. If royalties paid to LICENSEE or an AFFILIATE by a SUBLICENSEE on NET SALES of LICENSED PRODUCTS are reduced for withholding or similar wees, LICENSEE may deduct a portion of such we from the royalties payable to UNIVERSITY with respect to such Net Sales; the portion to be so deducted shall equal the amount of the tax multiplied by the fraction B/A, where “A” equals the gross royalty payable to LICENSEE on such Net Sales prior to the withholding or similar tax, and “B” equals the gross royalty payable to UNIVERSITY on such Net Sales prior to the reduction under this Section 5.6. In regard to any tax so deducted, LICENSEE shall furnish UNIVERSITY with proper evidence of the taxes paid. In the event that LICENSEE realizes a reduction in its U.S. tax liability by reason of a foreign tax credit with respect to withholding taxes so deducted from royalties payable to MDA hereunder, LICENSEE shall pay to MDA the amount of such reduction in its U.S. tax liability.

 

5.7 LICENSEE shall reimburse MDA for all of its out-of-pocket expenses thus far incurred in filing, prosecuting, enforcing and maintaining PATENT RIGHTS exclusively licensed hereunder and which were not already reimbursed pursuant to the Option Agreement in Exhibit I hereto, and shall pay all such future expenses so long as and in such countries as its license remains exclusive. In the event that LICENSEE notifies MDA that it does not wish to reimburse further expenses of prosecuting or maintaining any application or patent within the PATENT RIGHTS in any country, LICENSEE shall not be responsible for any such expenses with respect to such application or patent after MDA’s receipt of such notice, and LICENSEE’s license under Paragraph 4.1 above shall become nonexclusive with respect to such application (and any patent issuing thereon) or patent in such country. MDA will invoice LICENSEE on a quarterly basis beginning October 1, 1994, with such invoices being due and payable within thirty (30) days thereafter.

 

5.8 No payments due or royalty rates under this AGREEMENT shall be reduced as the result of co-ownership of LICENSED SUBJECT MATTER by BOARD and LICENSEE.

 

5.9 It is understood that royalties shall be due under 5.1(a) above only on SALES of LICENSED PRODUCTS, the SALE of which would, but for the license granted herein, infringe a VALID CLAIM in the country for which such LICENSED PRODUCT is SOLD. However, if the SALE of a LICENSED PRODUCT would infringe a VALID CLAIM in the United States, Japan and at least four (4) Major Countries in Europe, LICENSEE shall pay royalties hereunder on all sales of such LICENSED PRODUCT in any country, regardless of whether the sale of such product in such country would infringe a VALID CLAIM. As used herein, “Major Countries” shall mean the United Kingdom, France, Germany, Spain, Italy, Sweden and Switzerland.

 

7


5.10 Effective upon written notice to MDA, LICENSEE may convert the license granted to LICENSEE under Paragraph 4.1 with respect to any patent or application within the PATENT RIGHTS to a non-exclusive license. Following such notice, the amounts to be paid to MDA under Paragraph 5.1 above with respect to any VALID CLAIMS within such patent or application, after any other adjustment under this AGREEMENT, shall be reduced by one-half.

VI. PATENTS AND INVENTIONS

 

6.1 If after consultation with LICENSEE it is agreed by BOARD and LICENSEE that anew patent application should be filed for LICENSED SUBJECT MATTER, BOARD will prepare and file appropriate patent applications, and LICENSEE will pay the cost of searching, preparing, filing, prosecuting and maintaining same, subject to Paragraph 5.7 above. BOARD shall provide LICENSEE with a copy of the new patent application for which LICENSEE has paid the cost of filing, as well as copies of any documents received or filed during prosecution thereof. BOARD shall consult with LICENSEE in a timely manner concerning (i) scope and content of all patent applications within the PATENT RIGHTS prior to filing such patent applications, and (ii) content of and proposed responses to official actions of the United States Patent and Trademark Office and foreign patent offices during prosecution of any patent applications within the PATENT RIGHTS. For purposes of this Paragraph 6.1, “timely” shall mean sufficiently in advance of any decision by BOARD or any deadline imposed upon written response by BOARD so as to allow LICENSEE to meaningfully review such decision or written response and also provide comments to BOARD in advance of such decision or deadline to allow comments of LICENSEE respect to the PATENT RIGHTS to be considered and incorporated into BOARD’s decision or written response.

 

6.2 With respect to the filing of any patent application within the PATENT RIGHTS, or the prosecution of any patent application within the PATENT RIGHTS, or the maintenance of any patent within the PATENT RIGHTS, if BOARD elects not to file for or continue prosecution of any such patent application or maintain any such patent, BOARD shall promptly notify LICENSEE in writing sufficiently in advance of any deadline to enable LICENSEE to file for or continue prosecution of such patent application and/or maintain such patent, and in such event LICENSEE (or its designee) may at its discretion pursue such filing, prosecution and/or maintenance of its own expense in BOARD’s name.

VII. INFRINGEMENT AND DEFENSE

 

7.1

LICENSEE agrees, itself or through its designee, to use reasonable efforts generally to enforce the PAENT RIGHTS with respect to substantial continuing infringements of the PATENT RIGHTS within the LICENSED FIELD, by initiating legal action, sublicensing the infringing activities or otherwise. It is understood, however, that such obligation shall not be deed to require LICENSEE to take such actions with respect to each such infringement, and LICENSEE make take into account reasonable strategic and other considerations in determining which infringers to take action against, as well as when and

 

8


  whether to do so. If LICENSEE or its designee commences an action to enforce the PATENT RIGHTS, LICENSEE shall have the right during the pendency of the action to withhold up to, but not more than, fifty percent (50%) of the royalties payable to BOARD hereunder based on the SALE of the LICENSED PRODUCTS covered by the patent within the PATENT RIGHTS in dispute to offset LICENSEE’s and its SUBLICENSEE’s out-of-pocket legal expenses incurred in connection with such action or proceeding. Any portion of such withheld royalties that is not so applied, shall be promptly paid to BOARD after such action or proceeding is resolved or abandoned. Any amounts recovered from third parties by LICENSEE or a SUBLICENSEE with respect to the PATENT RIGHTS in such action or proceeding shall be applied first to reimburse any outstanding legal expenses of the action or proceeding incurred by LICENSEE or such SUBLICENSEE, and then to reimburse BOARD for any royalties or fees withheld under this Paragraph 7.1 with respect to such action or proceeding. Any amounts remaining shall be included in NET SALES of LICENSEE or such SUBLICENSEE (as the case may be) for purposes of calculating royalties owed pursuant to Paragraph 5.1(a).

 

7.2 In the event that LICENSEE does not fulfill its obligations under Paragraph 7.1 above, MDA shall have the right to enforce the PATENT RIGHTS relating to infringement by such a substantial infringer on behalf of MDA and LICENSEE; and in such event MDA shall have the right to grant a nonexclusive license, under the PATENT RIGHTS that are the subject of such action, to the claimed infringer to make, use and sell the infringing products in the countries where such products are being sold at the time the action is commenced. Any amounts recovered or received from third parties by MDA with respect to the PATENT RIGHTS in such action, proceeding or license shall be retained by MDA.

 

7.3 In the event that LICENSEE, an AFFILIATE or SUBLICENSEE receives a claim from a third party alleging an infringement of intellectual property rights of a third party based upon the manufacture, sale or use of a LICENSED PRODUCT, LICENSEE shall have the right to withhold fifty percent (50%) of the royalties payable to BOARD hereunder and apply such amounts against LICENSEE’s and such AFFILIATES’ or SUBLICENSEES’ out-of-pocket expenses incurred in defending such claim. Any and all withheld amounts that are not so used shall promptly be reimbursed to BOARD after the resolution of such claim.

 

7.4 In any suit or dispute involving the enforcement or defense of PATENT RIGHTS, the parties shall cooperate fully, including without limitation, subject to the statutory authority of the Attorney General of the State of Texas as applicable to BOARD and MDA, by joining as a party plaintiff and executing such documents as the party prosecuting such suit, action or other proceeding may reasonably request, all at such requesting party’s expense. Upon the request and at the expense of the party bringing suit, the other party shall make available to the party bringing suit at reasonable times and under appropriate conditions all relevant personnel, records, papers, information, samples, specimens, and the like which are in its possession.

 

9


VIII. PATENT MARKING

 

8.1 LICENSEE agrees that all packaging containing individual LICENSED PRODUCT(S), and documentation therefor, sold by LICENSEE, AFFILIATES and SUBLICENSEES of LICENSEE will be marked permanently and legibly with the number of the applicable patent(s) licensed hereunder in accordance with each country’s patent laws, including Title 35, United States Code.

IX. INDEMNIFICATION

 

9.1 LICENSEE shall hold harmless and indemnify BOARD, SYSTEM, MDA, its Regents, officers, employees, students, and agents from and against any claims, demand, or causes of action whatsoever, including without limitation those arising on account of any injury or death of persons or damage to property, caused by, or arising out of, or resulting from, the exercise or practice of the license granted hereunder by LICENSEE or its officers, employees, agents or representatives.

 

9.2 BOARD shall, to the extent authorized under the Constitution and the laws of the State of Texas, hold LICENSEE harmless from liability resulting from the negligent acts or omissions of BOARD or MDA, their agents or employees pertaining to the activities to be carried out pursuant to the obligations of this AGREEMENT; provided, however, that BOARD shall not hold LICENSEE harmless from claims arising out of the negligence of LICENSEE, its officers, agents or any person or entity not subject to BOARD’s or MDA’s supervision or control.

X. USE OF BOARD AND COMPONENTS NAME

 

10.1 (A) In accordance with BOARD policy, LICENSEE shall not use the name of BOARD, SYSTEM, or BOARD, except as described in 10.1 (B), below.

 

  (B) (i) LICENSEE may use the name of MDA, BOARD, or SYSTEM only when indicating, as a factual matter, that MDA, BOARD, or SYSTEM is a licensor of LICENSEE under this AGREEMENT and only in connection with either or both of the following:

 

  (a) communications associated with LICENSEE’s financing activities; and

 

  (b) communications (other than promotions and advertisements) directed to describing or responding to inquiries concerning the business, technology, products, services and associated activities or LICENSEE.

 

  (c) in all such communications, LICENSEE shall limit such use, in substance, to stating that a LICENSED PRODUCT or other LICENSED SUBJECT MATTER was invented by the inventor thereof as an employee of MDA and/or that MDA and/or BOARD is the licensor thereof. In no event shall LICENSEE use the name of MDA, SYSTEM or BOARD in product advertising or on product packaging or labels affixed to any products. Communications in accordance with this Section 10.1(B) shall not be deemed a breach of Section 6 of either of the RESEARCH AGREEMENTS.

 

10


  (ii) LICENSEE may otherwise use the name of MDA, BOARD, or SYSTEM when and as required by applicable law, rules and regulations, or upon written consent of the party the use of whose name is requested.

XI. CONFIDENTIAL INFORMATION

 

11.1 BOARD and LICENSEE each agree that all information contained in documents marked “confidential” which are forwarded to one by the other shall be received in strict confidence, used only for the purposes of this AGREEMENT, and not disclosed by the recipient party (except as required by law or court order), its agent or employees without the prior written consent of the other party, unless such information (a) was in the public domain at the time of disclosure, (b) later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors or assigns, (c) was lawfully disclosed to the recipient party by a third party having the right to disclose it, (d) was already known by the recipient party at the time of disclosure, (e) was independently developed or (f) is required to be submitted to a government agency or as otherwise required by law. Notwithstanding the foregoing or any provision of the RESEARCH AGREEMENTS, LICENSEE may disclose any LICENSED SUBJECT MATTER comprising confidential information of BOARD to third parties pursuant to a reasonable confidentiality agreement, and otherwise as is reasonably necessary to exploit the LICENSED SUBJECT MATTER as contemplated in this AGREEMENT.

 

11.2 Each party’s obligation of confidence hereunder shall be fulfilled by using at least the same degree of care with the other party’s confidential information as it uses to protect its own confidential information. This obligation shall exist while this AGREEMENT is in force and for a period of three (3) years thereafter.

XII. ASSIGNMENT

 

12.1 This AGREMENT may not be assigned by LICENSEE without the prior written consent of BOARD; provided that, at any time after eighteen (18) months after the Effective Date, LICENSEE may assign this AGREEMENT without such consent to a party that acquires substantially all of the business or assets of LICENSEE to which this AGREEMENT pertains, so long as LICENSEE notifies BOARD and the assignee agrees in writing to be bound by the terms of this AGREEMENT.

XIII. DUE DILIGENCE

 

13.1

BOARD shall have a right after five (5) years from the EFFECTIVE DATE to terminate the exclusivity of the license granted by BOARD to LICENSEE pursuant to Paragraph 4.1 in any national political jurisdiction within the LICENSED TERRITORY at any time upon written notice to LICENSEE if LICENSEE fails to provide written evidence, within

 

11


  one hundred eighty (180) days after receiving written notice from BOARD of BOARD’s intention to terminate such exclusivity, that LICENSEE is using commercially reasonable efforts to commercialize a LICENSED PRODUCT in such a jurisdiction; provided that termination of such exclusivity shall not occur unless and until a court of competent jurisdiction has determined in a suit filed by LICENSEE within such one hundred eighty (180) day period, that LICENSEE has not satisfied LICENSEE’s obligations hereunder, and LICENSEE fails to meets its obligations hereunder within six (6) months after such determination. Evidence provided by LICENSEE in writing that LICENSEE has an ongoing and active research, development, manufacturing, marketing or sublicensing program (as appropriate), directed toward the development, production or sale of one or more LICENSED PRODUCTS within either the United States, Japan or Europe shall be deemed satisfactory evidence that LICENSEE has commercialized or is using commercially reasonable efforts to commercialize a LICENSED PRODUCT and to meet the market demand therefor worldwide for all purposes of this Article XIII.

XIV. TERM, TERMINATION, AND DEFAULT

 

14.1 The term of this AGREEMENT shall extend from the Effective Date set forth hereinabove to the full end of the term or terms for which PATENT RIGHTS have not expired and if only TECHNOLOGY RIGHTS are licensed and no PATENT RIGHTS are applicable, for a term of fifteen (15) years. Notwithstanding the above, upon the expiration, but not an earlier termination of this AGREEMENT, LICENSEE shall have a non-exclusive, fully paid-up right and license under the LICENSED SUBJECT MATTER to use and otherwise exploit the TECHNOLOGY RIGHTS.

 

14.2 This AGREEMENT will earlier terminate:

 

  (a) upon the expiration of thirty (30) days written notice from BOARD if LICENSEE shall become bankrupt and/or if the business of LICENSEE shall be placed in the hand of a receiver, assignee, or trustee, whether by voluntary act of LICENSEE or otherwise;

 

  (b) (i) upon thirty (30) days written notice from BOARD if LICENSEE shall breach or default on the payment obligations of Article V, or use of name obligations of Article X; or (ii) upon ninety (90) days written notice if LICENSEE shall breach or default any other obligation under this AGREEMENT; provided, however, LICENSEE may avoid such termination if before the end of the applicable period LICENSEE notifies BOARD that such breach has been cured and states the manner of such cure. However, if LICENSEE disputes such breach in writing within such thirty (30) or ninety (90) day period, BOARD shall not have the right to terminate this AGREEMENT unless and until a court of competent jurisdiction has determined, in a suit filed by LICENSEE within such thirty (30) or ninety (90) day period, that this AGREEMENT was materially breached, and LICENSEE fails to cure such breach within thirty (30) or ninety (90) days (respectively) after such determination; provided that the foregoing shall not suspend any obligation of LICENSEE to pay to BOARD any undisputed amount owed by LICENSEE to BOARD or MDA under this AGREEMENT, during the pendency of any determination of breach.

 

12


  (c) In its entirety or as to any particular patent application or patent within the PATENT RIGHTS, upon LICENSEE’s sixty (60) days prior written notice to BOARD. From and after the effective date of a termination under this Paragraph 15.2(c) with respect to a particular patent application or patent, such patent application and patent in the particular country shall cease to be within the PATENT RIGHTS for all purposes of this AGREEMENT. Upon a termination of this AGREEMENT in its entirety under this Paragraph 15.2(c), all rights and obligations of LICENSEE and BOARD shall terminate, except as provided below.

 

14.3 Upon termination of this AGREEMENT for any cause, nothing herein shall be construed to release either party of any obligation matured prior to the effective date of such termination. LICENSEE may, after the effective date of such termination, sell all LICENSED PRODUCT and parts therefore that it may have on hand at the date of termination, provided that it pays earned royalty thereon as provided in this AGREEMENT.

 

14.4 Articles IX, X, and XI, shall survive the expiration and any termination of this AGREEMENT. In addition, upon termination of this AGREEMENT, any and all existing sublicenses shall survive; provided that such SUBLICENSEES promptly agree in writing to be bound by the applicable terms of this AGREEMENT. Except as otherwise provided in this Article XV, all rights and obligations of the parties under this AGREEMENT shall terminate upon the expiration or termination of this AGREEMENT.

XV. GENERAL

 

15.1 This AGREEMENT constitutes the entire and only AGREEMENT between the parties for LICENSED SUBJECT MATTER and all other prior negotiations, representations, agreements (including that certain PATENT AND TECHNOLOGY LICENSE AGREEMENT between the parties hereto executed on April 21, 1994 but not approved by BOARD) and understandings are superseded hereby. No agreements altering or supplementing the terms hereof may be made except by means of a written document signed by the duly authorized representatives of the parties.

 

15.2 Any notice required by this AGREEMENT shall be given by prepaid, first class, certified mail, return receipt requested, and addressed in the case of BOARD to:

 

 

BOARD OF REGENTS

The University of Texas System

201 West Seventh Street

Austin, Texas 78701

ATTENTION: Office of General Counsel

 

13


with a copy to:  

The University of Texas

M.D. Anderson Cancer Center

Office of Technology Development

1020 Holcombe Boulevard, Suite 1405

Houston, Texas 77030

ATTENTION: William J. Doty

or in the case of LICENSEE to:  

Intron Therapeutics, Inc.

301 Congress, Suite 2025

Austin, Texas 787013

ATTENTION: Mr. David Nance

with a copy to:  

Kenneth A. Clark, Esq.

Wilson, Sonsini, Goodrich & Rosati

650 Page Mill Road

Palo Alto, California 94304

Or such other address as may be given from time to time under the terms of this notice provision.

 

15.3 LICENSEE shall comply with all applicable federal, state and local laws and regulations in connection with its activities pursuant to this AGREEMENT.

 

15.4 This AGREEMENT shall be construed and enforced in accordance with the laws of the United States of American and of the State of Texas.

 

15.5 Failure of BOARD to enforce a right under this AGREEMENT shall not act as a waiver of that right or the ability to later assert that right relative to the particular situation involved.

 

15.6 Headings included herein are for convenience only and shall not be used to construe this AGREEMENT.

 

15.7 If any provision of this AGREEMENT shall be found by a court to be void, invalid or unenforceable, the same shall be reformed to comply with applicable law or stricken if not so conformable, so as not to affect the validity or enforceability of this AGREEMENT.

IN WITNESS WHEREOF, parties hereto have caused their duly authorized representatives to execute this AGREEMENT.

 

14


THE UNIVERSITY OF TEXAS

M.D. ANDERSON CANCER CENTER

 

By: /s/ DAVID J. BACHRACH                                                 

David J. Bachrach

Executive Vice President

For Administration and Finance

  

BOARD OF REGENTS OF THE

UNIVERSITY OF TEXAS SYSTEM

 

By:                                                                                           

Thomas G. Ricks

Vice Chancellor for

Asset Management

APPROVED AS TO CONTENT:

 

By: /s/ WILLIAM J. DOTY                                                         

William J. Doty

Director, Technology Development

  

APPROVED AS TO FORM:

 

By: /s/ DUDLEY R. DOBIE, JR.                                         

Dudley R. Dobie, Jr.

Manager, Intellectual Property

INTRON THERAPEUTICS, INC.

 

By: /s/ DAVID G. NANCE                                                          

David G. Nance

President

  

 

15


ATTACHMENT A

Patent and technology rights for U.S. and Foreign Patent Application entitled:

 

    “Methods and Compositions for the Selective Inhibition of Gene Expression” Inventors: Jack A. Roth, M.D., et. al.

 

    Australia Serial No. 15704/92, filed March 6, 1992; Canada Serial No. 2108144, filed March 6, 1992; European Serial No. 92908663-5, filed March 6, 1992, (MDA Ref. UTSC:171); and

 

    “Methods and Compositions for Retroviral Vector Mediated Transduction” Continuation-in-part U.S. Serial No. 960513, filed October 13, 1992, (MDA Ref. UTSC:295); and

 

    “Methods and Compositions for the Selective Inhibition of Gene Expression” Continuation-in-part U.S. Serial No. 987235, filed December 7, 1992, (MDA Ref. UTSC:328); and

 

    “Recombinant p53 Adenovirus Methods and Compositions” Continuation-in-part U.S. Serial No. 145826, filed October 29, 1993, (MDA Ref. UTSC:350);

 

    “An Adenovirus Supervector System” Continuation-in-part patent has not been filed yet (MDA Ref. UTSC:382); and

 

    “Recombinant p53 Adenovirus Methods and Compositions” U.S. Serial No. 224232, filed April 7, 1994, (MDA Ref. UTSC:402); and

 

    “Methods and Compositions Comprising DNA Damaging Agents and p53” Continuation-in-part patent has not been filed yet (MDA Ref. UTSC:403); and

 

    “Use of Lectins for the Delivery and Translocation of Genetic Material Across Cell Membranes” patent has not filed yet (MDA Ref. UTSC:405); and

 

    “Reconstruction of a-FAS/APO-1 Mediated-Apoptosis in Human Cancer Cells by Adenovirus-Mediated transduction of the Wildtype p53 Gene” patent has not filed yet (MDA Ref. UTSC:417);

 

16

Exhibit 10.7

AMENDMENT NO. 3 TO

PATENT AND TECHNOLOGY LICENSE AGREEMENT

DATED JULY 31,1994

This is AMENDMENT NO. 3 effective this 4 th day of October, 2001, to the Patent and Technology License Agreement dated July 31, 1994, (AGREEMENT) and Amendment No. 1 to the Patent and Technology License Agreement dated September 1, 1996 (AMENDMENT NO. 1), and Amendment No. 2 to the Patent and Technology License Agreement dated August 11, 1997 (AMENDMENT NO. 2), is between THE UNIVERSITY OF TEXAS M.D. ANDERSON CANCER CENTER (MDA), located at 1515 Holcombe Boulevard, Houston, Texas, and which is a component institution of THE UNIVERSITY OF TEXAS SYSTEM (SYSTEM) which is governed by a BOARD OF REGENTS (BOARD) and INTROGEN THERAPEUTICS, INC., a Texas corporation, located at 301 Congress Avenue, Suite 1850, Austin, Texas 78701 (LICENSEE).

RECITALS

 

  A. BOARD is the sole owner of several new inventions related to the subject matter currently licensed to LICENSEE under AGREEMENT. Additionally, Board and the National Cancer Institutes (NCI) are co-owners of at least one of the new invention(s) also related to the subject matter currently licensed to LICENSEE under AGREEMENT (collectively, these new inventions are referred to as Technologies Numbered 19-27).

 

  B. LICENSEE is interested in developing and commercializing new technologies directed to the treatment of cancer, and other threatening diseases, to which end LICENSEE, MDA and BOARD entered into the AGREEMENT noted hereinabove.

 

  C. LICENSEE wishes to add Technologies Numbered 19 - 27 under PATENT RIGHTS as defined in Section 2.3(c) of the AGREEMENT.

 

  D. And, BOARD wishes to grant LICENSEE rights to Technologies Numbered 19—27 to promote its practical development for the benefit of the MDAs patients and for the benefit of the people of the state of Texas.

NOW, THEREFORE, in consideration for the mutual covenants contained herein, the sufficiency of which is hereby acknowledged, the parties hereby agree to the following:

 

  1. Attachment A to the AGREEMENT is hereby deleted in its entirety and replaced with the Revised Attachment A (attached hereto).

 

  2. Schedule A from Amendment #1 and Schedule B from Amendment #2 are both deleted in their entirety and replaced with Revised Attachment A.


Introgen Therapeutics, Inc. Amendment No. 3

Page 2

 

  3. The definitions set forth in the AGREEMENT, AMENDMENT NO. 1, and AMENDMENT NO. 2 shall apply in this AMENDMENT NO. 3, except to the extent that a definition herein is specific to this AMENDMENT NO. 3. Introgen Therapeutics, Inc., Amendment NO. 3.

 

  4. The terms and provisions of the AGREEMENT, AMENDMENT NO. 1, and AMENDMENT NO. 2 shall remain in full force and effect, provided, however, that in the event of a conflict in the terms and conditions between this AMENDMENT NO. 3 and/or AMENDMENT NO. 2, and/or AMENDMENT NO. 1 and/or the AGREEMENT, AMENDMENT NO. 3 shall prevail.

 

  5. Together, this AMENDMENT NO. 3, AMENDMENT NO. 2, AMENDMENT NO. 1, and AGREEMENT constitute the entire agreement between the parties in connection with the subject matter hereof and thereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties.

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this AMENDMENT NO. 3.

 

THE UNIVERSITY OF TEXAS

M.D. ANDERSON CANCER CENTER

   

BOARD OF REGENTS OF THE

UNIVERSITY OF TEXAS SYSTEM

By:  /s/ LEON LEACH                                                      By:  /s/ JOHN MENDELSOHN                                                  
Leon Leach     John Mendelsohn, M.D.
Executive Vice President     President
APPROVED AS TO CONTENT     APPROVED AS TO FORM
By:  /s/ WILLIAM J. DOTY                                             By:  /s/ BETH LYNN MAXWELL                                             
William J. Doty     Beth Lynn Maxwell, Ph.D.
Director, Technology Development     Office of General Counsel
U.T.M.D. Anderson Cancer Center     The University of Texas System
INTROGEN THERAPEUTICS, INC.     APPROVED AS TO CONTENT
By:  /s/ DAVID G. NANCE                                             By:                                                                                                                   
David G. Nance     Name:                                                                                                             
President and CEO     Title:                                                                                                               
     

The University of Texas Southwestern

Medical Center at Dallas


Introgen Therapeutics, Inc. Amendment No. 3

Page 3

 

REVISED ATTACHMENT A

AMENDMENT #3—AS OF MARCH 8, 2001

Technologies Licensed Under The Patent and Technology License Agreement dated July 20, 1994:

 

1. “Methods and Compositions of the Selective Inhibition of Gene Expression” (MDA 90:002, MDA 92:039, MDA93:026,—INRP: 005).

US Serial No. 665,538 filed: March 6, 1991 (Abandon December 7, 1992)

US Serial No. 07/960,513 filed: October 13, 1992, Patent No. 6,017,524 Issued: January 25, 2000.

US Serial No. 987,235 filed: December 7, 1992

US Serial No. 08/953,290 filed: October 29, 1993

US Serial No. 224,232 filed: April 7, 1994, Patent No. 6,142,290 Issued: November 7, 2000

US Serial No. 08/233,002 filed: April 25, 1994, Patent No. 5,757,469 Issued: May 5, 1998

US Serial No. 460,049 filed: June 2, 1995

US Serial No. 459,699 filed: June 2, 1995

US Serial No. 08/459,713 filed: June 2, 1995

US Serial No. 626,678 filed: April 2, 1996

US Serial No. 08/953,290 filed: October 21, 1997, Patent No. 6,069,134 Issued: May 30, 2000

US Serial No. 08/918,407 filed: August 26, 1999

US Serial No. 09/413,109 filed: October 6, 1999

US Serial No. 09/447,681 filed: November 23, 1999

US Serial No. 09/668,532 filed September 21, 2000

AU Serial No. 809/94 filed: May 2, 1996, Patent No. 608,437 Issued: February 11, 1999

AU Serial No. 15704/92 filed: October 6, 1993, Patent No. 663,702 Issued: February 6, 1996

AU Serial No. 23924/95 filed: October 4, 1996, Patent No. 694,216 Issued: November 5, 1998

BR Serial No. P19507506-2

CA Serial No. 2174556 filed: April 28, 1996

CA Serial No. 2188560 filed: October 22 (missing space on original), 1996

CA Serial No. 2108144 filed: March 6, 1992

CN Serial No. 94194354.2 filed: May 30, 1996, Patent No. CN1136826A

CN Serial No. 95192776.0 filed: October 24, 1996, Patent No. CN1147768A

CZ Serial No. PV1225-96

CZ Serial No. PV3121-96

EP Serial No. 94932099.9 filed: May 6, 1996, Patent No. 0725791

EP Serial No. 92908663.5-21, Patent No. 04408774 (Abandoned March 22, 2000)

EP Serial No. 95917100.0, Patent No. 0760675

HU Serial No. P9602937 filed: October 24, 1996

HU Serial No. P9001084

JP Serial No. 7-513310 filed: April 30, 1996, Patent No. 503361/1998

JP Serial No. 7-527776 filed: October 25, 1996, Patent No. 10-503476

KR Serial No. 10-1996-7059

KR Serial No. 96-702193 filed: April 29, 1996

NO Serial No. 96.4527 filed: October 24, 1996

NO Serial No. 96.1696 filed April 26, 1996

NZ Serial No. 275356 filed: April 15, 1996, Patent No. 275356 Issued: April 15, 1998

NZ DIV Serial No. 300898 filed: July 14, 1998 (Abandoned April 7, 2000)

PCT Serial No. US94/12401 filed: October 28, 1994, Patent NO. WO95/12660

PCT Serial No. US92/01852 filed: March 6, 1992, Patent No. WO95/28958

PCT Serial No. US95/04898 filed: April 24, 1995, Patent No. WO95/28948

PL Serial No. P.317105 filed: October 25, 1996

PL Serial No. P.314311 filed: April 29, 1996

RU Serial No. 96110223 filed: April 26, 1996

RU Serial No. 96122787 filed: October 11, 1996, Patent No. 2146149 Issued: March 10, 2000

SK Serial No. PV1367-96 filed: October 24, 1996


Introgen Therapeutics, Inc. Amendment No. 3

Page 4

 

SK Serial No. PV0509-96 filed: April 22, 1996

UA Serial No. 96103988/M filed: October 21, 1998

US Serial No. 1115 filed: April 25, 1996

 

2. “An Adenovirus Supervictor System” (MDA94:014—INRP:006)

US Serial No. 222,285 filed: April 4, 1994

AU Serial No. 22386/95 filed: April 4, 1995, Patent No. 708,561 Issued: November 18, 1999

EP Serial No. 95915529.2, Patent No. 0754237

PCT Serial No. Us95/04138 filed: April 4, 1995, Patent No. WO95/27071

 

3. “Methods and Compositions Comprising DNA Damaging Agents and p53” (MDA90-002CIP3-INGN:008)

Technologies Licensed Under Amendment No. 1 dated September 1, 1996 to The Patent and Technology License Agreement dated July 20, 1994

 

6. “Diminishing Viral Gene Expression by Promoter Replacement” (MDA 96:047—INRP:033)

US Serial no. 08/968,014 filed: November 12, 1997, Patent No. 6,110,744 Issued: August 29, 2000

US Serial No. 09/650,946 filed: August 29, 2000

PCT Serial No. US97/20608 filed: November 12, 1997, Patent No. WO98/23150 (Abandon May 13, 1999)

 

7. “Alteration of Immunogenicity Through Chemical Modification of Viral Vectors for in vivo Gene Therapy” (MDA 96:027—INGN:027)

 

8. “2-Methoxyestradiol Induced Apoptosis in Cancer Cells” (MDA 96:019—INRP:024)

US Serial No. 09/351,191 filed: July 9, 1999

US Serial No. 688,613 filed: July 30, 1996, Patent No. 5,958,892 Issued: September 28, 1999

AU Serial No. 37383/97 filed: February 5, 1999, Patent No. 723,401

CA filed January 29, 1999

EP Serial No. 97934286.2 filed: March 2, 1999, Patent No. 0921821

JP Serial No. 10-508981 filed February 1, 1999

PCT Serial No. US97/12998 filed: July 24, 1997, Patent No. WO98/04291

 

9. “Inhibition of Tumor Cell Growth by p16 INK4 Mediated By An Adenovirus Vector” (MDA 95:053—INGN:016)

US Serial No. 08/502,881 filed: July 17, 1995, Patent No. 5,691,198 Issued: November 25, 1997 (Lapsed September 14, 2000)

US Serial No. 08/910,722 filed: August 13, 1997 (Abandon February 16, 1999)

US Serial No. 09/021,752 filed: February 11, 1998

US Serial No. 09/080,935 filed: May 19, 1998

US Serial No. 08/910,722 filed: February 16, 1999

US Serial No. 09/272,233 filed: March 18, 1999

AU Serial No. 66478/96 filed: January 12, 1998, Patent No. 724324

BR Serial No. P19609853-8 filed: July 19, 1998

CA Serial No. 2227193 filed: January 16, 1998

CN Serial No. 96196536.3, Patent No. CN1203632A

CZ Serial No. PV154-98

EA filed

EP Serial No. 96926086.8 filed: January 30, 1998, Patent No. 0839207

HU Serial No. 1977/98 filed: January 16, 1998, Patent No. P9901908


Introgen Therapeutics, Inc. Amendment No. 3

Page 5

 

JP Serial No. 9-506807 filed: July 17, 1996

KR Serial No. 98-700331 filed: January 16, 1998

NO Serial No. 98.0218 filed: January 16, 1998

NZ Patent No. 313828 Issued: June 8, 1999

PCT Serial No. US96/11787 filed: July 17, 1996, Patent No. WO97/03635

PL Serial No. P324570 filed: January 17, 1998

RU Serial No. 98102856

SK Serial No. PV065-98 filed: (fled on original) January 16, 1998

UA Serial No. 98010272/M

 

10. “Inhibition of Tumor Cell Growth by an Anti-Kras Adenovirus” (MDA 95:052—INGN: 015)

US Serial No. 550,959 filed: October 31, 1995

PCT Serial No. US96/17979 filed: October 31, 1996, Patent No. WO97/16547

 

11. “C-Cam Recombinant Adenovirus” (MDA 95:044—INRP:030)

US Serial No. 494,622 filed: June 23, 1995

PCT Serial No. US96/10696 filed: June 23, 1996, Patent No. WO97/00954

 

12. “Clinical Protocol for Modification of Tumor Suppressor Gene Expression and Induction of Apoptosis in Head and Neck Squamous Cell Carcinoma (HNSCCI) with an Adenovirus Vector Expression Wildtype p53”, (MDA96:006—INGN:022)

US Serial No. 758,033 filed: November 27, 1996

AU Serial No. 11263/97 filed: May 19, 1998

CA Serial No. 2238829 filed: May 27, 1998

CN Serial No. 96199585.8 filed: July 30, 1998

CZ Serial No. PV1657-98 filed: May 28, 1998, Patent No. PV1657-98

EP Serial No. 96942100.7 filed: June 10, 1998, Patent No. 0863984

HU Serial No. 19453/98 filed: May 29, 1998, Patent No. P9902068 (Abandoned January 11, 2000)

JP Serial No. 9-520700 filed: May 29, 1998

KR Serial No. 98-704074 filed: May 29, 1998, Patent No. 99-71795

NO Serial No. 98.2481 filed: May 29, 1998

NZ Serial No. 324168 filed: May 29, 1998

PCT Serial No. US96/19083 filed: November 27, 1996, Patent No. WO97/20047

PL Serial No. P-327009 filed: June 7, 1998

RU Serial No. 98111928 filed: June 24, 1998

SK Serial No. PV0705-98 filed: May 25, 1998, Patent No. PV0705-98 (Abandon November 24, 1999)

 

13. “Modification of Mutated p53 Gene in the Tumor by Retroviral Delivery of Ribozyme A, a Therapeutic Strategy for Cancer”, (MDA95:045—INRP:020)

US Serial No. 523,030 filed: September 1, 1995

 

14. “The Use of Cisplatin and Other Chemicals to Enhance the Transduction of Cancer Cells”, (MDA95:040—INRP:021)

US Serial No. 09/175056 filed: October 19, 1998

PCT Serial No. US97/05325 filed: (fled on original) April 1, 1997, Patent No. WO97/39135

 

15. “A Rapid Test for Determining the Amount of Functionally Inactive Gene in a Gene Therapy Vector Preparation”, (MDA95:031—INRP:014)


Introgen Therapeutics, Inc. Amendment No. 3

Page 6

 

US Serial No. 390,887 filed: (fled on original) February 17, 1995, Patent No. 5,637,456 Issued: June 10, 1997

AU Serial No. 49248/96 filed: August 12, 1997, Patent No. 700427 Issued: April 22, 1999

BR Serial No. P19607613-5 filed: August 15, 1997

CA Serial No. 2213116 filed: August 14, 1997

CN Serial No. 96192612.0 filed: August 14, 1997

CZ Serial No. PV2575-97

EP Serial No. 96905510 filed: September 17, 1997, Patent No. 0811077

HU Serial No. 26414/94 filed: August 15, 1997, Patent No. P9802062

JP Serial No. 8-525132 filed: August 18, 1997, Patent No. 11-500012

KR Serial No. 97-705709 filed: August 16, 1997

NO Serial No. 973770 filed: August 15, 1997

NZ Patent No. 303040 Issued: November 18, 1998

PCT Serial No. US96/02042 filed: February 14, 1996

PL Serial No. P321869 filed: August 18, 1997

RU Serial No. 97115248 filed: September 11, 1997

SG Serial No. PV1113-97 filed: August 14, 1997

UA Serial No. 97084262/m filed: August 15, 1997

 

16. “The Use of Epidermal Growth Factor and Other Ligands for the Targeting of Genetic Material to Lung Cancer Cells”, (MDA94:039—INRP:011)

US Serial No. 410,526 filed: March 24, 1995 (Abandon)

PCT Serial No. US96/04017 filed: March 25, 1996, Patent No. WO96/30536 (Abandon September 24, 1997)

 

17. “Adenoviral Helper Vector System”, (MDA95:007—INRP:012)

US Serial No. 423,573 filed: April 17, 1995

AU Serial No. 55519/96 filed: November 6, 1997

CA Serial No. 2128610 filed: October 12, 1997

EP Serial No. 96912839.6 filed: October 16, 1997, Patent No. WO0821739

PCT Serial No. US96/05310 filed: April 17, 1995, Patent No. W96/33280

Technologies Licensed Under Amendment No. 2 dated August 11, 1997 to The Patent and Technology License Agreement dated July 20, 1994

 

18. “Low Toxicity Interleukin-2 Analogues for Use in Immunotherapy”, (MDA92:026—INGN:064)

US Serial No. 868,765 filed: April 14, 1992, Patent No. 5,229,109 Issued: July 10, 1993

AU Serial No. 42843/93 filed: April 13, 1993 (Abandon December 13, 1995)

CA Serial No. 2133831 filed: April 13, 1993

EP Serial No. 93912216.4

JP Serial No. 5-518560 filed: April 13, 1993, Patent No. 508714/1995

PCT Serial No. US93/03457 file: April 13, 1993, Patent No. WO/93/20849

Technologies Licensed Under Amendment No. 3 dated March 8, 2001 to The Patent and Technology License Agreement dated July 20, 1994

 

19. “Differential Gene Expression in Tumor Bearing and On Tumor Bearing Animals Following Systemic Delivery of DOTAP: Cholesterol Liposome DNA” (MDA00-064)

 

20. “Chromosome 3p21.3 Genes as a Tumor Suppressor Region” (MDA00:041—INGN:095PZ)

US Serial No. 60/217,112 filed: July 10, 2000


Introgen Therapeutics, Inc. Amendment No. 3

Page 7

 

21. “Inhibition of Cell Growth by Anti-Proliferative Factor” (MDA97-002—INRP:026)

US Serial No. 08/918,712 filed: August 22, 1997

PCT Serial No. US97/15020 filed: August 22, 1997 (Abandon February 23, 1999)

 

22. “Augmentation of Cell Growth Inhibition by Enhancement of Intercellular Communication” (MDA98:049—INRP:073)

US Serial No. 09/422,911 filed: October 21, 1999

 

23. “Recombinant Adenovirus-Mediated Fhit Gene Transfer” (MDA98:053—INGN:074)

US Serial No. 09/524,474 filed: March 13, 2000

 

24. “Induction of Apoptic or Cytotoxic Gene Expression by Adenoviral Mediated Gene Codelivery” (MDA99:016—INGN:088)

US Serial No. 09/266,465 filed: March 11, 1999

PCT Serial No. US99/05359 filed: March 11, 199__ (year incomplete), Patent No. WO99/46371

 

25. “Methods and Compositions for Non-Viral Gene Therapy for Hyperproliferative Diseases” (MDA99:041—INRP:083PZ1)

US Serial No. 09/575,473 filed: May 24, 2000

 

26. “Antheiminthic Drugs Are Potent Inducers of Apoptosis in Human Lung Cancer Cells Through the p53 Pathway” (MDA99:067—INRP:095PZ)

 

27. “Gene Transfer of a Ras Pathway Inhibitor as a Radiosensitizer” (MDA98:058—INRP:077)

Exhibit 10.8

TECHNOLOGY SUBLICENSE AGREEMENT

This Sublicense Agreement (“Agreement”) is made effective this 7th day of March, 2007, by and between Introgen Therapeutics, Inc., a Delaware corporation (“Sublicensor”), and Introgen Research Institute, Inc., a Texas corporation (“Sublicensee”).

RECITALS:

WHEREAS, Sublicensor and Sublicensee are parties to agreements whereby Sublicensee has applied for National Institutes of Health (“NIH”) grant funding for research and commercial development of the Licensed Subject Matter (defined below) and Sublicensor will provide services to Sublicensee in return for compensation;

WHEREAS, said NIH funding will fund research at the University of Texas M.D. Anderson Cancer Center (“UTMDACC”), a component of the University of Texas System, which is the owner and licensor to Licensor of the Licensed Technology (defined below), and will provide funds to pay Sublicensor for services it will provide to Sublicensee;

WHEREAS, Sublicensor is in the business of providing such services and desires to perform the services and be paid for them;

WHEREAS, UTMDACC is an important collaboration partner and stockholder of Sublicensor and support of UTMDACC is important to nurture and sustain a continued business relationship between Sublicensor and UTMDACC;

WHEREAS, Sublicensee anticipates additional grant funding from NIH or other sources;

WHEREAS, such NIH funding will advance the development and commercialization of the Licensed Technology;

WHEREAS, such NIH funding is, and in the future may be, in connection with Small Business Administration (“SBA”) programs stipulating commercial development potential of funded research and development; and

WHEREAS, Sublicensor owns forty-nine percent (49%) of the issued and outstanding stock of Sublicensee and will therefore benefit from such grant funding and research and development activities through its equity ownership of Sublicensee;

NOW, THEREFORE, to assist Sublicensee in obtaining grant funding for research and development, which will benefit Sublicensor, and in consideration of Sublicensee’s efforts to obtain grant funding, and in further consideration of the compensation to be paid Sublicensor for its services, and the expenditure of portions of such grant funding at UTMDACC which will also benefit Sublicensor, and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged by Sublicensor, Sublicensor and Sublicensee agree as follows:


AGREEMENT

1. Definitions . The capitalized terms set forth in this section have the following meanings for purposes of this agreement:

 

  (a) “Affiliate” means an entity in which Sublicensee owns at least fifty percent (50%) of the equity ownership.

 

  (b) “License Agreement” means the Patent and Technology License Agreement between Sublicensor and the Board of Regents of the University of Texas System (the “Board”) dated July 20, 1994, including all amendments thereto.

 

  (c) “Sublicensed Patents” means those patents and patent applications described on Schedule A attached hereto.

 

  (d) “Patent Rights” has the same meaning in this Agreement as it has in Section 2.3 of the License Agreement, except that for purposes of this Agreement Schedule A attached to this Agreement shall be substituted for the Schedule A which is attached to the License Agreement. From time to time during the term of this Agreement, upon request of either party, Sublicensor and Sublicensee shall promptly update Schedule A to this Agreement to include all patents and patent applications that are then within the Patent Rights under this Agreement.

 

  (e) “Licensed Products”, “Licensed Technology” and “Licensed Subject Matter” shall have the same meanings herein as are attributed to them in the License Agreement, after giving effect to the substitution of Schedule A to this Agreement for Schedule A of the License Agreement.

 

  (f) “Territory” means the Licensed Territory as such term is defined in the License Agreement.

 

  (g) “Field” means the Licensed Field as such term is defined in the License Agreement.

 

  (h) “Net Sales” means gross revenues received by Sublicensee, its Affiliates or sublicensees, from a Sale, less discounts actually granted, sales and use taxes actually paid, import and/or export duties actually paid, outbound transportation costs actually paid or allowed, and amounts actually allowed or credited due to returns, not exceeding the original billing amount.

 

  (i) “Sale” or “Sold” means the transfer or disposition of a Licensed Product for value, or with respect to products which are services, the provision of such services on a fee-for-service basis, to a party other than Sublicensee or an Affiliate.


  (j) “Sublicense Income” means all consideration received by Sublicensee from a sublicense in consideration of a sublicense of the Licensed Subject Matter, including, but not limited to, up-front payments, marketing, distribution, franchise, option, license, bonus and milestone payments and equity securities. However, Sublicense Income specifically excludes: payments received by Sublicensee from a sublicense as a result of purchase or sale of debt or equity securities of Sublicensee by such sublicensee, and (ii) payments for research and development of Licensed Products; and (iii) any royalties that Sublicensee receives for the sublicensee’s sale of Licensed Products.

2. Sublicense Grant . Sublicensor hereby grants to Sublicensee a non-exclusive, fully paid, royalty free, perpetual, non-cancellable sublicense to manufacture, have manufactured, use, and/or sell Licensed Products and to otherwise exploit Licensed Technology for commercial or other purposes in the Field throughout the Territory, including the right to grant further sublicenses, it being intended that the sublicense herein granted covers all rights of Sublicensor in the Licensed Subject Matter in the Field and in the Territory. For avoidance of doubt, it is intended hereby that this sublicense covers all rights of Sublicensor in the Sublicensed Patents and all of Sublicensor’s rights in any technical information, know how, process, procedure, composition, biological materials, device, method, formula, protocol, technique, software, design, drawing, or data related to the subject matter of any Sublicensed Patent, whether or not covered by Patent Rights, which is reasonably necessary for practicing an invention at any time covered by the Patent Rights. Sublicensee agrees to comply with the provisions of the License Agreement as they pertain to a sublicense, and to reasonably cooperate with Sublicensor in performing its obligations under the Sublicense Agreement.

3. Patent Maintenance and Prosecution . Sublicensor agrees to maintain, prosecute and continue in force all Sublicensed Patents, including preparing, filing, maintenance and prosecution of each Sublicensed Patent, as well as reissues, reexaminations and similar proceedings with respect to each Sublicensed Patent, and the conduct of interferences, defense of oppositions, requests for term extensions, and similar proceedings with respect to each Sublicensed Patent; and including the payment of all license fees, royalties, annuities, government fees and other fees and costs for the maintenance of such Sublicensed Patents. In the event that Sublicensor for any reason and at any time abandons or otherwise fails to maintain, prosecute, and enforce any Sublicensed Patent in any country in the Territory, Sublicensor shall give Sublicensee reasonable advance written notice of such abandonment or other failure which notice shall in any event be given before Sublicensed Patent rights are lost in such country. In the event Sublicensor abandons or otherwise fails to maintain, prosecute, or enforce any Sublicensed Patent in any country then Sublicensee shall have the right to assume the future maintenance, prosecution and enforcement, of such Sublicensed Patent; and upon such assumption by Sublicensee the license granted herein shall automatically convert from non-exclusive to exclusive with respect to such Sublicensed Patent in each country in which Sublicensee assumes such obligations, without execution of any further documents, and Licensee will become obligated to pay royalties as provided below. The above provisions notwithstanding, neither Sublicensor, nor Sublicensee after assumption of the obligation to maintain, enforce and prosecute any Sublicensed Patent, shall be obligated to expend its funds for litigation in connection therewith. Subsequent to assuming the obligation to maintain, enforce, and prosecute any Sublicensed Patent, Sublicensee shall be free to abandon same on a country by country basis.


4. Additional Consideration . In the event this license is converted from non-exclusive to exclusive as provided above, Subicensee shall after the date of conversion pay additional consideration as follows:

 

  (a) All out of pocket expenses incurred by Sublicensor after the conversion date in filing, prosecuting, enforcing and maintaining Patent Rights in each country in which this license has become exclusive for so long as this Agreement and such Patent Rights remain in effect in such country.

 

  (b) A running royalty equal to three percent (3%) of Net Sales attributed to Sales of Licensed Products by Sublicensee, its Affiliates, and its sublicensees, in each country in which this license has become exclusive, subject to the following:

Royalties shall be due hereunder only on Sales of Licensed Products, the sale of which would infringe a valid claim of a Licensed Patent in the country in which the Licensed Product is sold. To the extent that Sublicensee is required, by order of any court to obtain a license from a third party in order to practice the rights granted to Sublicensee hereunder, or Sublicensee reasonably determines that such a license is necessary, then up to fifty percent (50%) of the royalties payable to such third party may be deducted from the royalties payable to Sublicensor hereunder for Sales in that jurisdiction. Notwithstanding the foregoing, if Sales of a Licensed Product subject to royalty obligations hereunder are also subject to a royalty under one or more other agreements entered into by Sublicensor and Sublicensee, or between Sublicensor or Sublicensee and the Board or any of its component institutions, Sublicensee may reduce the royalties payable hereunder by fifty percent (50%). To the extent such other agreements do not provide for a corresponding fifty percent (50%) reduction in royalties payable thereunder to account for royalties payable under this Agreement, then royalties payable under this Agreement shall be reduced by the amount of royalties imposed on such Sales under said other Agreement, up to one hundred percent (100%) of the royalties on such Sales which would otherwise be charged under this Agreement. For avoidance of doubt, royalties payable by Sublicensee hereunder are the only royalties attributable to Sublicensee’s Sales that will be payable by Sublicensee. Sublicensor will be responsible for royalties payable to the Board under the License Agreement, or to other licensors, which are attributable to Sublicensee’s Sales.

 

  (c) All such payments are payable within thirty days after March 31, June 30, September 30, and December 31 of each year during the term of this Agreement, at which time Sublicensee shall also deliver to Sublicensor a true and accurate report, giving such particulars of the business conducted by Sublicensee, its Affiliates and sublicensees during the preceeding three calendar months as necessary for Sublicensor to calculate Sublicensee’s payments hereunder. At the time of delivery of each such report Sublicensee will pay the amount due for the period of the report. The reports are required even if no payment is due.


  (d) Fifteen percent (15%) of Sublicense Income received by Sublicensee, but only if and to the extent that such fee is owed by Sublicensor to its licensors.

 

  (e) During the term of this Agreement and for one year thereafter, Sublicensee will keep complete and accurate records of its, its Affiliates and its sublicensees Sales and Net Sales sufficient to enable the royalties and other payments due hereunder to be determined. Sublicensee will permit Sublicensor or its representatives, at Sublicensor’s expense, to examine Sublicensee’s records during regular business hours in order to verify any report required under this Agreement. If any amounts due Sublicensor hereunder are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the amount due during the period so examined, then Sublicensee will pay the cost of the examination plus accrued interest on the underpayment at the highest rate allowed by law.

5. Confidentiality . In connection with the implementation of this Agreement, Sublicensee may receive confidential, scientific, financial, or product information from Sublicensor, and Sublicensor may receive the same from Sublicensee, including information relating to Licensed Products and Licensed Technology. Such information, when given in writing, shall be marked or otherwise identified as confidential when disclosed or, in the case of information given verbally, shall be identified as confidential at the time of such verbal disclosure. Both parties shall maintain the confidentiality of the Confidential Information received from the other party, not disclose it to others (except with the permission of the disclosing party), and use it only in connection with this Agreement. Both parties will use reasonable efforts to assure that all of their employees, consultants, contractors and others who have access to Confidential Information through them comply with the confidentiality obligations of this section. The parties’ obligation shall not apply to Confidential Information which: (i) was in the receiving party’s possession as evidenced by written records prior to disclosure for the other party; (ii) was at the time of disclosure or becomes public through no fault of the receiving party; (iii) is disclosed to the receiving party by a third party who has no obligation of confidentiality to the disclosing party; (iv) is independently developed by the receiving party without use of such Confidential Information of the other party. A party receiving Confidential Information may disclose such information as required by law, court order, or order of an administrative agency to be disclosed, provided, however, that notice of such potential legally required disclosure shall be provided to the disclosing party so the disclosing party may seek a protective order, and the receiving party shall assist the disclosing party in the event the disclosing party seeks to obtain such a protective order or use other legal means to protect the confidential nature of the information. This section shall survive termination of this Agreement.

6. Additional Rights . To further assist Sublicensee in development of the Sublicensed Technology, and for the consideration stated above, Sublicensor hereby assigns to Sublicensee all of Sublicensor’s rights in and to that certain “Patent License Agreement-Non-Exclusive” made by and between Sublicensor and National Institutes for Health and Centers for Disease Control, agencies of the United States Public Health Service within the Department of Health and Human Services, dated August 17,1998, with NIH-PHS Patent License number L-052-98/0, covering Patent Serial Number 60/024,386, with Smyth-Templeton, et al as the inventors. Sublicensor acknowledges that this Sublicense Agreement constitutes a transfer of substantially the entire business of Sublicensor relating to operations which concern said Patent License Agreement.


7. Notices. Notices required or permitted hereunder shall be delivered by United States certified or registered mail, return receipt requested, by email or other electronic transmission with confirmation of receipt, by hand delivery, or in any other manner in which delivery actually occurs, to the party at the address set forth below:

Introgen Therapeutics, Inc.

301 Congress Avenue, Suite 1850

Austin, Texas 78701

Attention David G. Nance, CEO

Introgen Research Institute, Inc.

301 Congress Avenue, Suite 2025

Austin, Texas 78701

Attention Rodney Varner, President

Notices deposited in the United States mail will be deemed received five days after deposit, postage paid, in an official United States mail receptacle. Other notices will be deemed received only upon actual receipt. A party may change its address for notice by giving the other party notice of change in the manner provided herein.

8. Term . This Agreement will continue from the date hereof until expiration of the License Agreement pursuant to section 14.1 thereof, unless sooner terminated as provided below. This Agreement will survive earlier termination of the License Agreement pursuant to section 14.2 thereof or otherwise.

9. Termination . This Agreement and the sublicense granted herein may be terminated by Sublicensor upon material default by Sublicensee, provided that no default will be deemed to have occurred until Sublicensor shall have given Sublicensee written notice describing the default and the following period to cure: (a) thirty (30) days if the default is a failure to pay money when due, and (b) a reasonable period, in the case of any other default. Further sublicenses granted hereunder shall survive termination of this Agreement. Sublicensee may terminate this Agreement as to any Sublicensed Patent, on a country-by-country basis, by giving Sublicensor written notice of termination. All obligations of Sublicensee that accrue before termination shall survive termination by Sublicensee.

10. Entire Agreement . This Agreement is the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior agreements between the parties with respect thereto. Without limiting the foregoing, this Agreement and the rights granted herein supersede Sublicensee’s obligations contained in Section 9 of the Sublease Agreement between Sublicensee and Sublicensor’s wholly owned subsidiary, TMX Realty, Corporation and any other agreement between the parties or their affiliates. TMX Realty Corportion will sign this Agreement solely to evidence its agreement to this section hereof.


11. Multiple Counterparts: Copies: Electronic Transmission . This Agreement may be executed in multiple counterparts, each of which shall be binding on the parties who sign it. Photocopies of this Agreement, and copies transmitted by electronic means, shall be effective as originals.

Signed effective as of the date first written above.

LICENSOR: INTROGEN THERAPEUTICS, INC.

 

By:  

/s/ DAVID G. NANCE

  David G. Nance, CEO

LICENSEE: INTROGEN RESEARCH INSTITUTE, INC.

 

By:  

/s/ RODNEY VARNER

  Rodney Varner, President

Agreed as to the provisions of Section 10 only:

TMX REALTY CORPORATION

 

By:  

/s/ DAVID G. NANCE

  David G. Nance, President


SCHEDULE A

LICENSED PATENTS

Item l:

Patent Family Reference Number:

INGN:095

Title:

Chromosome 3p21.3 genes are tumor suppressors

Inventors:

L. Ji; J. Minna; J. Roth; M. Lerman

Patent Application or Patent Numbers:

USA 20040016006 Serial Number 101445,718

International: PCT/US2001/021781

Item 2:

Patent Family Reference Number:

INGN: 147

Title:

Compositions and Methods Involving Gene Therapy and Proteaseome Modulation

Inventors:

R. Ramesh; S. Chada

Patent Application or Patent Numbers

USA: 111672,896

International: PCT/US07/061883

Item 3:

Patent Family Reference Number:


INGN:160

Title:

Bioactive FUSl Peptides and Nanoparticle-Polypeptide Complexes

Inventors:

L. Lin; R. Arlinghaus; T. Sun; L. Ji; B. Ozpolat; G. Berestein-Lopez; J. Roth

Patent Application or Patent Number:

USA: 20060251726, Serial Number 375544

International: PCT/US 2006/009044

Item 4:

Patent Family Reference Number: INRP:083

Title:

Methods and Compositions of Non-Viral Gene Therapy for Treatment of Hyperproliferative Diseases

Inventors:

R. Ramesh; J. Roth; T. Saeki; D. Wilson

Patent Application or Patent Numbers:

USA: Serial No. 60/135,818

International: PCT/US2000/014350


SCHEDULE A

LICENSED PATENTS

(Updated)

This is Schedule A to the Technology Sublicense Agreement between Introgen Therapeutics, Inc. and Introgen Research Institute, Inc., updated in accordance with Section 1(d) thereof.

Item 1:

Patent Family Reference Number:

INGN:095

Title:

Chromosome 3p21.3 genes are tumor suppressors

Inventors:

L. Ji; J. Minna; J, Roth; M. Lerman

Patent Application or Patent Numbers:

USA 20040016006 Serial Number 101445,718

International: PCT/US2001/021781

Item 2:

Patent Family Reference Number:

INGN: 147

Title:

Compositions and Methods Involving Gene Therapy and Proteaseome Modulation

Inventors:

R. Ramesh; S. Chada

Patent Application or Patent Numbers


USA: 111672,896

International: PCT/US07/061883

Item 3:

Patent Family Reference Number:

INGN: 160

Title:

Bioactive FUSl Peptides and Nanoparticle-Polypeptide Complexes

Inventors:

L. Lin; R. Arlinghaus; T. Sun; L. Ji; B. Ozpolat; G. Berestein-Lopez; J. Roth

Patent Application or Patent Number:

USA: 20060251726, Serial Number 375544

International: PCT/US 2006/009044

Item 4:

Patent Family Reference Number: INRP.083

Title:

Methods and Compositions of Non-Viral Gene Therapy for Treatment of Hyperproliferative Diseases

Inventors:

R. Ramesh; J. Roth; T. Saeki; D. Wilson

Patent Application or Patent Numbers:

USA: Serial No. 60/135,818

International: PCT/US2000/014350

Item 5:

Patent Family Reference Number: INGN 164


Title:

Methods and Compositions Related to Novel hTMC Promoter and Vectors for Tumor-Selective and High-Efficient Expression of Therapeutic Genes

Inventors:

L. Ji; B. Fang; J. Roth

Patent Application or Patent Numbers:

11/372,246

Item 6:

Patent family Reference Number:

INGN:162

Patent Application or Patent Numbers:

60/845,934

Updated effective the 5th day of May 2008.

INTROGEN THERAPEUTICS, INC.

 

By:  

/s/ DAVID G. NANCE

  David G. Nance, CEO

INTROGEN RESEARCH INSTITUTE, INC.

 

By:  

/s/ RODNEY VARNER

  Rodney Varner, President

Exhibit 10.9

ASSIGNMENT AND COLLABORATION AGREEMENT

This Assignment and Collaboration Agreement (“Agreement”) is made effective on the 13 th day of April 2009, by and between Assignor and Assignee. For purposes hereof, capitalized terms herein have the meanings set forth on Annex A hereto.

In consideration of the royalties to be paid by Assignee under the Sublicense, the obligations assumed by Assignee, the covenants of each party to the other made herein, and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged by Assignor. Assignor and Assignee agree as follows:

1. Assignment . Assignor hereby assigns the Sublicense, and all rights and privileges appurtenant thereto, to Assignee, its successors and assigns; provided, however, that Assignor reserves unto itself, and Assignee grants back to Assignor, its successors and assigns, a perpetual, fully paid up, worldwide, non-exclusive, royalty free license to use and practice the Licensed Technology, far non-commercial research purposes only. If and to the extent that the Sublicense or any Licensed Technology is not assignable, Assignor agrees to grant, and does hereby grant, to Assignee, to and under the Sublicense and such Licensed Technology, a royalty-free. fully-paid, world-wide, perpetual, irrevocable, non-terminable, transferable, exclusive right and license, with the right to grant and authorize sublicenses, to manufacture, have manufactured, use and/or sell Licensed Products, to practice any method, process or procedure and to otherwise exploit the Licensed Subject Matter, within the Territory for use within the Field. If Assignor does not have the right to grant a license under the Sublicense or any such Licensed Technology of the full scope set forth above, then the license granted under such Sublicense and Licensed Technology shalt be of the broadest scope that Assignor has the right to grant; subject to the aforesaid license back to Assignor for research purposes only.

The Sublicense contains an assignment to Assignor from Introgen Therapeutics, Inc. of that certain Patent License Agreement made by and between Introgen Therapeutics, Inc. and National Institutes of Health and Centers for Disease Control, agencies of the United States Public Health Service within the Department of Health and Human Services, dated August 17, 1998, with NIH-PHS Patent License Number L-052-98/0 covering Patent Serial Number 60/024,386, with Smyth-Templeton, et al as the inventors (the “Smyth-Templeton License”). Assignor hereby assigns to Assignee all of Assignors right, title and interest in and to the Smyth-Templeton license. Assignor acknowledges that this assignment constitutes a transfer of substantially all of Assignor’s business relating to the Smyth-Templeton License.

2. Assumption . Assignee hereby assumes all obligations and liabilities of Assignor under the Sublicense, to the extent same accrue or arise after the date hereof; including, without limitation, the obligation to pay royalties and license fees as provided therein.

3. Commercialization Efforts . Assignee agrees to use reasonable commercial efforts to commercialize the Licensed Technology.

4. Collaboration . Assignor and Assignee agree to collaborate with one another for the development of the Licensed Technology.


5. Collaborative Grant Funding . It is contemplated that Assignee and / or Assignor will apply for an NIH SBIR Phase II grant and that Assignee may apply for other grant funds, with the primary purpose of each such grant being to advance the Licensed Technology toward commercialization. Each party agrees to use reasonable commercial efforts to apply for and obtain contemplated grants, and to use any grant proceeds solely for the advancement of the Licensed Technology pursuant to the terms of this collaboration, subject to the terms and conditions of the grant award. Each party agrees to cooperate with and reasonably assist the other in the pursuit of such grant funding.

6. Confidentiality . In connection with the implementation of this Agreement, Assignee may receive confidential, scientific, financial, or product information from Assignor, and Assignor may receive the same from Assignee. including information relating to Licensed Technology. Such information. when given in writing, shall lie marked or otherwise identified as confidential when disclosed or, in the case of information given verbally, shall be identified as confidential at the time of such verbal disclosure. Both parties shall maintain the confidentiality of the Confidential Information received from the other party, not disclose it to others (except with the permission of the disclosing party), and use it only in connection with this Agreement. Both parties will use reasonable efforts to assure that all of their employees, consultants, contractors and others who have access to Confidential Information through them comply with the confidentiality obligations of this section. The parties’ obligation shall not apply to Confidential Information which: (i) was in the receiving party’s possession as evidenced by written records prior to disclosure for the ocher party; (ii) was at the time of disclosure or becomes public through no fault of the receiving party; (iii) is disclosed to the receiving party by a third party who has no obligation of confidentiality to the disclosing party; (iv) is independently developed by the receiving party without use of such Confidential Information of the other party. A party receiving Confidential Information may disclose such information as required by law, court order, or order of an administrative agency to be disclosed, provided, however, that notice of such potential legally required disclosure shall be provided to the disclosing party so the disclosing party may seek a protective order, and the receiving party shall assist the disclosing party in the event the disclosing party seeks to obtain such a protective order or use other legal means to protect the confidential nature of the information. This section shall survive termination of this Agreement.

Signed effective as of the date first written above.

ASSIGNEE: CONVERGEN LIFESCIENCES, INC.

 

 

By:

 

/s/ DAVID G. NANCE

   

David G. Nance, Chairman

ASSIGNOR: GENSOLVE, INC.

 

 

By:

 

/s/ RODNEY VARNER

   

Rodney Varner, President


ANNEX A

ASSIGNMENT AND COLLABORATION AGREEMENT

 

1. “Sublicense” means the Technology Sublicense Agreement between Introgen Therapeutics, Inc. and Assignor dated March 7, 2007.

 

2. “Assignor” means Introgen Research Institute, Inc., a Delaware corporation, doing business as Gensolve, Inc.

 

3. “Assignee” means Convergen LifeSciences, Inc., a Delaware corporation.

 

4. “NIH” means National Institutes of Health, an agency of the United States Department of Human Services.

 

5. “Licensed Technology” means the Licensed Subject Matter as defined in the Sublicense.

Exhibit 10.10

TECHNOLOGY LICENSE AGREEMENT

THIS TECHNOLOGY LICENSE AGREEMENT (“Agreement”) dated as of February 26, 2010 (“Effective Date”), is entered into between Introgen Research Institute, Inc., a Delaware corporation, (“IRI” or “Licensor”) and P53, Inc., a Delaware corporation (“P53” or “Licensee”). BACKGROUND

A. A Patent and Technology License Agreement (“the MDA License”) dated July 20, 1994 was entered into by the Board of Regents of the University of Texas System (“BOARD”), The University of Texas M.D. Anderson Cancer Center (“MDA’’) and Introgen Therapeutics, Inc. (then known as Intron Therapeutics, Inc. and referred to herein as “Introgen”). The MDA License was amended by five separate written amendments.

B. The MDA License includes, pursuant to the Third Amendment thereto, the patent described as U.S Patent Application No. 09/575,473, together with all foreign counterparts thereof claiming priority thereto, to the extent they remain valid and in effect (herein referred to as the “INRP 083 Patents”).

C. Introgen sublicensed the INRP 083 Patents to IRI under a Technology Sublicense Agreement between Introgen and IRI dated March 7, 2007 attached as Exhibit A (the “Introgen-IRI License”). IRI’s sublicense to the INRP 083 Patent became exclusive when Introgen abandoned its rights to such patent on or about June 5, 2009, as confirmed by the order of the United States Bankruptcy Court for the Western District of Texas, entered in Case No. 08-12,442 CAG.

D. P53 desires to obtain an exclusive license to develop and commercially exploit the INRP 083 Patents in the Field (defined below), and IRI desires to grant such license to P53, upon the terms and conditions set forth herein.

The Parties hereby agree as follows:

Article 1: Definitions

For purposes of this Agreement, the following terms shall have the following meanings:

 

  1.1 “Affiliate(s)” shall mean, with respect to a Party, an entity or association that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control of the Party (other than the rother Party, as applicable). For purposes of this definition, the term “control” shall mean the ownership of more than fifty (50) percent of the voting rights in any entity or association.

 

  1.2

“Confidential Information” shall mean all information that relates to any or all of the Patents, or to the intellectual property rights, proprietary information and materials, business, plans, affairs or activities of Licensor. Confidential Information may be disclosed or revealed to Licensee orally, visually or in writing


  or other tangible form. All in formation dis closed or revealed by Licensor to Licensee under this Agreement shall be deemed Confidential Information if (a) it is in written or other tangible form and has been marked “confidential”, (b) Licensee has been placed on notice, orally or in writing that such information is confidential, or (c) in view of the nature or character of the information, a reasonable person, under similar circumstances, would treat it as confidential.

 

  1.3 “Control” shall mean (a) with respect to Patents, possession of the right to grant licenses and related rights of the scope to be granted to Licensee under this Agreement, and (b) with respect to everything else, possession of the rights to grant the licenses of the scope to be granted under this Agreement; in either case without violating the terms of any agreement or arrangement with a third party.

 

  1.4 “Parents” means the INRP 083 Patents.

 

  1.5 “Field” means p53 or MDA-7 gene therapy products for the prevention and treatment of human hyperproliferative diseases wherein the sole active therapeutic genes are the p53 and/or MDA-7 genes. As used herein, “gene therapy products” means products for the delivery of the p53 gene and/or the MDA-7 gene. It is understood that such p53 and/or MDA-7 gene therapy products may be utilized in combination with other therapies.

 

  1.6 “Licensed Products” means any product with in the Field the manufacture, sale or use of which is covered by a patent or patent application within the Patents.

 

  1.7 “Licensed Territory” shall mean the world.

 

  1.8 “Licensor Products” means any drug products developed, manufactured or sold by Licensor, its Affiliates and its licensees the manufacture, sale or use of which is covered by a patent or patent application within the Patents and which are not Licensed Products.

 

  1.9 “Sublicensee” means any non-Affiliate third party to whom Licensee grants the right to manufacture, use, market, sell and/or distribute Licensed Products.

Article 2: Grant and Scope of License

 

  2.1 Subject to the terms of this Agreement, the MDA License, and the Introgen-IRI License, Licensor hereby grants to Licensee, and Licensee hereby accepts a worldwide, exclusive license under the Patents to develop, make and have made, use, offer for sale, sell, import and otherwise distribute Licensed Products.

 

  2.2 Any obligations imposed upon Licensor’s sublicensees, or that are required to be included herein pursuant to the MDA License or the Introgen-IRI License, shall be deemed incorporated herein as if fully stated herein, and Licensee shall fully comply and ensure that all of its Sublicensees comply, with all such obligations.


  2.3 Licensee may grant and authorize sublicenses under the rights and licenses granted by Licensor to Licensee under Section 2.1 provided that (i) any such sublicense shall be subject in all respects to the terms of the MDA License and the Introgen-IRI License, and (ii) Licensee provides prior written notice to Licensor of its intent to enter in to any such sub license and such sublicensee agrees in writing to be bound by the terms and provisions of this Agreement where applicable, including Section 2.2 above and Section 7.5 below. Licensee shall provide copies of all such sublicense agreements to Licensor promptly upon execution.

 

  2.4 Licensee shall at all times use commercially reasonable efforts, directly or through Sublicensees, to market, distribute, sell, lease and license Licensed Products throughout the Licensed Territory.

 

  2.5 The rights and licenses granted by Licensor to Licensee under Section 2.1 are exclusive solely with respect to the Licensed Products within the Field; provided that to the extent Licensor’s Control of any Patents does not include the right of Licensor to grant such exclusivity to Licensee, Licensee shall not have such exclusivity under this Agreement.

 

  2.6 Licensee hereby acknowledges and agrees that, except as specifically provided in this Article 2, Licensee shall acquire no rights whatsoever with respect to any intellectual property rights of Licensor; and, for avoidance of doubt, Licensee shall acquire no rights whatsoever outside the Field. No right or license is granted to Licensee other than those expressly provided herein; and no license shall be deemed granted to Licensee by implication, estoppel or otherwise, even if such a license would be necessary to exercise the rights granted herein.

Article 3: Licensee’s Responsibilities

 

  3.1 Licensee shall submit to Licensor quarterly reports of the activities of Licensee, its Affiliates and Sublicensees under this Agreement. Each such quarterly report shall be submitted to Licensor within twenty (20) days after the close of the calendar quarter to which it corresponds, and shall include at least such information as will allow Licensor to calculate the amount owing to Introgen and/or MDA under the Introgen-IRI License and MDA License on account of such activities, as well as Licensee’s calculation of such amounts. Payment of such amounts shall be tendered by Licensee pursuant to the terms of Article 5 concurrently with the submission of such reports.

 

  3.2

During the term of this Agreement and for one year thereafter, Licensee will keep complete and accurate records of its, its Affiliates and its Sublicensees sales, net sales and all other matters sufficient to enable the royalties and other payments due here under to be determined not more than quarte rly. Upon reasonable notice from Licensor, Introgen or BOARD, Licensee shall permit Licensor’s, Introgen’s,


  and/or BOARD’s representatives, during normal business hours, to inspect Licensee’s facilities, and to review Licensee’s books and records, in order to permit any of them to confirm Licensee’s compliance with its obligations under this Agreement. Without limiting Article 5 below, if, as a result of such audit, it is established that additional amounts were owed by the Licensee for the audited period, Licensee shall pay such additional amounts within thirty (30) days after the date such discrepancy is established, as well as the costs of such audit and any additional amounts due under the MDA License or Introgen-IRI License as a result of such discrepancy.

Article 4: Notification of Default Under MDA License

In the event of Licensor’s default, uncured, of the MDA License, as amended, or the Introgen-IRI License, Licensor shall provide Licensee with prompt notice of such uncured default so as to enable Licensee to undertake any necessary actions required under Section 14.4 of the MDA License or Section 9 of the Introgen-IRI License to ensure survival of Licensees rights under this Agreement.

Article 5: Consideration

As consideration for entering into this Agreement, Licensee agrees to pay to Licensor one-half (l /2) of all amounts invoiced to Licensor by MDA or its agents or legal counsel for services provided or expenses incurred prior to the Effective Date by M DA, its agents and legal counsel, with respect to prosecution and maintenance of the Patents, up to a maximum to be paid by Licensee of $15,000. Such payment(s) will be made within ten days after receipt by Licensee of each invoice. This payment is non-refundable and represents consideration for entering into this Agreement. In addition, in consideration for the rights and licenses granted to Licensee by Licensor under this Agreement, Licensee shall promptly pay to Licensor all amounts that become due under the MDA License or the Introgen-IRI License as a result of this Agreement or the sales, licensing, or other activities of Licensee, its Affiliates and Sublicensees, as and when such amounts become due.

Article 6: Confidential Information

6.1 Licensee here by acknowledges that all of the Confidential Information disclosed or revealed to Licensee hereunder is disclosed solely to permit Licensee to exercise its right s and perform its obligations under this Agreement. Licensee shall not use any of the Confidential Information for any other purpose, and shall not disclose or reveal any of the Confidential Information to any third party, without the prior written authorization of Licensor, which licensor may withhold in its sole discretion; provided, however, that the prior written authorization of Licensor shall not be required for Licensee to disclose Confidential Information to those of Licensee’s employees, suppliers and subcontractors that (a) require access to the Confidential Information in order to permit Licensee to exercise its rights and perform its obligations hereunder, and (b) have executed a nondisclosure agreement, in a form reasonably satisfactory to Licensor, which effectively prohibits the unauthorized use or disclosure of the Confidential Information.


6.2 Licensee shall implement all reasonable security measures, and shall take all reasonable actions, including. but not limited to, the initiation and prosecution of legal or administrative actions, to prevent the unauthorized use, appropriation or disclosure of any Confidential Information by any of Licensee’s employees, suppliers or subcontractors.

6.3 Licensee’s obligations under Sections 6.1 and 6.2 hereof shall not apply to the extent that any of the Confidential Information:

 

  (a) passes into the public domain through no fault of the Licensee;

 

  (b) is disclosed to Licensee by a third party that is under no duty of nondisclosure with respect to the Confidential Information;

 

  (c) was known to Licensee prior to disclosure by Licensor, or is independently developed by Licensee without reference to any of the Confidential Information; or

 

  (d) is required to be disclosed under any applicable law, regulation or governmental order of any country within the Licensed Territory; provided that Licensee shall furnish written notice to Licensor of such disclosure requirement prior to dis closing any of the Confidential Information, so that Licensor can take appropriate action to protect the confidentiality, and prevent unauthorized use or appropriation of the Confidential Information.

6.4 Licensee’s obligations under this Article 6 shall survive the termination of this Agreement for any reason whatsoever.

Article 7: Intellectual Property Rights

7.1 P53 hereby grants to IRI a worldwide, irrevocable, assignable, fully paid-up license, with the right to grant and authorize sublicenses, with respect to P53 Improvements Controlled by P53 or its Affiliates, to make, have made, use, sell, offer for sale, and import such P53 Improvements in conjunction with the making, use, sale, offer for sale and importation of Grantback Products.

 

  (a) “Grantback Products” shall mean FUS1, 101F6, Gene 21 (NPRL2), Gene 26 (CACNA2D2), Luca 1 (HYAL1), Luca 2 (HYAL2), PL6, 123F2 (RaSSFI), SEM A3 and Beta* (BLU) genes, located and isolated at chromosome 3p2l.3 for gene therapy.

 

  (b)

Licensee shall disclose to IRI upon request such P53 Improvements, and agrees to keep IRI informed upon request as to the prosecution and maintenance of any patents therein. As used herein, “P53 Improvements” means inventions, know-how, materials and other items made or developed between the Effective Date and


  the date that is five (5) years thereafter (such period, the “Improvements Period”) by or under authority of P53 or its Affiliates (including all patents, Joint Patents, and other intellectual property rights therein) comprising a pharmaceutically acceptable lipid formulation including cholesterol (including methods of manufacture or use of the same). The license to the P53 Improvements is limited to the Grantback Products as provided above and does not extend to use with any other product.

 

  (c) For purposes of clarity, P53 Improvements excludes any improvements (x) that were made prior to the Effective Date, or (y) that are acquired by P53 or its Affiliate from a non-Affiliate third party and neither P53 nor its Affiliate had rights with respect to such improvement at the time the improvement was made, or (z) to the extent such improvement was owned or Controlled by a non-Affiliate third party who acquires or merges with P53 prior to the time of such acquisition of or merger with P53. Furthermore, such license shall exclude p53 and MDA-7 gene therapy products within the Field. In the event that P53 Inc is acquired by or merges with a non-Affiliate third party with combined assets in excess of $25 million, the Improvements Period shall terminate upon the closing date of such acquisition or merger.

7.2 As between the Parties, IRI shall have the right, at its expense, to control the prosecution and maintenance of the Patents, using counsel of its choice. IRI shall: (i) keep P53 informed with respect to the prosecution and maintenance of the Patents; and (ii) consult with P53 in good faith regarding the prosecution and maintenance of the Patents. P53 shall reimburse IRI for two-thirds (2/3) of all ongoing costs of patent prosecution and maintenance of each Patent, including annuities and other government fees and payments to Introgen, MDA, the BOARD and/or others under the Introgen-IRI License and MDA License, and related fees and expenses of attorneys and other service providers. The ongoing costs of patent prosecution are limited to ex parte proceedings before the U.S. Patent Office and foreign patent offices. Ongoing maintenance is limited to the cost for maintenance fees and annuities. With respect to all inter partes proceedings involving the Patents other than enforcement of a Party’s patent rights (“ inter partes Patent proceedings”), all costs and expenses incurred by Licensor with respect to in inter partes Patent proceedings will be borne by Licensor, except as provided in Section 7.3 below. Licensor shall have the right, but not the obligation to defend all inter partes Patent proceedings including, but not limited to state and federal court actions, reexaminations, interferences, oppositions, nullity proceedings and invalidation proceedings in any jurisdiction.

7.3 If IRI elects to discontinue prosecution and/or maintenance of any of the Patents or determines to abandon any Patents in a country, then it shall provide P53 with at least thirty (30) days written notice of such decision, or if less than thirty (30) days notice, as long as reasonably practicable, prior to the date that an abandonment or loss of right would become effective. In such event, P53 may, at its option and expense, continue the prosecution and/or maintenance of such Patent in such country, subject to IRI’s reasonable consent and to any applicable terms in the MDA License or the Introgen-IRI License. If IRI elects not to defend or to discontinue the defense of an inter partes Patent proceeding then it shall provide P53 with at least thirty (30) days written notice of such decision, or if less than thirty (30) days notice, as


long as reasonably practicable, prior to the date a loss of right would become effective. In such event, P53 may, at its option and expense, continue the defense of the inter partes Patent proceeding, subject to IRI’s reasonable consent and to any applicable terms in the MDA License or the Introgen-IRI License.

7.4 In the event that either Party becomes aware of actual or threatened infringement or misappropriation of any of the Patents by the manufacture, sale, importation or use of a product within the Field (“Infringement”), that Party shall promptly notify the other Party in writing. IRI has the first right, but not the obligation, at its expense, to initiate infringement proceedings or take other appropriate actions against an Infringement in the Field. If IRI does not initiate proceedings or take other appropriate action against an Infringement in the Field within one hundred twenty (120) days of receipt of a request by P53 to do so, then P53 may, at its option and expense, initiate infringement proceedings with respect thereto or take other appropriate action against such Infringement, subject to IRI’s reasonable consent and to any applicable terms in the MDA License or the Introgen-IRI License. The Party conducting any such action shall have full control over the conduct of such action; provided, however, that the Party conducting such action may not settle any such action, or make any admissions or assert any position in such action, in a manner that would materially adversely affect the rights or interest of the other Party with respect to the Patents, without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed. Any amounts recovered from third parties with respect to the Patents in such action or proceeding or any settlement thereof shall be applied as follows: The amount of the recovery with respect to an Infringement in the Field, net of any amount owed under the MDA License, shall be applied first to reimburse the expenses of the Party who controlled the action to enforce the Patents against such Infringement hereunder. In the event that P53 is the party controlling such action the remainder shall be belong to P53. In the event that IRI is the party controlling such action the remainder shall be shared twenty-five percent (25%) to IRI and seventy-five percent (75%) to P53. It is understood that the Pany who controlled the action will be responsible for payment of any amounts owed to MDA under the MDA License with respect to the recovery. The Parties shall keep one another in formed of the status of their respective activities regarding any litigation or settlement thereof concerning an Infringement in the Field and shall assist one another and cooperate in any such litigation at the other’s reasonable request.

7.5 Licensee, its Affiliates and Sublicensees shall defend, indemnify and hold harmless Licensor against any and all claims, suits, actions, proceedings, losses, damages, liabilities, costs and expenses arising from, or attributable to, any development, sale or use of the Licensed Products by Licensee, its Affiliates and all Sublicensees, including those that result from any breach or asserted breach of the MDA License or the Introgen-IRI License caused by or resulting from the activities of Licensee, its Affiliates and Sublicensees. Licensee’s indemnity obligation, as set forth in this Section 7.5, shall be subject to the following conditions: (a) Licensor shall provide Licensee with timely written notice of any and all claims that are within the scope of Licensee’s indemnity hereunder; (b) Licensee shall have the right to participate in, and to the extent the Licensee so desires, to assume the defense thereof with counsel mutually satisfactory to the Parties, provided however that Licensor shall have the right to retain its own counsel, at Licensor’s expense, if representation of Licensor by the counsel retained by Licensee would be inappropriate due to actual or potential differing interests between Licensor and any other Party represented by such counsel in such proceeding; and (c) Licensor shall furnish Licensee, at Licensee’s expense, with such assistance as Licensee shall reasonably request in connection with the defense, settlement and/or discharge of any and all such claims.


Licensor, its Affiliates and non-P53 sublicensees shall defend, indemnify and hold harmless Licensee against any and all claims, suits, actions, proceedings, losses, damages, liabilities, costs and expenses arising from, or attributable to, any development, sale or use of Licensor Products by Licensor, its Affiliates and non-P53 sublicensees, including those that result from any breach or asserted breach of the MDA License or the Introgen-IRI License caused by or resulting from the activities of Licensor, its Affiliates and non-P53 sublicensees. Licensor’s indemnity obligation, as set forth in this Section 7.5, shall be subject to the following conditions: (a) Licensee shall provide Licensor with timely written no tice of any and all claims that are within the scope of Licensor’s indemnity hereunder; (b) Licensor shall have the right to participate in, and to the extent the Licensor so desires, to assume the defense thereof with counsel mutually satisfactory to the Parties, provided however that Licensee shall have the right to retain its own counsel, at Licensee’ s expense, if representation of Licensee by the counsel retained by Licensor would be inappropriate due to actual or potential differing interests between Licensee and any other Party represented by such counsel in such proceeding; and (c) Licensee shall furnish Licensor, at Licensor’s expense, with such assistance as Licensor shall reasonably request in connection with the defense, settlement and/or discharge of any and all such claims.

Article 8: Disclaimer of Warranties

EXCEPT FOR REPRESENTATIONS EXPRESSLY MADE HEREIN, IR AND P53 EXPRESSLY DISCLAIM ANY WARRANTIES, REPRESENTATIONS OR CONDITIONS EXPRESS, IMPLIED, STATUTORY OR OTHERWISE WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT (INCLUDING THE PATENTS), INCLUDING ANY WARRANTY OF TITLE, MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

Article 9: Term and Termination

9.1 This Agreement shall enter into effect on the Effective Date hereof, and shall remain in full force and effect until the expiration of the last issued patent, and the abandonment of all pending patent applications, the provisions of this Article 9.

9.2 If a Party hereto (the “breaching Party”) breaches any provision of this Agreement, the other Party hereto (the “non-breaching Party”) may give the breaching Party written notice of such breach or default and demand that such breach or default be cured immediately. If the breaching Party fails to cure such breach or default within thirty (30) days after the date of the non-breaching Party’s written notice hereunder, the non-breaching Party may terminate this Agreement, effective immediately upon giving written notice of termination to the breaching Party. Termination of this Agreement in accordance with this Section 9.2 shall not affect or impair the non-breaching Party’s right to pursue any legal remedy, including the right to recover damages for all harm suffered or incurred as a result of the breaching Party’s breach or default hereunder.


9.3 To the extent permitted by applicable law, Licensor s hall have the right to terminate this Agreement, effective immediately upon providing written notice of termination to the Licensee, if:

(a) Licensee goes into bankruptcy, voluntary or involuntary dissolution, is declared insolvent, makes an assignment for the benefit of creditors, or suffers the appointment of a receiver or trustee over all or substantially all of its assets or properties;

(b) Licensee breaches any of its obligations under Articles 6 or 7 of this Agreement; or

(c) Licensee, or any of its Affiliates or Sublicensees takes any legal action to challenge the validity or enforceability of a Patent.

9.4 Licensee shall further have the right to terminate this Agreement upon ninety (90) days written notice.

9.5 All sublicenses granted by Licensee to Sublicensees under this Agreement shall survive termination of this Agreement, provided that such Sublicensee promptly agrees in writing to be bound by all terms and conditions of this Agreement. Licensor shall transmit to MDA and BOARD a copy of this Agreement.

9.6 Immediately after the date of termination hereof, Licensee shall return to Licensor (or its designee) all copies of all documents and other materials that contain or embody any of the Confidential Information that are in the possession of Licensee as of the date of termination.

9.7 Within thirty (30) days after the date of termination of this Agreement, Licensee shall provide Licensor with the report provided for in Section 3.1 hereof for the quarter in which termination of this Agreement occurs, and shall concurrently tender all amounts payable by Licensee hereunder which have accrued, but which remain unpaid as of the date of termination.

9.8 Articles 5, 6, 8, 9, 10 and 11 and Sections 2.6, 3.2, 7.1 and 7.5 shall survive the expiration and any termination of this Agreement. For avoidance of doubt. termination of this Agreement and all sublicenses granted hereunder will terminate Licensees obligations to pay costs of patent prosecution and maintenance under Section 7.2 which arise after the date of termination of the last to terminate of this Agreement and all such sublicenses.

Article 10: Compliance with Applicable Laws

10.1 In the exercise of their respective rights and the performance of their respective obligations, each Party hereto shall comply with all applicable laws, regulations and governmental orders. Licensee shall, at its own expense, obtain, and maintain in full force and effect throughout the continuance of this Agreement, all licenses, permits, approvals and other


governmental authorizations of all governmental departments and agencies within the Licensed Territory required under all applicable laws for the manufacture/production, marketing, distribution, sale, leasing, licensing and use of the Licensed Products within the Licensed Territory.

10.2 Without limiting the generality of Section 10.1 hereof, Licensee hereby acknowledges that the Licensed Products and Confidential Information may be subject to export controls under the laws and regulations of the United States, including the Export Administration Regulations, 15 C.F.R. Parts 730-774. In the exercise of its rights, and the performance of its obligations under this Agreement, Licensee shall comply strictly with all such United States export control laws and regulations applicable to the Licensed Products, the and Confidential Information, and shall not export, re-export, transfer, divert or disclose any such Licensed Products or Confidential Information, or any direct product thereof, to any destination prohibited by the United States export control laws and regulations, or to any national or resident thereof.

Article 11: General Provisions

11.1 Independent Contractors: In the exercise of their respective rights, and the performance of their respective obligations under this Agreement, the Parties are, and shall remain, independent contractors. Nothing in this Agreement shall be construed (a) to constitute the Parties as principal and agent, partners, joint venturers, or otherwise as participants in a joint undertaking, or (b) to authorize either Party to enter into any contract or other binding obligation on the part of the other Party hereto, and neither Party shall represent to any other person, firm, corporation or other entity that it is authorized to enter into any such contract or other obligation on behalf of the other Party hereto.

11.2 Assignment: Licensee may not assign this Agreement or any obligation hereunder without the prior written consent of Licensor, such consent not to be unreasonably withheld. Notwithstanding the foregoing, Licensee may, without Licensor’s consent, assign this Agreement to an entity or person that:

 

  (a) as a result of statutory merger or consolidation succeeds to all legal rights of the Licensee;

 

  (b) acquires all or substantially all of the business or assets of Licensee; or

 

  (c) controls through stock purchase, transfer or assignment, more than 50% of the issued and outstanding shares of the Licensee; or

 

  (d) is a newly-formed Affiliate of Licensee resulting from the spin-off of all or part of the assets and/or stock of the Licensee.

Licensor shall have the right upon notice to Licensee to assign any of its rights and/or delegate the performance of any of its obligations under this Agreement.


11.3 Notices: All notices, reports and other communications between the Parties shall be sent by registered air mail, postage prepaid and return receipt requested, or by facsimile with a confirmation copy sent by registered air mail to the address set forth below each Party’s signature to this Agreement or to such other addresses as the Parties may designate by written notice from time to time. Each such notice, report, or other communication shall be effective upon receipt by the sender of confirmation of the delivery, or where no such confirmation is possible, when received.

11.4 Choice of Law and Forum: This Agreement, and any disputes arising out of or in connection with this Agreement, shall be governed by and construed in accordance with the laws of Texas, excluding its rules governing its conflicts of laws. The courts located within Texas shall have exclusive jurisdiction to adjudicate any disputes arising out of or in connection with this Agreement. Licensee specifically consents to the exercise of personal jurisdiction by such courts.

11.5 Headings: The subject headings of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any provision of this Agreement.

11.6 Counterparts: This Agreement may be executed in several duplicates, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

11.7 Third Party Technologies: The obligations of IRI and the rights of P53 under this Agreement shall be subject to, and limited by, any agreements pursuant to which IRI acquired or licensed the intellectual property rights being licensed to P53 hereunder, including the MDA License and the Introgen-IRI License.

11.8 Waivers: The failure by either Party to assert any of its rights hereunder, including, but not limited to. the right to terminate this Agreement due to a breach or default by the other Party hereto, shall not be deemed to constitute a waiver by that Party of its right thereafter to enforce each and every provision of this Agreement in accordance with its terms.

11.9 Entire Agreement and Amendments: This Agreement, together with the Schedules attached hereto, constitutes the entire agreement between the Parties regarding the subject matter hereof, and supersedes all prior agreements, understandings and communications between the Parties with respect to the subject matter hereof. No modification or amendment to this Agreement shall be binding upon the Parties unless in writing and executed by the duly authorized representative of each of the Parties.

11.10 Severability: In the event that any provision hereof is found invalid or unenforceable pursuant to a final judicial decree or decision, the remainder of this Agreement will remain valid and enforceable according to its terms. In the event of such partial invalidity, the Parties shall seek in good faith to agree on replacing any such legally invalid provisions with provisions which, in effect, will most nearly and fairly effect the original intent of the Parties with respect to the invalid provisions. In the event that either Party asserts that a term or provision hereof is illegal or unenforceable, the other Party shall have the right to terminate this Agreement upon thirty (30) days notice, unless the asserting Party revokes and fully remedies such assertion within such thirty-day period.


11.11 Pre-Condition to Effectiveness: This Agreement shall not become effective unless and until an order has been entered by the United States Bankruptcy Court for the Western District of Texas on the form attached as Schedule 11.11 hereto, or on another form that is agreed by the Parties in writing or on the Court record in open court by the parties hereto, and such order has become final and non-appealable. The parties agree that they will use their best efforts to cause such order to be entered by the Count. Upon such order becoming final, this Agreement will be effective as of the Effec tive Date.

Article 12: Agreement to Amend MDA License

Licensor and Licensee agree to each use their best efforts to work together and with BOARD and MDA to amend the MDA License as soon as possible after the Effective Date so as to provide for two separate licenses, one between BOARD and MDA and P53 granting P53 a license to the P53 MDA Intellectual Property (as such term is defined in the form of order attached as Schedule 11.11), and one between BOARD and MDA and MDACC and IRI granting IRI a license to the FUSI MDA Intellectual Property (as such term is defined in the form of order attached as Schedule 11.11), both on terms substantially similar to those contained in the MDA License.

[SIGNATURE PAGE FOLLOW]


The Parties have caused this Amendment to enter into effect as of the Effective Date hereof, by causing such Agreement to be executed by their respective duly authorized representatives, subject to the condition of Section 11.11.

 

LICENSOR

INTROGEN RESEARCH INSTITUTE, INC.

   

LICENSEE

P53, INC.

By:  

/s/ RODNEY VARNER

    By:  

/s/ ROBERT E. SOBOL

Name:   Rodney Varner     Name:   Robert E. Sobol
Title:   President     Title:   President and CEO
Date:   February 26, 2010     Date:   Febraury 26, 2010
Address for Notices:     Address for Notices:

Introgen Research Institute, Inc.

c/o Rodney Varner

9015 Mountain Ridge Drive

Suite 250

Austin, Texas 78759

   

P53, Inc.

P.O. Box 15744

Rancho Santa Fe, CA 92067

Exhibit 10.11

AGREEMENT

Between

CONVERGEN LIFESCIENCES, INC.

And

THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER

This Agreement (“Agreement”) is entered into on the 14 th day of September 2010, by and between Convergen LifeSciences, Inc., located at 9015 Mountain Ridge Drive, Suite 250, Austin, Texas, hereinafter referred to as the Project Sponsor, and the University of Texas M. D. Anderson Cancer Center, located at 1515 Holcombe Blvd., Houston, TX 77030 hereinafter referred to as the Contractor, a member institution of The University of Texas System, hereinafter referred to as System, is for the performance of certain work and services in connection with:

 

Project Sponsor:

  

Convergen LifeSciences, Inc.

  

Sponsor Award Number:

  

CNVN202 MDACC#08

  

Contractor Principal Investigator:

  

Reza Mehran, M.D.

  

Title of Project:

  

Nanoparticles of Treatment of Lung Cancer

The terms of this Agreement are intended to provide Contractor with maximum scientific freedom and administrative flexibility in conducting research under the sponsor award consistent with the overall objectives of the project.

Scope of Work . Contractor agrees to provide all the necessary qualified personnel, equipment, materials, and facilities to carry out the project activities, attached hereto as Attachment 1, Scope of

Work.

1. Key Personnel . During the period of performance, Contractor’s work and services shall be under the direct supervision of Contractor’s Principal Investigator listed above. Project Sponsor may change the identity of the Contractor Principal Investigator from time to time, provided that any change is consistent with Contractor’s policies. Any change in the Contractor’s Principal Investigator must have the prior approval of Project Sponsor.

2. Period of Performance . The term of this Agreement shall be July 1, 2010, through September 30, 2011, unless extended or modified according to Section 13 below.

3. Financial Consideration . Costs of $1,250,000 are authorized during the performance for all allowable costs incurred in accordance with the terms of this Agreement.

4. Invoicing and Payment . Project Sponsor shall pay Contractor $1,250,000 for personnel, equipment, materials and facilities to carry out the Scope of Work, under a single invoice. Contractor and Project Sponsor acknowledge and agree that monies received by Project Sponsor under an award from the Texas Emerging Technology Fund in the amount of $4.5 million will constitute the only source of funding for work performed under this Agreement. If funding received by Project Sponsor under this Agreement is terminated in accordance with Section 13


below and Project Sponsor will have no financial liability to Contractor past the effective date of funding termination. Further, Project Sponsor will have no liability hereunder beyond the amount of funds actually received under the award. Contractor shall submit to Project Sponsor an invoice concurrent with the effective date hereof referencing the Project Sponsor Award Number for Project Sponsor’s payment to Contractor for services hereunder. If applicable, Contractor will also submit a final invoice in accordance with Section 7 hereof. The invoices shall be mailed to:

Convergen LifeSciences, Inc.

C/O Rodney Varner

Matheson Keys Garsson & Kordzik

7004 Bee Cave Road | Building 1, Suite 110

Austin, Texas 78746

Promptly after receipt of the invoice, Project Sponsor shall, subject to the provisions of this Agreement, make payment, if any is due, to Contractor. Payments shall be mailed to:

The University of Texas

M.D. Anderson Cancer Center

Attn.: Grants and Contracts Accounting—202

P.O. Box 4390

Houston, TX 77210-4390

5. Re-budgeting . Project Sponsor and Contractor are permitted to re-budget as necessary.

6. Audit . All accounts and records relating to this Agreement shall be subject to inspection by Project Sponsor or its authorized representatives. All accounts and records shall be maintained by Contractor for a period of three (3) years.

7. Reporting Requirements . Final invoice for approved expenses in excess of the contract amount must be submitted to Project Sponsor within sixty (60) days of the close of the final project period. Final Progress Report must be submitted to Project Sponsor within sixty (60) days of the close of the final project period.

8. Publications . Investigators are encouraged to publish the results of their research. However, Contractor’s Principal Investigator agrees to provide drafts to Project Sponsor within thirty (30) days of initial submission for possible publication to assure any invention has been adequately protected by patent prior to publication, Project Sponsor support should be acknowledged as follows: “Supported by Convergen LifeSciences, Inc.”.

9. Mutual Indemnity From Liability to Third Parties . Contractor, to the extent authorized under the constitution and laws of the State of Texas, agrees to hold Project Sponsor harmless from any and all claims, liability and expenses, including legal fees and expenses resulting from the Contractor’s performance or failure to perform under this Agreement. Likewise, Project Sponsor agrees to hold Contractor harmless from any and all claims resulting from the Project Sponsor’s performance or failure to perform under this Agreement.


10. Assignment . Contractor shall not assign, transfer, or convey any part of this Agreement or subcontract to a third party for the performance of the work and devices supported by this Agreement without the prior express written approval of Project Sponsor.

11. Patents and Inventions . Rights to inventions resulting from the research supported by the sponsor award will be governed by United States patent law, unless otherwise subject to license or sublicense agreements between Contractor and Project Sponsor.

12. Amendments. This Agreement may be changed amended, modified, or extended only in writing by the authorized representatives of each institution.

13. Termination. Project Sponsor or Contractor may terminate this Agreement with cause at any time by giving thirty (30) days written notice. Sections 7, 8, 9, 11, 12 and 13 will survive

termination or expiration of this Agreement.

CONVERGEN LIFESCIENCES, INC.

 

 

     Date:                                                           
David G. Nance     
Execute Chair     
THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER

 

     Date:                                                           
Melinda Cotton, CRA     
Execute Director, Sponsored Programs     
Read and understood:     

 

                                                                       
Reza Mehran, M.D.     


Attachment 1, Scope of Work

 

A: Activity/Event:

Complete study for CNVN202 dose calculation for use in Phase I/II clinical trial.

Deliverable:

Provide CNVN202 dose specification calculation and confirmation of dose acceptance from Contractor Principal Investigator.

 

B. Activity/Event:

Complete CNVN202 toxicology study protocol design in consultation with Contractor Pharmaceutical Development Center in use in toxicology study.

Deliverable:

Provide completed CNVN202 toxicology study protocol and confirmation of acceptance by Contractor Principal Investigator.

 

C. Activity/Event:

Complete CNVN202 Phase I/II clinical trial protocol design to prepare for submission to the National Institute of Health Recombinant Advisory Committee (NIH-RAC) and the U.S. Food and Drug Administration (FDA).

Deliverable:

Provide CNVN202 Phase I/II clinical trial protocol document and confirmation of acceptance by Contractor Principal Investigator.

 

D. Activity/Event:

Agreement for Contractor to start CNVN202 + erlotinib Phase I/II clinical trial preparation, CNVN202 Phase I clinical trial data integration, toxicology, clinical study protocol and associated activities.

Deliverable:

Signed agreement and funding documentation.

Exhibit 10.12

TECHNOLOGY SUBLICENSE AGREEMENT

This Sublicense Agreement (“Agreement”) is made effective this 1 st day of June, 2011, by and between Convergen LifeSciences, Inc., a Delaware corporation (“Sublicensor”), and Introgen Research Institute, Inc., a Texas corporation (“Sublicensee”).

RECITALS:

WHEREAS, a Patent and Technology License Agreement dated July 20, 1994, was entered into between Board of Regents of the University of Texas System and Intron Therapeutics, Inc. (which later changed its name to Introgen Therapeutics, Inc.) (the “1994 MDA Agreement”); and

WHEREAS, a Patent and Technology License Agreement dated September 30, 2006, was entered into between Board of Regents of the University of Texas System and Introgen Therapeutics, Inc. (the “2006 MDA Agreement”); and

WHEREAS, the 1994 MDA Agreement and the 2006 MDA Agreement granted licenses to Introgen Therapeutics, Inc. for the exploitation of the Licensed Technology (defined below) as well as other technologies; and

WHEREAS, a Technology Sublicense Agreement dated April 7, 2007, was entered into between Introgen Therapeutics, Inc. and Introgen Research Institute, Inc. wherein Introgen Therapeutics, Inc., sublicensed the Licensed Technology to Introgen Research Institute, Inc. (the “Introgen-IRI Sublicense”); and

WHEREAS, by an Assignment and Collaboration Agreement dated March 13, 2009, Introgen Research Institute, Inc. assigned the Introgen-IRI Sublicense herein; and

WHEREAS, Sublicensor and Sublicensee are parties to agreements whereby Sublicensor has obtained a State of Texas Emerging Technology Fund award and a United States Treasury research grant, and Sublicensee has obtained a National Institutes of Health (“NIH”) grant and United States Treasury research grant, all for research and commercial development of the Licensed Subject Matter (defined below) and Sublicensee will provides services to Sublicensor in in connection with such research in return for compensation;

WHEREAS, said funding has funded and will continue to fund research at the University of Texas M.D. Ander Cancer Center (“UTMDACC”), a component of the University of Texas System, which is the owner and licensor to Licensor of the Licensed Technology (defined below), and will provide funds to pay Sublicensee for services it will provide to Sublicensor;

WHEREAS, Sublicensee is in the business of providing such services and desires to perform the services and be paid for them;


NOW, THEREFORE, to assist Sublicensee in obtaining funding for research and development which will benefit Sublicensor, and in consideration of Sublicensee’s efforts to obtain funding, and in further consideration of Sublicensee’s services, and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged by Sublicensor, Sublicensor and Sublicensee agree as follows:

AGREEMENT

Definitions. The capitalized terms set forth in this section have the following meanings for purposes of this agreement:

 

  (a) “Affiliate” means an entity in which Sublicensee owns at least fifty percent (50%) of the equity ownership.

 

  (b) “License Agreement” means the Patent and Technology License Agreement between Sublicensor and the Board of Regents of the University of Texas System (the “Board”) dated July 20, 1994, including all amendments thereto.

 

  (c) “Sublicensed Patents” means those patents and patent applications described on Schedule A attached hereto.

 

  (d) “Patent Rights” has the same meaning in this Agreement as it has in Section 2.3 of the License Agreement, except that for purposes of this Agreement Schedule A attached to this Agreement shall be substituted for the Schedule A which is attached to the License Agreement. From time to time during the term of this Agreement, upon request of either party, Sublicensor and Sublicensee shall promptly update Schedule A to this Agreement to include all patents and patent applications that are then within the Patent Rights under this Agreement.

 

  (e) “Licensed Products”, “Licensed Technology” and “Licensed Subject Matter” shall have the same meanings herein as are attributed to them in the License Agreement, after giving effect to the substitution of Schedule A to this Agreement for Schedule A of the License Agreement.

 

  (f) “Territory” means the Licensed Territory as such term is defined in the License Agreement.

 

  (g) “Field” means the Licensed Field as such term is defined in the License Agreement.

 

  (h) “Net Sales” means gross revenues received by Sublicensee, its Affiliates or sublicensees, from a Sale, less discounts actually granted, sales and use taxes actually paid, import and/or export duties actually paid, outbound transportation costs actually paid or allowed, and amounts actually allowed or credited due to returns, not exceeding the original billing amount.


  (i) “Sale” or “Sold” means the transfer or disposition of a Licensed Product for value, or with respect to products which are services, the provision of such services on a fee-for-service basis, to a party other than Sublicensee or an Affiliate.

 

  (j) “Sublicense Income” means all consideration received by Sublicensee from a sublicense in consideration of a sublicense of the Licensed Subject Matter, including, but not limited to, up-front payments, marketing, distribution, franchise, option, license, bonus and milestone payments and equity securities. However, Sublicense Income specifically excludes: payments received by Sublicensee from a sublicense as a result of purchase or sale of debt or equity securities of Sublicensee by such sublicensee, and (ii) payments for research and development of Licensed Products; and (iii) any royalties that Sublicensee receives for the sublicensee’s sale of Licensed Products.

2. Sublicense Grant. Sublicensor hereby grants to Sublicensee a non-exclusive, fully paid, royalty free, perpetual, non-cancellable sublicense to manufacture, have manufactured, use and research Licensed Products and to otherwise exploit Licensed Technology, but only for research purposes and not for commercial use, in the Field throughout the Territory, including the right to grant further sublicenses, it being intended that the sublicense herein granted covers all rights of Sublicensor in the Licensed Subject Matter in the Field and in the Territory. For avoidance of doubt, it is intended hereby that this sublicense covers all rights of Sublicensor in the Sublicensed Patents and all of Sublicensor’s rights in any technical information, know how, process, procedure, composition, biological materials, device, method, formula, protocol, technique, software, design, drawing, or data related to the subject matter of any Sublicensed Patent, whether or not covered by Patent Rights, which is reasonably necessary for practicing an invention at any time covered by the Patent Rights. Sublicensee agrees to comply with the provisions of the License Agreement as they pertain to a sublicense, and to reasonably cooperate with Sublicensor in performing its obligations under the Sublicense Agreement.

3. Patent Maintenance and Prosecution. Sublicensor agrees to maintain, prosecute and continue in force all Sublicensed Patents, including preparing, filing, maintenance and prosecution of each Sublicensed Patent, as well as reissues, reexaminations and similar proceedings with respect to each Sublicensed Patent, and the conduct of interferences, defense of oppositions, requests for term extensions, and similar proceedings with respect to each Sublicensed Patent; and including the payment of all license fees, royalties, annuities, government fees and other fees and costs for the maintenance of such Sublicensed Patents. In the event that Sublicensor for any reason and at any time abandons or otherwise fails to maintain, prosecute, and enforce any Sublicensed Patent in any country in the Territory, Sublicensor shall give Sublicensee reasonable advance written notice of such abandonment or other failure which notice shall in any event be given before Sublicensed Patent rights are lost in such country. In the event Sublicensor abandons or otherwise fails to maintain, prosecute, or enforce any Sublicensed Patent in any country then Sublicensee shall have the right to assume the future maintenance, prosecution and enforcement, of such Sublicensed Patent; and upon such assumption by Sublicensee the license granted herein shall automatically convert from non-exclusive to exclusive with respect to such Sublicensed Patent in each country in which Sublicensee assumes such obligations, and Sublicensee’s rights hereunder will expand so that Sublicensee will have the right to use, manufacture, have manufactured, and sell Licensed Products, and generally to


fully exploit Licensed Technology for commercial purposes, without execution of any further documents, and Sublicensee will become obligated to pay royalties as provided below. The above provisions notwithstanding, neither Sublicensor, nor Sublicensee after assumption of the obligation to maintain, enforce and prosecute any Sublicensed Patent, shall be obligated to expend its funds for litigation in connection therewith. Subsequent to assuming the obligation to maintain, enforce, and prosecute any Sublicensed Patent, Sublicensee shall be free to abandon same on a country by country basis.

4. Additional Consideration. In the event this license is converted from non-exclusive to exclusive as provided above, Subicensee shall after the date of conversion pay additional consideration as follows:

 

  (a) All out of pocket expenses incurred by Sublicensor after the conversion date in filing, prosecuting, enforcing and maintaining Patent Rights in each country in which this license has become exclusive for so long as this Agreement and such Patent Rights remain in effect in such country.

 

  (b) Sublicensee shall pay all royalties with respect to Sublicensee’s sales and all other fees that may become due to Board, NIH, Introgen Therapeutics, Inc., or other licensors, their successors and assigns, with respect to each patent in each country after the date of conversion to exclusivity in such country, for so long as Sublicensee desires to maintain such patent; however, Sublicensee may abandon any patetn without further obligation hereunder. For avoidance of doubt, royalties payable by Sublicensee hereunder are the only royalties attributable to Sublicensee’s Sales that will be payable by Sublicensee.

 

  (c) All such payments are payable within thirty days after March 31, June 30, September 30, and December 31 of each year during the term of this Agreement, at which time Sublicensee shall also deliver to Sublicensor a true and accurate report, giving such particulars of the business conducted by Sublicensee, its Affiliates and sublicensees during the preceeding three calendar months as necessary for Sublicensor to calculate Sublicensee’s payments hereunder. At the time of delivery of each such report Sublicensee will pay the amount due for the period of the report. The reports are required even if no payment is due.

 

  (d) During the term of this Agreement and for one year thereafter, Sublicensee will keep complete and accurate records of its, its Affiliates and its sublicensees Sales and Net Sales sufficient to enable the royalties and other payments due hereunder to be determined. Sublicensee will permit Sublicensor or its representatives, at Sublicensor’s expense, to examine Sublicensee’s records during regular business hours in order to verify any report required under this Agreement. If any amounts due Sublicensor hereunder are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the amount due during the period so examined, then Sublicensee will pay the cost of the examination plus accrued interest on the underpayment at the highest rate allowed by law.


5. Confidentiality. In connection with the implementation of this Agreement, Sublicensee may receive confidential, scientific, financial, or product information from Sublicensor, and Sublicensor may receive the same from Sublicensee, including information relating to Licensed Products and Licensed Technology. Such information, when given in writing, shall be marked or otherwise identified as confidential when disclosed or, in the case of information given verbally, shall be identified as confidential at the time of such verbal disclosure. Both parties shall maintain the confidentiality of the Confidential Information received from the other party, not disclose it to others (except with the permission of the disclosing party), and use it only in connection with this Agreement. Both parties will use reasonable efforts to assure that all of their employees, consultants, contractors and others who have access to Confidential Information through them comply with the confidentiality obligations of this section. The parties’ obligation shall not apply to Confidential Information which: (i) was in the receiving party’s possession as evidenced by written records prior to disclosure for the other party; (ii) was at the time of disclosure or becomes public through no fault of the receiving party; (iii) is disclosed to the receiving party by a third party who has no obligation of confidentiality to the disclosing party; (iv) is independently developed by the receiving party without use of such Confidential Information of the other party. A party receiving Confidential Information may disclose such information as required by law, court order, or order of an administrative agency to be disclosed, provided, however, that notice of such potential legally required disclosure shall be provided to the disclosing party so the disclosing party may seek a protective order, and the receiving party shall assist the disclosing party in the event the disclosing party seeks to obtain such a protective order or use other legal means to protect the confidential nature of the information. This section shall survive termination of this Agreement.

6. Notices. Notices required or permitted hereunder shall be delivered by United States certified or registered mail, return receipt requested, by email or other electronic transmission with confirmation of receipt, by hand delivery, or in any other manner in which delivery actually occurs, to the party at the address set forth below:

 

Convergen LifeSciences, Inc.

9015 Mountain Ridge Drive

Austin, TX 78759

Attention: David G. Nance, Exec. Chairman

  

Introgen Research Institute, Inc.

115 Laura Lane

Austin, Texas 78746

Attention Rodney Varner, President

  

Notices deposited in the United States mail will be deemed received five days after deposit, postage paid, in an official United States mail receptacle. Other notices will be deemed received only upon actual receipt. A party may change its address for notice by giving the other party notice of change in the manner provided herein.

7. Term. This Agreement will continue from the date hereof until expiration of the License Agreement pursuant to section 14.1 thereof, unless sooner terminated as provided below. This Agreement will survive earlier termination of the License Agreement pursuant to section 14.2 thereof or otherwise.


8. Termination. This Agreement and the sublicense granted herein may be terminated by Sublicensor upon material default by Sublicensee, provided that no default will be deemed to have occurred until Sublicensor shall have given Sublicensee written notice describing the default and the following period to cure: (a) thirty (30) days if the default is a failure to pay money when due, and (b) a reasonable period, in the case of any other default. Further sublicenses granted hereunder shall survive termination of this Agreement. Sublicensee may terminate this Agreement as to any Sublicensed Patent, on a country-by-country basis, by giving Sublicensor written notice of termination. All obligations of Sublicensee that accrue before termination shall survive termination by Sublicensee.

9. Entire Agreement. This Agreement is the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior agreements between the parties with respect thereto.

10. Multiple Counterparts: Copies: Electronic Transmission. This Agreement may be executed in multiple counterparts, each of which shall be binding on the parties who sign it. Photocopies of this Agreement, and copies transmitted by electronic means, shall be effective as originals.

11. WAIVER OF CONFLICTS OF INTEREST. SUBLICENSEE ACKNOWLEDGES THAT ATTORNEY RODNEY VARNER ASSISTED IN DRAFTING THIS AGREEMENT, AND IS AN ATTORNEY FOR LICENSOR IN OTHER MATTERS AND IS ALSO A SHAREHOLDER AND OFFICER OF LICENSEE. LICENSOR AGREES THAT RODNEY VARNER DOES NOT REPRESENT LICENSOR WITH RESPECT TO THIS AGREEMENT, AND LICENSOR WAIVES ALL ACTUAL AND POTENTIAL CONFLICTS OF INTEREST OF RODNEY VARNER AND ALL LAW FIRMS THAT HE IS NOW ASSOCIATED WITH OR MAY BECOME ASSOCIATED WITH IN THE FUTURE. LICENSOR AGREES THAT IT HAS HAD AMPLE OPPORTUNITY TO SEEK OTHER LEGAL COUNSEL REGARDING THIS AGREEMENT AND THIS WAIVER OF CONFLICTS OF INTEREST.

 

Signed effective as of the date first written above.
LICENSOR:     CONVERGEN LIFESCIENCES, INC.
    By:  

/s/ DAVID G. NANCE

      David G. Nance, Executive Chairman
LICENSEE:     INTROGEN RESEARCH INSTITUTE, INC.
    By:  

/s/ RODNEY VARNER

      Rodney Varner, President


SCHEDULE A

LICENSED PATENTS

Item l

Patent Family Reference Number:

INGN:095

Title:

Chromosome 3p21.3 genes are tumor suppressors

Inventors:

L. Ji; J. Minna; J. Roth; M. Lerman

Patent Application or Patent Numbers:

USA 20040016006 Serial Number 101445,718

International: PCT/US2001/021781

Item 2

Patent Family Reference Number:

INGN: 147

Title:

Compositions and Methods Involving Gene Therapy and Proteaseome Modulation

Inventors:

R. Ramesh; S. Chada

Patent Application or Patent Numbers

USA: 111672,896

International: PCT/US07/061883

Item 3

Patent Family Reference Number:

INGN:160

Title:


Bioactive FUSl Peptides and Nanoparticle-Polypeptide Complexes

Inventors:

L. Lin; R. Arlinghaus; T. Sun; L. Ji; B. Ozpolat; G. Berestein-Lopez; J. Roth

Patent Application or Patent Number:

USA: 20060251726, Serial Number 375544

International: PCT/US 2006/009044

Item 4:

Patent Family Reference Number: INRP:083

Title:

Methods and Compositions of Non-Viral Gene Therapy for Treatment of Hyperproliferative Diseases

Inventors:

R. Ramesh; J. Roth; T. Saeki; D. Wilson

Patent Application or Patent Numbers:

USA: Serial No. 60/135,818

International: PCT/US2000/014350


SCHEDULE A

LICENSED PATENTS

(Updated)

This is Schedule A to the Technology Sublicense Agreement between Convergen LifeSciences, Inc. and Introgen Research Institute, Inc., updated in accordance with Section 1(d) thereof.

Item 1:

Patent Family Reference Number:

INGN:095

Title:

Chromosome 3p21.3 genes are tumor suppressors

Inventors:

L. Ji; J. Minna; J, Roth; M. Lerman

Patent Application or Patent Numbers:

USA 20040016006 Serial Number 101445,718

International: PCT/US2001 /021781

Item 2:

Patent Family Reference Number:

INGN: 147

Title:

Compositions and Methods Involving Gene Therapy and Proteaseome Modulation

Inventors:

R. Ramesh; S. Chada

Patent Application or Patent Numbers

USA: 111672,896

International: PCT/US07/061883

Item 3

Patent Family Reference Number:

INGN: 160

Title:


Bioactive FUSl Peptides and Nanoparticle-Polypeptide Complexes

Inventors:

L. Lin; R. Arlinghaus; T. Sun; L. Ji; B. Ozpolat; G. Berestein-Lopez; J. Roth

Patent Application or Patent Number:

USA: 20060251726, Serial Number 375544

International: PCT/US 2006/009044

Item 4:

Patent Family Reference Number: INRP.083

Title:

Methods and Compositions of Non-Viral Gene Therapy for Treatment of Hyperproliferative Diseases

Inventors:

R. Ramesh; J. Roth; T. Saeki; D. Wilson

Patent Application or Patent Numbers:

USA: Serial No. 60/135,818 International: PCT/US2000/014350

Item 5:

Patent Family Reference Number: INGN 164

Title:

Methods and Compositions Related to Novel hTMC Promoter and Vectors for Tumor-Selective and High-Efficient Expression of Therapeutic Genes

Inventors:

L. Ji; B. Fang; J. Roth

Patent Application or Patent Numbers:

11/372,246

Item 6:

Patent family Reference Number:

INGN: 162

Patent Application or Patent Numbers:

60/845,934


Updated effective the 1st day of June 2008.

CONVERGEN LIFESCIENCES, INC.

 

 

By:  /s/ DAVID G. NANCE                                                     

 

David G. Nance, CEO

INTROGEN RESEARCH INSTITUTE, INC.

 

By:  /s/ RODNEY VARNER                                                   

 

Rodney Varner, President

Exhibit 10.13

AMENDED COLLABORATION AND ASSIGNMENT AGREEMENT

This Amendment Collaboration and Assignment Agreement (“Agreement”) is made by and between Introgen Research Institute, Inc., a Texas corporation (“IRI”) and Convergen LifeSciences, Inc., a Delaware corporation (“Convergen”) to be effective this first day of July, 2011.

RECITALS

WHEREAS, a Patent and Technology License Agreement was entered into between the Board of Regents of the University of Texas System and Introgen Therapeutics, Inc., with an effective date of July 20, 1994 (the “1994 MDA Agreement”); and

WHEREAS, a Patent and Technology License Agreement was entered into between the Board of Regents of the University of Texas System and Introgen Therapeutics, Inc., with an effective date of September 30, 2006 (the “2006 MDA Agreement”); and

WHEREAS, the 1994 MDA Agreement and the 2006 MDA Agreement are collectively referred to herein as the “MDA License Agreements”; and

WHEREAS, a non-exclusive Technology Sublicense Agreement was entered into between Introgen Therapeutics, Inc., and IRI dated March 7, 2007, (the “Introgen-IRI Sublicense”) whereby IRI sublicensed all rights of Introgen Therapeutics, Inc., under the MDA License Agreements with respect to those certain patent families described on Exhibit “A” attached thereto, and related know how, data, and other technology (such patents, know how, and other technology being referred to herein as the “License Technology”); and

WHEREAS, Introgen Therapeutics, Inc., subsequently filed for bankruptcy protection in the United States Bankruptcy Court for the Western District of Texas, and pursuant to an agreement that was confirmed by the United States Bankruptcy Court, the sublicense rights of IRI set forth in the Introgen-IRI Sublicense became exclusive; and

WHEREAS, by a Collaboration and Assignment Agreement between IRI and Convergen agreement dated March 13, 2009, IRI assigned the exclusive Introgen-IRI Sublicense to Convergen; and

WHEREAS, subsequent to the assignment of the Introgen-IRI Sublicense Agreement from IRI to Convergen, IRI has continued to manage the patent portfolio described therein, clinical trials, and a federal grant pertaining to the Licensed Technology;

WHEREAS, pursuant to the Collaboration and Assignment Agreement, Convergen and IRI have worked to advance commercialization of the Licensed Technology, which technology is sometimes referred to as “a targeted nanomolecular therapy product for the treatment of cancer”; and

 

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WHEREAS, IRI has the opportunity to license additional technologies from MD Anderson that are important to the development and Commercialization of Convergen’s product candidates;

WHEREAS, IRI has long-standing credit relationships with crucial vendors and service providers, including University of Texas MD Anderson Cancer Center (“MD Anderson”) and Fulbright & Jaworski, LLP; which credit relationships vendors are critical to the development of the Licensed Technology; and

WHEREAS, funding of continued commercialization of the Licensed Technology through Convergen LifeSciences, Inc. is uncertain, and continued availability of credit from said vendors and service providers is critical; and

WHEREAS, IRI has experience in obtaining and administering federal grant funding, as well as funding from private sources; and

WHEREAS, IRI has experience in pharmaceutical development, including negotiation and administration of clinical trial contracts, and in dealing with regulatory matters, including those with the FDA; and

WHEREAS, Convergen desires to obtain the right to sublicense additional technologies from IRI, and desires for IRI to continue making its expertise, credit relationships with critical vendors and service providers, and other assistance available to Convergen;

NOW, THEREFORE, Convergen and IRI agree as follows:

AGREEMENT

1. Sublicense . IRI has the right to sublicense from MD Anderson the technology described below in this section (the “License Opportunity”). In consideration of the financial payments, the royalties, and other covenants of Convergen provided herein, IRI grants to the License Opportunity on the identical terms that IRI receives from MD Anderson. The License Opportunity is described as:

U.S. Provisional Patent Application No. 61/512,244 TUSC2 Therapies for Cancer

Methods of predicting a response to a TUSC2 (also known as FUS1) therapy, improved constructs of TUSC2 preparations including use of a “mini-CMV promoter” and TUSC2 therapy combined with EGFR TKI drugs (UTSC.P1085US).

Convergen may exercise this option by giving written notice of exercise to IRI within five years after the date hereof, after which the option will expire.

2. Assistance . IRI agrees to continue providing the following assistance to Convergen: assist with management of Convergen’s patent portfolio, negotiation and administration of contracts relating to Convergen’s clinical trials; and general management of regulatory affairs; assisting in obtaining grants and private funding; and managing other legal matters.

 

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3. Consideration . In consideration of the sublicense rights, expertise and assistance provided hereunder, Convergen will pay to IRI the sum of thirty thousand dollars ($30,000) per month during the term hereof.

4. Product royalty . Further, Convergen hereby grants to IRI and agrees to pay to IRI, its successors and assigns, a perpetual running royalty equal to one-percent (1%) of all Net Sales of Licensed Products (as such capitalized terms are defined below), made by Convergen, its sublicensees, successors, assigns, and Affiliates (defined below). For avoidance of doubt, in the event that Convergen ever owes a royalty upon product sales to the Board of Regents of the University of Texas System, University of Texas MD Anderson Cancer Center, or Introgen Therapeutics, Inc., or their successors or assigns, pursuant to the Introgen-IRI Sublicense Agreement, the 1994 MDA License, or the 2006 MDA License, as same may be amended from time to time hereafter, or under any other agreement providing for payment of royalties, with respect to the Licensed Technology or any component thereof, or would owe such a royalty if any of any of such agreements continued in effect at that time, then Convergen will also owe the one-percent (1%) royalty to IRI provided herein. This royalty obligation shall continue for twenty-one (21) years after termination of the last to terminate of the MDA License Agreements and the Introgen-IRI Sublicense. This royalty obligation is not dependent upon the validity or existence of any patent.

5. Payments . Such royalty payments are due and payable within 30 days after March 31, June 30, September 30, and December 31 of each year during the term of this Agreement, at which time Convergen shall also deliver to IRI a true and accurate report, giving such particulars of the business conducted by Convergen, its Affiliates, successors, assigns, and sublicenses during the preceding three calendar months as necessary for IRI to calculate IRI’s payments hereunder. At the time of delivery of each such report Convergen will pay the amount due for the period of the report. The reports are required even if no payment is due.

6. Records . During the term of this Agreement and for one year thereafter, Convergen will keep complete and accurate records of its, its Affiliates’, assigns’ and sublicensees’ Sales and Net Sales (as such terms are defined in the Introgen-IRI Sublicense Agreement) sufficient to enable the royalties and other payments due hereunder to be determined. Convergen will permit IRI or its representatives, at IRI’s expense, to examine Convergen’s records during regular business hours in order to verify any report required under this Agreement. If any amounts due IRI hereunder are determined to have been under paid in an amount equal to or greater than 5% of the amount due during the period so examined, then Convergen will pay the cost of the examination plus accrued interest on the underpayment at the highest rate allowed by law.

7. Affiliate defined . For purposes of this Agreement, the terms “Affiliate” shall mean, with respect to a party, any entity or association that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control of the party. For purposes of this definition, the term “control” shall mean directly or indirectly owning or having

 

3


the power to vote more than 50% of the voting rights in any entity or association. The terms “Net Sales” and “Licensed Products” shall have the meanings attributed to them in the Introgen-IRI Sublicense, applied as if the patents and patent applied for that are described on Exhibit A thereto are granted and remain valid throughout the term of the royalty obligation set forth above. For avoidance of doubt, it is understood that some or all of such patents may not be granted or may expire before the expiration of the royalty obligation provided therein.

8. Binding upon successors . In the event of any sublicense, assignment or other transfer of Licensed Technology by Convergen, Convergen shall include contractual terms binding each such assignee, sublicensee or other transferee to the terms of Sections 4, 5, 6, 7 and8 of this Agreement; and obligating such assignee, sublicensee or other transferee, at the option of IRI, to pay the required royalties directly to IRI. However, such terms will not release Convergen from this royalty obligation except to the extent that such royalties are actually paid.

9. Confidentiality . In connection with the implementation of this Agreement, IRI may receive confidential, scientific, financial, or product information from Convergen, and Convergen may receive the same from IRI, including information relating to methods and methodologies. Such information, when given in writing, shall be marked or otherwise identified as confidential when disclosed or, in the case of information given verbally, shall be identified as confidential at the time such verbal disclosure. Both parties shall maintain the confidentiality of the Confidential Information received from the other party, not disclose it to others (except with permission of the disclosing party), and use it only in connection with this Agreement. Both parties will use reasonable efforts to assure that all of their employees, consultants, contractors and others who have access to the Confidential Information through them comply with the confidentiality obligations of this section 4. The parties’ obligation shall not apply to Confidential information which: (i) was in the receiving party’s possession as evidenced by written records prior to disclosure by the other party; (ii) was at the time of disclosure or becomes public knowledge through no fault of the receiving party; (iii) is disclosed to the receiving party by a third party which has no obligation of confidentiality to the disclosing party; or (iv) is independently developed by the receiving party without use of such information, provided however that any combination of elements of information shall not be deemed to be excluded from the class of Confidential Information by reason of each such element satisfying one or more of the exclusions set forth in clauses (i) through (iv) of this sentence unless the combination itself satisfies one or more such exclusions.

A party receiving Confidential Information may disclose such information as required by law, court order or the order of an administrative agency to be disclosed, provided however that notice of such potential legally required disclosure shall be provided to the disclosing party so the disclosing party may seek a protective order, and the receiving party shall assist the disclosing party in the event disclosing seeks to obtain such a protective order or utilize other legal means to protect the confidential nature of the information.

10. Limitation of Liability . UNDER NO CIRCUMSTANCES SHALL IRI BE LIABLE TO CONVERGEN OR ANY THIRD PARTY CLAIMING BY OR THROUGH CONVERGEN FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT, OR EXEMPLARY DAMAGES. FURTHER, IN ANY EVENT, THE AMOUNT OF DAMAGES

 

4


RECOVERABLE BY CONVERGEN FROM IRI SHALL AT ALL TIMES BE LIMITED TO THE AMOUNT OF FEES (EXCLUDING OUT OF POCKET EXPENSES) COLLECTED BY IRI FROM CONVERGEN UNDER SECTION 3 HEREOF FOR THE 12 MONTHS PRECEDING THE DATE WHEN SUCH CLAIM IS FIRST ASSERTED AGAINST IRI. IN THE EVENT OF MULTIPLE CLAIMS, THE MAXIMUM AGGREGATE AMOUNT OF DAMAGES ALLOWABLE TO CONVERGEN SHALL BE THE AMOUNT OF FEES ACTUALLY COLLECTED BY IRI WITHIN THE 12 MOHTHS PRECEDING THE DATE OF THE LAST CLAIM ASSERTED AGAINST IRI BY CONVERGEN.

12. Indemnification . CONVERGEN SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS IRI, ITS SHAREHOLDERS, DIRECTORS, MANAGERS, OFFICERS, EMPLOYEES AND AGENTS (COLLECTIVELY THE “IRI INDEMNITIES”) FROM AND AGAINST ANY AND ALL LIABILITY, LOSS, EXPENSE (INCLUDING REASON ATTORNEYS FEES) IN CONNECTION WITH ALL THIRD PARTY CLAIMS FOR INJURY OR DAMAGES ARISING OUT OF OR IN CONNECTION WITH SERVICES PROVIDED HEREUNDER, INCLUDING BUT NOT LIMITED TO THIRD PARTY CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT, AND CLAIMS BASED UPON ALLEGED NEGLIGENCE OF IRI IN PERFORMING ITS SERVICES. CONVERGEN’S OBLIGATION TO INDEMNIFY IRI PURSUANT TO THIS AGREEMENT SHALL BE CONTINGENT UPON IRI PROVIDING NOTIFICATION TO CONVERGEN OF ANY CLAIM, SUIT OR SERVICE OF PROCESS; AND CONVERGEN’S OPPORTUNITY TO PARTICIPATE IN THE CONDUCT OF THE DEFENSE AND SETTLEMENT OF ANY SUCH CLAIM, DEMAND OR SUIT.

13. Term . The term of this Agreement shall commence on the date set forth above and shall continue thereafter for a period of two years, unless sooner terminated as provided below. This Agreement will automatically renew for addition consecutive periods of one year each unless either party gives written notice to the other of termination prior to the end of any then current term. In addition, either party shall, without further notice have the immediate right to terminate this Agreement if any of the following events or conditions occur:

 

  a. A petition for bankruptcy is filed by or against either party hereto, which is not discharged within 60 days;

 

  b. A default by the other party hereto in the performance of any material obligation under the terms of this Agreement is not cured within 30 days of such party’s receipt of written notice of such default.

The royalty obligation in Section 4 shall continue through the term specified in Section 4, and shall not be affected by termination or expiration of other provisions of this Agreement for any reason.

14. Miscellaneous .

 

  a.

Notices . All notices, demands or other communications given hereunder shall be deemed to have been duly given only upon hand delivery thereof or upon the first business day after mailing by United States mail, postage

 

5


prepaid, addressed as set forth above, or to such other address or such other person as any party shall designate in writing to the other for such purposes and in the manner set forth herein. Notices are to be addressed as follows:

 

  To Convergen:

  

Convergen LifeSciences, Inc.

  
  

9015 Mountain Ridge Drive, Suite 140

  
  

Austin, Texas 78759

  

  To IRI:

  

Introgen Research Institute, Inc.

  
  

c/o Rodney Varner

115 Laura Lane

  
  

Austin, Texas 78746

  

or to such other address or such other person as any party shall designate in writing to the other for such purposes and in the manner hereinafter set forth.

 

  b. Entire Agreement . This Agreement sets forth all the promises, covenants, agreements, conditions and understandings between the parties hereto, and supersedes all prior and contemporaneous agreements, understandings, inducements or conditions, expressed or implied, oral or written, between the parties with respect to the subject matter hereof.

 

  c. Binding Effect; No Assignment . This Agreement shall be for the benefit of and be binding upon the parties hereto, their heirs, administrators, successors and assignees.

 

  d. Amendment . The parties hereby agree that no attempted amendment, modification, elimination, revision or changes (collectively “Amendment”) of this Agreement shall be valid and effective unless such Amendment is in writing and signed by a duly authorized officer or representative of IRI and signed by a duly authorized officer or representative of Convergen.

 

  e. No Waiver . No waiver of any provision of this Agreement shall be effective unless it is in writing and signed by the party against who it is asserted, and any such written waiver shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver.

 

  f. Counterparts . This Agreement and any amendments may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

 

6


  g. Headings . The paragraph headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

 

  h. Governing Law, Venue . This Agreement shall be construed, without regard to principals of conflicts of law, in accordance with the laws of the State of Texas and any proceeding arising between the parties in any manner pertaining or related to this Agreement shall, to the extent permitted by law, be held in Travis County, Texas.

 

  i. Further Assurances . The parties hereto will execute and deliver such further instruments and do such further acts and things as may be reasonably required to carry out the intent and purposes of this Agreement.

 

  j. Severability . This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules, and regulations of the jurisdiction in which the parties do business. If any provision of this Agreement or the application thereof to any person or circumstances shall, for any reason or to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by law.

15. WAIVER OF CONFLICTS OF INTEREST. CONVERGEN ACKNOWLEDGES THAT RODNEY VARNER IS AN ATTORNEY WHO REPRESENTS CONVERGEN IN VARIOUS LEGAL MATTERS AND ALSO REPRESENTS IRI AND IS AN OFFICE AND SHAREHOLDERS OF IRI. VARNER PARTICIPATED IN NEGOTIATING AND DRAFTING THIS AGREEMENT. CONVERGEN WAIVES ALL ACTUAL, APPARENT, AND POTENTIAL CONFLICTS OF INTEREST, NOW AND IN THE FUTURE, OF RODNEY VARNER, WILSON & VARNER, LLP, MATHESON, KEYS, GARSSON AND KORDZIK, AND ANY OTHER LAW FIRM WITH WHICH VARNER MAY NOW OR IN THE FUTURE BE ASSOCIATED. CONVERGEN HAS HAD THE OPPORTUNITY TO SEEK AND OBTAIN OTHER LEGAL COUNSEL WITH RESPECT TO THIS AGREEMENT AND THIS WAIVER, AND IN FACT AT THIS TIME HAS OTHER LEGAL COUNSEL.

Signed to be effective the date first written above.

 

CONVERGEN LIFESCIENCES, INC.
By:  

/s/ DAVID G. NANCE

  David G. Nance, Executive Chairman

 

7


INTROGEN RESEARCH INSTITUTE, INC.
By:  

/s/ RODNEY VARNER

  Rodney Varner, President

 

8

Exhibit 10.16

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made effective the 23 rd day of October, 2016 (the “Effective Date”), by and between JULIEN L. PHAM, M.D., M.P.H. (the “Employee”), and GENPREX, INC., a Delaware corporation (“Genprex”).

 

1. EMPLOYMENT

Section 1.01. Employment . Genprex hereby employs Employee, and Employee hereby accepts employment by Genprex upon the terms and conditions contained in this Agreement.

Section 1.02. Position and Duties .

(a) Position . During the Term (as defined herein) of this Agreement, Employee shall serve Genprex as Chief Operating Officer with duties and responsibilities that are commensurate with such office as shall from time to time be determined by the board of directors of Genprex (the “Board”) and/or Genprex’s Chief Executive Officer (“CEO”) and as set forth in Section 1.02(b) of this Agreement.

(b) Duties . During the Term of this Agreement, Employee shall devote substantially all of his business time, energy, and skill to performing services as Chief Operating Officer of Genprex. Employee shall have such duties as are generally associated with his office and as shall be designated from time to time by the CEO or the Board. Employee shall at all times act honestly, with reasonable care, and with loyalty to Employer.

(c) Conflicting Activities .

(i) During the Term of this Agreement, Employee shall not be engaged in any other business activity without the prior consent of the CEO or the Board; except that Employee may: (a) invest his personal assets in publicly traded stock of business entities that are not in competition with Genprex or its affiliates; (b) participate in the clinical practice of medicine for up to three days per month (or more, if approved by the CEO); (c) be involved as an adjunct professor or in another capacity with Dell Medical School or other academic entities that are approved by the CEO; and/or (d) invest in other opportunities that do not involve development of drugs for treatment of cancer and in which Employee does not have a management role; provided that the activities described in (a)-(d) in this subsection do not materially interfere with Employee’s duties as an officer of Genprex.

(ii) During the Term of this Agreement, Employee hereby agrees to promote and develop all opportunities that come to his attention relating to current or anticipated future business of Genprex, in the manner requested by the CEO or the Board. Should Employee discover a business opportunity that does

 

Julien L. Pham Employment Agreement    Page 1


not relate to the current or anticipated future business of Genprex (hereinafter referred to as an “Unrelated Opportunity”), he shall first offer such opportunity to Genprex. Should the Board not exercise its right to pursue such Unrelated Opportunity within a reasonable period of time, not to exceed sixty (60) days from the date Employee offers such Unrelated Opportunity to Genprex, then Employee may develop such Unrelated Opportunity for himself; provided , however , that such development may in no way conflict or interfere with the duties owed by Employee to Genprex under this Agreement. Further, Employee may develop such Unrelated Opportunity only on his own time, without violating the agreements set forth in Section 1.02(b) of this Agreement, and may not use any service, personnel, equipment, supplies, facility, or trade secrets of Genprex in the development of such Unrelated Opportunity.

 

2. TERM

Section 2.01. Term of Agreement . The term of this Agreement shall commence on the Effective Date and shall continue until such time as the Agreement is terminated in accordance with the provisions set forth in Section 2.02 of in this Agreement. (Such period of time is referred to in this Agreement as the “Term”).

Section 2.02. At-Will Status . This is an “At Will” employment agreement. Nothing in Genprex’s policies, actions, or this document shall be construed to alter the “At Will” nature of Employee’s status with Genprex, and Employee understands that Genprex may terminate his employment at any time, with or without prior notice, for any reason or for no reason, provided it does not do so in violation of state or federal law. Employee may terminate this Agreement at any time, with or without prior notice.

Section 2.03. Return of Property . Upon the termination of this Agreement, for any reason, or at any other time that Genprex so requests, Employee will turn over to Genprex all property of Genprex and all Proprietary Information in any form. Employee agrees that he will not keep any copies of such materials.

 

3. COMPENSATION

Section 3.01. Base Compensation . During the term of this Agreement Genprex shall initially pay to Employee base compensation (the “Base Compensation”) of $23,750 per month. Employee will also receive an initial grant of stock options under Genprex’s stock option plan. Employee’s Base Compensation shall be payable in accordance with Genprex’s customary payroll practices but in no event less often than monthly. Genprex shall be entitled to withhold any compensation to be paid pursuant to this Section on account of payroll taxes, income taxes, and other similar matters as are required to be withheld by applicable law.

 

Julien L. Pham Employment Agreement    Page 2


Section 3.02 Bonus . In the event the Employee is employed for at least one year and during the first year of employment Genprex receieves at least $12 million of funding, excluding funding from government sources, the Employee will receive a bonus of $65,000.00.

Section 3.02 Severance Pay . If employed for at least on year and Employee terminates his employment for Good Reason (defined below) or Genprex terminates his employment without Cause (defined below), and provided that Genprex has at least $5 million in cash or cash equivalents and a net worth of at least $5 million under generally accepted accounting principles on the date of termination, then Employee will receive a severance payment equal to six months of his salary as of the date of termination. “Good Reason” for termination means (a) Employee is not paid compensation when due hereunder; (b) Employee’s job title is changed without his consent; or (c) there is a change in control of Genprex, defined as follows: (i) Genprex and/or shareholders acting in concert sell a majority of Genprex’s issued and outstanding voting shares in one transaction or a series of coordinated transactions to a single buyer or a group of buyers acting in concert with one another, or (ii) Genprex sells substantially all of its asses. “Cause” for termination by Genprex means: (i) Employee is not performing or cannot perform his duties as described hereinto the reasonable satisfaction of the CEO and the Board, or (ii) Employee breaches this Agreement.

Section 3.02. Source of Compensations . Employee hereby acknowledges and agrees that Genprex’s obligation to pay the amounts referenced in Section 3.01 of this Agreement represents an unfunded and unsecured obligation of Genprex, shall be paid in cash from the general funds of Genprex, and, except as required by law, no special or separate fund shall be established and no other segregaton of assets shall be made to assure payment. Employee shall have no right, title, or interest whatever in or to any investments which Genprex may make and Employee shall have no right, title, or interest whatever in or to any investments made by any person in Genprex. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship from Genprex to Employee or any other person. To the extent that any person acquires a right to receive payments from Genprex hereunder, such right shall be no greater than the right of an unsecured creditor of Genprex.

4. EMPLOYMENT BENEFITS AND REIMBURSEMENTS

Section 4.01. Personal Time Off (“PTO”) . Employee shall be entitled to fifteen (15) days with pay for each twelve (12) month period of employment completed by Employee; provided , however , that Employee must utilize such PTO within the twelve (12) month period following the date the PTO is earned. Notwithstanding the foregoing, Employee may carry over up to five (5) days of PTO from the twelve (12) month period in which such time was earned to the immediately succeeding twelve (12) month period.

Section 4.02. Miscellaneous Benefits . During the Term of this Agreement, Employee shall be entitled to participate in any group life insurance plan, hospitalization insurance plan, medical services plan, disability insurance plan, or any other plan or arrangement of Genprex now or hereafter (during the Term) existing for the benefit of employees generally, subject to the terms of each such plan.

 

Julien L. Pham Employment Agreement    Page 3


Section 4.03. Reimbursement of Expenses . During the Term of this Agreement, Employee shall be reimbursed for all reasonable “out-of-pocket” business expenses for business travel and business entertainment incurred in connection with the performance of his duties under this Agreement. The reimbursement of Employee’s business expenses shall be upon presentation to and approval by Genprex of valid receipts and other appropriate documentation for such expenses.

 

5. OWNERSHIP; RIGHTS; PROPRIETARY INFORMATION; PUBLICITY

Section 5.01. Ownership of Inventions . Genprex shall own all right, title, and interest (including patent rights, copyrights, trade secret rights, trademark rights, sui generis database rights, and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, designations, designs, know-how, ideas, and information made or conceived or reduced to practice, in whole or in part, by Employee during the term of this Agreement that relate to the subject matter of, or arise out of, the Services or any Proprietary Information (as defined below) (collectively referred to herein as the “Inventions”) and Employee will promptly disclose and provide all Inventions to Genprex. All Inventions are work made for hire to the extent allowed by law and, in addition, Employee hereby makes all assignments necessary to accomplish the foregoing ownership; provided , however , that no assignment is made that extends beyond what is allowed under applicable law. Employee shall further assist Genprex, at Genprex’s expense, to further evidence, record, and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned. Employee hereby irrevocably designates and appoints Genprex and its executive officers as its agents and attorneys-in-fact to act for and in Employee’s behalf to execute and file any document and to do all other lawfully permitted acts to further the foregoing with the same legal force and effect as if executed by Employee.

Section 5.02. Proprietary Information . Employee agrees that all Inventions and all other business, technical, and financial information (including, without limitation, the identity of and information relating to customers or employees) Employee develops, learns, or obtains during the period over which it is (or is supposed to be) providing Services that relate to Genprex or the business or demonstrably anticipated business of Genprex or that are received by or for Genprex in confidence, constitute “Proprietary Information.” Employee will hold in confidence and not disclose or, except in performing the Services, use any Proprietary Information; provided , however , that Employee shall not be obligated under this paragraph with respect to information that is or becomes readily publicly available without restriction through no fault of Employee. Upon termination and as otherwise requested by Genprex, Employee will promptly return to Genprex all items and copies containing or embodying Proprietary Information, except that Employee may keep its personal copies of its compensation records and this Agreement. Employee also recognizes and agrees that Employee has no expectation of privacy with respect

 

Julien L. Pham Employment Agreement    Page 4


to Genprex’s telecommunications, networking or information processing systems (including, without limitation, stored computer files, e-mail messages, and voice messages) and that Employee’s activity, and any files or messages, on or using any of those systems may be monitored at any time without notice.

Section 5.03. Restrictions . As additional protection for Proprietary Information, Employee agrees that during the period over which it is (or is supposed to be) providing Services and for one year thereafter, Employee will not encourage or solicit any employee or consultant of Genprex to leave Genprex for any reason and will not engage in any activity that is in any way competitive with the business or demonstrably anticipated business of Genprex, and Employee will not assist any other person or organization in competing or in preparing to compete with any business or demonstrably anticipated business of Genprex.

Section 5.04. Royalty-Free License . If any part of the Services or Inventions is based on, incorporates, or is an improvement or derivative of, or cannot be reasonably and fully made, used, reproduced, distributed, and otherwise exploited without using or violating technology or intellectual property rights owned or licensed by Employee and not assigned hereunder, Employee hereby grants Genprex and its successors a perpetual, irrevocable, worldwide royalty-free, non-exclusive, sublicenseble right and license to exploit and exercise all such technology and intellectual property rights in support of Genprex’s exercise or exploitation of the Services, Inventions, other work performed hereunder, or any assigned rights (including any modifications, improvements, and derivatives of any of them).

 

6. MISCELLANEOUS

Section 6.01. Right of Set-Off . Genprex shall have the right to set-off against any of the amounts due Employee hereunder the amount of any outstanding loan or advance from Genprex to Employee or any other outstanding amounts owed by Employee to Genprex.

Section 6.02. Amendment . This Agreement may be amended, modified, superseded, or canceled, and any of the terms, provisions, covenants or conditions hereof may be waived only by a written instrument executed by Employee and the Board or, in the case of a waiver, by the party waiving compliance.

Section 6.03. 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 together will constitute one and the same instrument.

Section 6.04. No Waiver . Neither the failure nor any delay on the part of either party to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof nor shall any single of partial exercise of any right, remedy, power, or privilege preclude any other of further exercise of the same or of any right, remedy, power, or privilege, nor shall any waiver any of right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any other occurrence.

 

Julien L. Pham Employment Agreement    Page 5


Section 6.05. Notices . All notices, requests, demands, and other communication required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received when, (a) personally delivered, (b) one (1) business day after it is sent by overnight service, or (c) two (2) business days after it is sent by first class mail, postage prepaid, by certified mail return receipt requested, addressed as set forth opposite each party’s name on the signature page of this Agreement. Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subsection for the giving of notice, which shall be effective only upon receipt.

Section 6.06. Provisions Separable . The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

Section 6.07. Entire Agreement . This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written except as herein contained.

Section 6.08. Headings; Index . The headings of paragraphs are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

Section 6.09. Governing Law, Jurisdiction and Venue . This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to any conflicts of laws provisions. Exclusive venue for the litigation of any dispute relating to this Agreement shall lie in the courts of the United States of America and the State of Texas located in the Travis County, Texas; and each party hereto consents to the personal jurisdiction of such courts with respect to all such matters.

Section 6.10. Waiver of Jury Trial . EACH PARTY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER MATTER INVOLVING THE PARTIES HERETO.

Section 6.11. Survival . The covenants and agreements of the parties set forth in Sections 5 and 6 of this Agreement are of a continuing nature and shall survive the expiration, termination, or cancellation of this Agreement, regardless of the reason therefor.

 

Julien L. Pham Employment Agreement    Page 6


Section 6.12. Binding Effect; Assignment . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of Genprex, spouses, heirs, and personal and legal representatives. Employee hereby acknowledges that the services to be rendered by Employee under this Agreement are unique and personal. Therefore, Employee may not assign any rights or delegate any duties under this Agreement without the prior written consent of the Board.

Section 6.13. Cumulative Remedies . Each and all of the several rights and remedies provided in this Agreement, or by law or in equity, shall be cumulative, and no one of them shall be exclusive of any other right or remedy, and the exercise of any one of such rights or remedies shall not be deemed a waiver of, or an election to exercise, any other such right or remedy.

Section 6.14. Independent Counsel . Employee hereby acknowledges and agrees that he has had reasonable opportunity to consult with separate counsel with respect to the matters contained herein and is not relying on any representations of any party with respect to the terms of this Agreement not otherwise contained herein.

Signed to be effective upon the date first written above.

 

GENPREX, INC.
By:  

/s/ RODNEY VARNER

  Rodney Varner, CEO

/s/ JULIEN L. PHAM, M.D., M.P.H.

Julien L. Pham, M.D., M.P.H.

 

Julien L. Pham Employment Agreement    Page 7

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Genprex, Inc.

Austin, Texas

We hereby consent to the use of our report dated March 16, 2017, on the financial statements of Genprex, Inc. for the years ended December 31, 2016 and 2015, included herein on this Amendment No. 1 to the registration statement of Genprex, Inc. on Form S-1 (No. 333-219386) and to the reference to our firm under the heading “Experts” in the Prospectus.

/s/ Daszkal Bolton LLP

Fort Lauderdale, Florida

August 18, 2017